IMPORTANT NOTICE THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED INSTITUTIONAL BUYERS (‘‘QIBs’’) WITHIN THE MEANING OF RULE 144A (‘‘RULE 144A’’) UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), OR (2) NON-U.S. PERSONS PURCHASING THE SECURITIES OUTSIDE THE UNITED STATES IN RELIANCE ON REGULATION S (‘‘REGULATION S’’) UNDER THE SECURITIES ACT. IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the offering memorandum following this notice and you are therefore advised to read this disclaimer page carefully before reading, accessing or making any other use of the offering memorandum. In accessing the offering memorandum, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. The offering memorandum has been prepared in connection with the proposed offer and sale of the Notes described herein. The offering memorandum should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER FOR SALE OR A SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT TO QIBs IN ACCORDANCE WITH RULE 144A. THE FOLLOWING OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORIZED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE NOTES DESCRIBED HEREIN. Confirmation of your representation. In order to be eligible to view the offering memorandum or make an investment decision with respect to the securities, investors must be either (1) QIBs or (2) non-U.S. persons (within the meaning of Regulation S under the Securities Act) purchasing the securities outside the United States in reliance on Regulation S. By accepting the email and accessing the offering memorandum, you shall be deemed to have represented to us that: (1) you consent to delivery of such offering memorandum by electronic transmission, and (2) either: (a) you and any customers you represent are QIBs; or (b) you are outside the United States and not a U.S. person as defined in Regulation S, and not acting on behalf of a person in the United States or a U.S. person and, to the extent you purchase the securities described in the attached offering memorandum, you will be doing so pursuant to Regulation S. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the initial purchasers or any affiliate of the initial purchasers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the initial purchasers or such affiliate on behalf of us in such jurisdiction. The offering memorandum has not been approved by an authorized person in the United Kingdom and is for distribution only to persons who are (i) outside the United Kingdom (ii) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘‘Financial Promotion Order’’), (iii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the Financial Promotion Order or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) in connection with the issue or sale of any Notes may otherwise lawfully be communicated or caused to be communicated pursuant to the Financial Promotion Order (all such persons together being referred to as ‘‘relevant persons’’). The offering memorandum is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which the offering memorandum relates is available only to relevant persons and will be engaged in only with relevant persons. No person may communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of the securities other than in circumstances in which Section 21(1) of the FSMA does not apply to us. The offering memorandum has been sent to you in electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission, and consequently none of the initial purchasers, or any person who controls any of the initial purchasers, Ferguson Finance plc, Ferguson plc, Wolseley Limited, or any of their respective directors, officers, employees or agents accepts any liability or responsibility whatsoever in respect of any difference between the offering memorandum distributed to you in electronic format and the hard copy version available to you on request from the initial purchasers. This transmission is personal to you and must not be forwarded. You are reminded that you have accessed the following offering memorandum on the basis that you are a person into whose possession this offering memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not nor are you authorized to deliver this offering memorandum, electronically or otherwise, to any other person, or to disclose any of its contents, whether orally or in writing, to any other person. If you have gained access to this transmission contrary to the foregoing restrictions, you will be unable to purchase any of the securities described therein. Actions that you may not take. You should not reply by email to this announcement, and you may not purchase any securities by doing so. Any reply email communications, including those you generate by using the ‘‘Reply’’ function on your email software, will be ignored or rejected. You are responsible for protecting against viruses and other destructive items. Your use of this email is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. PRIIPs / IMPORTANT – EEA RETAIL INVESTORS The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (‘‘EEA’’). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, ‘‘MiFID II’’) or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the ‘‘Insurance Mediation Directive’’), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the ‘‘Prospectus Directive’’). Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the ‘‘PRIIPs Regulation’’) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. OFFERING MEMORANDUM NOT FOR GENERAL CIRCULATION IN THE UNITED STATES

9OCT201809444170 Ferguson Finance plc U.S.$750,000,000 4.500% Notes due 2028 Guaranteed by Ferguson plc and Wolseley Limited

Ferguson Finance plc (the ‘‘Issuer’’) is offering U.S.$750 million of its 4.500% Notes due 2028 (the ‘‘Notes’’) with such Notes to be guaranteed (the ‘‘Guarantees’’) by each of Ferguson plc (the ‘‘Company’’, ‘‘Parent Guarantor’’ or ‘‘Ferguson’’ and, together with the Company’s subsidiaries, the ‘‘Group’’) and Wolseley Limited (the ‘‘Subsidiary Guarantor’’ and, together with the Parent Guarantor, the ‘‘Guarantors’’). Interest will be paid on the Notes semi-annually on April 24 and October 24 of each year, commencing on April 24, 2019. The Notes will mature on October 24, 2028. The Notes will constitute direct, unsubordinated and unsecured senior obligations of the Issuer and rank pari passu and ratably without any preference or priority among themselves and equally with all other existing and future unsecured and unsubordinated obligations of the Issuer from time to time outstanding (subject to certain obligations required to be preferred by law). The Guarantees will constitute a direct, unsubordinated and unsecured senior obligation of each Guarantor and rank equally with all other existing and future unsecured and unsubordinated obligations of the Guarantors from time to time outstanding (subject to certain obligations required to be preferred by law). The Issuer has the option to redeem all or a portion of the Notes at any time at the redemption prices set forth in this offering memorandum (the ‘‘Offering Memorandum’’), including at 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest upon redemption on or after July 24, 2028. The Notes will be issued in fully registered form and only in denominations of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof. For a more detailed description of the Notes, see ‘‘Description of the Notes and the Guarantees’’ beginning on page 97. An investment in the Notes involves risks. For a discussion of these risks, see ‘‘Risk Factors’’ beginning on page 23.

Offering Price for the Notes: 99.650% plus accrued interest, if any, from October 24, 2018

Application has been made to the Irish Stock Exchange plc trading as Euronext Dublin (‘‘Euronext Dublin’’) for the approval of this Offering Memorandum as listing particulars (‘‘Listing Particulars’’) and for the Notes to be admitted to the Official List of Euronext Dublin (the ‘‘Official List’’) and to trading on the Global Exchange Market of Euronext Dublin (the ‘‘Global Exchange Market’’). This Offering Memorandum comprises a Listing Particulars for the purposes of this listing application and has been approved by Euronext Dublin. The Global Exchange Market is not a regulated market for the purposes of Directive 2014/65/EU (‘‘MiFID II’’) or Directive 2004/39/EC (the ‘‘Directive on Markets in Financial Instruments’’). Neither the Notes nor the Guarantees have been recommended by the United States Securities and Exchange Commission (the ‘‘SEC’’) or any other U.S. federal or state securities commission or regulatory authority nor have such authorities confirmed the accuracy or adequacy of this Offering Memorandum. Any representation to the contrary is a criminal offense in the United States. The Notes and the Guarantees have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the ‘‘Securities Act’’), or any securities laws of any other jurisdiction. Accordingly, the Notes are being offered and sold in the United States only to qualified institutional buyers (‘‘QIBs’’) in accordance with Rule 144A under the Securities Act (‘‘Rule 144A’’) and outside the United States to certain non-U.S. persons in accordance with Regulation S under the Securities Act (‘‘Regulation S’’). Prospective purchasers that are QIBs are hereby notified that the seller of the Notes and the related Guarantees may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For further details about eligible offerees and transfer restrictions, see ‘‘Plan of Distribution’’ and ‘‘Transfer Restrictions’’.

Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Securities Corp., RBC Capital Markets, LLC and SMBC Nikko Securities America, Inc. (collectively, the ‘‘Joint Bookrunners’’ or the ‘‘Initial Purchasers’’) expect to deliver the Notes to purchasers on or about October 24, 2018 through the facilities of The Depository Trust Company (‘‘DTC’’), including through its participants Euroclear Bank S.A./N.V. (‘‘Euroclear’’) and Clearstream Banking S.A. (‘‘Clearstream’’).

Joint Bookrunners Barclays BofA Merrill Lynch BNP PARIBAS RBC Capital Markets SMBC Nikko

The date of this Offering Memorandum is October 24, 2018 TABLE OF CONTENTS

Page IMPORTANT INFORMATION ...... 2 NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES ...... 3 NOTICE TO INVESTORS IN THE EUROPEAN ECONOMIC AREA ...... 3 PROHIBITION ON CIRCULATION IN JERSEY ...... 4 SERVICE OF PROCESS AND ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES .... 4 AVAILABLE INFORMATION ...... 5 FORWARD-LOOKING STATEMENTS ...... 6 PRESENTATION OF FINANCIAL, MARKET AND OTHER INFORMATION ...... 7 EXCHANGE RATE DATA ...... 13 OVERVIEW ...... 14 RISK FACTORS ...... 23 CAPITALIZATION ...... 37 USE OF PROCEEDS ...... 38 SELECTED FINANCIAL INFORMATION ...... 39 OPERATING AND FINANCIAL REVIEW ...... 51 DESCRIPTION OF THE GROUP AND ITS BUSINESS ...... 76 DIRECTORS AND SENIOR MANAGEMENT ...... 92 RELATED-PARTY TRANSACTIONS ...... 96 DESCRIPTION OF THE NOTES AND THE GUARANTEES ...... 97 BOOK-ENTRY SETTLEMENT AND CLEARANCE ...... 115 CERTAIN UNITED KINGDOM TAX CONSIDERATIONS ...... 117 CERTAIN U.S. FEDERAL TAX CONSIDERATIONS ...... 119 PLAN OF DISTRIBUTION ...... 121 TRANSFER RESTRICTIONS ...... 126 GENERAL INFORMATION ...... 129 LEGAL MATTERS ...... 132 INDEPENDENT AUDITORS ...... 133 INDEX TO FINANCIAL STATEMENTS ...... F-1

1 IMPORTANT INFORMATION This Offering Memorandum has been prepared by the Company and the Issuer solely for use in connection with the Offering of the Notes described in this Offering Memorandum, and you are authorized to use this Offering Memorandum solely for the purpose of considering an investment in the Notes and the Guarantee. You should not assume that the information contained in this Offering Memorandum is accurate as at any date other than the date on the front of this Offering Memorandum. This Offering Memorandum is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes. Distribution of this Offering Memorandum to any other person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized, and any disclosure of any of its contents, without the Company’s and the Issuer’s prior written consent, is prohibited. Each prospective investor, by accepting delivery of this Offering Memorandum, agrees to the foregoing and to make no copies of this Offering Memorandum or any documents referred to in this Offering Memorandum. The Initial Purchasers and their respective affiliates make no representation or warranty, express or implied, as to the accuracy, completeness or verification of the information contained in this Offering Memorandum. Nothing contained in this Offering Memorandum is, or shall be relied upon as, a promise or representation by the Initial Purchasers in this respect, whether as to the past or future. The Company, Subsidiary Guarantor and the Issuer have furnished the information contained in this Offering Memorandum. The Initial Purchasers assume no responsibility for the accuracy, completeness or verification of any such information and accordingly, disclaim to the fullest extent permitted by applicable law, any and all liability whether arising in tort, contract or otherwise which they might otherwise be found to have in respect of this Offering Memorandum or any such information. In making an investment decision, prospective investors must rely on their own examination of the Company, the Subsidiary Guarantor, the Issuer and their subsidiaries and the terms of the offering described in this Offering Memorandum (the ‘‘Offering’’), including the merits and risks involved. Prospective investors should not construe anything in this Offering Memorandum as legal, business or tax advice. Each prospective investor should consult its own advisors as needed to make its investment decision and to determine whether it is legally permitted to purchase the Notes under applicable legal investment or similar laws or regulations. The laws of certain jurisdictions may restrict the distribution of this Offering Memorandum and the offer and sale of the Notes. Persons into whose possession this Offering Memorandum or any of the Notes come must inform themselves about, and observe, any such restrictions. This Offering Memorandum does not constitute an offer or an invitation to purchase any of the Notes in any jurisdiction in which such offer or sale would be unlawful. None of the Company, the Subsidiary Guarantor, the Issuer, the Initial Purchasers or their respective affiliates or representatives are making any representation to any offeree or any purchaser of the Notes regarding the legality of any investment in the Notes by such offeree or purchaser under applicable legal investment or similar laws or regulations. Investors also acknowledge that they have not relied, and will not rely, on the Initial Purchasers in connection with their investigation of the accuracy of any information or their decision whether to invest in the Notes. The Initial Purchasers reserve the right to withdraw this Offering of Notes at any time and to reject any commitment to subscribe for the Notes, in whole or in part. The Initial Purchasers also reserve the right to allot less than the full amount of the Notes sought by a prospective investor. The Initial Purchasers and certain related entities may acquire a portion of the Notes for their own account. The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and applicable state securities laws pursuant to registration or exemption therefrom. As a prospective purchaser, you should be aware that you may be required to bear the financial risks of this investment for an indefinite period of time. Please refer to the sections in this Offering Memorandum entitled ‘‘Plan of Distribution’’ and ‘‘Transfer Restrictions’’. This Offering Memorandum contains summaries of certain documents. Investors should make reference to the actual documents for complete information. Copies of certain documents referred to herein will be made available to prospective investors upon request to the Company, the Initial Purchasers or the Trustee.

2 STABILIZATION In connection with the issuance of the Notes, Merrill Lynch, Pierce, Fenner & Smith Incorporated (the ‘‘Stabilization Manager’’) (or persons acting on behalf of the Stabilization Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, stabilization may not necessarily occur. Any stabilization action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the Issue Date of the Notes (as defined herein) and 60 days after the date of the allotment of the Notes. Any stabilization action or over-allotment must be conducted by the Stabilization Manager (or persons acting on behalf of the Stabilization Manager) in accordance with all applicable laws and rules.

NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES This Offering is being made in reliance upon an exemption from registration under the Securities Act for offers and sales of securities that do not involve a public offering. By purchasing the Notes, investors are deemed to have made the acknowledgements, representations, warranties and agreements set forth under ‘‘Plan of Distribution—Selling Restrictions’’. The Notes and the Guarantees have not been, and will not be, registered with, or recommended or approved by, the SEC or any other U.S. federal or state or foreign securities commission or regulatory authority, nor has any such commission or regulatory authority reviewed or passed upon the accuracy or adequacy of this Offering Memorandum. Any representation to the contrary is a criminal offense. The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and the applicable state securities laws pursuant to registration or exemption therefrom. As a prospective purchaser, you should be aware that you may be required to bear the financial risks of this investment for an indefinite period of time. See ‘‘Plan of Distribution’’ and ‘‘Transfer Restrictions’’.

NOTICE TO INVESTORS IN THE EUROPEAN ECONOMIC AREA This Offering Memorandum has been prepared on the basis that all offers and sales of the Notes will be made only in circumstances where there is an exemption from the obligation under the Prospectus Directive to produce and/or publish a prospectus. As a result, any offer of Notes in any Member State of the European Economic Area (‘‘EEA’’) (each, a ‘‘Relevant Member State’’) must be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of Notes. Accordingly, any person making or intending to make any offer of Notes in that Relevant Member State may only do so in circumstances in which no obligation arises for the Issuer or any of the Initial Purchasers to produce and/or publish a prospectus pursuant to the Prospectus Directive, including Article 3 thereof, as so implemented, or supplement a prospectus pursuant to Article 16 of the Prospectus Directive, in each case, in relation to such offer. Neither the Issuer nor any of the Initial Purchasers have authorized, nor do they authorize, the making of any offer of the Notes in circumstances in which an obligation arises for the Issuer or any of the Initial Purchasers to produce and/or publish or supplement a prospectus for such offer. For the purposes of the above, the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in each Relevant Member State.

PROHIBITION OF SALES TO RETAIL INVESTORS IN THE EUROPEAN ECONOMIC AREA The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the ‘‘Insurance Mediation Directive’’), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in the Directive 2003/71/EC (as amended, the ‘‘Prospectus Directive’’). Consequently no key information

3 document required by Regulation (EU) No 1286/2014 (as amended, the ‘‘PRIIPs Regulation’’) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.

SINGAPORE SFA PRODUCT CLASSIFICATION In connection with Section 309B of the Securities and Futures Act (Chapter 289) of Singapore (the ‘‘SFA’’) and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the ‘‘CMP Regulations 2018’’), the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309(A)(1) of the SFA), that the Notes are ‘prescribed capital markets products’ (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

PROHIBITION ON CIRCULATION IN JERSEY This Offering Memorandum shall not be circulated or otherwise made available in Jersey. The consent of the Jersey Financial Services Commission pursuant to Article 8 of the Control of Borrowing (Jersey) Order 1958, as amended, (‘‘COBO’’) to the circulation of this Offering Memorandum in Jersey has not been obtained and therefore circulating or otherwise making this Offering Memorandum available in Jersey may be unlawful pursuant to COBO and the Control of Borrowing (Jersey) Law 1947, as amended.

SERVICE OF PROCESS AND ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES The Company is a public limited company registered in Jersey; the Subsidiary Guarantor is a private limited company organized under the laws of England and Wales; and the Issuer is a public limited company registered in England and Wales. A majority of the directors of the Company, the Subsidiary Guarantor and the Issuer are not residents of the United States and a portion of the assets of the Company, the Subsidiary Guarantor and Issuer and their respective directors and officers are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons with respect to matters arising under the Securities Act or to enforce against them judgments of courts of the United States predicated upon civil liability under the Securities Act. Original actions, or actions for the enforcement of judgements of United States courts, relating to the civil liability provisions of the federal or state securities laws of the United States are not directly enforceable in Jersey or in England and Wales. The United States and Jersey and the United States and England and Wales currently do not have treaties providing for reciprocal recognition and enforcement of judgments, other than arbitration awards in civil and commercial matters. A final and conclusive judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon U.S. federal securities laws, would not automatically be recognized or enforceable in Jersey or in England and Wales. However, such U.S. judgment could be enforced subject to compliance with Jersey or English and Welsh procedures and provided that all Jersey law or English and Welsh law requirements for enforcement of foreign court awards are complied with. We have been advised by our Jersey counsel, Carey Olsen, that, subject to the principles of private international law as applied by Jersey law, by which, for example, foreign judgments may be impeachable, if a final and conclusive judgment under which a debt or a definite sum of money is payable (excluding sums payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty or multiple damages) were obtained against the Company or its directors or officers in any United States court having jurisdiction against the relevant party in respect of the relevant matter(s), (a) the courts of Jersey would, on an application properly made, recognize such judgment and give a judgment for liquidated damages in the amount of such judgment without reconsidering its merits and (b) such judgment of the courts of Jersey would thereafter be enforceable.

4 A judgment of a United States court will generally not be impeached by the courts of Jersey unless the relevant United States court did not have jurisdiction to give the judgment, where it was obtained by fraud, where the recognition or enforcement of the judgment is contrary to public policy in Jersey or where the proceedings in which the judgment was obtained were opposed to natural justice. Certain defendants may qualify for protection under Protection of Trading Interests Act 1980, an act of the United Kingdom extended to Jersey and amended by the Protection of Trading Interests Act 1980 (Jersey) Order, 1983, or the ‘‘PTI Act’’. The PTI Act provides that no court in England and Wales or Jersey shall entertain proceedings at common law against a qualifying defendant (i) for multiple damages, in excess of that required for actual compensation, (ii) based on a provision or rule of law specified or described in an order made under the relevant section of the PTI Act (Carey Olsen have confirmed that, as of the date of this Offering Memorandum, they are not aware of any rule of law that has been so specified or described) or (iii) on a claim for contribution in respect of damages awarded by a judgment falling within (i) or (ii) above. A ‘‘qualifying defendant’’ for the purposes of the PTI Act is a citizen of the United Kingdom and Colonies, a corporation or other body corporate organized under the laws of the United Kingdom, Jersey or other territory for whose international relations the United Kingdom is responsible or a person carrying on business in Jersey. Investors may also have difficulties pursuing an original action brought in a court in a jurisdiction outside the Unites States for liabilities under U.S. securities laws. The Notes and the Guarantees thereof are governed by the laws of the State of New York. Each of the Company, the Subsidiary Guarantor and the Issuer has expressly submitted to the non-exclusive jurisdiction of the courts of the State of New York and U.S. federal courts sitting in New York City for the purpose of any suit, action or proceeding arising out of the Notes and has appointed Corporate Creations Network Inc. at 15 North Mill Street, Nyack, New York, 10960, United States as its agent to accept service of process in any such action.

AVAILABLE INFORMATION None of the Company, the Subsidiary Guarantor or the Issuer is currently subject to the periodic reporting and other information requirements of the U.S. Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). While any Notes remain outstanding, the Company will make available, upon request, to any holder and any prospective purchaser of Notes, the information required pursuant to Rule 144A(d)(4) under the Securities Act in order to permit resales under Rule 144A, if, at the time of such request, the Company is neither a reporting company pursuant to the Exchange Act nor exempt from reporting under the Exchange Act pursuant to Rule 12g3-2(b) thereunder. As of the date of this Offering Memorandum, the Company is exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act. Any such request may be made at Ferguson Finance plc, 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire RG41 5TS, England.

5 FORWARD-LOOKING STATEMENTS This Offering Memorandum includes ‘‘forward-looking statements’’ within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical or current fact are, or may be deemed to be, forward-looking statements, including without limitation those concerning our growth prospects and outlook of our operations, individually or in the aggregate; economic outlook; expectations regarding exchange rates, interest rates, commodity prices, orders, and other operating results; likelihood of retaining, renewing or obtaining leases and other approvals or concluding joint ventures or other agreements and the risk of unfavorable changes to, interpretations of and/or application or enforcement of the tax laws and regulations in the countries in which we operate; the completion of acquisitions and dispositions and expected related expenditure; our liquidity and capital resources and expenditure; the outcome and consequences of any pending litigation, regulatory or similar proceedings; and our ability to maintain or improve our competitive position. These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events and generally may be identified by the use of forward-looking words or phrases such as ‘‘believe’’, ‘‘aim’’, ‘‘expect’’, ‘‘anticipate’’, ‘‘intend’’, ‘‘foresee’’, ‘‘forecast’’, ‘‘likely’’, ‘‘should’’, ‘‘planned’’, ‘‘may’’, ‘‘estimated’’, ‘‘potential’’, ‘‘projected’’, ‘‘will’’, ‘‘continue’’ or other similar words and phrases. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. The risk factors described in this Offering Memorandum under ‘‘Risk Factors’’ could affect our future results, causing these results to differ materially from those expressed in any forward-looking statements. These factors are not necessarily all the important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. You should review carefully all information, including the financial statements and the notes to the financial statements, which are included in this Offering Memorandum. All forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. You should not place undue reliance on forward-looking statements. The forward-looking statements included in this Offering Memorandum are made only as of the last practicable date prior to the date hereof. Neither we nor the Initial Purchasers undertake any obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Offering Memorandum or to reflect the occurrence of unanticipated events. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section.

6 PRESENTATION OF FINANCIAL, MARKET AND OTHER INFORMATION In this Offering Memorandum, references to ‘‘Ferguson’’, ‘‘Group’’, ‘‘we’’, ‘‘us’’ and ‘‘our’’ each refer to Ferguson plc and its subsidiaries. References to the ‘‘Company’’ and the ‘‘Parent Guarantor’’ are to Ferguson plc. References to the ‘‘Issuer’’ are to Ferguson Finance plc. General The financial information in this Offering Memorandum principally comprises the consolidated financial information for the Group. The consolidated financial statements of the Group and the notes prepared in accordance with EU IFRS (as defined below) as at and for the year ended July 31, 2018 (which include comparative financial information as at and for the year ended July 31, 2017) (the ‘‘2018 Consolidated Financial Statements’’) have been audited and are included in this Offering Memorandum together with the related independent auditor’s report. The consolidated financial statements of the Group and the notes prepared in accordance with EU IFRS as at and for the year ended July 31, 2017 (which include comparative financial information as at and for the year ended July 31, 2016) (the ‘‘2017 Consolidated Financial Statements’’) have been audited and are included in this Offering Memorandum together with the related independent auditor’s report. The 2018 Consolidated Financial Statements together with the 2017 Consolidated Financial Statements are collectively referred to as the ‘‘Consolidated Financial Statements’’. The consolidated financial information of the Group as at and for the year ended July 31, 2018 included in this Offering Memorandum has, unless otherwise indicated, been derived from the 2018 Consolidated Financial Statements. The consolidated financial information of the Group as at and for the year ended July 31, 2017 included in this Offering Memorandum has, unless otherwise indicated (included as described below in respect of restated FY2017 information), been derived from the 2017 Consolidated Financial Statements. The consolidated financial information of the Group as at and for the year ended July 31, 2016 included in this Offering Memorandum has, unless otherwise indicated, been derived from the unaudited comparative group balance sheet as at July 31, 2016, and the group income statement, group statements of comprehensive income, changes in equity and cash flows for the year ended July 31, 2016, which are all included in the 2017 Consolidated Financial Statements. Deloitte LLP (the ‘‘Auditors’’) is the United Kingdom affiliate of Deloitte NWE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee. Deloitte LLP is an independent accountant and Statutory Auditor with the Institute of Chartered Accountants in England and Wales (‘‘ICAEW’’), and is regulated by the ICAEW and the Financial Reporting Council in the United Kingdom, with an address at 1 New Street Square, London, EC4A 3HQ. Unless otherwise indicated, the consolidated financial information in this Offering Memorandum relating to the Group has been prepared on the basis of International Financial Reporting Standards issued by the International Accounting Standards Board (‘‘IASB’’) as adopted for use in the European Union (‘‘EU IFRS’’) effective for the relevant periods. As used in this Offering Memorandum in connection with the consolidated financial information of the Group, ‘‘reported’’ means reported in accordance with EU IFRS. The 2018 Consolidated Financial Statements are presented in U.S. dollars which is the Company’s functional currency as of August 1, 2017. The 2017 Consolidated Financial Statements are presented in pounds sterling which was the Company’s functional currency up to and including July 31, 2017. In this Offering Memorandum, ‘‘FY2018’’ refers to the financial year ended July 31, 2018, and ‘‘FY2017’’ refers to the financial year ended July 31, 2017 for both U.S. dollar and sterling amounts. Some financial and other information in this Offering Memorandum has been rounded and, as a result, the figures shown as totals in this Offering Memorandum may vary slightly from the exact arithmetic aggregation of the figures that precede them. For more information on the basis of consolidation of the Group, see Note 1 to the Group Consolidated Financial Statements.

7 Results Restatements Change in reporting currency. Due to the following restatements, certain information as at and for the year ended July 31, 2017 included in the Offering Memorandum differs from that presented in the 2017 Consolidated Financial Statements included herein. From the year beginning August 1, 2017 onwards, the Company’s functional currency changed from pounds sterling to U.S. dollar due to the majority of revenue (and therefore, a majority of dividends paid by subsidiaries to the Company) being generated in U.S. dollars which is driven by a change in the underlying currency mix of the business. In addition, the Group has changed its presentational currency for its consolidated financial statements to U.S. dollars from pounds sterling. Up until the year ended July 31, 2017, the Group reported its results in pounds sterling and its main currency exposure arose on the translation of overseas earnings into pounds sterling. However, due to the change outlined above, the 2018 Consolidated Financial Statements reflect the results of the non-U.S. dollar denominated subsidiaries translated into U.S. dollars at the average exchange rate for the period in respect of the income statement, and at the relevant period end rate in respect of the balance sheet, with retrospective restatement of the comparative period. Therefore, in order to present information on a consistent basis with the presentation adopted in the 2018 Consolidated Financial Statements, certain of the consolidated financial information as at and for the year ended July 31, 2017 included in the Offering Memorandum (that is presented in U.S. dollars) has been derived from the unaudited comparative information included in the 2018 Consolidated Financial Statements and which reflects these restatements. Sale of Nordic business. In the year ended July 31, 2018, the Group sold its business and majority of its assets in the Nordic region (‘‘Nordic Operation’’) and, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the Nordic Operation was classified as discontinued. Accordingly, the comparative financial information for the year ended July 31, 2016 included in the 2017 Consolidated Financial Statements was restated to reflect the Nordic Operations as a discontinued operation. As a result, for the purposes of providing investors with consistent and comparable information, the reported consolidated financial information for the Group presented in this Offering Memorandum presents the consolidated financial data for the Group for the year ended July 31, 2016 on a restated basis. In particular, in the ‘‘Operating and Financial Review’’ section of this Offering Memorandum, our results for the year ended July 31, 2017 are compared against our results for the year ended July 31, 2016 on a restated basis. Non-EU IFRS Financial Measures/Alternative Performance Measures In this Offering Memorandum, we present certain financial measures that are not recognized by EU IFRS or any other internationally recognized generally accepted accounting principles. Such financial measures, included in this document, are (i) results presented on a constant exchange basis, (ii) organic revenue growth, (iii) like-for-like revenue growth, (iv) organic revenue growth by segment, (v) revenue from non-ongoing operations, (vi) revenue from ongoing operations, (vii) gross profit from non-ongoing operations, (viii) gross profit from ongoing operations, (ix) ongoing gross margin, (x) trading profit from continuing operations, (xi) trading profit from non-ongoing operations, (xii) trading profit from ongoing operations, (xiii) ongoing trading margin, (xiv) trading profit from non-ongoing operations by segment, (xv) trading profit from ongoing operations by segment, (xvi) ongoing trading margin by segment, (xvii) adjusted EBITDA, (xviii) adjusted EBITDA from discontinued operations, (xix) net debt, and (xx) cash conversion rate. The Group believes these performance measures provide additional helpful information. They are consistent with how business performance is planned, reported and assessed internally by management. These performance measures may not be comparable to other similarly titled measures as reported by other companies, as other companies may calculate these measures differently than we do and these measures may not be permitted to appear on the face of the primary financial statements, or footnotes thereto, and in some cases, may not be permitted at all, in U.S. filings made to the SEC in the United States. These performance measures have limitations as analytical tools, and none of these measures

8 should be considered in isolation, or as a substitute for analysis of the Group’s operating results, including our income statements and cash flow statements, as reported under EU IFRS. An explanation of the relevance of each of the performance measures and a discussion of their limitations is set out below. A reconciliation of each of the performance measures to the most directly comparable measures calculated and presented in accordance with EU IFRS is set out in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’ in this Offering Memorandum. The Group does not regard these performance measures as a substitute for, or superior to, the equivalent measures calculated and presented in accordance with EU IFRS or those calculated using financial measures that are calculated in accordance with EU IFRS. Ongoing and Non-ongoing Financial Measures Non-ongoing: The Group reports some financial measures from businesses or branches that have been disposed of, closed or classified as held for sale, but have not been classified as a discontinued operations under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (‘‘IFRS 5’’). There were not any business or groups of branches which were considered to be non-ongoing operations in FY 2018. In FY 2017, the Group’s Swiss business, Meier Tobler AG, and a small industrial business in the United States, Endries International Inc., were classified as held for sale and subsequently sold during FY 2017, and FY 2016 was restated accordingly. Ongoing: Financial measures presented on an ongoing basis are derived from continuing operations presented in accordance with IFRS 5 less non-ongoing operations as described above. Exceptional items are those items which do not arise from the Group’s underlying business, but which are considered significant by virtue of their nature, size or incidence and are presented separately in the income statement to enable a full understanding of the Group’s financial performance. The Group uses exceptional items as an adjustment to performance measures within their relevant income statement category in order to assist in the understanding of the trading and financial results of the Group. Financial measures presented on an Ongoing and Non-ongoing basis are outlined below and are Non-EU IFRS measures. Constant exchange rates presentation is used because the Group’s international operations give rise to fluctuations in foreign exchange rates. To neutralize foreign exchange impact and to illustrate the underlying change in certain financial statement line items from one year to the next, the Group has adopted the practice of discussing results in both presentational currency and constant currency. Constant exchange rates is used as a performance measure to provide a more transparent comparative of year-on-year performance. For example, when comparing two years, FY2018 and FY2017, constant exchange rates are calculated as FY2017’s results re-translated at the exchange rate for FY2018. The income statement constant exchange rate is the average exchange rate for the year ended July 31, 2018. Organic revenue growth is determined between a specified financial period and its comparative financial period by first calculating organic revenue, which is determined to be the revenue for one year (for example, FY2018), less revenue in FY2018 related to acquisitions and disposals and trading days, less the revenue for FY2017 shown on a constant exchange rates presentation (see computation described above). Organic revenue is then divided by FY2017 revenue shown on a constant exchange rates presentation to calculate the percentage of organic revenue growth. Like-for-like revenue growth is similar to organic revenue growth but is only used for the United Kingdom segment. In addition to the items used in the calculation for organic revenue growth, like-for-like revenue growth also excludes branch openings and closures. It is determined between a specified financial period and its comparative financial period by first calculating like-for-like revenue, which is determined to be the revenue for one year (for example, FY2018), less revenue in FY2018 related to acquisitions and disposals, trading days, branch openings and closures and the exit of low margin business in the specified fiscal period, less the revenue for FY2017 shown on a constant exchange rates presentation (see computation described above). Like-for-like revenue is then divided by FY2017 revenue shown on a constant currency presentation to calculate the percentage of like-for-like revenue growth. This financial measure is used to aid understanding of the United Kingdom business.

9 Ongoing revenue by segment is defined as revenue by segment less revenue from non-ongoing operations by segment. Organic revenue growth by segment is determined between a specified financial period and its comparative financial period by first calculating organic revenue, which is determined to be the segment revenue for one year (for example, FY2018), less segment revenue in FY2018 related to acquisitions and disposals and trading days for that segment completed in the specified fiscal period, less the segment revenue for FY2017 shown on a constant currency presentation (see computation described above). Organic revenue by segment is then divided by segment revenue for FY2017 shown on a constant currency presentation to calculate the percentage of organic revenue growth by segment. Revenue from non-ongoing operations is revenue excluding revenue from businesses and groups of branches, which do not meet the criteria to be classified as discontinued operations under IFRS 5, which have been disposed of, closed or classified as held for sale. Revenue from ongoing operations (also described as ongoing revenue) is defined as revenue less revenue from non-ongoing operations. Gross profit from non-ongoing operations is defined as gross profit, less exceptional items and gross profit related to businesses and groups of branches, which do not meet the criteria to be classified as discontinued operations under IFRS 5, which have been disposed of, closed or classified as held for sale. Gross profit from ongoing operations is defined as gross profit less gross profit from non-ongoing operations. Ongoing gross margin is a measure of the ratio of ongoing gross profit, excluding exceptional items, to ongoing revenue. Ongoing gross margin is used as a performance measure by the Group for assessing business unit performance. The nearest EU IFRS measure is gross margin, which is a measure of the ratio of gross profit to revenue. Trading profit from continuing operations (also described as trading profit) is a performance measure that is defined by the Group as profit for the year, less profit/(loss) from discontinued operations, tax, impairment of interests in associates, share of profit/(loss) after tax of associate, net finance costs, amortization and impairment of acquired intangible assets, and exceptional items from operating profit. Trading profit from ongoing operations, non-ongoing operations and continuing operations are used as performance measures because the Group believes they provide valuable additional information for users of its financial statements in assessing the Group’s performance because they exclude costs and other items that do not form part of the underlying trading business. The Group disaggregates trading profit into trading profit from non-ongoing operations and ongoing operations. In addition, the Group utilizes certain other financial data calculated by reference to trading profit, including ongoing trading margin, trading profit from ongoing operations by segment, and ongoing trading margin by segment. a. Trading profit from ongoing operations is defined as operating profit before exceptional items and the amortization and impairment of acquired intangible assets excluding non-ongoing operations. b. Trading profit from non-ongoing operations is defined as operating profit before exceptional items and the amortization and impairment of acquired intangible assets for businesses and groups of branches, which do not meet the criteria to be classified as discontinued operations under IFRS 5, which have been disposed of, closed or classified as held for sale. c. Ongoing trading margin is a measure of the ratio of trading profit from ongoing operations (as defined above) to ongoing revenue. Ongoing trading margin is used as a performance measure by the Group for assessing business unit profit. The nearest EU IFRS measure is profit margin, which is profit from continuing operations divided by revenue for the Group.

10 d. Trading profit from non-ongoing operations by segment is defined as trading profit by segment, which is the Group’s segment measure, for non-ongoing adjustments only for each segment. e. Trading profit from ongoing operations by segment is defined as trading profit by segment, which is the Group’s segment measure, less trading profit from non-ongoing operations by segment (as defined above). f. Ongoing trading margin by segment is defined as the ratio of trading profit from ongoing operations for each segment (United States, United Kingdom and Canada and Central Europe) divided by ongoing revenue for each segment. Adjusted EBITDA (also called Adjusted EBITDA from continuing operations) is a measure of profit for the year less profit/(loss) from discontinued operations, tax, impairment of interests in associates share of profit/(loss) of associate, net finance costs, amortization and impairment of acquired intangible assets, , exceptional items from operating profit, and depreciation, amortization and impairment of property, plant and equipment and software. Adjusted EBITDA is also referred to as EBITDA before exceptional items in the 2017 Consolidated Financial Statements. Adjusted EBITDA from discontinued operations is a measure of profit/(loss) from discontinued operations, less tax from discontinued operations, net finance costs from discontinued operations, exceptional items from operating profit related to discontinued operations, and depreciation, amortization and impairment of property, plant and equipment and software. Trading profit, Adjusted EBITDA and similar performance measures have limitations as analytical tools. Some of these limitations are: • they do not reflect the Group’s cash expenditures or future requirements for capital expenditure or contractual commitments; • they do not reflect changes in, or cash requirements for, the Group’s working capital needs; • they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Group’s debt; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and trading profit and adjusted EBITDA do not reflect any cash requirements for such replacements; • they are not adjusted for all non-cash income or expense items that are reflected in the Group’s statements of cash flows; and • the further adjustments made in calculating trading profit and adjusted EBITDA are those that management consider are not representative of the underlying operations of the Group and therefore are subjective in nature. Non-EU IFRS Liquidity Measures Net debt is calculated as the sum of current bank loans and overdrafts, current obligations under finance leases, current derivative financial liabilities, non-current bank loans, non-current obligations under finance leases and non-current derivative financial liabilities, less cash and cash equivalents and current and non-current derivative financial assets. The nearest financial measure under EU IFRS is gross debt, which is the sum of current and non-current bank loans and overdrafts. Net debt is used as a performance measure because it is a good indicator of the strength of the Group’s balance sheet position and is widely used by credit rating agencies. Cash conversion rate is defined as the ratio of net cash generated from operations divided by Adjusted EBITDA from continuing and discontinued operations. The nearest EU IFRS measure is net cash generated from operations divided by profit for the year attributable to shareholders of the Company. Cash conversion rate is used as a liquidity measure because it indicates the strength of the Group and its ability to generate cash.

11 Market and Industry Data The data included in this Offering Memorandum regarding industry, markets and ranking are based in some instances on our own assessment and knowledge of the market, regions and countries in which we operate. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, industry forecasts and market research, which we believe to be reliable based upon our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what assumptions regarding general economic growth were used in preparing the forecasts we cite. We do not make any representation as to the accuracy of data from third-party sources, industry forecasts and market research. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements or omissions regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading ‘‘Risk Factors’’ in this Offering Memorandum. Neither we nor the Initial Purchasers can guarantee the accuracy or completeness of any such industry data contained in this Offering Memorandum. Trademarks and Trade Names We have proprietary rights to trademarks, service marks and trade names used in this Offering Memorandum which are important to our business. Solely for convenience, we have omitted the ‘‘↧’’ and ‘‘↩’’ designations for such trademarks, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. Each trademark, trade name or service mark of any other company appearing in this Offering Memorandum belongs to its respective holder.

12 EXCHANGE RATE DATA The 2018 Consolidated Financial Statements included in this Offering Memorandum are presented in U.S. dollars which is the Company’s functional currency as of August 1, 2017. The 2017 Consolidated Financial Statements included in this Offering Memorandum are presented in pounds sterling which was the Company’s functional currency up to and including July 31, 2017. The following table sets out the high rate of exchange for pounds sterling, expressed in U.S. dollars, in effect during the periods indicated, the low rate of exchange in effect during such periods, the rate of exchange in effect at the end of such periods and the average rate of exchange during such periods, in each case based on the noon buying rate in New York City for cable transfers in foreign currencies as certified by the Federal Reserve Bank of New York (the ‘‘Noon Buying Rate’’) for conversion of one pound sterling to U.S. dollars. The rates set forth below are provided solely for your convenience and may differ from the actual rates used in the preparation of the Financial Statements and other financial information appearing in this Offering Memorandum. In particular, see ‘‘Risk Factors—Fluctuations in foreign currency and inflation may have an adverse effect on reported results of operations’’ and ‘‘Operating and Financial Review—Key factors affecting results of operations—Exchange rates’’.

U.S. dollars per £1.00 High Low Average(1) Period End Year 2015 ...... 1.5882 1.4648 1.5250 1.4746 2016 ...... 1.4800 1.2155 1.3440 1.2337 2017 ...... 1.3578 1.2118 1.3016 1.3529 2018 (through October 5, 2018) ..... 1.4332 1.2685 1.3449 1.3101

High Low Average(1) Period End Month April 2018 ...... 1.4332 1.3751 1.4079 1.3751 May 2018 ...... 1.3611 1.3258 1.3470 1.3289 June 2018 ...... 1.3429 1.3095 1.3294 1.3197 July 2018 ...... 1.3266 1.2987 1.3162 1.3125 August 2018 ...... 1.3120 1.2685 1.2878 1.2964 September 2018 ...... 1.3237 1.2833 1.3066 1.3053 October 2018 (through October 5, 2018) ...... 1.3101 1.2984 1.3025 1.3101

(1) The average rate is calculated on the rate of each business day of the month for monthly averages, and on the last business day of each month for annual averages.

13 OVERVIEW This overview highlights certain information contained in this Offering Memorandum. This overview does not contain all the information you should consider before purchasing the Notes. You should read this entire Offering Memorandum carefully, including the sections entitled ‘‘Forward-Looking Statements’’, ‘‘Risk Factors’’, ‘‘Description of the Group and its Business’’ and ‘‘Operating and Financial Review’’ and the financial information and the notes thereto included in this Offering Memorandum. Overview of Our Business We are a world leading specialist distributor of plumbing and heating products. We supply plumbing and heating products to professional contractors and consumers and principally serve the repair, maintenance and improvement (‘‘RMI’’) markets, as well as the new construction market. We hold leading positions in a number of the markets in which we operate. We create value by bridging the gap between our suppliers and customers, providing our suppliers a cost-effective route to market, specialist advice to our customers and a wide range of products where and when they are required. We have a diverse supplier base and source over one million products from approximately 43,000 suppliers around the world in the year ended July 31, 2018, in order to supply approximately one million customers for their plumbing and heating projects for the same period. We have a network of 19 distribution centers and 2,280 branches (as at July 31, 2018) and also, in certain circumstances, arrange direct delivery of products from our suppliers to our customers. We operate in three geographic regions, the United States, the United Kingdom and Canada and Central Europe, each of which is an operating segment for financial reporting purposes: United States. We are progressively focusing more resources on our businesses in the United States, which generated 93.3% of our trading profit in 2018. The Group operates several business units in the United States, principally under the Ferguson Enterprises brand, offering different categories of plumbing and heating products and solutions to fit our customers’ needs. Most of the business units predominantly serve trade customers with a smaller number also serving retail consumers and remodeling contractors. Each business unit is aligned around specialist customer needs and has its own competitors which range from large national companies, including trade sales by large home improvement chains, to small, privately owned supply houses. As a large distributor of plumbing and heating products in the United States, we hold leading market positions in the majority of our businesses, including our largest business unit, Blended Branches (discussed further below). These markets are typically highly fragmented with few large competitors and we compete with many small local distributors. Consequently, there continues to be excellent opportunities to grow our business geographically, particularly in large metropolitan areas across the United States. As at July 31, 2018, our United States business had 26,501 employees (who we call associates), operating through 1,448 branches, which are in turn served by 10 distribution centers. United States segment revenues were $16,670 million, $15,193 million (£11,994 million) and £9,456 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 80.3%, 78.8% and 75.4% of the Group’s total revenues for the years ended July 31, 2018, 2017 and 2016, respectively. United States segment trading profit was $1,406 million, $1,224 million (£966 million) and £775 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 93.3%, 91.3% and 90.4% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. United Kingdom. In the United Kingdom, we principally operate under the Wolseley brand. Our United Kingdom business is predominantly active in the trade plumbing and heating markets and has relatively low exposure to the new residential construction market. The businesses provide plumbing and heating products primarily to trade customers in the residential and commercial sectors, for RMI purposes. The United Kingdom business is currently in the second year of a major restructuring program to improve service to customers, performance and profitability, which the Company believes has lowered our cost base by approximately $30 million per year. As at July 31, 2018, our United Kingdom business had 5,617 associates operating through 567 branches covering the entire country, which are in turn served by six distribution centers (five of which serve the Wolseley branded United Kingdom business and one which serves our online United Kingdom business) providing same and next day product availability, a key service offering to our

14 customers. United Kingdom segment revenues were $2,568 million, $2,548 million (£2,012 million) and £1,996 million for the years ended years ended July 31, 2018, 2017 and 2016, respectively. This represented 12.4%, 13.2% and 15.9% of the Group’s total revenues for the years ended years ended July 31, 2018, 2017 and 2016, respectively. United Kingdom segment trading profit was $73 million, $96 million (£76 million) and £74 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 4.8%, 7.2% and 8.6% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. Canada and Central Europe. The Canada and Central Europe segment operates across two countries, Canada (79% of FY2018 Canada and Central Europe segment revenues) and the Netherlands (21% of FY2018 Canada and Central Europe segment revenues), servicing the residential, commercial and industrial sectors both in the RMI and new construction markets. As at July 31, 2018, the Canada and Central Europe segment had 3,167 associates. Wolsey Canada is the second largest distributor by revenue of plumbing, heating, ventilation, air conditioning (‘‘HVAC’’) and refrigeration equipment, supplying products to residential and commercial contractors in Canada. It also supplies specialist water and waste water treatment systems to residential, commercial and municipal contractors, and supplies pipe, valves and fittings (‘‘PVF’’) solutions to industrial oil and gas customers. As at July 31, 2018, it had 230 branches serviced by three distribution centers across Canada. We have initiated the process to dispose of Wasco, our remaining business in Central Europe. The business has a strong leadership team and dedicated workforce and has consistently delivered strong financial performance, but there are few synergies with the other businesses in the Group. For the year ended July 31, 2018, Wasco contributed revenue of $322 million ($269 million for FY2017) and trading profit of $13 million ($8 million for FY2017). As at July 31, 2018, our Canada and Central Europe business had 3,167 associates, operating through 265 branches, which are in turn served by three distribution centers. Canada and Central Europe segment revenues were $1,514 million, $1,543 million (£1,218 million) and £1,097 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 7.3%, 8.0% and 8.7% of the Group’s total revenues for the years ended July 31, 2018, 2017 and 2016, respectively. Canada and Central Europe segment trading profit were $83 million, $71 million (£56 million) and £53 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 5.5%, 5.3% and 6.2% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. The Company Ferguson plc is a public limited company organized under the laws of Jersey, Channel Islands on September 28, 2010, with registration number 106605. The registered offices of Ferguson plc are located at 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands and its headquarters are located at Grafenauweg 10, CH 6301, Zug, Switzerland. The Ferguson Group services office is located at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire, RG41 5TS, United Kingdom. The Company is the parent company of the Group. Prior to July 31, 2017, Ferguson plc was known as Wolseley plc. The Subsidiary Guarantor Wolseley Limited is a private limited company organized under the laws of England and Wales on April 14, 1986, with registration number 00029846 and is wholly owned by the Company. The principal offices of Wolseley Limited are located at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire, RG41 5TS, United Kingdom. The Issuer Ferguson Finance plc is a public limited company organized under the laws of England and Wales on September 21, 2018, with registration number 11581816 and is wholly owned by the Company. The principal offices of Ferguson Finance plc are located at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire, RG41 5TS, United Kingdom.

15 OVERVIEW OF THE NOTES Certain of the terms and conditions described below are subject to important limitations and exceptions. The ‘‘Description of the Notes and the Guarantee’’ section of this Offering Memorandum contains a more detailed description of the terms and conditions of the Notes and the Guarantee. Capitalized terms used but not defined in this section have the meanings set forth in ‘‘Description of the Notes and the Guarantee’’.

Issuer ...... Ferguson Finance plc

Guarantors ...... Ferguson plc and Wolseley Limited

Notes ...... $750 million aggregate principal amount of 4.500% Notes due 2028 (the ‘‘Notes’’).

The Notes will be issued under an indenture to be dated as of the Issue Date (as defined below) (the ‘‘Indenture’’), among the Issuer, the Company, Wolseley Limited, BNY Mellon Corporate Trustee Services Limited, as trustee (the ‘‘Trustee’’), The Bank of New York Mellon SA/NV, Luxembourg Branch, as registrar (the ‘‘Registrar’’) and as transfer agent (the ‘‘Transfer Agent’’) and The Bank of New York Mellon, London Branch, as principal paying agent (the ‘‘Paying Agent’’).

Guarantees ...... The obligations of the Issuer under the Notes will be fully and unconditionally guaranteed on a direct, unsubordinated and unsecured senior basis by each Guarantor pursuant to the Indenture.

Offering ...... The Notes are being offered in the United States to QIBs in reliance on Rule 144A under the Securities Act and outside the United States to persons other than U.S. persons in reliance upon Regulation S under the Securities Act.

Issue Price ...... 99.650%, plus accrued interest, if any, from October 24, 2018.

Issue Date ...... October 24, 2018

Maturity Date ...... October 24, 2028.

Interest ...... The Notes will bear interest from the Issue Date at the rate of 4.500% per annum, payable semi-annually.

Interest Payment Dates ...... April 24 and October 24, commencing April 24, 2019 until the Maturity Date.

Record Dates ...... April 9 or October 9 (whether or not a business day in Luxembourg) immediately preceding the Interest Payment Date.

Status of the Notes and the Guarantee ...... The Notes will constitute direct, unsubordinated and unsecured senior obligations of the Issuer and rank pari passu and ratably without any preference or priority among themselves and equally with all other existing and future unsecured and unsubordinated obligations of the Issuer from time to time outstanding (subject to certain obligations required to be preferred by law).

16 The Guarantees will constitute direct, unsubordinated and unsecured senior obligations of each Guarantor and rank equally with all other existing and future unsecured and unsubordinated obligations of the Guarantors from time to time outstanding (subject to certain obligations required to be preferred by law).

Use of Proceeds ...... The net proceeds of the offering will be used for our general corporate purposes and to increase liquidity.

Covenants ...... The Issuer and the Guarantors have agreed to certain covenants, subject to certain exceptions, with respect to the Notes and the Guarantees, including limitations on:

• liens; and

• mergers and acquisitions.

Change of Control Repurchase Event . If a Change of Control Repurchase Event occurs, the Issuer may be required to repurchase the Notes at a purchase price equal to 101% of their principal amount, plus any accrued and unpaid interest. See ‘‘Description of the Notes and the Guarantees—Change of Control Repurchase Event’’.

Optional Redemption ...... The Issuer may redeem the Notes in whole or in part, at the Issuer’s option:

(1) at any time and from time to time prior to July 24, 2028 (three months prior to the Maturity Date of the Notes) (the ‘‘Par Call Date’’) at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) as determined by the Independent Investment Banker, the sum of the present values of the applicable Remaining Scheduled Payments discounted to the date fixed for redemption (the ‘‘Redemption Date’’) on a semi-annual basis (assuming a 360 day year consisting of twelve 30 day months and a redemption on the Par Call Date) at the Treasury Rate plus 25 basis points, together with any accrued and unpaid interest (including Additional Amounts, if any) on the principal amount of the Notes to be redeemed to (but excluding) the Redemption Date; and

(2) at any time and from time to time on or after the Par Call Date, at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest on the principal amount being redeemed to (but excluding) the date of redemption.

17 Optional Tax Redemption ...... The Notes are redeemable by the Issuer, in whole but not in part, at 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to the applicable Redemption Date and any Additional Amounts payable with respect thereto at the Issuer’s option at any time prior to their maturity if due to a Change in Tax Law (as defined below) (i) the Issuer or, if applicable, either of the Guarantors, respectively, has, or would, become obligated to pay any Additional Amounts with respect to the Notes; (ii) in the case of each Guarantor, (A) such Guarantor would be unable to procure payment by the Issuer or (B) the procuring of such payment by the Issuer would be subject to withholding taxes imposed by a Relevant Jurisdiction; and (iii) the obligation to pay such Additional Amounts described in (i) cannot otherwise be avoided by the Issuer or, if applicable, such Guarantor taking reasonable measures available to it.

In such case, the Issuer may redeem the Notes in whole, but not in part, upon not less than 10 nor more than 60 days’ notice.

Denomination, Form and Registration of Notes ...... The Notes will be issued in fully registered form and only in denominations of $200,000 and integral multiples of $1,000 in excess thereof. The Notes will be issued initially as Global Notes. DTC will act as depositary for the Notes. Except in limited circumstances, Global Notes will not be exchangeable for certificated notes.

Further Issues ...... The Issuer may, from time to time, without notice to or the consent of the Holders of the Notes, ‘‘reopen’’ the Notes and issue additional notes having identical terms and conditions as the Notes, except for the issue date, issue price, payment of interest accruing prior to the Issue Date of such additional notes and/or except for the first payment of interest following the issue date of such additional notes, so that the additional notes may be consolidated and form a single series of notes with the Notes (a ‘‘Further Issue’’); provided that any additional notes that are not fungible with the outstanding Notes for U.S. federal income tax purposes will not have the same CUSIP, ISIN or other identifying number as the outstanding Notes.

Trustee ...... BNY Mellon Corporate Trustee Services Limited.

Registrar and Transfer ...... The Bank of New York Mellon SA/NV, Luxembourg Branch

Principal Paying Agent ...... The Bank of New York Mellon, London Branch

Settlement ...... The Issuer expects to deliver the Notes on or about October 24, 2018 (the ‘‘Settlement Date’’).

Transfer Restrictions ...... Neither the Notes nor the Guarantees have been or will be registered under the Securities Act and each is subject to certain restrictions on resale and transfer.

Governing Law ...... The Indenture, the Notes and the Guarantees will be governed by and construed in accordance with the laws of the State of New York.

18 Ratings ...... The Company has credit ratings of Baa2 (Stable outlook) by Moody’s Investors Service, Inc. (‘‘Moody’s’’) and BBB+ (Stable outlook) by S&P Global Ratings (‘‘S&P’’).

It is expected that the Notes will be rated Baa2 (Stable outlook) by Moody’s, and BBB+ (Stable outlook) by S&P, subject to confirmation on the Settlement Date.

A credit rating is not a recommendation to buy or hold securities and may be subject to revisions, suspension or withdrawal at any time by the assigning rating agency.

Listing ...... Application has been made to Euronext Dublin for the Notes to be admitted to the Official List and to trading on the Global Exchange Market thereof.

Risk Factors ...... We urge you to consider carefully the risks described in ‘‘Risk Factors’’ beginning on page 23 of this Offering Memorandum before making an investment decision.

Issuer LEI Code ...... 2138003A7ZEU931DZL61

19 SUMMARY FINANCIAL INFORMATION The following tables set forth summary historical consolidated financial data for the Group, as well as certain other financial and operating data. The summary historical consolidated financial data set forth below as of and for the years ended July 31, 2018, 2017 and 2016 has been derived from the audited Group Consolidated Financial Statements. This summary historical financial information and other data should be read in conjunction with and are qualified in their entirety by reference to the financial statements, including the notes thereto, included in this Offering Memorandum and the information set forth under ‘‘Use of Proceeds’’, ‘‘Capitalization’’, ‘‘Selected Financial Information’’, ‘‘Operating and Financial Review’’, ‘‘Presentation of Financial, Market and Other Information’’ and ‘‘Description of the Group and its Business’’, each of which is included elsewhere in this Offering Memorandum. The Group Consolidated Financial Statements have been prepared in accordance with EU IFRS. The Group 2018 and 2017 Consolidated Financial Statements have been audited, as stated in their audit reports included in this Offering Memorandum. Key Reported Consolidated Financial Information Income Statement

Year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) $ million £ million Revenue ...... 20,752 19,284 15,224 12,549 Cost of sales ...... (14,708) (13,701) (10,816) (8,957) Gross profit ...... 6,044 5,583 4,408 3,592 Operating costs: Amortization of acquired intangible assets ...... (65) (81) (64) (48) Impairment of goodwill and acquired intangible assets ...... - - - (94) Other ...... (4,619) (4,024) (3,120) (2,739) Operating costs ...... (4,684) (4,105) (3,184) (2,881) Operating profit ...... 1,360 1,478 1,224 711 Net finance costs ...... (53) (54) (43) (36) Share of profit/(loss) after tax of associate ...... 2 (1) (1) Impairment of interests in associates . (122) - - - Profit before tax ...... 1,187 1,423 1,180 675 Tax...... (346) (370) (292) (210) Profit from continuing operations ... 841 1,053 888 465 Profit/(loss) from discontinued operations ...... 426 (133) (105) 185 Profit for the year ...... 1,267 920 783 650

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.

20 Balance Sheet Data

As at July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million Assets Non-current assets ...... 3,545 3,142 2,378 2,920 Current assets ...... 6,453 7,700 5,827 5,175 Assets held for sale ...... 151 1,715 1,298 56 Total assets ...... 10,149 12,557 9,503 8,151 Liabilities Current liabilities ...... 4,016 5,399 4,086 3,537 Non-current liabilities ...... 2,076 1,533 1,160 1,701 Liabilities held for sale ...... - 1,085 821 12 Total liabilities ...... 6,092 8,017 6,067 5,250 Net assets ...... 4,057 4,540 3,436 2,901 Equity Equity attributable to shareholders of the Company ...... 4,058 4,543 3,438 2,903 Non-controlling interest ...... (1) (3) (2) (2) Total equity ...... 4,057 4,540 3,436 2,901

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

Cash Flow Statement Data

Year ended July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million Net cash generated from operating activities ...... 1,036 950 752 787 Net cash generated from/(used in) investing activities ...... 700 (209) (167) (266) Net cash used by financing activities . (1,857) (472) (374) (547) Net cash (used)/generated ...... (121) 269 211 (26) Effects of exchange rate changes .... (7) (13) (15) 18 Net (decrease)/increase in cash, cash equivalents and bank overdrafts . . . (128) 256 196 (8) Cash, cash equivalents and bank overdrafts at the beginning of the year ...... 586 330 248 256 Cash, cash equivalents and bank overdrafts at the end of the year . . 458 586 444 248

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

21 Other Financial Data The tables below set forth certain other financial data of the Group for the years ended July 31, 2018, 2017 and 2016. For further information on the use of non-EU IFRS measures including reconciliations to the nearest IFRS measures see ‘‘Presentation of Financial, Market and Other Information’’, Note 2 to the 2018 Consolidated Financial Statements and Note 2 to the 2017 Consolidated Financial Statements each included in this Offering Memorandum and, in summary form, in the section titled ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’ in this Offering Memorandum.

As at or year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) ($ million, except as otherwise (£ million, except as otherwise indicated) indicated) Revenue ...... 20,752 19,284 15,224 12,549 Ongoing revenue(3) ...... 20,752 18,845 14,878 12,146 Organic revenue growth(3) ...... 7.5% 6.0% 6.0% 3.3% Profit for the year ...... 1,267 920 783 650 Operating profit ...... 1,360 1,478 1,224 711 Trading profit(3) Trading profit from ongoing operations(3) ...... 1,507 1,307 1,032 827 Trading profit from non-ongoing operations(3) ...... - 34 27 30 Trading profit from continuing operations(3) ...... 1,507 1,341 1,059 857 Ongoing trading margin(3) ...... 7.3% 6.9% 6.9% 6.8% Adjusted EBITDA(3) ...... 1,687 1,519 1,199 971 Net debt(3) ...... 1,080 706 534 936

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’.

22 RISK FACTORS Prospective investors should read and carefully consider the following risk factors and other information in this Offering Memorandum before deciding to purchase the Notes, including ‘‘Operating and Financial Review’’ and ‘‘Description of the Group and its Business.’’ The summary factors below contain a description of material risks that may affect the Company’s or the Issuer’s ability to fulfill their obligations to investors and those that are material to the securities to be admitted to trading in order for the investor to assess the market risk associated with the Notes and/or that may affect the Company’s ability to achieve its business strategy, projections, targets and objectives. There may be additional risks that we currently consider immaterial or of which we are currently unaware, and any of these risks could have the effects set forth below. The following risk factors address risks that the Directors have identified as material to investors in investing in the Notes, but we do not represent that the statements below regarding the risks of holding the Notes are exhaustive. This is not an exhaustive list or explanation of all risks which investors may face when investing in the Notes and should be used as guidance only. The order in which the following risk factors are presented does not necessarily reflect the likelihood of their occurrence or the relative magnitude of their potential material adverse effect on our business, results of operations, financial condition and/or prospects. This Offering Memorandum also contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors described below and elsewhere in this Offering Memorandum. Unless otherwise specified by reference to the Issuer or the Company, the risks apply in the context of the Group and are also applicable to each of the Company or the Issuer. Risks Relating to Our Business Weakness in the economy, market trends, uncertainty and other conditions in the markets in which we operate, particularly the United States, may adversely affect the profitability and financial stability of our customers, could negatively impact our sales growth and results of operations. Our financial performance depends significantly on industry trends and general economic conditions, including the state of the residential, commercial, civil/infrastructure and industrial markets as well as changes in gross domestic product in the geographic markets in which we operate, particularly in the United States where we generated 80.3% of our revenue in FY2018. We serve several end-markets in which the demand for our products is sensitive to the construction activity, capital spending and demand for products of our customers. Many of these customers operate in markets that are subject to cyclical fluctuations resulting from market uncertainty, costs of goods sold, currency exchange rates, foreign competition, offshoring of production, oil and natural gas prices, geopolitical developments, wage inflation and a variety of other factors beyond our control. For example, the quarterly GDP growth rate in the United Kingdom has declined over the last 12 months, from 1.7% in the first quarter to 1.3% in the final quarter. Any of these factors could cause customers to idle or close facilities, delay purchases, reduce production levels or experience reductions in the demand for their own products or services. Adverse conditions in or uncertainty about the markets in which we operate, the economy or the political climate could also adversely impact the customers of our end-markets and their confidence or financial condition, causing them to determine not to purchase our products or delay purchasing decisions, or impacting their ability to pay for products. Other factors beyond our control, including but not limited to: unemployment, mortgage delinquency and foreclosure rates; inventory loss due to theft; interest rate and foreign currency fluctuations; labor and healthcare costs; the availability of financing; the state of the credit markets, including mortgages, home equity loans and consumer credit; changes in tax laws affecting the real estate industry; weather; natural disasters; acts of terrorism; international trade tensions; and other conditions beyond our control, could further adversely affect demand for our products, our costs of doing business, and our financial performance. Any of these events could impair the ability of our customers to make full and timely payments or reduce the volume of products these customers purchase from us and could cause increased pressure on our selling prices and terms of sale. Accordingly, a significant or prolonged slowdown in activity in the United States, the United Kingdom, Canada, Europe or any other major world economy, or a segment of any such economy, could negatively impact our sales growth and results of operations. In

23 addition, we may have to close under-performing branches from time to time as warranted by general economic conditions and/or weakness in the industries in which we operate. Any such closures could have a significant adverse effect on our financial condition, operating results and cash flows. The industries in which we operate are highly competitive, and changes in competition, including as a result of consolidation, could result in decreased demand for our products and could have a material effect on our sales and profitability. We face competition in all markets we serve, from manufacturers (including some of our own suppliers) that sell directly to certain segments of the market, wholesale distributors, supply houses, retail enterprises and online businesses that compete with price transparency. In particular, wholesale and distribution businesses in other industry sectors have been disrupted by the arrival of new competitors with lower-cost transactional business models or new technologies to aggregate demand away from incumbents. In the event that one or more online marketplace companies, who in some cases have larger customer bases, greater brand recognition and greater resources than we do, focus more resources on competing in our markets, it could have a material adverse effect on our business and results of operations. In addition, such competitors may use aggressive pricing tactics and devote substantially more financial resources to website and system development than we do. In the year ended July 31, 2018, pressure on margins remained high due to the levels of competition and we expect that competition will further intensify in the future as online commerce continues to grow worldwide. Increased competition may result in reduced sales, lower operating margins, reduced profitability, loss of market share and diminished brand recognition. The supplier industry is also consolidating as customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations. This consolidation could cause the industry to become more competitive as greater economies of scale are achieved by competitors, or as competitors with new lower cost transactional business models are able to operate with lower prices. Additionally, we have experienced competitive pressure from certain of our suppliers who are now selling their products directly to customers. Our suppliers can often sell their products at lower prices and maintain higher gross margins on their product sales than we can. Continued competition from our suppliers may negatively impact our business and results of operations, including through reduced sales, lower operating margins, reduced profitability, loss of market share and diminished brand recognition. In response to these competitive pressures, we have introduced a dedicated team and increased resources for the purpose of the exploration and incubation of new business models and new technologies and have acquired a number of online businesses over the last several years and are actively investing in our own brand business capabilities in order to expand the categories of products we provide to our customers. However, we may not continue to realize benefits from such investments. In addition, failure to effectively execute our strategies, including the development and acquisition of such new business models or technologies, or successfully identify future market and competitive pressures could have a material effect on our sales and profitability. We may not rapidly identify or effectively respond to consumer needs, expectations or trends, which could adversely affect our relationship with customers, our reputation, the demand for our products and our market share. The success of our business depends in part on our ability to identify and respond promptly to evolving trends in demographics, such as our customers’ preferences, expectations and needs, while also managing appropriate inventory levels and maintaining an excellent customer experience. For example, our customers are currently facing unprecedented challenges of a shortage of skilled trade professionals and a need for improved construction productivity. It is difficult to successfully predict the products our customers will demand. In addition, each of the primary end-markets we serve has different needs and expectations, many of which evolve as the demographics in a particular market change. We also need to offer more localized assortments of our products to appeal to local cultural and demographic tastes within each customer group. If we do not successfully differentiate to meet the individual needs and expectations of, or within, a particular end-market, we may lose market share with respect to those customers. In 2017, we launched the Ferguson.com website to be the foundation for future e-commerce and omni-channel customer engagement and we are in the process of simplifying our customer propositions

24 and optimizing the supply chain and branch network to deliver a more efficient business. In 2018, we created Ferguson Ventures to help discover, invest in and partner with technology companies and start-ups to, among other things, help address industry problems, including the shortage of skilled trade professionals and the need for improved construction productivity. The cost and potential problems and interruptions associated with the implementation of these initiatives could disrupt or reduce the efficiency of our online and in-store operations in the near term, lead to product availability issues and negatively affect our relationship with our customers. Furthermore, accomplishing these initiatives will require a substantial investment in additional information technology personnel and other specialized personnel. We may face significant competition in the market for these resources and may not be successful in our hiring efforts. Failure to choose the right investments and implement them in the right manner and at the right pace could adversely affect our relationship with customers, our reputation, the demand for our products, and our market share. In addition, our store and interconnected initiatives, enhanced supply chain, and new or upgraded information technology systems might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits, or the initiatives might fail altogether, each of which could adversely impact our competitive position and our financial condition, results of operations, or cash flows. We could be adversely impacted by declines in the residential and non-residential repair, maintenance and improvement markets as well as the new construction market. Our business units operating in the residential and non-residential RMI and new construction markets are dependent, in part, upon certain macroeconomic trends in these markets. For example, for the year ended July 31, 2018, the Group’s businesses operating in the RMI markets in our United States, United Kingdom and Canada and Central Europe segments generated approximately 58%, 62% and 60% of Group’s total revenue, respectively. Management monitors the strength of these markets through indicators of home improvement and repair spending and commercial/industrial construction spending. For example, in our residential RMI market management uses the Leading Indicator of Remodelling Activity (‘‘LIRA’’) as it provides a short-term outlook of national home improvement and repair spending to owner-occupied homes in the United States. In our non-residential RMI market, management uses the American Institute of Architects Billings Index – Commercial/Industrial (‘‘AIA Billings Index’’) as it is a leading economic indicator of construction activity and is widely seen as reflecting prospective construction spending. LIRA projections indicate continued growth in the United States RMI market and the AIA Billing Index has been above 50 (the level which indicates growth in business activity across the architecture profession) for the last 12 months. While these indicators have been positive over the last several years, there can be no assurance these trends will continue. In addition, economic weakness may cause unanticipated shifts in our end-market preferences and purchasing practices and in the business models and strategies of our customers. Such shifts may alter the nature and prices of products demanded by the end consumer, and, in turn, our customers and could adversely affect our operating performance. Fluctuations in foreign currency and inflation may have an adverse effect on reported results of operations Our exposure to fluctuations in foreign currency rates results primarily from the translation exposure associated with the preparation of the Group’s financial statements, as well as from transaction exposure associated with transactions in currencies other than an entity’s functional currency. Up until the year ended July 31, 2017, the Group reported its results in pounds sterling and its main currency exposure arose on the translation of U.S. dollar and to a lesser extent Canadian dollar earnings into pounds sterling. From the year beginning August 1, 2017 onwards, the Group has presented its consolidated financial statements in U.S. dollars and, as the majority of revenue and trading profit is generated in U.S. dollars, the impact of foreign exchange rate movements will be reduced. For the year ended July 31, 2018, 80% of our revenue was reported in U.S. dollars, while the remaining 20% was in currencies other than U.S. dollars that is then translated into U.S. dollars for financial reporting purposes. We are exposed to foreign currency exchange rate risk with respect to the U.S. dollar relative to the local currencies of our international subsidiaries, primarily the Canadian dollar, pounds sterling and

25 euro, arising from transactions in the normal course of business, such as sales and loans to wholly- owned subsidiaries, sales to third-party customers, purchases from suppliers and bank loans and lines of credit denominated in foreign currencies. We also have foreign currency exposure to the extent receipts and expenditures are not denominated in the subsidiary’s functional currency and that could have an impact on sales, costs and cash flows. Fluctuations in foreign currency exchange rates could affect the Group’s results of operations and impact reported net sales and net earnings. Fluctuating commodity prices, as well as unexpected product shortages, may adversely affect the Group’s business, financial condition or results of operations. Some of our products contain significant amounts of commodity-priced materials, predominantly copper, steel and plastic, and other products which are subject to price changes based upon fluctuations in the commodities market. Furthermore, fluctuations in the price of fuel could affect transportation costs. Our ability to pass on such increases in costs in a timely manner depends on market conditions. The inability to pass along cost increases could result in lower gross margins, and higher prices that we do pass on to customers could impact demand for these products, resulting in lower sales volumes. Acquisitions, partnerships, joint ventures and other business combination transactions involve a number of inherent risks, any of which could result in the benefits anticipated not being realized and could have an adverse effect on results of operations. Acquisitions are an important part of our growth model and we regularly consider and enter into strategic transactions, including mergers, acquisitions, investments and other growth, market and geographic expansion strategies, with the expectation that these transactions will result in increases in sales, cost savings, synergies and other various benefits. During the years ended July 31, 2018 and 2017, we invested $416 million in 13 bolt-on acquisitions and $331 million (£256 million) in 11 bolt-on acquisitions, respectively. We may not realize any anticipated benefits from such transactions or partnerships, we may be exposed to additional liabilities of any acquired business or joint venture and we may be exposed to litigation in connection with the strategic transaction. Furthermore, we may have trouble identifying suitable acquisition targets in the future. Our ability to deliver the expected benefits from any strategic transactions that we do complete is subject to numerous uncertainties and risks, including our ability to integrate personnel, labor models, financial, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; and increasing the scope, geographic diversity and complexity of our operations. Effective internal controls are necessary to provide reliable and accurate financial reports, and the integration of businesses may create complexity in our financial systems and internal controls and make them more difficult to manage. Integration of businesses into our internal control system could cause us to fail to meet our financial reporting obligations. Additionally, any impairment of goodwill or other assets acquired or divested in a strategic transaction or charges to earnings associated with any strategic transaction, may materially reduce our profitability. Our shareholders may react unfavorably to our strategic transactions. Furthermore, we may finance these strategic transactions by incurring additional debt, which could increase leverage or impact our ability to access capital in the future. Execution of our operational strategies, including in connection with restructuring initiatives or exits from existing businesses, could prove unsuccessful, which could have a material adverse effect on the Group’s business, financial condition or results of operations. Our United Kingdom business is currently in the second year of a major restructuring program to improve service to customers, performance and profitability. In 2018, in light of a challenging operating environment in the United Kingdom, we accelerated the United Kingdom restructuring program, which involved closures of a further 60 branches (bringing the total for the year ended July 31, 2018 to 75 closures), the closure of a wholesale business and the implementation of a redundancy program, which the Company believes has lowered our cost base by approximately $30 million per year, and which has negatively impacted our financial performance for the year ended July 31, 2018. Failure to effectively execute, or timely execute, the ongoing restructuring of our United Kingdom business or other such operational strategies could have a material effect on our business, financial condition or results of operations.

26 A failure of a key information technology system or process could adversely affect the operations of our business. Technology systems and data are fundamental to the future growth and success of our business. We rely on number of legacy technology systems, some of which have been in place for many years and which may be phased out and replaced over time with more modern systems. In managing our business, we rely on the integrity of, security of and consistent access to data from these systems such as sales, customer data, merchandise ordering, inventory replenishment and order fulfillment. For these information technology systems and processes to operate effectively, we or our service providers must periodically maintain and update them and we are currently phasing out our legacy technology systems and infrastructure. In addition, our systems and the third-party systems on which we rely are subject to damage or interruption from a number of causes, including power outages; computer and telecommunications failures; computer viruses; security breaches; cyber-attacks, including the use of ransomware (as discussed below); catastrophic events such as fires, floods, earthquakes, tornadoes, or hurricanes; acts of war or terrorism; and design or usage errors by our associates, contractors or third- party service providers. Although we and our third-party service providers seek to maintain our respective systems effectively and to successfully address the risk of compromise of the integrity, security and consistent operations of these systems, such efforts may not be successful. While we have instituted safeguards for the protection of such information and believe we use reputable third-party providers, during the normal course of business, we have experienced and expect to continue to experience attempts to breach our information systems, and we may be unable to protect sensitive data and/or the integrity of our information systems. A cybersecurity incident could be caused by malicious outsiders using sophisticated methods to circumvent firewalls, encryption and other security defenses. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. As a result, we or our service providers could experience errors, interruptions, delays or cessations of service in key portions of our information technology infrastructure, which could significantly disrupt our operations and be costly, time consuming and resource-intensive to remedy. As a result, we could forego revenue or profit margins if we are unable to trade. Furthermore, if critical information systems fail or otherwise become unavailable, our ability to process orders, maintain proper levels of inventories, collect accounts receivable and disburse funds could be adversely affected. Any such interruption of the Group’s information systems could also subject us to additional costs. Loss of customer, supplier, associate or other business information could disrupt operations, damage our reputation and expose us to claims from customers, suppliers, financial institutions, regulators, payment card associations, associates and others, any of which could have a material adverse effect on the Company, its financial condition and results of operations. See below ‘‘—Regulation in the areas of privacy and protection of user data could harm our business.’’ If our domestic or international supply chain or our fulfillment network for our products is ineffective or disrupted for any reason, or if these operations are subject to trade policy changes, our results of operations could be adversely affected. We source, stock and sell products from domestic and international vendors, and their ability to reliably and efficiently fulfill our orders is critical to our business success. We purchase from approximately 43,000 suppliers located in various countries around the world. Although the Company believes no single supplier or manufacturer accounted for more than 5% of our total material and supply purchases during the year ended July 31, 2018, disruptions could occur due to factors beyond our control which could adversely affect a supplier’s ability to manufacture or deliver products. Financial instability among key suppliers, political instability and labor unrest in source countries or elsewhere in our supply chain, changes in the total costs in our supply chain (fuel, labor and currency exchange rates), port labor disputes and security, the outbreak of pandemics, weather-related events, natural disasters, work stoppages, shipping capacity restraints, changes in trade policy, retaliatory trade restrictions imposed by either the United States, Europe or China or another major source country, tariffs or duties, fluctuations in currency exchange rates and transport availability, capacity and costs are all beyond our control and could negatively impact our business if they seriously disrupted the movement of products through our supply chain or increased their costs. Additionally, as we add

27 fulfillment capabilities or pursue strategies with different fulfillment requirements, our fulfillment network becomes increasingly complex and operating it becomes more challenging. If our fulfillment network does not operate properly or if a vendor fails to deliver on its commitments, we could experience delays in inventory, increased delivery costs or merchandise out-of-stocks that could lead to lost sales and decreased customer confidence, and adversely affect our results of operations. Furthermore, our existing suppliers may decide to supply products directly to end users that are existing or potential customers, which would have a detrimental effect on our ability to keep and procure customers, and maintain and win business, thereby having a material adverse effect on our business, financial condition or results of operations. Our own brand products subject us to certain increased risks such as regulatory, product liability and reputational risks. As we expand our own brand product offerings, we may become subject to increased risks due to our greater role in the design, manufacture, marketing and sale of those products. The risks include greater responsibility to administer and comply with applicable regulatory requirements, increased potential product liability and product recall exposure, and increased potential reputational risks related to the responsible sourcing of those products. To effectively execute on our product differentiation strategy, we must also be able to successfully protect our proprietary rights and successfully navigate and avoid claims related to the proprietary rights of third parties. In addition, an increase in sales of our proprietary products may adversely affect sales of our vendors’ products, which in turn could adversely affect our relationships with certain of our vendors. Any failure to appropriately address some or all of these risks could damage our reputation and have an adverse effect on our business, results of operations, and financial condition. Failure to achieve and maintain a high level of product quality as a result of our suppliers or manufacturers could damage our reputation and negatively impact our sales and results of operations. One of the reasons why customers choose to do business with us and why our associates choose us as a place of employment is the reputation that we have built over many years. To be successful in the future, we must continue to preserve, grow and leverage the value of our brand. Reputational value is based in large part on perceptions of subjective qualities. Even an isolated incident, or the aggregate effect of individually insignificant incidents, can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation, and as a result, could tarnish our brand and lead to adverse effects on our business. In particular, product quality issues as a result of our suppliers or manufacturers could negatively impact customer confidence in our brands and our products. If our product offerings do not meet applicable safety standards or our customers’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial and reputational risks, as well as governmental enforcement actions. In addition, actual, potential or perceived product safety concerns could expose us to litigation, as well as government enforcement actions, and result in costly product recalls and other liabilities. The nature of our operations may expose our associates, contractors, customers, suppliers and other individuals to health and safety risks and we may incur property, casualty or other losses not covered by our insurance. The nature of our operations can expose our associates, contractors, customers, suppliers and other individuals to health and safety risks, which can lead to loss of life or severe injuries. Such risks include exposure to the potential for litigation from third parties. In the United States, in particular, the risk of litigation is generally higher than that in Europe in areas such as workers’ compensation, general employer liability and environmental and asbestos litigation. For example, as a result of our past business activities, we are exposed, principally through indemnification claims, to various claims related to asbestos, for which we recognized environmental and legal provisions amounting to $69 million on our balance sheet as at July 31, 2018. In future periods, we could be subject to cash costs or non-cash charges to earnings if any of such litigation matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including our assessment of the merits of the particular claims, we do not expect that our pending legal proceedings or claims will

28 have a material adverse impact on our future consolidated financial condition, results of operations or cash flows. Although we maintain insurance we believe to be sufficient to cover estimated product liability claims and other types of claims in various jurisdictions, such insurance does not cover all matters in all circumstances and subjects us to counterparty risks. However, there can be no assurance that these estimates will prove correct. Factors which could cause actual results to differ from these estimates include: (i) increases in the number of, or adverse trends in, asbestos claims filed against any of the Group’s subsidiaries; (ii) increases in the cost of resolving current and future asbestos claims as a result of adverse trends relating to settlement costs, dismissal rates, legal fees and/or judgment sizes; (iii) decreases in the amount of insurance available to cover asbestos claims as a result of adverse changes in the interpretation of insurance policies or the insolvency of insurers; (iv) the emergence of new trends or legal theories that enlarge the scope of potential claimants and/or new procedural mechanisms that facilitate their claims; (v) the impact of bankruptcies of other companies whose share of liability may be imposed on the Group’s subsidiaries under state or national liability laws; (vi) unpredictable aspects of the litigation process; (vii) adverse changes in the mix of asbestos related diseases with respect to which asbestos claims are made against the Group’s subsidiaries; (viii) potential legislative changes; and (ix) changes in the discount rate used to determine the discounted liability. We rely on manufacturers and other suppliers to provide us with the products we sell and distribute. As we do not have direct control over the quality of the products manufactured or supplied by such third-party suppliers, we are exposed to risks relating to the quality of the products we distribute. We may sell products that are subsequently alleged to have quality problems or to have caused personal injury or other damage, subjecting us to potential reputational damage or claims from customers or third parties or requiring us to take appropriate corrective action in respect of affected products. We have a higher risk of exposure to such claims with respect to our own brand products which, although manufactured by third-party suppliers, are branded and marketed under the Group brand names. While we currently maintain certain insurance coverage to address these types of liabilities, there can be no assurance that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. In addition, though we seek to obtain, we may not be successful in obtaining contractual indemnification from our vendors. If we do not have adequate contractual indemnification or insurance available, such claims could have a material adverse effect on our business, financial condition and results of operations. In addition, even with adequate insurance and indemnification, our reputation as a provider of high quality products could suffer, damaging our reputation and impacting customer loyalty. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant time periods, regardless of the ultimate outcome. Any litigation, moreover, carries an inherent risk of an adverse outcome. Any successful product liability claim could have a material adverse effect on our business, financial condition or results of operations. Changes in our credit ratings and outlook may reduce access to capital and increase borrowing costs The Company’s credit ratings are based on a number of factors, including our financial strength and factors outside of our control, such as conditions affecting our industry generally or the introduction of new rating practices and methodologies. We cannot provide assurances that our current credit ratings will remain in effect or that the ratings will not be lowered, suspended or withdrawn entirely by the rating agencies. If rating agencies lower, suspend or withdraw the ratings, the market price or marketability of our securities may be adversely affected. In addition, any change in ratings could make it more difficult for the Group to raise capital on acceptable terms, impact the ability to obtain adequate financing and result in higher interest costs on future financings. In order to compete, we must attract, retain and motivate key employees, and the failure to do so could have an adverse effect on results of operations. We depend on our executive officers, as well as senior management, of all our businesses. As the Group develops new business models and new ways of working, it needs to develop suitable skill sets within the organization. Furthermore, as the Group continues to execute strategic change programs, it is important that existing skill sets and talent are retained. Failure to do so could delay the execution of

29 strategic change programs, result in loss of ‘‘corporate memory’’ and reduce the Group’s supply of future management skill. We customarily negotiate employment agreements and non-competition agreements with key personnel of the companies we acquire in order to maintain key customer relationships and manage the transition of the acquired business. The loss of senior management and other key personnel, or the inability to hire and retain qualified replacements, both generally and in connection with the execution of key business strategies, could adversely affect the Group’s business, financial condition or results of operations. Furthermore, the Group’s ability to provide high-quality products, advice and services on a timely basis depends, to a significant extent, on having an adequate number of qualified employees, including those in managerial, technical, sales, marketing and support positions. Accordingly, our ability to increase productivity and profitability and support our growth strategies may be limited by our ability to employ, train, motivate and retain skilled personnel, which in turn may be hindered by any present or future restructurings and cost savings initiatives. Because we face significant competition in attracting skilled personnel, such as personnel with technical skills, we may be unsuccessful in attracting and retaining the personnel required to conduct and expand our operations and, in particular, develop our technology and grow our online presence, which could have a negative effect on our business, financial condition or results of operations. Our workforce constitutes a significant proportion of our cost base. Any inflationary pressures, as well as changes in applicable laws and regulations or other factors resulting in increased labor costs, could have a material adverse effect on our business, financial condition, results of operations and/or prospects. We are subject to various risks related to the international nature of our business, including domestic and foreign laws, regulations and standards. Failure to comply or unforeseen developments in related contingencies such as litigation could adversely affect our financial condition, results of operations and cash flows. Our business operates in North America and Europe and is subject to specific risks of conducting business in different jurisdictions across these continents and other parts of the world. Our business is subject to a wide array of laws, regulations and standards in every domestic and foreign jurisdiction where we operate, including advertising and marketing regulations, anti-bribery and corruption laws, anti-competition regulations, data protection (including payment card industry data security standards), data privacy (including in the United States, Canada, the United Kingdom and the European Union (the ‘‘EU’’), which has traditionally imposed strict obligations under data privacy laws and regulations that vary from country to country) and cybersecurity requirements (including protection of information and incident responses), environmental protection laws, foreign exchange controls and cash repatriation restrictions, government business regulations applicable to us as a government contractor selling to federal, state and local government entities import and export requirements, intellectual property laws, labor laws, product compliance laws, supplier regulations regarding the sources of supplies or products, tax laws (including as to United States taxes on foreign subsidiaries), zoning laws, unclaimed property laws and laws, regulations and standards applicable to other commercial matters. In particular, occupational health and safety or consumer product safety regulation may require Group members to take appropriate corrective action (including but not limited to product recall) in respect of products that they have distributed. Managing a product recall or other corrective action can be expensive and can divert the attention of management and other personnel for significant time periods. Moreover, we are also subject to audits and inquiries in the normal course of business. Failure to comply with any of these laws, regulations and standards could result in civil, criminal, monetary and non-monetary penalties as well as potential damage to the Company’s reputation. Changes in these laws, regulations and standards, or in their interpretation, could increase the cost of doing business, including, among other factors, as a result of increased investments in technology and the development of new operational processes. Furthermore, while we have implemented policies and procedures designed to facilitate compliance with these laws, regulations and standards, there can be no assurance that employees, contractors or agents will not violate such laws, regulations and standards or our policies. Any such failure to comply or violation could individually or in the aggregate materially adversely affect our financial condition, results of operations and cash flows. Any product recall or other corrective action may negatively affect customer confidence in the relevant Group member’s products and the Group itself, regardless of whether it is successfully implemented or not.

30 Regulation in the areas of privacy and protection of user data could harm our business. In addition to the actual and potential changes in law described elsewhere in these Risk Factors, in the course of our business, we receive and store a large volume of personal data. This data is increasingly subject to legislation and regulations in numerous jurisdictions around the world, such as the EU’s Data Protection Directive and variations and implementations of that directive in the member states of the EU. In addition, the EU’s General Data Protection Regulation (the ‘‘GDPR’’) went into effect in May 2018. The GDPR is designed to unify data protection within the EU under a single law, which has resulted and will result in significantly greater compliance burdens and costs for companies with users and operations in the EU. Under the GDPR, fines of up to A20 million or up to 4% of the annual global revenues of the infringer, whichever is greater, could be imposed. In the United Kingdom, a Data Protection Bill went into effect in May 2018, which substantially implements the GDPR in the United Kingdom. The California Consumer Privacy Act was also recently passed and creates new data privacy rights for users effective in 2020. In February 2016, EU and United States authorities announced that they had reached agreement on a data transfer framework, called the E.U.-U.S. Privacy Shield, which was formally adopted by the European Commission on July 12, 2016. The EU and the United States are implementing the framework, but it is currently subject to legal challenge. These laws and their interpretations continue to develop and may be inconsistent from jurisdiction to jurisdiction. This government action is typically intended to protect the privacy of personal data that is collected, processed and transmitted in or from the governing jurisdiction. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information. While we have invested and continue to invest significant resources to comply with the GDPR and other privacy regulations, many of these regulations (including the GDPR) are new, extremely complex and subject to interpretation. Non-compliance with these laws (including the GDPR) could result in negative publicity, damage to our reputation, penalties or significant legal liability. We could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition. Changes in United States or Swiss tax laws could have a material adverse effect on our business, cash flow, results of operations or financial condition. In 2017, the United States Congress enacted the Tax Cuts and Jobs Act (‘‘Tax Act’’), which significantly changed how the United States taxes corporations. The Tax Act requires complex computations to be performed that were not previously required under United States tax law, significant judgments to be made in interpretation of the provisions of the Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The United States Treasury Department, the Internal Revenue Service (‘‘IRS’’), and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our interpretations. Although the Tax Act was largely positive for Ferguson, the ultimate impact of the Tax Act on us may differ from our current estimates due to changes in interpretations and assumptions made by us as well as the issuance of any further regulations or guidance that may alter the operation of the United States federal income tax code. As we complete our analysis of the Tax Act as new regulations are issued, we may make adjustments to provisional amounts that we have recorded that may impact our provision for income taxes in the period in which the adjustments are made. In addition, Swiss tax reform was passed on September 28, 2018. The reform may still be subject to a public referendum, which we expect to be confirmed in January 2019 with a referendum date of May 19, 2019. The reform package will lead to an increase in the Swiss tax rate, which we currently anticipate will increase the Group’s effective tax rate to approximately 25%-26%. Although the start date of the reform package is unclear, we expect that it will impact our financial condition from 2020 onwards. Our future results could also be adversely affected by changes in the effective tax rate as a result of changes in the Group’s overall profitability and changes in the mix of earnings in countries with differing statutory tax rates, changes in tax legislation, the results of the examination of previously filed tax returns and continuing assessment of the Group’s tax exposures any of which could have a material adverse effect on our business, cash flow, results of operations or financial condition.

31 Potential tariffs or a global trade war could increase the cost of our products, which could adversely impact the competitiveness of our products and our financial results Recent events, including the United States presidential election and vote in the United Kingdom to withdraw from the European Union, have resulted in substantial regulatory uncertainty regarding international trade and trade policy. For example, the Trump Administration has announced various tariffs on goods imported from certain of its trade partners, such as the EU and China, which have resulted and may continue to result in reciprocal tariffs on goods exported from the United States to such trade partners. The Trump Administration has also indicated that the United States may withdraw from or renegotiate the North American Free Trade Agreement (NAFTA) with Mexico and Canada. The announcement of unilateral tariffs on imported products by the United States has triggered retaliatory actions from certain foreign governments and may trigger retaliatory actions by other foreign governments, potentially resulting in a ‘‘trade war’’. A ‘‘trade war’’ of this nature or other governmental action related to tariffs or international trade agreements has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the economies in which we operate or certain sectors thereof and, thus, to adversely impact our business. We occupy most of our facilities under short-term non-cancelable leases. We may be unable to renew leases on favorable terms or at all. Also, if we close a facility, we may remain obligated under the applicable lease. Most of our branches and distribution centers are located in leased premises. As at July 31, 2018, the Group had total operating lease commitments of $1,081 million (compared to $1,129 million as at July 31, 2017). Many of our current leases are non-cancelable and typically have terms of around five years, with options to renew for specified periods of time. There can be no assurance that we will be able to renew our current or future leases on favorable terms or at all which could have an adverse effect on our ability to operate our business and on our results of operations. In addition, if we close or idle a facility, we generally remain committed to perform our obligations under the applicable lease, which include, among other things, payment of the base rent for the balance of the lease term. We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability, and potentially disrupt our business. We accept payments using a variety of methods, including trade credit, cash, checks, credit and debit cards, PayPal, an installment loan program and gift cards, and we may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements may change over time or be reinterpreted, making compliance more difficult or costly. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems are compromised, it could potentially disrupt our business. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. As a result, our business and operating results could be adversely affected. Also, certain of the Group’s customers or suppliers or other third parties may seek to obtain products fraudulently from, or submit fraudulent invoices to, any member of the Group. The Group has sought to extend best practice with a number of processes and controls to minimize opportunities for fraud. If the Group is unsuccessful in detecting fraudulent activities, it could suffer loss directly and/or lose the confidence of its customers and/or suppliers, which could have a material adverse effect on the Group’s business, financial condition, results of operations and/or prospects.

32 Because our business is working capital intensive, we rely on our ability to manage our product purchasing and customer credit policies. Our operations are working capital intensive, and our inventories, accounts receivable and accounts payable are significant components of our net asset base. We manage our inventories and accounts payable through our purchasing policies and our accounts receivable through our customer credit policies. If we fail to adequately manage our product purchasing or customer credit policies, our working capital and financial condition may be adversely affected. We have funding risks related to our defined benefit pension schemes. Our pension fund liabilities are partially matched with a portfolio of assets, comprising primarily equity securities that are expected to provide a better return in the long-term than alternative investments such as bonds, but whose market value can vary significantly in the shorter term. On an accounting basis, the liabilities of the Group’s pension schemes are measured using a discount rate assessed by reference to corporate bond yields, which can also vary significantly between reporting periods. As at July 31, 2018, the Group had recognized on its balance sheet a net pension asset of $174 million in respect of defined benefit schemes, an increase of $202 million from a net liability of $28 million (£21 million) recognized at July 31, 2017. Additionally, the Group’s pension scheme liabilities are measured on a technical basis using planned actuarial valuations. In 2016, the Group agreed to a deficit reduction plan, amounting to £62.5 million to its main defined benefit scheme in the United Kingdom, to date contributions amounting to £12.5 million remain outstanding under this deficit reduction plan. Following the disposal of the Group’s business operations in the Nordic region in March 2018, the Group made an additional, one-off contribution of $94 million (£70 million) to its main defined benefit scheme in the United Kingdom. Although we do not expect additional one-off contributions, any requirement to pay such additional sums, due to factors such as a deterioration in economic conditions or changes in actuarial assumptions, could have an adverse effect on our financial condition. In addition, actions by the Pensions Regulator or the trustees of our pension schemes or any material revisions to the existing pension legislation could result in us being required to incur significant additional costs immediately or in short timeframes. Such costs, in turn, could have an adverse effect on our financial condition. Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition. International Financial Reporting Standards and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment, impairment of goodwill and other intangible assets, inventories, lease obligations, self-insurance, tax matters and litigation, are complex and involve many subjective assumptions, estimates and judgments. Changes in accounting standards or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our reported or expected financial performance or financial condition. Specifically, changes to financial accounting standards will require operating leases to be recognized on our balance sheet. We have significant obligations relating to our current operating leases. The International Accounting Standards Board released IFRS 16, ‘‘Leases’’ (‘‘IFRS 16’’) replacing IAS 17, ‘‘Leases’’. This standard requires lessees to recognize assets and liabilities for most leases. The new standard will be effective for annual periods beginning on or after January 1, 2019, so will be effective for the Group for the year ending July 31, 2020. The Company has performed a preliminary assessment of the potential impact of the adoption of IFRS 16 on its consolidated financial statements. The Company expects the adoption of IFRS 16 will have a significant impact as the Company will recognize new assets and liabilities for its operating leases. In addition, the nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities. The Company has not yet determined which transition method it will apply or whether it will use the optional exemptions or practical expedients under the standard. As a result, it is not yet practicable to provide a reliable estimate of the financial impact the application of IFRS 16 will have on the Group’s consolidated financial results.

33 Risks Relating to the Notes Our corporate structure means that the Issuer and the Guarantors are dependent on other Group Company loan payments or distributions to them to be able to satisfy their respective obligations with respect to the Notes and the Guarantees, and the claims of creditors of subsidiaries of the Guarantors may be structurally senior to claims on the Notes and the Guarantees. The Issuer is a finance vehicle, the primary business of which is the raising of money for the purpose of on-lending to other members of the Group. Upon issuance of the Notes, the Issuer’s only substantial asset will be a receivable on the loan of the net proceeds of the Notes to another Group company. The ability of the Issuer to satisfy its obligations in respect of the Notes depends upon payments being made to it on such proceeds loan. The Parent Guarantor and Subsidiary Guarantor are each a holding company for the Group and both rely upon distributions from Group subsidiaries to generate funds necessary to meet their obligations, including any payments under the Guarantees. These operating subsidiaries have not guaranteed the Notes, and have no obligation, contingent or otherwise, to pay amounts due under the Notes or the Guarantees or to make funds available for these payments, whether in the form of loans, dividends or otherwise. The ability of the operating subsidiaries to make dividend or other payments to the Guarantors will depend on their cash flows and earnings which, in turn, will be affected by all of the factors discussed herein. In addition, under the corporate laws of many jurisdictions, including the United Kingdom, the ability of some subsidiaries to pay dividends is limited to the amount of distributable reserves of such companies. The Notes and the Guarantees will not be secured by any of the Issuer’s or the Guarantors’ assets or those of their subsidiaries. The obligations of the Issuer under the Notes are unsecured and rank equally in right of payment with all unsecured, unsubordinated obligations of the Issuer. The obligations of the Guarantors under the Guarantees are unsecured and rank equally with all unsecured, unsubordinated obligations of the Guarantors. As a result, the Notes and the Guarantees are effectively subordinated to any secured debt that the Issuer or the Guarantors may incur. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of the Issuer’s or the Guarantors’ secured debt may assert rights against the secured assets in order to receive full payment of their debt before the assets may be used to pay the holders of the Notes. Holders of the Notes will have a direct claim based on the Notes against the Issuer and based on the Guarantees against the Guarantors, but will not have a direct claim based on the Notes or the Guarantees against any of our operating subsidiaries. The right of the Holders of the Notes to receive payments under the Notes and the Guarantees may be structurally subordinated to liabilities of our operating subsidiaries. As of July 31, 2018, the Group had consolidated gross debt of $1,905 million, of which $1,651 million was at the subsidiary level. The Group may incur substantial additional indebtedness in the future. The Indenture does not place any limitation on the amount of unsecured debt that may be incurred by the Guarantors or any of their subsidiaries (including the Issuer). There is no assurance to holders of the Notes that there will be sufficient assets to pay amounts due on the Notes or the Guarantees. The Consolidated Financial Statements may be of limited use in assessing the financial position of the Guarantors. The Consolidated Financial Statements include both guarantor and non-guarantor companies on a consolidated basis. As the non-guarantor companies collectively represent greater than 25% of Group adjusted EBITDA and net consolidated assets the Consolidated Financial Statements may be of limited use in assessing the financial position of the Guarantors on a standalone basis. We may incur substantially more debt in the future. We may incur substantial additional indebtedness in the future, including in connection with future acquisitions, some of which may be secured by some or all of our assets. The Notes and the Indenture will not limit the amount of indebtedness we may incur. Any such incurrence of additional indebtedness could exacerbate the related risks that we now face.

34 Ratings for the Notes may not reflect all risks of an investment in the Notes. The Notes will be rated by S&P and Moody’s. Any rating is not a recommendation to purchase, sell or hold any particular security, including the Notes and each agency’s rating should be evaluated independently of any other agency’s rating. These ratings are limited in scope and do not comment as to market price or suitability for a particular investor. The ratings for the Notes may not reflect the potential impact of all risks related to structure and other factors on any trading market for, or trading value of, the Notes. In addition, ratings may at any time be lowered or withdrawn in their entirety, including as a result of developments that are beyond our control. Actual or anticipated changes or downgrades in the ratings for the Notes could affect the market value of the Notes. We may redeem the Notes for certain tax reasons. We may redeem the Notes at any time in whole (but not in part) upon the occurrence of certain tax events, as more particularly described under ‘‘Description of the Notes and the Guarantees – Redemption for Tax Reasons.’’ Certain of such events may occur at any time after the Issue Date and it is therefore possible that we would be able to redeem the Notes at any time after the Issue Date. If we redeem the Notes in any of the circumstances mentioned above, you may not be able to reinvest the redemption proceeds in securities offering a comparable yield. The transfer of the Notes is restricted, which may adversely affect their liquidity and the price at which they may be sold. The Notes have not been registered under, and the Issuer is not obliged to register the Notes under, the Securities Act or the securities laws of any state or other jurisdiction of the United States and, unless so registered, the Notes may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any other applicable laws. See ‘‘Important Information – Notice to Investors in the United States.’’ The Issuer has not agreed to, or otherwise undertaken to, register the Notes under the Securities Act or the securities laws of any state or other jurisdiction of the United States or to effect any exchange offer for the Notes in the future, and the Issuer has no intention to do so. The Notes may only be transferred to purchasers outside the United States in offshore transactions to non-U.S. persons pursuant to Regulation S or to qualified institutional buyers within the United States pursuant to Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the regulation requirements of the Securities Act. You should read the discussion under the heading ‘‘Transfer Restrictions’’ for further information about the transfer restrictions that apply to the Notes. It is your obligation to ensure that your offers and sales of the Notes within the United States and other countries comply with all applicable securities laws. There is no established trading market for the Notes and one may not develop. The Notes will be new securities for which there currently is no established trading market. The Notes have not been, and will not be, registered under the Securities Act and will be subject to significant restrictions on resale. See ‘‘Transfer Restrictions’’. There can be no assurance regarding the future development of a market for the Notes or the ability of Noteholders to sell their Notes or the price at which such Noteholders may be able to sell their Notes. If such a market were to develop, the Notes could trade at prices that may be lower than the initial offering prices depending on many factors, including prevailing interest rates, our operating results and the market for similar securities. Therefore, there can be no assurance as to the liquidity of any trading market for the Notes or that active markets for the Notes will develop. Investors in the Notes may have limited recourse against the Auditors. See ‘‘Presentation of Financial, Market and Other Information’’ for a description of the Auditors’ reports on the Group Consolidated Financial Statements included on pages 52 to 53 of this Offering Memorandum, including language purporting to limit the auditors’ scope of duty in relation to such reports and the various financial statements to which they relate. In particular, the Auditors’ reports, in

35 accordance with guidance issued by The Institute of Chartered Accountants in England and Wales, includes the following wording with respect to the Group 2018 Consolidated Financial Statements: ‘‘This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies(Jersey) Law, 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those further any further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for our report, or for the opinions we have formed.’’ and with respect to the Group 2017 Consolidated Financial Statements: ‘‘This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.’’ Investors in the Notes should understand that these statements are intended to disclaim any liability to parties (such as the purchasers of the Notes) other than the members of the Group with respect to those reports. The SEC would not permit such limiting language to be included in a registration statement or a prospectus used in connection with an offering of securities registered under the Securities Act or in a report filed under the Exchange Act. If a U.S. court (or any other court) were to give effect to the language quoted above, the recourse that investors in the Notes may have against the Auditors based on their reports or the consolidated financial statements to which they relate could be limited. Enforcement of United States judgments may be difficult. The Company is a public limited company registered in Jersey, the Subsidiary Guarantor is a private limited company organized under the laws of England and Wales and the Issuer is a public limited company registered in England and Wales, and a portion of all their respective assets are located in jurisdictions outside the United States. Accordingly, it could be difficult for holders of Notes to recover against the Issuer and the Company on judgments of United States courts predicated upon civil liabilities under the U.S. federal securities laws. See ‘‘Service of Process and Enforceability of Certain Civil Liabilities’’.

36 CAPITALIZATION The following table sets out the cash and cash equivalents, total debt and total equity of the Group as at July 31, 2018, and capitalization of the Group, as at July 31, 2018. You should read the following tables together with ‘‘Use of Proceeds’’, ‘‘Operating and Financial Review’’, ‘‘Description of the Notes and the Guarantee’’ and the 2018 Consolidated Financial Statements and the notes thereto included in this Offering Memorandum:

At July 31, 2018 Actual As Adjusted $ million Cash and cash equivalents ...... 833 1,583(1) Debt: Bank loans and overdrafts(2) ...... 1,905 1,905 Notes offered hereby ...... - 750 Total Debt ...... 1,905 2,655 Equity: Share capital ...... 45 45 Share premium ...... 67 67 Reserves ...... 3,946 3,946 Equity attributable to equity shareholders of the Company ...... 4,058 4,058 Non-controlling interest ...... (1) (1) Total Equity ...... 4,057 4,057 Total capitalization ...... 5,962 6,712

(1) Excludes $7.5 million of underwriting discount and estimated offering expenses. (2) Of which $383 million was current. Included in bank overdrafts at July 31, 2018 is an amount of $255 million which is part of the Group’s cash pooling arrangements where there is an equal and opposite balance included within cash and cash equivalents. These amounts are subject to a master netting arrangement.

37 USE OF PROCEEDS We estimate the net proceeds to us from our sale of Notes to be approximately $742,500,000 after deducting the underwriting discount and our estimated offering expenses. We will use the proceeds for general corporate purposes and to increase liquidity.

38 SELECTED FINANCIAL INFORMATION The following tables set forth selected historical consolidated financial data for the Group, as well as certain other financial and operating data. The selected historical consolidated financial data set forth below as of and for the years ended July 31, 2018, 2017 and 2016 has been derived from the audited Group Consolidated Financial Statements. This selected financial information is not necessarily representative of our results of operations for any future period or our financial condition at any future date. This selected historical financial information and other data should be read in conjunction with and are qualified in their entirety by reference to the financial statements, including the notes thereto included in this Offering Memorandum, and the information set forth under ‘‘Use of Proceeds’’, ‘‘Capitalization’’, ‘‘Summary Financial Information’’, ‘‘Operating and Financial Review’’, ‘‘Presentation of Financial, Market and Other Information’’ and ‘‘Description of the Group and its Business’’, each of which is included elsewhere in this Offering Memorandum. The Group Consolidated Financial Statements have been prepared in accordance with EU IFRS and have been audited, as stated in its audit reports included in this Offering Memorandum. Reported Consolidated Financial Information Income Statement

Year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) $ million £ million Revenue ...... 20,752 19,284 15,224 12,549 Cost of sales ...... (14,708) (13,701) (10,816) (8,957) Gross profit ...... 6,044 5,583 4,408 3,592 Operating costs: Amortization of acquired intangible assets ...... (65) (81) (64) (48) Impairment of goodwill and acquired intangible assets ...... - - - (94) Other ...... (4,619) (4,024) (3,120) (2,739) Operating costs ...... (4,684) (4,105) (3,184) (2,881) Operating profit ...... 1,360 1,478 1,224 711 Net finance costs ...... (53) (54) (43) (36) Share of profit/(loss) after tax of associate ...... 2 (1) (1) Impairment of interests in associates . (122) - - - Profit before tax ...... 1,187 1,423 1,180 675 Tax...... (346) (370) (292) (210) Profit from continuing operations ... 841 1,053 888 465 Profit/(loss) from discontinued operations ...... 426 (133) (105) 185 Profit for the year ...... 1,267 920 783 650

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.

39 Balance Sheet

As at July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million Assets Non-current assets ...... 3,545 3,142 2,378 2,920 Current assets ...... 6,453 7,700 5,827 5,175 Assets held for sale ...... 151 1,715 1,298 56 Total assets ...... 10,149 12,557 9,503 8,151 Liabilities Current liabilities ...... 4,016 5,399 4,086 3,537 Non-current liabilities ...... 2,076 1,533 1,160 1,701 Liabilities held for sale ...... - 1,085 821 12 Total liabilities ...... 6,092 8,017 6,067 5,250 Net assets ...... 4,057 4,540 3,436 2,901 Equity Equity attributable to shareholders of the Company ...... 4,058 4,543 3,438 2,903 Non-controlling interest ...... (1) (3) (2) (2) Total equity ...... 4,057 4,540 3,436 2,901

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

Cash Flow Statement

Year ended July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million Net cash generated from operating activities ...... 1,036 950 752 787 Net cash generated from / (used in) investing activities ...... 700 (209) (167) (266) Net cash used by financing activities . (1,857) (472) (374) (547) Net cash (used)/generated ...... (121) 269 211 (26) Effects of exchange rate changes .... (7) (13) (15) 18 Net (decrease)/increase in cash, cash equivalents and bank overdrafts . . . (128) 256 196 (8) Cash, cash equivalents and bank overdrafts at the beginning of the year ...... 586 330 248 256 Cash, cash equivalents and bank overdrafts at the end of the year . . 458 586 444 248

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

40 Other Financial Data The following table sets forth the Group’s certain other financial data for the years ended July 31, 2018, 2017 and 2016, respectively.

As at or year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) ($ million, except as otherwise (£ million, except as otherwise indicated) indicated) Revenue ...... 20,752 19,284 15,224 12,549 Ongoing revenue(3) ...... 20,752 18,845 14,878 12,146 Organic revenue growth(3) ...... 7.5% 6.0% 6.0% 3.3% Profit for the year ...... 1,267 920 783 650 Operating profit ...... 1,360 1,478 1,224 711 Trading profit(3) Trading profit from ongoing operations(3) ...... 1,507 1,307 1,032 827 Trading profit from non-ongoing operations(3) ...... - 34 27 30 Trading profit from continuing operations(3) ...... 1,507 1,341 1,059 857 Ongoing trading margin(3) ...... 7.3% 6.9% 6.9% 6.8% Profit for the year ...... 1,267 920 783 650 Adjusted EBITDA(3) ...... 1,687 1,519 1,199 971 Net debt(3) ...... 1,080 706 534 936

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’.

41 The following table sets forth a breakdown of revenue, revenue from ongoing operations, organic revenue growth, like-for-like revenue growth, operating profit, trading profit from ongoing operations, ongoing trading margin for the Group’s operating segments the years ended July 31, 2018, 2017 and 2016.

Year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) $ million, except as otherwise £ million, except as otherwise indicated indicated United States Segment Revenue ...... 16,670 15,193 11,994 9,456 Ongoing revenue(3) ...... 16,670 14,977 11,824 9,288 Organic revenue growth(3) ...... 9.9% 7.3% 7.3% 4.8% Operating profit ...... 1,343 1,231 998 743 Trading profit from ongoing operations(3) ...... 1,406 1,204 950 761 Ongoing trading margin(3) ...... 8.4% 8.0% 8.0% 8.2% United Kingdom Segment Revenue ...... 2,568 2,548 2,012 1,996 Ongoing revenue(3) ...... 2,568 2,548 2,012 1,996 Like-for-like revenue growth(3) .... 0.7% 1.0% 1.0% (1.6)% Operating profit/(loss) ...... 3 61 48 (41) Trading profit from ongoing operations(3) ...... 73 96 76 74 Ongoing trading margin(3) ...... 2.8% 3.8% 3.8% 3.7% Canada and Central Europe Segment Revenue ...... 1,514 1,543 1,218 1,097 Ongoing revenue(3) ...... 1,514 1,320 1,042 862 Organic revenue growth(3) ...... 6.9% 3.5% 3.5% (0.6)% Operating profit ...... 76 245 224 51 Trading profit from ongoing operations(3) ...... 83 57 45 37 Ongoing trading margin(3) ...... 5.5% 4.3% 4.3% 4.3% Total Revenue ...... 20,752 19,284 15,224 12,549 Ongoing revenue(3) ...... 20,752 18,845 14,878 12,146 Organic revenue growth(3) ...... 7.5% 6.0% 6.0% 3.3% Operating profit ...... 1,360 1,478 1,224 711 Trading profit from ongoing operations(3) ...... 1,507(4) 1,307(5) 1,032(6) 827(7) Ongoing trading margin(3) ...... 7.3% 6.9% 6.9% 6.8%

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (4) Includes $(55) million for Central and other costs. (5) Includes $(50) million for Central and other costs. (6) Includes £(39) million for Central and other costs. (7) Includes £(45) million for Central and other costs.

42 Reconciliations to Reported Financial Data Constant exchange rates The Group measures some financial metrics on both a reported basis and at constant exchange rates. The constant exchange rate basis re-translates the prior year at the current year exchange rate to eliminate the effect of exchange rate fluctuations when comparing information year-on-year.

Year ended July 31, 2017 2016 Constant exchange rates 2018 (Restated)(1) 2017 (Restated)(2) $ million, except as otherwise £ million, except as otherwise indicated indicated Revenue Ongoing revenue(3) ...... 20,752 18,845 14,878 12,146 Impact of exchange rates ...... - 229 - 1,550 At constant exchange rates(3) ..... - 19,074 - 13,696 Constant currency growth ...... 8.8% - 8.6% - Trading profit Ongoing trading profit(3) ...... 1,507 1,307 1,032 827 Impact of exchange rates ...... - 7 - 122 At constant exchange rates(3) ..... - 1,314 - 949 Constant currency growth ...... 14.7% - 8.7% -

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. United Kingdom like-for-like revenue growth Management uses like-for-like revenue growth as it provides a consistent measure of the percentage increase/decrease in revenue year-on-year, excluding the effect of currency exchange, net closed branches, trading days and acquisitions and disposals.

Year ended July 31, UK like-for-like revenue growth (at constant exchange 2016 rates) 2018 2017 (Restated)(1) $ million, except as £ million, except as otherwise indicated otherwise indicated Prior year ongoing revenue(2) ...... 2,548 1,996 1,987 Impact of exchange rates ...... 162 - - Prior year ongoing revenue at constant exchange rates ...... 2,710 1,996 1,987 Growth from Net closed branches ...... (162) (12) (6) Like-for-like ...... 20 20 (32) Trading days ...... - 8 (6) Acquisitions and divestments ...... - - 53 Current year ongoing revenue(2) ...... 2,568 2,012 1,996 Current year like-for-like revenue growth(2)(3) . 0.7% 1.0% (1.6)% UK current year revenue ...... 2,548 UK prior year revenue ...... 2,568 Revenue growth(4) ...... 0.8%

(1) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (2) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (3) This is calculated as like-for-like revenue divided by ongoing revenue at constant exchange rates (prior year). (4) This is calculated as revenue less prior year revenue, divided by prior year revenue.

43 Reconciliation of organic revenue growth by segment and in total to revenue by segment and in total Management uses organic revenue growth as it provides a consistent measure of the percentage increase/decrease in revenue year-on-year, excluding the effect of currency exchange, trading days and acquisitions and disposals. The Group uses organic revenue growth both in total and by segment.

Year ended July 31, 2018 2017 (Restated)(1) $ million Canada & Central & Canada & Central & United United Central other United United Central other States Kingdom Europe costs Group States Kingdom Europe costs Group Prior year ongoing revenue . . 14,977 2,548 1,320 - 18,845 13,562 2,915 1,259 - 17,736 Impact of exchange rates .... - 162 67 - 229 - (387) (2) - (389) Prior year ongoing revenue at current year exchange rates . . 14,977 2,710 1,387 - 19,074 13,562 2,528 1,257 - 17,347 Growth from Organic growth ...... 1,487 (142) 94 - 1,439 996 9 44 - 1,049 Trading days ...... - - - - - 58 11 8 - 77 Acquisitions and divestments . 206 - 33 - 239 361 - 11 - 372 Current year ongoing revenue . 16,670 2,568 1,514 - 20,752 14,977 2,548 1,320 - 18,845 Organic ongoing revenue growth(3)(4) ...... 9.9% (5.2)% 6.8% - 7.5% 7.3% 0.4% 3.5% - 6.0% Prior year revenue ...... 15,193 2,548 1,543 - 19,284 Current year revenue ...... 16,670 2,568 1,514 - 20,752 Revenue growth(5) ...... 9.7% 0.8% (1.9)% - 7.5%

Year ended July 31, 2017 2016 (Restated)(2) £ million Canada & Central & Canada & Central & United United Central other United United Central other States Kingdom Europe costs Group States Kingdom Europe costs Group Prior year ongoing revenue . . 9,288 1,996 862 - 12,146 8,176 1,987 872 - 11,035 Impact of exchange rates .... 1,419 - 131 - 1,550 558 - (28) - 530 Prior year ongoing revenue at current year exchange rates . . 10,707 1,996 993 - 13,696 8,734 1,987 844 - 11,565 Growth from Organic growth ...... 786 8 34 - 828 420 (38) 5 - 387 Trading days ...... 46 8 6 - 60 (39) (6) (1) - (46) Acquisitions and divestments . 285 - 9 - 294 173 53 14 - 240 Current year ongoing revenue . 11,824 2,012 1,042 - 14,878 9,288 1,996 862 - 12,146 Organic ongoing revenue growth(3)(4) ...... 7.3% 0.4% 3.5% - 6.0% 4.8% (1.9)% 0.6% - 3.3% Prior year revenue ...... 9,456 1,996 1,097 - 12,549 Current year revenue ...... 11.994 2,012 1,218 - 15,224 Revenue growth(5) ...... 26.8% 0.8% 11.1% - 21.3%

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

(2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.

(3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information— Reconciliations to Reported Financial Data’’.

(4) This is calculated as organic revenue divided by ongoing revenue at constant exchange rates (prior year).

(5) This is calculated as revenue less prior year revenue, divided by prior year revenue.

(6) This prior period ongoing revenue at constant exchange rates was calculated by management.

44 Reconciliation of ongoing revenue and to revenue (from continuing operations)

Year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) $ million, except as otherwise £ million, except as otherwise indicated indicated Revenue United States ...... 16,670 15,193 11,994 9,456 United Kingdom ...... 2,568 2,548 2,012 1,996 Canada and Central Europe ...... 1,514 1,543 1,218 1,097 Total revenue ...... 20,752 19,284 15,224 12,549 Non-ongoing revenue(3) United States ...... - 216 170 168 United Kingdom ...... ---- Canada and Central Europe ...... - 223 176 235 Total non-ongoing revenue ...... - 439 346 403 Ongoing revenue(3) United States ...... 16,670 14,977 11,824 9,288 United Kingdom ...... 2,568 2,548 2,012 1,996 Canada and Central Europe ...... 1,514 1,320 1,042 862 Total ongoing revenue ...... 20,752 18,845 14,878 12,146

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’.

Reconciliation of ongoing gross margin to gross profit (from continuing operations)

Year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) $ million, except as otherwise £ million, except as otherwise indicated indicated Ongoing revenue(3) ...... 20,752 18,845 14,878 12,146 Revenue ...... 20,752 19,284 15,224 12,549 Gross profit ...... 6,044 5,583 4,408 3,592 Non-ongoing gross profit(3) ...... - (138) (109) (130) Exceptional items(3) ...... 19321 Ongoing gross profit(3) ...... 6,063 5,448 4,301 3,463 Ongoing gross profit margin(3)(4) .... 29.2% 28.9% 28.9% 28.5% Gross margin(5) ...... 29.1% 29.0% 29.0% 28.6%

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (4) This is calculated as ongoing gross profit divided by ongoing revenue. (5) This is calculated as gross profit divided by revenue.

45 Reconciliation of trading profit to profit for the year

Year ended July 31, 2017 2017 2017 2018 (Restated)(1) 2018 (Restated)(1) 2018 (Restated)(1) Continuing operations Non-ongoing operations Ongoing operations $ million Profit for the year .... 1,267 920 (Profit)/loss from discontinued operations ...... (426) 133 Tax...... 346 370 Impairment of interests in associates ...... 122 - Share of profit/(loss) after tax of associate . (2) 1 Net finance costs ..... 53 54 Operating profit ...... 1,360 1,478 - 299 1,360 1,179 Amortisation and impairment of acquired intangible assets ...... 65 81 - - 65 81 Exceptional items from operating profit(2) . . . 82 (218) - (265) 82 47 Trading profit(2) ...... 1,507 1,341 - 34 1,507 1,307 Ongoing revenue(2) .... 20,752 18,845 Ongoing trading margin(2) ...... 7.3% 6.9% Revenue ...... 20,752 19,284 Profit margin(3) ...... 6.1% 4.8%

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (3) Profit margin is calculated as profit for the year divided by revenue.

46 Year ended July 31, 2016 2016 2016 2017 (Restated)(1) 2017 (Restated)(1) 2017 (Restated)(1) Continuing operations Non-ongoing operations Ongoing operations £ million Profit for the year .... 783 650 (Profit)/loss from discontinued operations ...... 105 (185) Tax...... 292 210 Share of profit/(loss) after tax of associate . 1 - Net finance costs ..... 43 36 Operating profit ...... 1,224 711 291 33 933 678 Amortisation and impairment of acquired intangible assets ...... 64 142 - - 64 142 Impairment of interests in associates ...... ------Exceptional items from operating profit(2) . . . (229) 4 (264) (3) 35 7 Trading profit(2) ...... 1,059 857 27 30 1,032 827 Ongoing revenue(2) .... 14,878 12,146 Ongoing trading margin(2) ...... 6.9% 6.8% Revenue ...... 15,224 12,549 Profit margin(3) ...... 5.1% 5.2%

(1) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (2) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (3) Profit margin is calculated as profit for the year divided by revenue.

Reconciliation of ongoing trading profit by segment to trading profit by segment

Year ended July 31, 2018 2017 (Restated)(1) $ million Canada Central Canada Central United United & Central & other United United & Central & other States Kingdom Europe costs Group States Kingdom Europe costs Group Trading profit . . 1,406 73 83 (55) 1,507 1,224 96 71 (50) 1,341 Trading profit from non-ongoing operations(2)(3) . - - - - - 20 - 14 - 34 Trading profit from ongoing operations(2) . . 1,406 73 83 (55) 1,507 1,204 96 57 (50) 1,307 Ongoing revenue 16,670 2,568 1,514 - 20,752 14,977 2,548 1,320 - 18,845 Ongoing trading margin ..... 8.4% 2.8% 5.5% - 7.3% 8.0% 3.8% 4.3% - 6.9%

47 Year ended July 31, 2017 2016 (Restated)(4) £ million Canada Central Canada Central United United & Central & other United United & Central & other States Kingdom Europe costs Group States Kingdom Europe costs Group Trading profit ...... 966 76 56 (39) 1,059 775 74 53 (45) 857 Trading profit from non-ongoing operations(2)(5)(6) ..... 16 - 11 - 27 14 - 16 - 30 Trading profit from ongoing operations(2) . . 950 76 45 (39) 1,032 761 74 37 (45) 827 Ongoing revenue ...... 11,824 2,012 1,042 - 14,878 9,288 1,996 862 - 12,146 Ongoing trading margin . 8.0% 3.8% 4.3% - 7.0% 8.2% 3.7% 4.3% - 6.8%

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (3) Trading profit from non-ongoing operations in 2017 consists of $20 million related to the United States and $14 million related to Canada and Central Europe. The United States trading profit from non-ongoing operations includes $217 million related to revenue, less $153 million related to cost of sales and $131 million related to operating expenses plus $87 million related to exceptional items from operating profit. The Canada and Central Europe trading profit from non-ongoing operations includes $222 million related to revenue, less $147 million related to cost of sales and $238 million related to operating expenses plus $177 million related to exceptional items from operating profit. (4) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (5) Trading profit from non-ongoing operations in 2017 consists of £16 million related to the US and $11 million related to Canada and Central Europe. The United States trading profit from non-ongoing operations includes £171 million related to revenue, less £120 million related to cost of sales and £129 million related to operating expenses plus £94 million related to exceptional items from operating profit. The Canada and Central Europe trading profit from non-ongoing operations includes £175 million related to revenue, less £116 million related to cost of sales and £218 million related to operating expenses plus £170 million related to related to exceptional items from operating profit. (6) Trading profit from non-ongoing operations in 2016 consists of £14 million related to the US and $16 million related to Canada & Central Europe. The United States trading profit from non-ongoing operations includes £168 million related to revenue, less £120 million related to cost of sales and £35 million related to operating expenses. The Canada and Central Europe trading profit from non-ongoing operations includes £234 million related to revenue, less £154 million related to cost of sales and £68 million related to operating expenses plus £3 million related to exceptional items from operating profit.

Reconciliation of Adjusted EBITDA to profit for the year

Year ended July 31, 2018 2017 (Restated)(1) Continuing Discontinued Continuing Discontinued $ million $ million Profit for the year ...... 1,267 - 920 - (Profit)/loss from discontinued operations ...... (426) 426 133 (133) Tax...... 346 31 370 (3) Share of profit/(loss) after tax of associate ...... (2) - 1 - Net finance costs ...... 53 4 54 (5) Amortisation and impairment of acquired intangible assets ...... 65 - 81 135 Impairment of interests in associates . 122 - - - Depreciation, amortization and impairment of property, plant and equipment and software ...... 180 - 178 33 Exceptional items from operating profit ...... 82 (402) (218) 86 Adjusted EBITDA(3) ...... 1,687 59 1,519 113

48 Year ended July 31, 2017 2016 (Restated)(2) Continuing Discontinued Continuing Discontinued £ million £ million Profit for the year ...... 783 - 650 - Profit/(loss) from discontinued operations ...... 105 (105) (185) 185 Tax...... 292 2 210 26 Share of profit/(loss) after tax of associate ...... 1 - - - Net finance costs ...... 43 (4) 36 (2) Amortisation and impairment of acquired intangible assets ...... 64 106 142 5 Impairment of interests in associates . - - Depreciation, amortization and impairment of property, plant and equipment and software ...... 140 27 114 26 Exceptional items from operating profit ...... (229) 68 4 (155) Adjusted EBITDA(3) ...... 1,199 90 971 85

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’.

Reconciliation of Group total debt to net debt

Year ended July 31, 2017 2018 (Restated)(1) 2017 2016 $ million, except as otherwise £ million, except as otherwise indicated indicated Current debt Derivative financial liabilities ..... (2) - - - Bank loans and overdrafts ...... (383) (2,150) (1,627) (701) Obligations under finance leases . . . (3) (4) (3) (4) Total current debt ...... (388) (2,154) (1,630) (705) Non-current debt Derivative financial liabilities ..... (17) - - - Bank loans ...... (1,522) (1,098) (831) (1,175) Obligations under finance leases . . . (3) (5) (4) (27) Total non-current debt ...... (1,542) (1,103) (835) (1,202) Total current and non-current debt .. (1,930) (3,257) (2,465) (1,907) Cash and cash equivalents ...... 833 2,525 1,911 940 Derivative financial assets ...... 17 26 20 31 Net debt(2) ...... (1,080) (706) (534) (936) Gross debt(3) ...... (1,905) (3,248) (2,458) (1,876)

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (3) Gross debt is the sum of current and non-current bank loans and overdrafts.

49 Reconciliation of cash conversion

Year ended July 31, 2016 2018 2017 2017 (Restated)(1) $ million, except as otherwise £ million, except as otherwise stated stated Adjusted EBITDA from continuing operations(3) ...... 1,687 1,519 1,199 971 Adjusted EBITDA from discontinued operations(3) ...... 59 113 90 85 Adjusted EBITDA from continuing and discontinued operations(3) .... 1,746 1,632 1,289 1,056 Cash generated from operations .... 1,323 1,410 1,115 1,019 Cash conversion(2)(3) ...... 76% 86% 87% 96% Profit for the year ...... 1,267 920 783 650 EU IFRS Cash conversion(4) ...... 104% 153% 142% 157%

(1) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (2) Cash generated from operations divided by Adjusted EBITDA from continuing and discontinued operations. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (4) This is calculated as cash generated from operations divided by profit for the year.

50 OPERATING AND FINANCIAL REVIEW This ‘‘Operating and Financial Review’’ section is intended to convey management’s perspective on our operational performance and financial performance as measured in accordance with EU IFRS. We intend this disclosure to assist readers in understanding and interpreting the financial statements included in this Offering Memorandum. This section is based on, and should be read in conjunction with, the Group Consolidated Financial Statements which are included in this Offering Memorandum, as well as the ‘‘Presentation of Financial, Market and Other Information’’ section. In this analysis, all references to ‘‘FY2018’’ are to the year ended July 31, 2018, ‘‘FY2017’’ are to the year ended July 31, 2017 and ‘‘FY2016’’ are to the year ended July 31, 2016. The following discussion also contains trend information and forward-looking statements. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Offering Memorandum, particularly under ‘‘Forward-Looking Statements’’ and ‘‘Risk Factors’’. We make reference herein to certain non EU IFRS financial information. See ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’. Overview of Our Business We are a world leading specialist distributor of plumbing and heating products. We supply plumbing and heating products to professional contractors and consumers and principally serve the RMI markets, as well as the new construction market. We hold leading positions in a number of the markets in which we operate. We create value by bridging the gap between our suppliers and customers, providing our suppliers a cost-effective route to market, specialist advice to our customers and a wide range of products where and when they are required. We have a diverse supplier base and source over one million products from approximately 43,000 suppliers around the world in the year ended July 31, 2018, in order to supply approximately one million customers for their plumbing and heating projects for the same period. We have a network of 19 distribution centers and 2,280 branches (as at July 31, 2018) and also, in certain circumstances, arrange direct delivery of products from our suppliers to our customers. We operate in three geographic regions, the United States, the United Kingdom and Canada and Central Europe, each of which is an operating segment for financial reporting purposes: United States. We are progressively focusing more resources on our businesses in the United States, which generated 93.3% of our trading profit in 2018. The Group operates several business units in the United States, principally under the Ferguson Enterprises brand, offering different categories of plumbing and heating products and solutions to fit our customers’ needs. Most of the business units predominantly serve trade customers with a smaller number also serving retail consumers and remodeling contractors. Each business unit is aligned around specialist customer needs and has its own competitors which range from large national companies, including trade sales by large home improvement chains, to small, privately owned supply houses. As a large distributor of plumbing and heating products in the United States, we hold leading market positions in the majority of our businesses, including our largest business unit, Blended Branches (discussed further below). These markets are typically highly fragmented with few large competitors and we compete with many small local distributors. Consequently, there continues to be excellent opportunities to grow our business geographically, particularly in large metropolitan areas across the United States. As at July 31, 2018, our United States business had 26,501 employees (who we call associates), operating through 1,448 branches, which are in turn served by 10 distribution centers. United States segment revenues were $16,670 million, $15,193 million (£11,994 million) and £9,456 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 80.3%, 78.8% and 75.4% of the Group’s total revenues for the years ended July 31, 2018, 2017 and 2016, respectively. United States segment trading profit was $1,406 million, $1,224 million (£966 million) and £775 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 93.3%, 91.3% and 90.4% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively.

51 United Kingdom. In the United Kingdom, we principally operate under the Wolseley brand. Our United Kingdom business is predominantly active in the trade plumbing and heating markets and has relatively low exposure to the new residential construction market. The businesses provide plumbing and heating products primarily to trade customers in the residential and commercial sectors, for RMI purposes. The United Kingdom business is currently in the second year of a major restructuring program to improve service to customers, performance and profitability, which the Company believes has lowered our cost base by approximately $30 million per year. As at July 31, 2018, our United Kingdom business had 5,617 associates operating through 567 branches covering the entire country, which are in turn served by six distribution centers (five of which serve the Wolseley branded United Kingdom business and one which serves our online United Kingdom business) providing same and next day product availability, a key service offering to our customers. United Kingdom segment revenues were $2,568 million, $2,548 million (£2,012 million) and £1,996 million for the years ended years ended July 31, 2018, 2017 and 2016, respectively. This represented 12.4%, 13.2% and 15.9% of the Group’s total revenues for the years ended years ended July 31, 2018, 2017 and 2016, respectively. United Kingdom segment trading profit was $73 million, $96 million (£76 million) and £74 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 4.8%, 7.2% and 8.6% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. Canada and Central Europe. The Canada and Central Europe segment operates across two countries, Canada (79% of FY2018 Canada and Central Europe segment revenues) and the Netherlands (21% of FY2018 Canada and Central Europe segment revenues), servicing the residential, commercial and industrial sectors both in the RMI and new construction markets. As at July 31, 2018, the Canada and Central Europe segment had 3,167 associates. Wolseley Canada is the second largest distributor by revenue of plumbing, HVAC and refrigeration equipment, supplying products to residential and commercial contractors in Canada. It also supplies specialist water and waste water treatment systems to residential, commercial and municipal contractors, and supplies PVF solutions to industrial oil and gas customers. As at July 31, 2018, it had 230 branches serviced by three distribution centers across Canada. We have initiated the process to dispose of Wasco, our remaining business in Central Europe. The business has a strong leadership team and dedicated workforce and has consistently delivered strong financial performance, but there are few synergies with the other businesses in the Group. For the year ended July 31, 2018, Wasco contributed revenue of $322 million ($269 million for FY2017) and trading profit of $13 million ($8 million for FY2017). As at July 31, 2018, our Canada and Central Europe business had 3,167 associates, operating through 265 branches, which are in turn served by three distribution centers. Canada and Central Europe segment revenues were $1,514 million, $1,543 million (£1,218 million) and £1,097 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 7.3%, 8.0% and 8.7% of the Group’s total revenues for the years ended July 31, 2018, 2017 and 2016, respectively. Canada and Central Europe segment trading profit were $83 million, $71 million (£56 million) and £53 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 5.5%, 5.3% and 6.2% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. Presentation of Financial Information General The Company reports consolidated financial information in accordance with EU IFRS. The consolidation perimeter of the Company comprises the Company and all its subsidiaries. The preparation of our financial statements in conformity with EU IFRS requires the use of certain critical accounting estimates (see ‘‘—Accounting Policies and Critical Estimates and Judgements’’). It also requires our management to exercise its judgment in the process of applying our accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Group Consolidated Financial Statements, are disclosed in the applicable financial statements and discussed in ‘‘—Accounting Policies and Critical Estimates and Judgements’’.

52 Please also refer to the Auditors’ unqualified audit report on the 2018 Consolidated Financial Statements and 2017 Consolidated Financial Statements as a whole which includes the auditor’s description of the risks of material misstatement to those financial statements that had the greatest effect on the audits, the key audit procedures to address those risks and the findings from those procedures. Segments The Group’s reportable segments are the operating businesses overseen by distinct divisional management teams responsible for their performance. All reportable segments derive their revenue from a single business activity, the distribution of plumbing, heating or related products. The Group’s business is not highly seasonal and the Group’s customer base is highly diversified, with no individually significant customer. In accordance with IFRS 8 Operating Segments, we have identified three reportable segments, the United States, United Kingdom and Canada and Central Europe, based on the manner in which our services or products are internally reported to the Chief Operating Decision Maker (as defined in IFRS 8 Operating Segments). Results restatements Up until the year ended July 31, 2017, the Group reported its results in pounds sterling and its main currency exposure arose on the translation of overseas earnings into pounds sterling. From the year beginning August 1, 2017 onwards, the Group has presented its consolidated financial statements in U.S. dollars and, as the majority of revenue and trading profit is generated in U.S. dollars, the impact of foreign exchange rate movements has been reduced. In the year ended July 31, 2018, the Group sold its business and property assets in the Nordic Operation and, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the Nordic Operation has been classified as discontinued. Accordingly, the comparative financial information for the year ended July 31, 2016 included in the 2017 Consolidated Financial Statements has been restated for consistency and comparability to reflect the Nordic Operations as a discontinued operation. See ‘‘Presentation of Financial, Market and Other Information—Results Restatements’’ and Note 3 to the 2017 Consolidated Financial Statements. Non-EU IFRS measures In this Offering Memorandum, we present certain financial measures that are not recognized by EU IFRS or any other internationally recognized generally accepted accounting principles. Such financial measures, included in this document, are (i) results presented on a constant exchange basis, (ii) organic revenue growth, (iii) like-for-like revenue growth, (iv) organic revenue growth by segment, (v) revenue from non-ongoing operations, (vi) revenue from ongoing operations, (vii) gross profit from non-ongoing operations, (viii) gross profit from ongoing operations, (ix) ongoing gross margin, (x) trading profit from continuing operations, (xi) trading profit from non-ongoing operations, (xii) trading profit from ongoing operations, (xiii) ongoing trading margin, (xiv) trading profit from non-ongoing operations by segment, (xv) trading profit from ongoing operations by segment, (xvi) ongoing trading margin by segment, (xvii) adjusted EBITDA, (xviii) adjusted EBITDA from discontinued operations, (xix) net debt, and (xx) cash conversion rate. For further information on these non-EU IFRS measures including reconciliations to the nearest IFRS measures see ‘‘Presentation of Financial and Certain Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’, Note 2 to the 2018 Consolidated Financial Statements and Note 2 to the 2017 Consolidated Financial Statements each included in this Offering Memorandum and, in summary form, in the section titled ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’ in this Offering Memorandum. Non-EU IFRS financial measures have certain limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under EU IFRS. Because of such limitations, they should not be considered substitutes for the relevant EU IFRS measures. For further information on such limitations see ‘‘Presentation of Financial and Certain Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’.

53 Key factors affecting results of operations Our results of operations have been affected in the periods under review, and are expected to continue to be affected, by the following principal factors relating to our business. Market trends The residential, commercial, industrial and municipal construction markets in which the Group operates are sensitive to changes in the economy and, as a result, changes in the economic conditions in any of the Group’s geographic markets, particularly the United States, affect the Group’s business, financial condition and results of operations. Management monitors the strength of these markets through indicators of home improvement and repair spending and commercial/industrial construction spending. For example, in our residential RMI market management uses LIRA as it provides a short-term outlook of national home improvement and repair spending to homes in the United States. In our non-residential RMI market, management uses the AIA Billings Index as it is a leading economic indicator of construction activity and is widely seen as reflecting prospective construction spending. LIRA projections indicate continued growth in the United States. RMI market and the AIA Billing Index has been above 50 (the level which indicates growth in business activity across the architecture profession) for the last 12 months. In addition, in the United States, gross domestic product (‘‘GDP’’) growth has been more than 2% for the last 12 months. In the United Kingdom, the quarterly GDP growth rate has declined over the last 12 months, from 1.7% in the first quarter to 1.3% in the final quarter. Canadian GDP growth rate has decreased over the last 12 months, from a high of 3.1% in the first quarter to 1.9% in the final quarter of the year ended July 31, 2018. While the United States market, where the Group generates a significant portion of its revenue, has recently experienced several years of positive economic developments, distress in previous years in the global financial markets resulted in economic downturns in the United States and most of the other markets in which the Group operated, including in particular a sharp and significant decline in the construction industry that had an adverse effect on the Group. Exchange rates The Group has international operations, principally in the United States (80.3% of FY2018 revenues), the United Kingdom (12.4% of FY2018 revenues) and Canada and Central Europe (7.3% of FY2018 revenues), whose revenues are mainly denominated in the currencies of the countries in which the operations are located. Up until the year ended July 31, 2017, the Group reported its results in pounds sterling and its main currency exposure arose on the translation of overseas earnings into pounds sterling. From the year beginning August 1, 2017 onwards, the Group has presented its consolidated financial statements in U.S. dollars and, as the majority of revenue and trading profit is generated in U.S. dollars, the impact of foreign exchange rate movements has been reduced. The results of the non-U.S. dollar denominated subsidiaries were translated into U.S. dollars at the average exchange rate for the period in respect of the income statement, and at the relevant period end rate in respect of the balance sheet, in the 2018 Consolidated Financial Statements. The results of the non-pounds sterling denominated subsidiaries were translated into pounds sterling at the average exchange rate for the period in respect of the income statement, and at the relevant period end rate in respect of the balance sheet, in the 2017 Consolidated Financial Statements. Consequently, the Group’s reported results are affected by fluctuations in the rates of exchange between the U.S. dollar and the other currencies in which it receives revenues and incurs expenses. Certain information in this document and in the 2018 Consolidated Financial Statements and 2017 Consolidated Financial Statements are presented both on a reported basis and at constant exchange rates, which removes the translation effect of foreign exchange movements, to enable a better understanding of the underlying performance of each business in the context of the Group. For information on the actual exchange rates used in the preparation of the Group’s Consolidated Financial Statements, see ‘‘Operating and Financial Review—Presentation of Financial Information—Exchange rates’’).

54 In the years ended July 31, 2018 and 2017, these currency effects primarily reflect a movement of the average U.S. dollar exchange rate against the pound sterling, euro and Canadian dollar as follows:

Year ended July 31, 2017 2018 Strengthening/ Weakening (weakening) of dollar of dollar Pounds sterling ...... (6.4)% 13.3% Euro ...... (9.2)% 1.6% Canadian dollars ...... (4.0)% (0.2)% In the years ended July 31, 2017 and 2016, these currency effects primarily reflect a movement of the average pound sterling exchange rate against the U.S. dollar, euro and Canadian dollar as follows:

Year ended July 31, 2016 (Weakening)/ 2017 strengthening Weakening of of pounds pounds sterling sterling U.S. dollars ...... (15.3)% (6.8)% Euro ...... (13.5)% (0.8)% Canadian dollars ...... (15.5)% 4.1% Acquisitions and disposals The Group has historically generated growth through a combination of organic growth, and selectively pursuing acquisitions which are a small part of our growth model. During the years ended July 31, 2018, 2017 and 2016 the Group completed a total of 13, 11 and 16 acquisitions, respectively, investing $416 million, $331 million (£256 million) and £113 million, respectively in these acquisitions. Acquisitions are reflected in the Group’s financial statements as from the date of each acquisition. Accordingly, the full year effects of acquisitions on the income statement and cashflow statement of the Group are generally not reflected in the financial statements during the financial year in which such acquisitions are completed, but only in the following financial year. Since 2010 we have concluded a number of disposals in order to focus our business where the most attractive returns are available. During the years ended July 31, 2018, 2017 and 2016, the Group completed disposals in each of these years, respectively, receiving a total of $1,320 million, $300 million (£231 million) and £9 million, respectively, for these disposals, and which represented 13.0%, 2.4% and 0.1%, respectively, of the Group’s total assets. These acquisitions and disposals are detailed in Notes 28 and 29 to the 2018 Consolidated Financial Statements and Notes 30 and 31 to the 2017 Consolidated Financial Statements. Also see ‘‘Operating and Financial Review—Recent Developments’’. Significant restructuring initiatives Group restructuring costs in the United Kingdom segment were $72 million, $51 million (£40 million) and £10 million in years ended July 31, 2018, 2017 and 2016, respectively, primarily relating to the costs of staff redundancies, providing for future lease costs on closed branches and writing down the carrying amount of assets. Such charges have an adverse effect on the results of the Group’s operations. In October 2016, we announced a restructuring of our United Kingdom operations, which involves, for example, substantial cost reduction initiatives, exits of low return businesses, branch closures and staff reductions. These restructurings have impacted the financial results of the Group by increasing cash outflows whilst such restructurings are being implemented. When the costs of such restructurings are material, the Group records them as exceptional items on the face of the income statement. However, such costs are only expected to recur infrequently in future periods, due to the one-off nature of such restructurings. Conversely, such restructurings and initiatives often aim to reduce costs of the Group over time, and accordingly the profit may be higher, and costs and cash outflows lower, in

55 periods subsequent to those in which the restructurings are implemented, due to the ultimate effects of the restructuring. Labor The Group’s largest operating costs consists of staff costs, which were $2,913, $2,710 (£2,140 million) and £1,766 million in years ended July 31, 2018, 2017 and 2016, respectively, primarily consisting of wages and salaries, which were $2,608 (56% of total operating costs before exceptional items), $2,449 (£1,936 million) (57% of total operating costs before exceptional items), and £1,585 million (55% of total operating costs before exceptional items) in years ended July 31, 2018, 2017 and 2016, respectively. The average number of employees for continuing operations for the years ended July 31, 2018, 2017 and 2016 was 34,056, 33,511 and 32,269. Raw materials and commodities Parts of the Group’s business are dependent on commodities such as copper, steel and plastics, and fluctuations in the prices of these raw materials and commodities can affect the Group’s results of operations. In general, increases in such prices increase the Group’s operating costs and negatively impact its operating profit to the extent that such increases cannot be passed on to customers. Conversely, if competitive pressures allow the Group to hold prices despite relevant raw material prices falling, profitability can increase. Recent Developments Between July 31, 2018 and October 1, 2018, the Group completed five acquisitions and two investments, investing a total of $240 million. We have initiated the process to dispose of Wasco, our remaining business in Central Europe. The business has a strong leadership team and dedicated workforce and has consistently delivered strong financial performance, but there are few synergies with the other businesses in the Group. For the year ended July 31, 2018, Wasco contributed revenue of $322 million ($269 million for FY2017) and trading profit of $13 million ($8 million for FY2017). Principal Income Statement Items The following section presents our income statement line items derived from the Company’s Consolidated Income Statement for the year ended July 31, 2018. For a description of our key accounting policies see ‘‘—Accounting Policies and Critical Estimates and Judgements’’ in this section and Note 1 to the Group Consolidated Financial Statements. Revenue. Revenue is the amount receivable for the provision of goods and services falling within the Group’s ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade and early settlement discounts, value added tax and similar sales taxes. The Group acts as principal for direct sales which are delivered directly to the customer by the supplier. Revenue from the provision of goods is recognized when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are shipped to, or picked up by, the customer and title has passed to them. Revenue from services is recognized by reference to the stage of completion of the contract. Revenue from the provision of goods and services is only recognized when the amounts to be recognized are fixed or determinable and collectability is reasonably assured. Cost of sales. Cost of sales includes purchased goods, the cost of bringing inventory to its present location and condition and labor and overheads attributable to assembly and construction services. Gross profit. Gross profit is revenue less cost of sales. Operating costs. Operating costs includes labor, infrastructure, fleet, marketing and advertising, information technology and other administrative costs. Operating profit. Operating profit is Gross profit less operating costs. Finance costs. Finance costs consist of interest payable, including on bank loans and overdrafts; the unwind of fair value adjustments to senior unsecured loan notes and finance lease charges; net interest

56 expense or income on defined benefit obligations; and valuation gains or losses on financial instruments, including derivatives held at fair value through profit and loss. Share of result of associate. Share of result of associate represents the Group’s share of the profit or loss after tax of its associate undertakings. Tax. Tax expense reflects the taxes due or receivable in all applicable jurisdictions on estimated taxable profits or losses arising out of transactions in the relevant financial period. Profit from continuing operations. Profit from continuing operations represents the financial result from businesses that are not classified as discontinued under IFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’. Profit/(Loss) from discontinued operations. Profit/(Loss) from discontinued operations represents the post-tax profit or loss from business classified as discontinued under IFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’. Results of Operations The following is a discussion of our key operating metrics and results of operations comparing the years ended July 31, 2018, 2017 and 2016. Group Results of Operations for the Years Ended July 31, 2018 and 2017 (USD) The table below summarizes our income statement and certain other measures for the periods indicated and should be read in conjunction with, and is qualified in its entirety by reference to, the 2018 Consolidated Financial Statements and notes thereto, which are included in this Offering Memorandum.

Year ended July 31, 2017 2018 (Restated)(1) $ million Revenue ...... 20,752 19,284 Cost of sales ...... (14,708) (13,701) Gross profit ...... 6,044 5,583 Operating costs: Amortization of acquired intangible assets ...... (65) (81) Impairment of goodwill and acquired intangible assets ...... - - Other ...... (4,619) (4,024) Operating costs ...... (4,684) (4,105) Operating profit ...... 1,360 1,478 Net finance costs ...... (53) (54) Share of profit/(loss) after tax of associate ...... 2 (1) Impairment of interests in associates ...... (122) - Profit before tax ...... 1,187 1,423 Tax...... (346) (370) Profit from continuing operations ...... 841 1,053 Profit/(loss) from discontinued operations ...... 426 (133) Profit for the year ...... 1,267 920

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

57 Revenue Group revenue for the years ended July 31, 2018 and 2017 was $20,752 million and $19,284 million, respectively. The $1,468 million, or 7.6%, increase in Group revenue from 2017 to 2018 was principally a result of an organic increase in sales volumes and impact of trading days (which increased revenue by $1,439 million), movements in foreign exchange rates (which increased revenue by $229 million) and acquisitions (acquisitions completed in the years ended July 31, 2017 and 2018 increased revenues by $239 million), partly offset by disposal of businesses (which reduced revenue by $439 million). On an organic revenue growth basis, growth was 7.5% for the year ended July 31, 2018, due to strong performance of the market in the United States as well as inflation which accelerated in the second half of the year following the U.S. steel/commodity tariff announcements. Canada and Central Europe growth was broadly in line with the markets, whereas United Kingdom revenue was reduced by closed branches. Cost of sales Cost of sales for the years ended July 31, 2018 and 2017 was $14,708 million and $13,701 million, respectively. The $1,007 million, or 7.3%, increase in cost of sales from 2017 to 2018 was principally a result of the factors discussed above. Gross profit Gross profit for the years ended July 31, 2018 and 2017 was $6,044 million and $5,583 million, respectively. The $461 million, or 8.3%, increase in gross profit from 2017 to 2018 was principally a result of the factors discussed above. Group gross margin of 29.1% improved by 10 basis points from 29.0% in 2017, in part because of the increase in supplier rebates. Operating costs Operating costs for the years ended July 31, 2018 and 2017 was $4,684 million and $4,105 million, respectively. The $579 million, or 14.1%, increase in operating costs from 2017 to 2018 was principally a result of staff cost increases (which increased operating costs by $203 million) caused by a 8.0% increase in the number of associates, wage inflation and an increase in commissions and bonuses from the good performance in the year and an increase in exceptional costs of $300 million caused primarily by the gain on disposal of businesses of $265 million in the year ended July 31, 2017. The remaining increase in operating costs was due to the organic increase in sales volume during the year ended July 31, 2018 discussed above. Operating profit Operating profit for the years ended July 31, 2018 and 2017 was $1,360 million and $1,478 million, respectively. The $118 million, or 8.0%, decrease in operating profit from 2017 to 2018 was principally a result of the factors discussed above. Finance costs Finance costs for the years ended July 31, 2018 and 2017 was $53 million and $54 million, respectively. The $1 million, or 1.9%, decrease in finance costs from 2017 to 2018 was principally due to lower average net debt for the year, partly offset by an increase in United States interest rates. Share of result of associate Share of result of associate for the years ended July 31, 2018 and 2017 was $2 million profit and $1 million loss, respectively. The $3 million increase in share of result of associate from 2017 to 2018 was principally a result of the integration costs incurred in 2017, the first year of trading for the combined Swiss-company Meier Tobler AG, which was the result of an investment we made into an associate during 2017. Impairment of interests in associates Impairment of interests in associates for the years ended July 31, 2018 and 2017 was $122 million and $nil, respectively. The $122 million increase was due to a one-off impairment of interests in associates’ Swiss-company Meier Tobler AG, for the year ended July 31, 2018.

58 Profit before tax Profit before tax for the years ended July 31, 2018 and 2017 was $1,187 million and $1,423 million, respectively. The $236 million, or 16.6%, decrease in profit before tax from 2017 to 2018 was principally a result of the factors discussed above. Tax Tax for the years ended July 31, 2018 and 2017 was $346 million and $370 million, respectively. The $24 million, or 6.5%, decrease in tax from 2017 to 2018 was principally due to the reduction in the U.S. federal tax rate from 35% to 21% on January 1, 2018. Profit from continuing operations Profit from continuing operations for the years ended July 31, 2018 and 2017 was $841 million and $1,053 million, respectively. The $212 million, or 20.1%, decrease in profit from continuing operations from 2017 to 2018 was principally a result of the above factors. Profit/(loss) from discontinued operations Profit/(loss) from discontinued operations for the years ended July 31, 2018 and 2017 was $426 million profit and $(133) million loss, respectively. The $559 million increase in profit from discontinued operations from 2017 to 2018 was principally a result of a gain recognized on the disposal of the Nordic business. Profit for the year Profit for the year for the years ended July 31, 2018 and 2017 was $1,267 million and $920 million, respectively. The $347 million, or 37.7%, increase in profit for the year from 2017 to 2018 was principally a result of the above factors. Segment Results of Operations for the Years Ended July 31, 2018 and 2017 (USD) The table below summarizes our revenue and trading profit by operating segment for the years ended July 31, 2018 and 2017.

Year ended July 31, 2017 2018 (Restated)(1) $ million United States Segment Revenue ...... 16,670 15,193 Trading profit ...... 1,406 1,224 United Kingdom Segment Revenue ...... 2,568 2,548 Trading profit ...... 73 96 Canada and Central Europe Segment Revenue ...... 1,514 1,543 Trading profit ...... 83 71 Central and other costs Revenue ...... - - Trading profit/(loss) ...... (55) (50) Total Revenue ...... 20,752 19,284 Trading profit ...... 1,507 1,341

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

59 United States segment Revenue United States segment revenue accounted for 80.3% and 78.8% of total Group revenue for the years ended July 31, 2018 and 2017, respectively. United States segment revenue for 2018 and 2017 was $16,670 million and $15,193 million, respectively. The $1,477 million, or 9.7%, increase in United States segment revenue from 2017 to 2018 was principally a result of an increase in organic sales volumes (which increased revenue by $1,488 million) and acquisitions (acquisitions in the year ended July 31, 2018 resulted in revenues of $205 million), partly offset by disposals (which reduced revenue by $216 million). Organic revenue growth was 9.9% for the U.S., due to strong performance of the market as well as inflation which accelerated in the second half of the year following the U.S. steel/commodity tariff announcements. Trading profit United States segment trading profit for the years ended July 31, 2018 and 2017 was $1,406 million and $1,224 million, respectively. The $182 million, or 14.9%, increase in United States segment trading profit from 2017 to 2018 was principally a result of an organic increase in sales offset by the related increase in operating costs (which increased trading profit by $198 million), partly offset by disposals that occurred in 2017 (which decreased trading profit by $20 million). United Kingdom segment Revenue United Kingdom segment revenue accounted for 12.4% and 13.2% of total Group revenue for the years ended July 31, 2018 and 2017, respectively. United Kingdom segment revenue for 2018 and 2017 was $2,568 million and $2,548 million, respectively. The $20 million, or 0.8%, increase in United Kingdom segment revenue from 2017 to 2018 was principally a result of favorable movements in foreign exchange rates (which increased revenue by $163 million), partly offset by an organic change in sales (which decreased revenue by $143 million). Trading profit United Kingdom segment trading profit for the years ended July 31, 2018 and 2017 was $73 million and $96 million, respectively. The $23 million, or 24.0%, decrease in United Kingdom segment trading profit from 2017 to 2018 was principally a result of the decrease in sales volumes (which decreased trading profit by $29 million), partly offset by movements in foreign exchange rates of $6 million. Canada and Central Europe segment Revenue Canada and Central Europe segment revenue accounted for 7.3% and 8.0% of total Group revenue for the years ended July 31, 2018 and 2017, respectively. Canada and Central Europe segment revenue for 2018 and 2017 was $1,514 million and $1,543 million, respectively. The $29 million, or 1.9%, decrease in Canada and Central Europe segment revenue from 2017 to 2018 was principally a result of the disposal of Meier Tobler AG in the prior year (which decreased revenue by $223 million), partly offset by movements in foreign exchange rates (which increased revenue by $66 million), an increase in organic sales (which increased revenue by $94 million) and acquisitions (which increased revenue by $34 million). Trading profit Canada and Central Europe segment trading profit for the years ended July 31, 2018 and 2017 was $83 million and $71 million, respectively. The $12 million, or 16.9%, increase in Canada and Central Europe segment trading profit from 2017 to 2018 was principally a result of an organic increase in trading profit of $19 million, partly offset by the prior year Meier Tobler AG profit of $14 million.

60 Central and other costs segment Trading profit/(loss) Central and other costs segment trading loss for the years ended July 31, 2018 and 2017 was $55 million and $50 million, respectively. The $5 million, or 10.0%, increase in Central and other costs segment trading loss from 2017 to 2018 was principally a result of a one-off insurance credit in 2017, partly offset by cost savings from moving certain Group roles to the United States. Group Results of Operations for the Years Ended July 31, 2017 and 2016 (GBP) The table below summarizes our income statement and certain other measures for the periods indicated and should be read in conjunction with, and is qualified in its entirety by reference to, the 2017 Consolidated Financial Statements and notes thereto, which are included in this Offering Memorandum.

Year ended July 31, 2016 2017 (Restated)(1) £ million Revenue ...... 15,224 12,549 Cost of sales ...... (10,816) (8,957) Gross profit ...... 4,408 3,592 Operating costs: Amortization of acquired intangible assets ...... (64) (48) Impairment of goodwill and acquired intangible assets ...... – (94) Other ...... (3,120) (2,739) Operating costs ...... (3,184) (2,881) Operating profit ...... 1,224 711 Net finance costs ...... (43) (36) Share of profit/(loss) after tax of associate ...... (1) Impairment of interests in associates ...... – – Profit before tax ...... 1,180 675 Tax...... (292) (210) Profit from continuing operations ...... 888 465 Profit/(loss) from discontinued operations ...... (105) 185 Profit for the year ...... 783 650

(1) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.

Revenue Group revenue for the years ended July 31, 2017 and 2016 was £15,224 million and £12,549 million, respectively. The £2,675 million, or 21%, increase in Group revenue from 2016 to 2017 was principally a result of movements in foreign exchange rates (which increased revenue by £1,609 million), organic increase in sales volumes (which increased revenue by £892 million) and acquisitions (acquisitions in the year ended July 31, 2017 resulted in revenues of £294 million in that year), partly offset by disposals (which reduced revenue by £120 million). On an organic revenue growth basis, growth was 6% for the year ended July 31, 2017, primarily due to performance of the market in the United States and improved conditions in the commodities and industrial markets. Cost of sales Cost of sales for the years ended July 31, 2017 and 2016 was £10,816 million and £8,957 million, respectively. The £1,859 million, or 21%, increase in cost of sales from 2016 to 2017 was primarily as a result of the 15.3% weakening of pounds sterling against U.S. dollars and the costs associated with the other factors discussed above.

61 Gross profit Gross profit for the years ended July 31, 2017 and 2016 was £4,408 million and £3,592 million, respectively. The £816 million, or 22.7%, increase in gross profit from 2016 to 2017 was principally a result of the factors discussed above. Operating costs Operating costs for the years ended July 31, 2017 and 2016 was £3,184 million and £2,881 million, respectively. The £303 million, or 10.5%, increase in operating costs from 2016 to 2017 was principally a result of movements in foreign exchange rates. Operating profit Operating profit for the years ended July 31, 2017 and 2016 was £1,224 million and £711 million, respectively. The £513 million, or 72.2%, increase in operating profit from 2016 to 2017 was principally a result of the factors discussed above. Finance costs Finance costs for the years ended July 31, 2017 and 2016 was £43 million and £36 million, respectively. The £7 million, or 19.4%, increase in finance costs from 2016 to 2017 was principally a result of foreign exchange rate movements, as the majority of the Group’s debt is held in U.S. dollars and our reporting currency at the time was pounds sterling, and a small increase in the pension interest expense. Share of result of associate Share of result of associate for the years ended July 31, 2017 and 2016 was £1 million loss and nil, respectively. The £1 million decrease in share of result of associate from 2016 to 2017 was principally a result of an investment made into an associate, Swiss-company Meier Tobler AG, during 2017. Profit before tax Profit before tax for the years ended July 31, 2017 and 2016 was £1,180 million and £675 million, respectively. The £505 million, or 74.8%, increase in profit before tax from 2016 to 2017 was principally a result of the factors discussed above. Tax Tax for the years ended July 31, 2017 and 2016 was £292 million and £210 million, respectively. £60 million of the £82 million increase was principally a result of an increase in the ongoing tax charge on operations before exceptional items, the amortization and impairment of acquired intangible assets and non-recurring tax items of £277 million (£217 million in 2016). This was primarily due to increased taxable profits in the United States principally due to strong trading performance. The remaining £22 million increase from 2016 to 2017 was principally as a result of tax charges on disposals in the United States offset by tax credits on audit settlements. Profit from continuing operations Profit from continuing operations for 2017 and 2016 was £888 million and £465 million, respectively. The £423 million, or 91.0%, increase in profit from continuing operations from 2016 to 2017 was principally a result of the above factors. (Loss)/profit from discontinued operations (Loss)/Profit from discontinued operations for 2017 and 2016 was a loss of £105 million and a profit of £185 million, respectively. The £290 million decrease in (loss)/profit from discontinued operations from 2016 to 2017 was principally a result of an impairment charge of £102 million relating to the Group’s Swedish building materials business, Beijer, due to a sharp deterioration in performance during the first half of FY2017 and discontinued exceptional items relating to the property exit and redundancy costs from the closure of branches across the Nordic region.

62 Profit for the year Profit for the years ended July 31, for 2017 and 2016 was £783 million and £650 million, respectively. The £133 million, or 20.5%, increase in profit for the year from 2016 to 2017 was principally a result of the above factors. Segment Results of Operations for the Years Ended July 31, 2017 and 2016 (GBP) The table below summarizes our revenue and trading profit by operating segment for the years ended July 31, 2017 and 2016.

Year ended July 31, 2016 2017 (Restated)(1) £ million United States Segment Revenue ...... 11,994 9,456 Trading profit ...... 966 775 United Kingdom Segment Revenue ...... 2,012 1,996 Trading profit ...... 76 74 Canada and Central Europe Segment Revenue ...... 1,218 1,097 Trading profit ...... 56 53 Central and other costs Revenue ...... - - Trading profit/(loss) ...... (39) (45) Total Group Revenue ...... 15,224 12,549 Trading profit ...... 1,059 857

(1) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.

United States segment Revenue United States segment revenue accounted for 78.8% and 75.4% of total Group revenue for 2017 and 2016, respectively. United States segment revenue for 2017 and 2016 was £11,994 million and £9,456 million, respectively. The £2,538 million, or 26.8%, increase in United States segment revenue from 2016 to 2017 was principally a result of movements in foreign exchange rates of £1,445 million, organic sales growth (£843 million) and acquisitions of £285 million, partly offset by disposals of £35 million. Trading profit United States segment trading profit for 2017 and 2016 was £966 million and £775 million, respectively. The £191 million, or 24.6%, increase in United States segment trading profit from 2016 to 2017 was principally a result of movements in foreign exchange rates of £118 million, increases in revenue and ongoing gross margin improvements, partly offset by an increase in the number of associates. United Kingdom segment Revenue United Kingdom segment revenue accounted for 13.2% and 15.9% of total Group revenue for 2017 and 2016, respectively. United Kingdom segment revenue for 2017 and 2016 was £2,012 million and £1,996 million, respectively. The £16 million, or 0.8%, increase in United Kingdom segment revenue from 2016 to 2017 was principally a result of price inflation.

63 Trading profit United Kingdom segment trading profit for 2017 and 2016 was £76 million and £74 million, respectively. The £2 million, or 2.7%, increase in United Kingdom segment trading profit from 2016 to 2017 was principally a result of increased revenue due to price inflation offset by declines in sales volume. Canada and Central Europe segment Revenue Canada and Central Europe segment revenue accounted for 8.0% and 8.7% of total Group revenue for 2017 and 2016, respectively. Canada and Central Europe segment revenue for 2017 and 2016 was £1,218 million and £1,097 million, respectively. The £121 million, or 11.0%, increase in Canada and Central Europe segment revenue from 2016 to 2017 was principally a result of movements in foreign exchange rates of £164 million, organic increase in sales of £33 million, offset by a decrease due to disposals. Trading profit Canada and Central Europe segment trading profit for 2017 and 2016 was £56 million and £53 million, respectively. The £3 million, or 5.7%, increase in Canada and Central Europe segment trading profit from 2016 to 2017 was principally a result of movements in foreign exchange rates of £8 million, partly offset by the impact from disposals of £5 million. Central and other costs segment Trading (loss) Central and other costs segment trading (loss) for 2017 and 2016 was £(39) million and £(45) million, respectively. The £(6) million, or 13.3%, decrease in Central and other costs segment trading (loss) from 2016 to 2017 was principally a result of a one-off insurance gain. Liquidity and Capital Resources Overview The Group needs continued access to funding in order to meet its trading obligations, to support investment in the organic growth of the business and to make acquisitions when opportunities arise. Its sources of funding include cash flows generated by operations and borrowings from banks and other financial institutions. Capital resources The Group seeks a balance between certainty of funding and a flexible, cost-effective borrowings structure. The Group maintains a policy of ensuring sufficient borrowing headroom to finance all investment and anticipated bolt-on acquisitions for the following financial year with an additional contingent safety margin. The Group’s net debt at July 31, 2018 includes both short-term and long-term borrowings less cash and cash equivalents together with the fair value of certain derivative financial instruments. Net debt

64 was $1,080 million, $706 million (or £534 million) and £936 million as at July 31, 2018, 2017 and 2016, respectively, and is shown in the balance sheet under the following headings:

As at July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million Cash and cash equivalents ...... 833 2,525 1,911 940 Bank overdrafts ...... (375) (1,982) (1,500) (692) Borrowings less cash ...... 458 543 411 248 Derivative financial instruments . . . (2) 26 20 31 Bank and other loans ...... (1,530) (1,266) (958) (1,184) Obligations under finance leases . . (6) (9) (7) (31) Net debt(2) ...... (1,080) (706) (534) (936)

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Net debt is a measure of liabilities from financing activities, including bank overdrafts, bank loans, derivative financial instruments and obligations under finance leases, offset by cash and cash equivalents. Net debt is used as a performance measure because it is a good indicator of the strength of the Group’s balance sheet position and is widely used by credit rating agencies.

The following table sets forth the breakdown of the Group’s net debt by currency as at July 31, 2018, 2017 and 2016, respectively:

As at July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million U.S. dollars ...... (1,299) (768) (581) (917) Pounds sterling ...... 97 69 52 2 Euro, Danish kroner and Swedish kroner ...... 23 8 6 (14) Other currencies ...... 99 (15) (11) (7) Total ...... (1,080) (706) (534) (936)

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

To assess the appropriateness of its capital structure based on current and forecast trading, the Group’s principal measure of financial gearing is the ratio of net debt to adjusted EBITDA (such metrics to be calculated in accordance with the relevant agreement). The Group aims to operate with investment grade credit metrics and ensure this ratio remains within 1 to 2 times. The Group’s main borrowing facilities contain a financial covenant that are, based on the definitions included therein, limiting the ratio of net debt to adjusted EBITDA to 3.5:1. For the purpose of these covenants, adjusted EBITDA is calculated as the total consolidated trading profit of the Group for the preceding 12-month period, before interest, tax and exceptional items, after adding back all amounts provided for depreciation, amortization and impairment of property, plant and equipment and software excluding exceptional items in operating profit in such period. Exceptional items are those which are considered significant by virtue of their nature, size or incidence. These items are presented as exceptional within their relevant income statement category to assist in the understanding of the trading and financial results of the Group as these types of cost do not form part of the underlying business. Examples of items that are considered by the Directors for designation as exceptional items include, but are not limited to: • Material restructuring costs within a segment incurred as part of a significant change in strategy or due to the closure of a large part of a business and are not expected to be repeated on a regular basis.

65 • Significant costs incurred as part of the integration of an acquired business and which are considered to be material. • Gains or losses on disposals of businesses are considered to be exceptional in nature as they do not reflect the performance of the trading business. • Costs or credits arising as a result of material regulatory and litigation matters. • Gains or losses arising on significant changes to or closures of defined benefit pension plans. • Other items which are material and considered to be non-recurring in nature and/or not as a result of the underlying trading activities of the business. If provisions have been made for exceptional items in previous years, then any reversal of these provisions is treated as exceptional. Compliance with this covenant is required as at measurement dates which are set at July 31 and January 31 of each year. Facilities The following section summarizes certain material provisions of our material debt (other than the notes offered hereby). The following description is only a summary of the material provisions of the Multicurrency Revolving Credit Facility, Bilateral Revolving Credit Facility, Trade Receivables Securitization Arrangements and Private Placements Notes and does not purport to be complete and is qualified in its entirety by reference to the documents governing such indebtedness. Multicurrency Revolving Credit Facility Our Multicurrency Revolving Credit Facility is governed by the Multicurrency Revolving Credit Facility Agreement, dated as of June 3, 2015, as further amended, supplemented and restated, among the Company and the Subsidiary Guarantor, as original borrowers and original guarantors, the lenders and arrangers party thereto, including Barclays Bank plc, Bank of America Merrill Lynch International Limited, BNP Paribas London Branch, Royal Bank of Canada and Sumitomo Mitsui Banking Corporation Europe Limited, and the agent. The Multicurrency Revolving Credit Facility consists of a £800 million unsecured, multicurrency revolving loan facility, which terminates in September 2022. The size of the facility decreases to £680 million for the period September 2021 to September 2022. Borrowings are available to each of the borrowers under the Multicurrency Revolving Credit Facility, including future subsidiaries that accede as borrowers under the Multicurrency Revolving Credit Facility, and bear interest at a rate equal to the sum of LIBOR, or in relation to any loan in euro, EURIBOR, or in relation to any loan in Canadian dollars, CDOR, or in relation to any loan in Danish krone, CIBOR, plus an applicable margin determined based on our leverage ratio, which is defined therein as the ratio of net debt to EBITDA. We are required to pay a quarterly commitment fee and utilization fee in certain circumstances. The borrowers under the Multicurrency Revolving Credit Facility are permitted to prepay and re-borrow amounts outstanding under the Multicurrency Revolving Credit Facility, in whole or in part, at any time. All obligations under our Multicurrency Revolving Credit Facility are unconditionally guaranteed by the Company and the Subsidiary Guarantor, to the extent each entity is not the borrower. In certain circumstances, the Multicurrency Revolving Credit Facility provides that outstanding amounts drawn must be prepaid by the borrowers. The Multicurrency Revolving Credit Facility contains certain customary affirmative covenants, as well as certain customary negative covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to incur indebtedness, grant liens on present or future assets and revenues, sell assets, or engage in acquisitions, mergers or consolidations. In addition, subject to certain exceptions, the Multicurrency Revolving Credit Facility requires us to maintain a leverage ratio as described above. The Multicurrency Revolving Credit Facility also contains certain customary events of default and cross-default provisions. As at July 31, 2018, $nil million was drawn under the Multicurrency Revolving Credit Facility.

66 Bilateral Revolving Credit Facility Our Bilateral Revolving Credit Facility is governed by the Revolving Facility Agreement, dated as of December 2, 2016, as further amended, supplemented and restated, among the Company and Subsidiary Guarantor, as original borrowers and original guarantors, and Sumitomo Mitsui Banking Corporation as lender. The Bilateral Revolving Credit Facility consists of a $290 million unsecured, revolving loan facility, which terminates on November 30, 2018. Borrowings are available to each of the borrowers under the Bilateral Revolving Credit Facility, and bear interest at a rate equal to the sum of LIBOR, plus a margin. We are required to pay a quarterly commitment fee under the Bilateral Revolving Credit Facility in certain circumstances. The borrowers under the Bilateral Revolving Credit Facility are permitted to prepay and re-borrow amounts outstanding under the Bilateral Revolving Credit Facility, in whole or in part, at any time. All obligations under our Bilateral Revolving Credit Facility are unconditionally guaranteed by the Company and the Subsidiary Guarantor, to the extent each entity is not the borrower. In certain circumstances, the Bilateral Revolving Credit Facility provides that outstanding amounts drawn must be prepaid by the borrowers. The Bilateral Revolving Credit Facility contains certain customary affirmative covenants, as well as certain customary negative covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to incur indebtedness, grant liens on present or future assets and revenues, sell assets, or engage in acquisitions, mergers or consolidations. In addition, subject to certain exceptions, the Bilateral Revolving Credit Facility requires us to maintain a leverage ratio as described above. The Bilateral Revolving Credit Facility also contains certain customary events of default and cross-default provisions. As at July 31, 2018, $nil million was drawn under the Bilateral Revolving Credit Facility. Trade Receivables Securitization Arrangements Our Trade Receivables Securitization Arrangements are governed by the Receivables Purchase Agreement, dated as of July 31, 2013, as further amended, supplemented and restated, among the Company, Ferguson Receivables, LLC as seller, Ferguson Enterprises, Inc. as servicer, the originators, the lenders as conduit purchasers and committed purchasers, letters of credit banks, facility agents, administrative agent and co-administrative agent party each thereto, and the Purchase and Contribution Agreement, dated as of July 31, 2013, as further amended, supplemented and restated, among Ferguson Enterprises, Inc. and its various subsidiaries party thereto as originators and Ferguson Receivables, LLC as purchaser. The Trade Receivables Securitization Arrangements consist of trade receivables funding for up to $600 million, terminating in December 2020. It provides for purchases of undivided ownership interests in a revolving pool of certain of the Group’s trade receivables and related security generated by the originators, transferred to the seller which are then in turn securitized against lending advances made by the conduit purchasers and committed purchasers. At all times all borrowings under the Trade Receivables Securitization Arrangements are recorded on the balance sheet of the Group. Fees are payable under the Trade Receivables Securitization Arrangements at a rate equal to LIBOR plus an applicable margin, determined based on our leverage ratio, which is defined as the ratio of net debt to adjusted EBITDA (each as defined therein). The Trade Receivables Securitization Arrangements contain certain customary affirmative covenants, as well as certain customary negative covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries party thereto from incurring indebtedness, granting additional liens on the receivables and selling assets or engaging in acquisitions, mergers or consolidations. In addition, subject to certain exceptions, the Trade Receivables Securitization Arrangements require us to maintain a leverage ratio and the level of the leverage ratio determines the value we receive for our pledged collateral and the extent of our financial reporting obligations. The Trade Receivables Securitization Arrangements also contains certain customary events of default and

67 cross-default provisions. As at July 31, 2018, $nil million has been advanced under the Trade Receivables Securitization Arrangements. Private Placement Notes In November 2017, Wolseley Capital, Inc. (‘‘Wolseley Capital’’) privately placed $450 million aggregate principal private placement notes (collectively, the ‘‘2017 Private Placement Notes’’) guaranteed by the Company pursuant to a note and guarantee agreement dated as of November 30, 2017. The 2017 Private Placement Notes consist of $55 million of 3.30% Series L Guaranteed Senior Notes due November 30, 2023 (the ‘‘3.30% Series L Notes’’), $150 million of 3.44% Series M Guaranteed Senior Notes due November 30, 2024 (the ‘‘3.44% Series M Notes’’), $150 million of 3.51% Series N Guaranteed Senior Notes due November 30, 2026 (the ‘‘3.51% Series N Notes’’, and together with the 3.30% Series L Notes and 3.44% Series M Notes, the ‘‘Fixed Rate 2017 Private Placement Notes’’) and $95 million of Floating Rate Series O Guaranteed Senior Notes due November 30, 2023 (the ‘‘Floating Rate 2017 Private Placement Notes’’). In June 2015, Wolseley Capital privately placed $800 million aggregated principal private placement notes (collectively, the ‘‘2015 Private Placement Notes’’) guaranteed by the Company pursuant to a note and guarantee agreement dated as of June 25, 2015. The 2015 Private Placement Notes consist of $250 million of 3.43% Series I Guaranteed Senior Notes due September 1, 2022, $400 million of 3.73% Series J Guaranteed Senior Notes due September 1, 2025 and $150 million of 3.83% Series K Guaranteed Senior Notes due September 1, 2027. In November 2005, Wolseley Capital, privately placed $281 million of 5.32% Series F Guaranteed Senior Notes due November 2020 (the ‘‘2005 Private Placement Notes’’ and together with the 2017 Private Placement Notes and 2015 Private Placement Notes, the ‘‘Private Placement Notes’’) guaranteed by the Company pursuant to a note and guarantee agreement dated as of November 16, 2005. Interest on the Fixed Rate 2017 Private Placement Notes is payable semi-annually on May and November 30 of each year. Interest on the Floating Rate 2017 Private Placement Notes is payable quarterly on February 28, May 30, August 30 and November 30 of each year. Interest on the 2015 Private Placement Notes is payable semi-annually on March and September 1 of each year. Interest on the 2005 Private Placement Notes is payable semi-annually on May and November 15 of each year. Wolseley Capital’s obligations under the note and guarantee agreements are unconditionally guaranteed by the Company and the Subsidiary Guarantor. Wolseley Capital may repay the Private Placement Notes, in whole or in part, at any time at a price equal to 100% of the principal amount being prepaid plus a ‘‘make-whole’’ prepayment premium. Wolseley Capital is also required to consult with noteholders upon a change of control and any consequent proposed amendments to the terms of the Private Placement Notes and if no agreement is reached regarding any proposed changes offer to repurchase the notes at a price equal to 100% of their principal amount plus accrued interest. The note purchase agreements contain certain customary affirmative covenants, as well as certain customary negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s non-guarantor subsidiaries’ ability to incur indebtedness and the Group’s ability to enter into affiliate transactions, grant liens on its assets, sell assets, or engage in acquisitions, mergers or consolidations. In addition, subject to certain exceptions, the note purchase agreements require us to maintain a leverage ratio as described above. The Private Placement Notes contain customary events of default. Upon an event of default and an acceleration of the Private Placement Notes, the Company must repay the Private Placement Notes plus a make-whole premium and accrued and unpaid interest. As at July 31, 2018, the Group’s private placement bonds have a par value of $1,530 million.

68 The maturity profile of the Group’s borrowings and undrawn facilities at July 31, 2018 was as follows:

As at July 31, 2018 Current Non-current Total $ million Bank overdrafts ...... 375 - 375 Bank and other loans ...... 2 - 2 Senior unsecured loan notes ...... 6 1,522 1,528 Total bank loans ...... 8 1,522 1,530 Total bank loans and overdrafts ...... 383 1,522 1,905

Included in bank overdrafts at July 31, 2018 is an amount of $255 million which is part of the Group’s cash pooling arrangements where there is an equal and opposite balance included within cash and cash equivalents. These amounts are subject to a master netting arrangement. Non-current loans at July 31, 2018 are repayable as follows:

As at July 31, 2018 $ million Due in one to two years ...... 5 Due in two to three years ...... 283 Due in three to four years ...... - Due in four to five years ...... 250 Due in over five years ...... 984 Total ...... 1,522

There have been no significant changes during the year to the Group’s policies on accounting for, valuing and managing the risk of financial instruments. Capital expenditure Our strategy of investing in the development of the Group’s business models is supported by capital expenditure. Capital expenditure (excluding expenditure spent on acquisitions) totalled $299 million, $224 million (or £178 million) and £218 million in the years ended July 31, 2018, 2017 and 2016, respectively. This investment was primarily for strategic projects to support future growth such as new distribution centers, distribution hubs, technology, processes and network infrastructure. Capital expenditure is principally financed through external borrowings and operating cash flows. Lease commitments The Group had total operating lease commitments of $1,081 million, $1,129 million (or £854 million) and £853 million as at July 31, 2018, July 31, 2017 and July 31, 2016, respectively. Additional information can be found in Note 32 of the 2018 Consolidated Financial Statements. The table below summarizes the Group’s lease commitments for the years ended July 31, 2018, 2017 and 2016.

As at July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million Within one year ...... 328 344 260 253 Later than one year and less than five years ...... 591 609 461 457 After five years ...... 162 176 133 143 Total operating lease commitments 1,081 1,129 854 853

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

69 Operating lease payments mainly represent rents payable for properties. Some of the Group’s operating lease arrangements have renewal options and rental escalation clauses. No arrangements have been entered into for contingent rental payments. The commitments shown above include commitments for onerous leases which have already been provided for. At July 31, 2018, 2017 and 2016, provisions include an amount of $32 million, $36 million (£27 million) and £25 million in respect of minimum lease payments for such onerous leases net of sublease income expected to be received, respectively. The total minimum sublease income expected to be received under non-cancellable subleases at July 31, 2018, 2017 and 2016 was $6 million, $10 million (£7 million) and £8 million, respectively. The commitments above include $nil million, $120 million (£91 million) and £102 million operating lease commitments for the years ended July 31, 2018, 2017 and 2016, respectively, for discontinued operations. Contractual obligations The table below sets forth the Group’s anticipated contractual cash outflows (excluding interest income and income from derivatives), including interest payable in respect of its trade and other payables and bank borrowings on an undiscounted basis as at the year ended July 31, 2018.

As at July 31, 2018 Trade and Other Interest on Payables Debt Debt Total $ million Due in less than one year ...... 2,829 5 68 2,902 Due in one to two years ...... 44 1 63 108 Due in two to three years ...... 59 281 52 392 Due in three to four years ...... 19 - 44 63 Due in four to five years ...... 16 250 40 306 Due in over five years ...... 160 1,001 92 1,253 Total ...... 3,127 1,538 359 5,024

Cash Flow The table below summarizes the Group’s cash flow for the years ended July 31, 2018, 2017 and 2016.

Year ended July 31, 2017 2018 (Restated)(1) 2017 2016 $ million £ million Net cash generated from operating activities ...... 1,036 950 752 787 Net cash generated from / (used in) investing activities ...... 700 (209) (167) (266) Net cash used by financing activities ...... (1,857) (472) (374) (547) Net cash (used)/generated ...... (121) 269 211 (26) Effects of exchange rate changes . . (7) (13) (15) 18 Net (decrease)/increase in cash, cash equivalents and bank overdrafts ...... (128) 256 196 (8) Cash, cash equivalents and bank overdrafts at the beginning of the year ...... 586 330 248 256 Cash, cash equivalents and bank overdrafts at the end of the year 458 586 444 248

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

70 Cash flows from operating activities Net cash generated from operating activities for the years ended July 31, 2018 and 2017 was $1,036 million and $950 million, respectively. The $86 million, or 9.1%, increase in cash flow from operating activities from 2017 to 2018 was principally a result of a reduction in tax paid due to the United States tax rate changes in in FY2018. Net cash generated from operating activities for 2017 and 2016 was £752 million and £787 million, respectively. The £35 million, or 4.4%, decrease in cash flow from operating activities from 2016 to 2017 was principally a result of £96 million increase in cash from operations offset by an increase in interest paid and tax paid. Cash flows from investing activities Net cash generated/(used) in investing activities for the years ended July 31, 2018 and 2017 was $700 million and $(209) million, respectively. The $909 million, or 434.9%, increase in cash flow from investing activities from 2017 to 2018 was principally a result of the disposal proceeds from the Nordic business in the year ended July 31, 2018. Net cash generated/(used) in investing activities for 2017 and 2016 was £(167) million and £(266) million, respectively. The £99 million, or 37.2%, decrease in cash flow from investing activities from 2016 to 2017 was principally a result of the disposal proceeds from selling a non-core United States business and Meier Tobler AG in the year ended July 31, 2017. Cash flows from financing activities Net cash used by financing activities for the years ended July 31, 2018 and 2017 was $(1,857) million and $(472) million, respectively. The $1,385 million, or 293.4%, increase in cash flow from financing activities from 2017 to 2018 was principally a result of returning the Nordic disposal proceeds to shareholders via a special dividend and a share buyback program. Net cash used by financing activities for 2017 and 2016 was £(374) million and £(547) million, respectively. The £173 million, or 31.6%, decrease in cash flow from financing activities from 2016 to 2017 was principally a result of no share buyback taking place in the year ended July 31, 2017, partly offset by a reduction in proceeds from borrowings. Financial Risk Management Policies and Hedging Activities The following is an overview of the principal market risks to which we are subject. These risks are also described in the ‘‘Risk Factors’’ section of this Offering Memorandum. See, in particular, ‘‘Risk Factors—Fluctuations in foreign currency and inflation may have an effect on reported results of operations’’ and ‘‘Risk Factors—Weakness in the economy, market trends, uncertainty and other conditions in the markets in which we operate, particularly the United States, may adversely affect the profitability and financial stability of our customers, could negatively impact our sales growth and results of operations.’’ The Group is exposed to market risks arising from its international operations and the financial instruments which fund them. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk and liquidity risk. The Group has well-defined policies for the management of interest rate, liquidity, foreign exchange and counterparty exposures, which have been consistently applied during the financial years ended July 31, 2018, July 31, 2017 and July 31, 2016. By the nature of its business, the Group also has trade credit and commodity price exposures, the management of which is delegated to the operating businesses. There has been no change since the previous year in the major financial risks faced by the Group. Policies for managing each of these risks are regularly reviewed and are summarized below. When the Group enters into derivative transactions (principally interest rate swaps and foreign exchange contracts), the purpose of such transactions is to hedge certain interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments or speculative transactions be undertaken.

71 Capital risk management The Group’s sources of funding currently comprise cash flows generated by operations, equity contributed by shareholders and borrowings from banks and other financial institutions. In order to maintain or adjust the capital structure, the Group may pay a special dividend, return capital to shareholders, repurchase its own shares, issue new shares or sell assets to reduce debt. Credit risk The Group provides sales on credit terms to most of its customers. There is an associated risk that customers may not be able to pay outstanding balances. At July 31, 2018, the maximum exposure to credit risk was $3,005 million (2017: $2,673 million (£2,022 million), 2016: £2,187 million). Each of the Group’s businesses have established procedures in place to review and collect outstanding receivables. Significant outstanding and overdue balances are reviewed on a regular basis and resulting actions are put in place on a timely basis. In some cases, protection is provided through credit insurance arrangements. All of the major businesses use professional, dedicated credit teams, in some cases field-based. Appropriate provisions are made for debts that may be impaired on a timely basis. Concentration of credit risk in trade receivables is limited as the Group’s customer base is large and unrelated. Accordingly, the Group considers that there is no further credit risk provision required above the current provision for impairment. The Group has cash balances deposited for short periods with financial institutions and enters into certain contracts (such as interest rate swaps) which entitle the Group to receive future cash flows from financial institutions. These transactions give rise to credit risk on amounts due from counterparties with a maximum exposure of $429 million (2017: $560 million (£424 million); 2016: £237 million). This risk is managed by setting credit and settlement limits for a panel of approved counterparties. Liquidity risk The Group maintains a policy of ensuring sufficient borrowing headroom to finance all investment and capital expenditure included in its strategic plan, with an additional contingent safety margin. The Group has estimated its anticipated contractual cash outflows (excluding interest income and income from derivatives) including interest payable in respect of its trade and other payables and bank borrowings on an undiscounted basis. The principal assumptions are that floating rate interest is calculated using the prevailing interest rate at the balance sheet date and cash flows in foreign currency are translated using spot rates at the balance sheet date. See ‘‘—Contractual obligations’’ above. Foreign currency risk The Group has significant overseas businesses whose revenues are mainly denominated in the currencies of the countries in which the operations are located. Approximately 80% of the Group’s revenue is in U.S. dollars. Within each country it operates, the Group does not have significant transactional foreign currency cash flow exposures. However, those that do arise may be hedged with either forward contracts or currency options. The Group does not normally hedge profit translation exposure since such hedges have only a temporary effect. The Group’s policy is to adjust the currencies in which its net debt is denominated materially to match the currencies in which its trading profit is generated. The net effect of currency translation was to increase revenue by $229 million (2017: decrease by $391 million, 2016: increase by £548 million) and to increase trading profit by $7 million (2017: decrease by $6 million, 2016: increase by £46 million).

72 In the years ended July 31, 2018 and 2017, these currency effects primarily reflect a movement of the average U.S. dollar exchange rate against the pound sterling, euro and Canadian dollar as follows:

Year ended July 31, 2018 2017 Strengthening/ Weakening of (weakening) of dollar dollar Pounds sterling ...... (6.4)% 13.3% Euro ...... (9.2)% 1.6% Canadian dollars ...... (4.0)% (0.2)% In the years ended July 31, 2017 and 2016, these currency effects primarily reflect a movement of the average pound sterling exchange rate against the U.S. dollar, euro and Canadian dollar as follows:

Year ended July 31, 2017 2016 (Weakening)/ Weakening of Strengthening of Pounds Sterling Pounds Sterling U.S. dollars ...... (15.3)% (6.8)% Euro ...... (13.5)% (0.8)% Canadian dollars ...... (15.5)% 4.1% The Group has net financial liabilities denominated in foreign currencies which have been designated as hedges of the net investment in its overseas subsidiaries. The principal value of those financial liabilities designated as hedges at the balance sheet date was $431 million (2017: $2,019 million). The loss on translation of these financial instruments into U.S. dollars of $11 million (2017: $7 million) has been taken to the translation reserve. Net investment hedging Exchange differences arising from the translation of the net investment in foreign operations are recognized directly in the currency translation reserve. Gains and losses on those hedging instruments designated as hedges of the net investments in foreign operations are recognized in the currency translation reserve to the extent that the hedging relationship is effective; these amounts are included in exchange differences on translation of foreign operations as stated in the Group statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognized immediately in the income statement for the period. Gains and losses accumulated in the translation reserve are included in the income statement when the foreign operation is disposed of. Interest rate risk At July 31, 2018, 70% of loans were at fixed rates. The Group borrows in the desired currencies principally at rates determined by reference to short-term benchmark rates applicable to the relevant currency or market, such as LIBOR. Rates which reset at least every 12 months are regarded as floating rates and the Group then, if appropriate, considers interest rate swaps to generate the desired interest rate profile. The Group reviews deposits and borrowings by currency at Treasury Committee meetings. The Treasury Committee gives prior approval to the interest rate basis of debt items. In November 2017, the Group entered into interest rate swap contracts comprising fixed interest receivable on $355 million of notional principal. These contracts expire between November 2023 and November 2026 and the fixed interest rates range between 3.30% and 3.51%. These swaps were designated as a fair value hedge against a portion of the Group’s outstanding debt.

73 The table below shows the income statement movement on interest rate swaps at fair value through profit and loss.

At fair value through profit and loss 2017 (hedge accounting not applied) 2018 (Restated)(1) 2017 2016 $ million £ million At August 1 ...... 26 38 29 34 Settled ...... (9) (12) (9) (11) Valuation gain credited to income statement ...... (17) - – 1 Exchange ...... - - – 5 At July 31 ...... - 26 20 29

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate.

There are no fixed rate interest borrowings that form part of a hedge relationship. Monitoring interest rate and foreign currency risk The Group monitors its interest rate and foreign currency risk by reviewing the effect on financial instruments over various periods of a range of possible changes in interest rates and exchange rates. The financial impact for reasonable approximation of possible changes in interest rates and exchange rates are as follows. The Group has estimated that an increase of one percentage point in the principal floating interest rates to which it is exposed would result in a charge to the income statement of $nil (2017: $nil). The Group has estimated that a weakening of the U.S. dollar by 10% against gross borrowings denominated in foreign currency in which the Group does business would result in a charge to the currency translation reserve of $4 million (2017: $146 million). The Group does not require operating businesses to adhere to a formalized risk management policy in respect of trade credit risk or commodity price risk and does not consider that there is a useful way of quantifying the Group’s exposure to any of the macroeconomic variables that might affect the collectability of receivables or the prices of commodities. Hedge Accounting The Group has elected to apply hedge accounting to some of its financial instruments. Derivative financial instruments, in particular interest rate swaps and foreign exchange swaps, are used to manage the financial risks arising from the business activities of the Group and the financing of those activities. There is no trading activity in derivative financial instruments. At the inception of a hedging transaction involving the use of derivative financial instruments, the Group documents the relationship between the hedged item and the hedging instrument together with its risk management objective and the strategy underlying the proposed transaction. The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedge in offsetting movements in the fair values or cash flows of the hedged items. Derivative financial instruments are recognized as assets and liabilities measured at their fair values at the balance sheet date. Where derivative financial instruments do not fulfil the criteria for hedge accounting contained in International Accounting Standard 39 (‘‘IAS 39’’), changes in their fair values are recognized in the income statement. When hedge accounting is used, the relevant hedging relationships are classified as fair value hedges, cash flow hedges or net investment hedges. Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability is adjusted by the increase or decrease in its fair value attributable to the hedged risk and the resulting gain or loss is recognized in the income statement where, to the extent that the hedge is effective, it will be offset by the change in the fair value of the hedging instrument. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity. Where the hedging relationship is classified as a cash flow hedge or as a net

74 investment hedge, to the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognized directly in equity. When the hedged item is recognized in the financial statements, the accumulated gains and losses recognized in equity are either recycled to the income statement or, if the hedged item results in a non-financial asset, are recognized as adjustments to its initial carrying amount. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Accounting Policies and Critical Estimates and Judgements For information on the Group’s accounting policies and critical estimation and judgements, see Note 1 of the 2018 Consolidated Financial Statements.

75 DESCRIPTION OF THE GROUP AND ITS BUSINESS Overview of Our Business We are a world leading specialist distributor of plumbing and heating products. We supply plumbing and heating products to professional contractors and consumers and principally serve the RMI markets, as well as the new construction market. We hold leading positions in a number of the markets in which we operate. We create value by bridging the gap between our suppliers and customers, providing our suppliers a cost-effective route to market, specialist advice to our customers and a wide range of products where and when they are required. We have a diverse supplier base and source over one million products from approximately 43,000 suppliers around the world in the year ended July 31, 2018, in order to supply approximately one million customers for their plumbing and heating projects for the same period. We have a network of 19 distribution centers and 2,280 branches (as at July 31, 2018) and also, in certain circumstances, arrange direct delivery of products from our suppliers to our customers. We operate in three geographic regions, the United States, the United Kingdom and Canada and Central Europe, each of which is an operating segment for financial reporting purposes: United States. We are progressively focusing more resources on our businesses in the United States, which generated 93.3% of our trading profit in 2018. The Group operates several business units in the United States, principally under the Ferguson Enterprises brand, offering different categories of plumbing and heating products and solutions to fit our customers’ needs. Most of the business units predominantly serve trade customers with a smaller number also serving retail consumers and remodeling contractors. Each business unit is aligned around specialist customer needs and has its own competitors which range from large national companies, including trade sales by large home improvement chains, to small, privately owned supply houses. As a large distributor of plumbing and heating products in the United States, we hold leading market positions in the majority of our businesses, including our largest business unit, Blended Branches (discussed further below). These markets are typically highly fragmented with few large competitors and we compete with many small local distributors. Consequently, there continues to be excellent opportunities to grow our business geographically, particularly in large metropolitan areas across the United States. As at July 31, 2018, our United States business had 26,501 employees (who we call associates), operating through 1,448 branches, which are in turn served by 10 distribution centers. United States segment revenues were $16,670 million, $15,193 million (£11,994 million) and £9,456 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 80.3%, 78.8% and 75.4% of the Group’s total revenues for the years ended July 31, 2018, 2017 and 2016, respectively. United States segment trading profit was $1,406 million, $1,224 million (£966 million) and £775 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 93.3%, 91.3% and 90.4% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. United Kingdom. In the United Kingdom, we principally operate under the Wolseley brand. Our United Kingdom business is predominantly active in the trade plumbing and heating markets and has relatively low exposure to the new residential construction market. The businesses provide plumbing and heating products primarily to trade customers in the residential and commercial sectors, for RMI purposes. The United Kingdom business is currently in the second year of a major restructuring program to improve service to customers, performance and profitability, which the Company believes has lowered our cost base by approximately $30 million per year. As at July 31, 2018, our United Kingdom business had 5,617 associates operating through 567 branches covering the entire country, which are in turn served by six distribution centers (five of which serve the Wolseley branded United Kingdom business and one which serves our online United Kingdom business) providing same and next day product availability, a key service offering to our customers. United Kingdom segment revenues were $2,568 million, $2,548 million (£2,012 million) and £1,996 million for the years ended years ended July 31, 2018, 2017 and 2016, respectively. This represented 12.4%, 13.2% and 15.9% of the Group’s total revenues for the years ended years ended July 31, 2018, 2017 and 2016, respectively. United Kingdom segment trading profit was $73 million, $96 million (£76 million) and £74 million for the years ended July 31, 2018, 2017 and 2016, respectively.

76 This represented 4.8%, 7.2% and 8.6% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. Canada and Central Europe. The Canada and Central Europe segment operates across two countries, Canada (79% of FY2018 Canada and Central Europe segment revenues) and the Netherlands (21% of FY2018 Canada and Central Europe segment revenues), servicing the residential, commercial and industrial sectors both in the RMI and new construction markets. As at July 31, 2018, the Canada and Central Europe segment had 3,167 associates. Wolseley Canada is the second largest distributor by revenue of plumbing, HVAC and refrigeration equipment, supplying products to residential and commercial contractors in Canada. It also supplies specialist water and waste water treatment systems to residential, commercial and municipal contractors, and supplies PVF solutions to industrial oil and gas customers. As at July 31, 2018, it had 230 branches serviced by three distribution centers and locations across Canada. We have initiated the process to dispose of Wasco, our remaining business in Central Europe. The business has a strong leadership team and dedicated workforce and has consistently delivered strong financial performance, but there are few synergies with the other businesses in the Group. For the year ended July 31, 2018, Wasco contributed revenue of $322 million ($269 million for FY2017) and trading profit of $13 million ($8 million for FY2017). As at July 31, 2018, our Canada and Central Europe business had 3,167 associates, operating through 265 branches, which are in turn served by three distribution centers. Canada and Central Europe segment revenues were $1,514 million, $1,543 million (£1,218 million) and £1,097 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 7.3%, 8.0% and 8.7% of the Group’s total revenues for the years ended July 31, 2018, 2017 and 2016, respectively. Canada and Central Europe segment trading profit were $83 million, $71 million (£56 million) and £53 million for the years ended July 31, 2018, 2017 and 2016, respectively. This represented 5.5%, 5.3% and 6.2% of the Group’s total trading profit for the years ended July 31, 2018, 2017 and 2016, respectively. The following table sets forth certain financial data for the Group for the years ended July 31, 2018, 2017 and 2016.

As at or year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) ($ million, except as otherwise (£ million, except as otherwise indicated) indicated) Revenue ...... 20,752 19,284 15,224 12,549 Ongoing revenue(3) ...... 20,752 18,845 14,878 12,146 Organic revenue growth(3) ...... 7.5% 6.0% 6.0% 3.3% Profit for the year ...... 1,267 920 783 650 Operating profit ...... 1,360 1,478 1,224 711 Trading profit(3) Trading profit from ongoing operations(3) ...... 1,507 1,307 1,032 827 Trading profit from non-ongoing operations(3) ...... - 34 27 30 Trading profit from continuing operations(3) ...... 1,507 1,341 1,059 857 Ongoing trading margin(3) ...... 7.3% 6.9% 6.9% 6.8% Adjusted EBITDA(3) ...... 1,687 1,519 1,199 971 Net debt(3) ...... 1,080 706 534 936

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’.

77 Our history The Company was founded in 1887, when Frederick York Wolseley launched the Wolseley Sheep Shearing Machine Company. The firm soon expanded into manufacturing and twelve years later, in 1899, the first Wolseley horseless carriage went on sale in the United Kingdom. In 1901, the Company sold its car and machine tool business, which became a part of Morris Motors, BMC, British Leyland and Rover Group. In 1958, we merged with Geo H Hughes and, in the 1960s, acquired a number of heating and oil burning companies in rapid succession in the United Kingdom. A move into merchanting followed, and in 1979 the Company sold its manufacturing companies to focus solely on distribution. On January 4, 1982, the Company re-registered as a public limited company. From 1980, the Group expanded its businesses through organic growth and acquisitions in the United States, Canada and Europe. We made our first foreign acquisition in 1982 with the acquisition of Ferguson Enterprises Inc. in the United States and further acquisitions, together with a policy of accelerated branch openings in the United States. On April 14, 1986, the Company listed on the London Stock Exchange and changed its name to Wolseley plc. From the 1990s to the mid-2000s, the Group continued to expand across Europe, including into the Netherlands, Switzerland, Ireland, Belgium and the Nordic region, the United States and Canada. In 2005 and 2006, we entered the electrical distribution markets in the United Kingdom and the United States. In 2009 as a result of the financial crisis, the Company implemented a comprehensive restructuring program across the Group’s businesses to reduce fixed costs and close underperforming branches. During this period, it adopted a new strategy to focus our resources on those businesses capable of generating the highest returns for shareholders with a particular focus on core plumbing and heating markets. This strategy resulted in the disposal of 37 of the Group’s businesses. Large scale disposals during this period included Stock Building Supply, the United States building materials business in 2009, Build Center, the UK building materials business and Brossette, the French plumbing and heating business in 2012 and PBM, the French building materials business in 2016. The ongoing business has demonstrated strong growth in revenue and trading profit during this period. On July 31, 2017, the Group changed its name to Ferguson plc to better align the name of the Group with its largest subsidiary in the United States. The change, which required shareholder approval, received strong support. In 2017, the Group decided to exit its Nordic business as a result of the lack of synergies with the rest of the Group’s plumbing and heating activities. The sale was completed in March 2018. Due to the Group’s strong funding position, the majority of the proceeds from the sale were subsequently distributed to shareholders. Profitable growth in the United States continues to be the Group’s highest priority due to the relative size of our United States business. The Group remains committed to its United Kingdom and Canadian businesses due to their contribution to the profitability of the Group. Marketplace Characteristics and Opportunities We operate in large fragmented markets, most of which have strong growth characteristics with no market dominated by any single distributor. The United States is our largest market with the greatest opportunities for growth. In several markets in which we operate, we do so with leading market positions and significant scale. The key market characteristics and opportunities are as follows: • Our customers often require a basket of goods – We serve approximately one million customers who often require a basket of goods. In the United States, the average basket size is approximately five products valued at approximately $700. • Customers’ needs are local – Our customer base is fragmented. Professional contractors typically operate within 20 miles of their home base and may visit their local branch several times per

78 week. In addition, they continue to increase their usage of digital channels which complement their working patterns. • Large supplier base – We distribute over one million products of approximately 43,000 suppliers across the world. • Clear need for distributors in the supply chain – Distributors, including Ferguson, bridge the gap between a fragmented supplier base and the large and geographically dispersed professional customer base. • Highly fragmented industry with no market dominated by a single player – Our markets are typically highly fragmented, with few large players in the industry. • Benefits of scale – Due to the benefits of scale market leaders can perform better through the economic cycle and customers have quicker access to products. • Strong organic growth opportunities – Market characteristics support long-term organic growth opportunities. • Bolt-on M&A opportunities – We have a large database of acquisition targets to support continued growth within a disciplined capital allocation approach. Our Business Model Our business model is designed around the three key pillars of: (i) source, (ii) distribute and (iii) sell.

8OCT201818101904 The Group’s Strengths Diversified customer base provides resilience Our customers and their success depend in part on our ability to provide a broad range of products, ready for collection or delivery on the same or next day or at an agreed time. Our customers also value high quality advice and efficient service from our knowledgeable associates, local relationships, competitive pricing and billing and order accuracy. Our income sources are well-diversified. For the year ended July 31, 2018, no single customer accounted for more than approximately 1.0% of Group revenue and total revenue from our top 10 customers in the United States (our largest market) accounted for less than approximately 2.5% of

79 Group revenue. We serve over one million customers who often require a basket of goods which plays well to our wide and diversified product range. Diversified supplier base provides market leading offering Our scale and diverse customer base gives us access to a broad range of quality products. The ability to provide a basket of products for customers is important. Customers also rely on our associates’ advice and expertise to assist and advise on their specific projects. For example, around 50% of our revenue in the United States is won through a competitive tender process whereby we advise the customer on the right products, with suitable specifications, to meet the requirements of the bid. Our scale enables our central sourcing teams in each region to negotiate competitive prices in return for access to our over one million customers. Suppliers deliver in bulk to our distribution centers, our branches or directly to our customers and we predominantly distribute from distribution centers, ship hubs and branches to our customers. Each business assesses its suppliers against set criteria, including a vendor code of conduct, to provide protection to both us and our customers in the event of a product failure or breach of regulation in the supply chain. On the rare occasion that a product is faulty, customers have the confidence of knowing that we will support them. Our supplier base is also highly diversified. For the year ended July 31, 2018, no single supplier represented more than 5% of Group cost of sales and our top 10% of suppliers (by cost of sales) in the United States accounted for less than 25% of Group cost of sales. Diversity of supply channels and geographic coverage available to customers Our customer base is fragmented and our customers can interact with us through multiple sales channels on a 24/7 basis, dealing with us through a combination of branches, showrooms, transactional websites, call centers and inside/outside sales teams. Orders are fulfilled via a variety of channels; for example, in the year ended July 31, 2018, our orders were filled 12% direct from suppliers, 6% direct from distribution centers, 26% collected from branches and 56% delivered from branches. A large proportion of our business is conducted through our branches and our extensive branch network means that professional contactors often operate within 20 miles of a local branch and may visit them several times per week. Our branch network is also an important fulfillment channel particularly when customers need immediate availability of items for pick-up. To support our customers’ needs, the Group operates 2,280 branches and 19 distribution centers. Within the United States segment, the Group has a presence in all 50 states. In addition, we increasingly provide our customers with a variety of digital channels, which complement their working patterns. Revenue from e-commerce accounted for $4.3 billion, or 21% of the Group’s revenue for the year ended July 31, 2018, which represented an increase of 20% from the year ended July 31, 2017. Our multi-channel approach allows our customers to access products and advice 24 hours a day, seven days a week, wherever it is required. Extensive distribution network Through our extensive distribution network, we operate 2,280 branches and 19 distribution centers and large fleet of 5,900 vehicles, which enables us to ensure same or next day availability of a wide basket of products to our customers. Our customers rely upon us for prompt and flexible delivery options to meet their own needs. Suppliers deliver in bulk to our distribution centers, branches or directly to our customers. We predominantly distribute from branches to customers, though increasingly, in large metropolitan areas we are using specialist market distribution centers to centralize final mile logistics and reduce costs. During the year ended July 31, 2018, we identified several opportunities to improve network efficiency, which we expect will improve product flow for greater network speed, mitigate double handling, bring the network closer to our customers for same day or next day delivery and support our e-commerce channel capabilities. For example, in Perris, California, we are building a new distribution center to serve one of the largest plumbing and heating markets in the world and we expect it to be fully operational in 2019. In addition, we identified an opportunity within the distribution network relating to packaging. New ‘Packsize’ packaging machines allow us to print the actual dimensions of a

80 package in order to ensure that each parcel is shipped in the most efficient way, minimizing wasted space. Several of our distribution centers have had these machines installed, which has resulted in efficiency savings. Significant investments in technology We continually seek to invest in technology to improve our business, and to reach new and existing customers. E-commerce revenue is growing and accounted for $4.3 billion, or 21% of the Group’s revenue for the year ended July 31, 2018, which represented an increase of 20% from the year ended July 31, 2017. Additional technology investments are aimed at improving execution and efficiency in all areas of our business, including warehousing, fleet, inventory and customer relationship management, back-office human resources and financial management, and internal reporting systems. As many of our competitors are small local distributors who often lack resources to make such investments, we believe our investment in technology provides us with a significant competitive advantage. We have a clearly defined global technology strategy and roadmap. This provides a route forward for the development of our order and transaction management systems in the United States and the incremental investment required. We expect therefore to increase our focus on strategic investments which will increase the number of sales order channels that feed into one fulfilment and transaction platform connected through cloud based systems. Our aim is to provide a seamless experience for our customers no matter what sales order channel they use and for our associates to spend less time processing orders and more time interacting with our customers, enhancing productivity and customer service. During the year we added ‘‘Accelerate innovation’’ as one of our strategic priorities. Strong cash flow generation Our business model reflects a value-add service proposition leading to a strong, through-cycle cash flow profile. Working capital (defined as stock (or inventory) and trade receivables minus trade payables) represented 12% of revenue for the year ended July 31, 2018 (12% in the year ended July 31, 2017). Our cash conversion rate, the ratio of Adjusted EBITDA from continuing and discontinued operations to cash generated from operating activities over the last three years as shown in the table below. See ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’.

Year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) $ million, except as otherwise £ million, except as otherwise stated stated Adjusted EBITDA from continuing operations(3) ...... 1,687 1,519 1,199 971 Adjusted EBITDA from discontinued operations(3) ...... 59 113 90 90 Adjusted EBITDA from continuing and discontinued operations ...... 1,746 1,632 1,289 1,061 Cash generated from operating activities . . 1,323 1,410 1,289 1,061 Cash conversion(3)(4) ...... 76% 86% 87% 96% Profit for the year ...... 1,267 920 783 659 EU IFRS Cash conversion(5) ...... 104% 153% 142% 157%

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (4) Cash generated from operations divided by Adjusted EBITDA from continuing and discontinued operations. (5) This is calculated as cash generated from operations divided by profit for the year attributable to shareholders of the Company.

81 Significant expertise at Board, executive and segmental levels We have an experienced management team across the Group, including those at both Board and segmental levels, focused on the implementation of our strategy. Our board and broader management team includes significant and broad international experience. Our CEO, John Martin, was appointed to his current role in 2016. Prior to his role as CEO, John served as Group Chief Financial Officer, from 2010, as well as head of the Group’s Canadian business between 2013 and 2016. Mike Powell, the Group’s Chief Financial Officer, joined the Company in June 2017. Mike’s previous roles include Group Finance Director of BBA Aviation plc, CFO of AZ Electronic Materials plc and CFO of Nippon Glass, based in Tokyo. Kevin Murphy has been Chief Executive Officer of the Group’s USA operations since 2017. From 2007 to his appointment, Kevin was Chief Operating Officer of the U.S. operations having joined the business in 1999. Gareth Davis has chaired the Board since 2011. Gareth has a wealth of experience at the highest level of UK corporate industry including the current chairmanship of DS Smith Plc, another UK public limited company. In addition, at the non-executive Board level, we have a broad range of international corporate experience. The Group’s Strategies Generate profitable growth in the United States The Group continues to target profitable growth across all our businesses. We are particularly focused on three key drivers that we believe will enable this growth: Fulfilling customer wants. • Engaged associates – we aim to develop well-trained and highly engaged associates to deliver excellent customer service, which drives customer loyalty. • Excellent service ethic – our aim is to provide the best customer service in the industry, consistently across branches and regions. • Strong sales culture. – we intend to continue to drive a strong sales culture. When our associates are proud and confident about our services, and have the best tools, knowledge and data to support them, we will achieve the strongest results. They engage with new and existing customers to make sure we are front of mind when it comes to bids for work. Attractive growth opportunities. • Organic expansion – we aim to accelerate profitable growth through above market revenue growth and targeted branch expansion. • Bolt-on acquisitions – we aim to complement our organic growth strategy with bolt-on acquisitions, which provide additional capacity or capability. We have a history of successful acquisitions and integrating new businesses to deliver attractive returns. • Adjacent opportunities – we intend to utilize our existing knowledge, skills and infrastructure to capitalize on new market opportunities that are adjacent to our current operations and specialisms. Excellent execution. • Operating model and e-commerce development – we aim to ensure that our operating model is agile and flexible so that we can adapt to our customers’ changing needs and are able to respond to changes in market conditions. As our customers increasingly interact with us through a variety of channels, including online, we aim to ensure that we have leading e-commerce platforms in each of the markets in which we operate. • Pricing discipline – we work constantly to understand our customers’ needs more accurately and structure our pricing to be fair, consistent and transparent. • Own brand penetration – we intend to systematically build upon and extend our portfolio of own brands which in the year ended July 31, 2018 represented approximately 6.9% of our

82 revenue. We have an opportunity to offer a wider range of own brand products to our customers, some of which attract higher gross margins. Execute the United Kingdom restructuring and repositioning program We aim to continue to implement the transformation strategy we announced last year. During the year ended July 31, 2018, we made certain changes to accelerate the pace of change and improve focus and accountability, including the appointment of Mark Higson in March 2018 to lead our United Kingdom business. An important part of our strategy in the United Kingdom is to invest in more disciplined category management, defining a clear range of products to drive availability, upon which our customers can rely. The re-configuration of our logistics and supply chain infrastructure is currently underway, including a move to in-night replenishment of our branches, which supports a better service proposition for our customers. We have surplus distribution center capacity and plan to close one distribution center, which we expect will reduce the amount of double-handling of inventory. We are also downsizing and relocating the United Kingdom headquarters in Leamington, which we expect to complete later this year. In the year ended July 31, 2018, we closed the BCG wholesale business, which generated unsustainably low margins, completed 75 branch closures, and implemented a redundancy program, which the Company believes has lowered the cost base by approximately $30 million per year and which has negatively impacted our financial performance for the year ended July 31, 2018, but we are confident that they will help us build a better business for the future. Additionally, the Group plans to reduce distribution center capacity to four regional hubs for the Wolseley branded United Kingdom business by December 31, 2018. Capitalize on significant growth opportunity in Canada We aim to capitalize on the significant growth opportunity we have identified in Canada and have generated encouraging growth and made clear progress towards fulfilling our strategic objectives during the year ended July 31, 2018. Ongoing trading profit in the Canada and Central Europe segment was $83 million for the year ended July 31, 2018 (up from $57 million or by 46% from the year ended July 31, 2017). During the year, revenue growth in our Canadian business was good and we improved gross margins enabling us to fund significant investments in the development of the business model, as well as generating good financial returns. As part of this strategy, we have allocated more resources to the development of our own brand products and we have implemented a new platform for B2B e-commerce to improve functionality and drive further penetration. During the year ended July 31, 2018, a new distribution center was opened in Montreal without disruption to our customers, and our distribution facilities in Toronto have been consolidated to give customers greater access to inventory from the distribution center in Milton. We have also implemented new demand planning technology to drive better availability for our customers. Accelerate innovation across the Group During the year ended July 31, 2018, we introduced a new priority, to accelerate innovation across the Group, to ensure that we identify new technology and business models to stay relevant to our customers. While many of our customers value our traditional services very highly, as the market leader we have an obligation and a great opportunity to identify new technologies and business models that customers will value in years to come and which could disrupt our value chain. We have established an ‘‘innovation and disruption’’ team to identify and pursue these opportunities. In addition, we have also established Ferguson Ventures to invest, partner or venture with innovative people and emerging technologies that can enhance the customer or contractor experience. The team includes associates from inside and outside the business, along with some specialist help, to identify promising new business models to develop their full potential. We have begun partnering with some exciting businesses with the potential to help us change and develop customer propositions in our industry.

83 Capital Allocation Strategy We remain disciplined in our capital allocation approach while continuing to seek to enhance shareholder value. In order to allocate capital the Group utilizes a four-step capital allocation priority policy: • Invest in organic growth. • Progressive dividend policy; we aim to grow our dividend in line with the long-term underlying growth in earnings. • Invest in bolt-on M&A that meet our stringent investment criteria. • Return surplus capital to shareholders reasonably promptly. The Group targets a leverage ratio range based on our strong and robust cash flow fundamentals of net debt in the range of 1 to 2 times EBITDA. We believe this target range provides flexibility and headroom throughout the cycle to continue investing in the underlying business. This target range also provides a minimum of 1.5 times headroom against the key financial covenant contained in our other principal financing agreements.

84 Our Business Segments The following table sets forth a breakdown of revenue from ongoing operations, organic revenue growth, like-for-like revenue growth, operating profit, trading profit from ongoing operations, trading margin for the Group’s operating segments the years ended July 31, 2018, 2017 and 2016.

Year ended July 31, 2017 2016 2018 (Restated)(1) 2017 (Restated)(2) $ million, except as otherwise £ million, except as otherwise indicated indicated United States Segment Revenue ...... 16,670 15,193 11,994 9,456 Ongoing revenue(3) ...... 16,670 14,977 11,824 9,288 Organic revenue growth(3) ..... 9.9% 7.3% 7.3% 4.8% Operating profit ...... 1,343 1,231 998 743 Trading profit from ongoing operations(3) ...... 1,406 1,204 950 761 Ongoing trading margin(3) ..... 8.4% 8.0% 8.0% 8.2% United Kingdom Segment Revenue ...... 2,568 2,548 2,012 1,996 Ongoing revenue(3) ...... 2,568 2,548 2,012 1,996 Like-for-like revenue growth(3) . . 0.7% 1.0% 1.0% (1.6)% Operating profit/(loss) ...... 3 61 48 (41) Trading profit from ongoing operations(3) ...... 73 96 76 74 Ongoing trading margin(3) ..... 2.8% 3.8% 3.8% 3.7% Canada and Central Europe Segment Revenue ...... 1,514 1,543 1,218 1,097 Ongoing revenue(3) ...... 1,514 1,320 1,042 862 Organic revenue growth(3) ..... 6.9% 3.5% 3.5% 0.6% Operating profit ...... 76 245 224 51 Trading profit from ongoing operations(3) ...... 83 57 45 37 Ongoing trading margin(3) ..... 5.5% 4.3% 4.3% 4.3% Total Revenue ...... 20,752 19,284 15,224 12,549 Ongoing revenue(3) ...... 20,752 18,845 14,878 12,146 Organic revenue growth(3) ..... 7.5% 6.0% 6.0% 3.3% Operating profit ...... 1,360 1,478 1,224 711 Trading profit from ongoing operations(3) ...... 1,507(4) 1,307(5) 1,032(6) 827(7) Ongoing trading margin(3) ..... 7.3% 6.9% 6.9% 6.8%

(1) Restated to present the results of the non-U.S. dollar denominated subsidiaries in U.S. dollars at the average exchange rate for the period or at the relevant period end rate. (2) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5. (3) This is a non-EU IFRS financial measure. See definition of this non-EU IFRS performance measure within ‘‘Presentation of Financial, Market and Other Information—Non-EU IFRS Financial Measures/Alternative Performance Measures’’ and see reconciliation in ‘‘Selected Financial Information—Reconciliations to Reported Financial Data’’. (4) Includes $(55) million for Central and other costs. (5) Includes $(50) million for Central and other costs. (6) Includes £(39) million for Central and other costs. (7) Includes £(45) million for Central and other costs.

85 United States We are the market leading distributor of plumbing and heating products in the United States. We operate nationally serving the residential, commercial, civil and industrial markets. We predominantly serve the RMI markets in the United States, as well as the new construction market. For the years ended July 31, 2018, 2017 and 2016, the ratio of revenue generated in the United States in each market sector was as follows:

Year ended July 31, 2018 2017 2016 % of segment revenue Residential RMI ...... 34 34 31 Non-residential RMI ...... 24 25 21 Residential new construction ...... 18 18 17 Non-residential new construction ...... 17 16 15 Civil/infrastructure ...... 7 7 16 For the year ended July 31, 2018, we operated several business units in the United States offering different categories of plumbing and heating products and solutions to fit the customers’ needs. The majority of the business units predominantly serve trade customers with a smaller number serving consumers. We have no direct competitors that operate across all of the markets in which we operate. Each of our business units in the United States has its own competitors which range from large national companies, including trade sales by large home improvement chains, to small, privately owned distributors. We constantly aim to strengthen our positions in existing and adjacent markets in the United States segment through bolt-on acquisitions. We completed nine, nine and thirteen bolt-on acquisitions during the years ending July 31, 2018, July 31, 2017 and July 31, 2016, respectively. For the year ended July 31, 2018, we had 26,501 associates in the United States segment who operated 1,448 branches serving all 50 states, which are in turn served by 10 distribution centers, providing same day and next day product availability, which we believe is a key competitive advantage. For the years ended July 31, 2018, 2017 and 2016, the ratio of revenue generated in the United States from each business unit (as described in further detail below) was as follows:

Year ended July 31, 2018 2017 2016 % of segment revenue Blended Branches ...... 58 60 62 Waterworks standalone ...... 16 16 16 B2C e-commerce ...... 9 7 6 HVAC standalone ...... 7 7 7 Other (Industrial standalone, Fire and Fabrication and Facilities Supply) ...... 10 10 9 The business units in the United States are as follows: • Blended Branches – The Blended Branches business is our largest business unit in the segment and serves three end markets – Residential Trade, Residential Showroom, and Commercial – serving customers across the residential and commercial sectors for RMI and new construction. Organic revenue growth for the Blended Branches business for the year ended July 31, 2018 was 8.5% (11.4% in the western region of the United States, 8.2% in the north central region of the United States, 8.1% in the south central region of the United States and 6.4% in the east region of the United States). Residential Trade serves the residential RMI and new construction sectors with a large proportion of sales through the branch counters. It provides plumbing and sanitary supplies, tools, repair parts and bathroom fixtures to plumbing contractors. For the year ended July 31, 2018, the Residential Trade business was the number two in the United States with an estimated market share by revenue of 16% and the estimated combined market share of the top three companies was 50% with the remainder of the market fragmented between mid-size regional distributors and small, local distributors.

86 Residential Showroom operates a national network of 276 showrooms, serving consumers and trade customers, which showcase bathroom, kitchen and lighting products and assist customers by providing advice and project management services for their home improvement projects. For the year ended July 31, 2018, the Residential Showroom business was the market leader with an estimated 11% market share by revenue, the next largest competitor is about one third of the size. Commercial provides commercial plumbing and mechanical contractors with products and services including bidding and tendering support and timeline planning to assist with their construction projects. For the year ended July 31, 2018, the Commercial business was the market leader in the United States with an estimated market share by revenue of 19%, roughly twice the size of their nearest competitor. In certain markets where it is more efficient and effective, we serve customers through a Blended Branches location rather than a standalone HVAC, Waterworks, Industrial or Facilities supply business. • Waterworks – The Waterworks business is the largest waterworks distributor in the United States. It distributes PVF, hydrants, meters and related water management products alongside related services including water line tapping and pipe fusion. Waterworks sales tend to be part of large planned projects to public and private water and sewer authorities, utility contractors, public works/line contractors and heavy highway contractors on residential, commercial and municipal projects across the water, sanitary sewer and storm water management markets. For the year ended July 31, 2018, the Waterworks business was the largest operator in the United States, with an estimated market share of 22%, slightly higher than the second largest competitor. No other company holds greater than 5% market share. Organic revenue growth for the Waterworks business for the year ended July 31, 2018, was 11.5%. • B2C e-commerce – The B2C e-commerce business sells directly to consumers and trade customers online predominantly using our product range and distribution network. The majority of our B2C business is conducted through the brand, Build.com, which is supported by a call center of sales consultants who provide advice and customer support. For the year ended July 31, 2018, the market was predominantly comprised of large competitors with the top four businesses holding an estimated 75% of the market. Organic revenue growth for the B2C e-commerce business for the year ended July 31, 2018 was 12.9%. • HVAC – The HVAC business supplies heating, ventilation, air conditioning and refrigeration equipment, parts and supplies to specialist contractors. The business predominantly serves the residential and commercial markets for repair and replacement. For the year ended July 31, 2018, our HVAC business was the third largest distributor in a highly fragmented market. The market leader is about twice the size of Ferguson with an estimated 8 per cent market share. Organic revenue growth for the HVAC business for the year ended July 31, 2018 was 8.9%. • Industrial – The Industrial business is a supplier of PVF and industrial maintenance, repair and operations specializing in delivering automation, instrumentation, engineered products and turn-key solutions. We also provide supply chain management solutions for a full range of PVF supplies focusing on providing cost savings across the entire supply chain. The Industrial business distributes products to industrial customers across all sectors including oil and gas, mining, chemical and power. For the year ended July 31, 2018, as the industrial market is fragmented, we estimate our market share to be 5%, with the market leader about three times larger. • Fire and Fabrication – The Fire and Fabrication business caters to fire protection contractors and engineers offering fire protection products, fire protection systems and bespoke fabrication services to commercial contractors for new construction projects. For the year ended July 31, 2018, we estimate our market share to be 20% and the two next largest competitors hold an estimated 25% market share between them. • Facilities Supply – The Facilities Supply business provides products, services and solutions to enable reliable maintenance of facilities across multiple RMI markets including multi-family properties, government agencies, hospitality, education and healthcare. For the year ended July 31, 2018, the facilities supply market is highly fragmented with no competitors holding more than 5% market share.

87 Combined organic revenue growth for the Industrial, Fire and Fabrication and Facilities Supply business units for the year ended July 31, 2018 was 14.1%. United Kingdom In the United Kingdom, we principally operate under the Wolseley brand predominantly in the trade market through 567 branches covering the whole country as at July 31, 2018. These branches are served by six distribution centers (five for the Wolseley branded business and one for the Group’s United Kingdom online business) providing same and next day product availability, a key service offering to our customers. At July 31, 2018, our United Kingdom segment had 5,617 associates. The United Kingdom business is currently in the second year of a major transformation program to improve service to customers, performance and profitability. In March 2018, Mark Higson was appointed as the new leader of our United Kingdom business. Mr. Higson is a highly experienced and proven operational leader having spent much of his career operating a range of large businesses both in the United Kingdom and internationally, including Royal Mail, BPB plc and Courtaulds plc. The United Kingdom business mainly serves RMI markets, and has relatively low exposure to the new residential construction market. For the year ended July 31, 2018, revenue generated from the residential RMI and non-residential RMI sectors was 50% and 12% of segment revenue, respectively, while revenue generated from the residential new construction sector was 11% of segment revenue. Revenue generated from the non-residential new construction and the civil infrastructure sectors was 17% and 10% of segment revenue, respectively. The business units in the United Kingdom are as follows: • Blended – Blended is the largest business within the United Kingdom, generating 84% revenue. The business operates under the Wolseley brand with a number of smaller brands including William Wilson and soak.com. This business provides plumbing and heating products, air conditioning and refrigeration products, and the associated pipes, valves and fittings to trade customers in the residential and commercial sectors, for mostly RMI purposes. The business also provides specialist above ground drainage products. Wolseley is the number two by revenue in a consolidated market with the top four holding about 70% market share. • Infrastructure – Our Infrastructure business is a specialist in below ground drainage it serves the civil infrastructure and utilities markets. The business is estimated to have a market share of about 20%. Canada and Central Europe In our Canada and Central Europe segment, we operate across two countries, Canada and the Netherlands. Wolseley Canada operates in the trade market serving the residential, commercial and industrial sectors in both RMI and new construction. Wasco in the Netherlands predominantly serves trade customers operating in residential RMI and residential new-construction markets. As at July 31, 2018, the businesses operated 265 branches with three distribution centers. At July 31, 2018, our Canada and Central Europe segment had 3,167 associates. For the years ended July 31, 2018, 2017 and 2016, the ratio of revenue generated in Canada and Central Europe in each market sector was as follows:

Year ended July 31, 2018 2017 2016 % of segment revenue Residential RMI ...... 43 44 43 Non-residential RMI ...... 17 17 16 Residential new construction ...... 19 21 22 Non-residential new construction ...... 19 16 17 Civil infrastructure ...... 2 2 2 The business units in Canada and Central Europe are as follows: • Wolseley Canada – Wolseley Canada (79% of the segment’s revenue for the year ended July 31, 2018) supplies plumbing, heating, ventilation, air conditioning and refrigeration products to residential and commercial contractors. It also supplies specialist water and waste water treatment

88 systems to residential, commercial and municipal contractors, and supplies PVF solutions to industrial oil and gas markets. The business is the second largest by revenue in the market. • Wasco (Netherlands) – Wasco (21% of revenue for the year ended July 31, 2018) is a distributor of heating, plumbing and related spare parts across the Netherlands; it is the third largest distributor by revenue in a consolidated market. We have recently announced our intention to dispose of the Wasco business. Market Background The markets in which the Group operates are typically fragmented. The Group’s competition varies by product line, type of customer and geographic market. The Group competes with many local, regional, and, in several markets and product categories, other national distributors including specialist subsidiaries of large home center chains and product manufacturers. To a more limited extent, it also competes with large home center chains for business from professional contractors as well as with product manufacturers. Demographic changes affect the markets in which the Group operates. Generally, the populations in each of our geographic segments have been aging while experiencing increased levels of immigration, which support demand for new housing over the long term. However, short-term weaknesses as a result of general economic downturn can have a significant impact. In each market, we operate with significant scale. United States The United States is our largest market with the greatest opportunities for growth. The market for plumbing and heating distribution has strong growth characteristics and is highly fragmented with no market dominated by any single distributor. GDP growth in the United States has increased since the third quarter of 2016, indicating continued expansion in the economy. Consumer confidence levels have been high over the last 12 months. The unemployment rate has fallen below 4% for the first time since 2000. The four end markets that Ferguson serves in the United States have different characteristics and as such certain market data is more relevant to specific end markets. The following macroeconomic trends have an impact on all of our business units in the United States. • Residential markets – The LIRA provides a short-term outlook of national home improvement and repair spending. It is designed to project the annual rate of change in spending for the current quarter and subsequent four quarters. The LIRA projections suggest continued growth in the year ended July 31, 2018. In addition, existing single-family home sales is an indicator of the strength of the market. For the year ended July 31, 2018, the seasonally adjusted annual rate of sales has remained high at around 5.5 million throughout the last 12 months. • Commercial market – The American Institute of Architects Billings Index – Commercial/Industrial AIA Billings Index is used as a leading economic indicator of construction. Any score below 50 indicates a decline in business activity across the architecture profession, whereas an index score above 50 indicates growth. The AIA Billings Index score has been above 50 during the last 12 months ended July 31, 2018, indicating continuing growth. • Civil/Infrastructure market – The AIA Billings Index is also an indicator for the civil/Infrastructure market. The non-residential construction Put In Place measure is also an indicator of recent growth in the market, reflecting the value spent each month on construction. During the year ended July 31, 2018, the value of spend declined year-on-year for the first two quarters but increased in the final two quarters of the year. • Industrial market – An indicator of the strength of the industrial market is the Institute of Supply Chain Management Purchase Managers Index (‘‘ISCM Purchase Managers Index’’). Any reading above 50 indicates that the manufacturing economy is generally expanding, where a reading below 50 indicates that it is generally declining. The ISCM Purchase Managers Index reading has been above 50 throughout the year ended July 31, 2018, indicating strong growth in the market in that period.

89 United Kingdom In the United Kingdom, the markets remain challenging as GDP has declined over for the last 12 months from 1.7% in the first quarter to 1.3% in the final quarter. Consumer confidence has also been negative, indicating an expected decline in the economy over the next 12 months. Canada and Central Europe In Canada, GDP growth has decreased through the year from a high level in the first quarter of 3.1% to 1.9% in the final quarter. Consumer confidence has been high throughout the year with an average of about 55. A score above 50 indicates an expectation of growth. GDP growth in the Netherlands has been at an average of about 3% over the last 12 months, the highest level since 2008. Our Associates Our associates are essential to the long-term success of the Group. We continue to invest in the development of our people and strive to ensure that we are positioned to attract and retain the best talent. Our associates enable us to deliver excellent customer service, develop strong relationships, maximize operational efficiencies and accelerate the adoption of new operating models. The table below sets forth the average number of full time equivalent (‘‘FTE’’) employees by business segment for the periods presented.

As at July 31, 2016 FTE employees by Business Segment 2018 2017 (Restated)(1) United States ...... 25,129 24,086 22,468 United Kingdom ...... 5,871 6,064 6,208 Canada and Central Europe ...... 2,962 3,257 3,489 Other ...... 94 104 104 Total Group ...... 34,056 33,511 32,269

(1) Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.

At July 31, 2018, the Group employed approximately 35,370 people across all geographic locations. Remuneration arrangements differ to reflect local markets. Incentive programs have been developed in each business for branch and sales associates to ensure that high performance is well rewarded. We adjust measures to the type of role or team, but typically incentivize based on combinations of trading profit, gross margin, gross profit, average cash-to-cash days and net promoter score. The Group’s total staff costs were $2,913 million for the year ended July 31, 2018. Regulatory Landscape The Group’s operations are affected by various statutes, regulations and standards in the countries and markets in which it operates, including, but not limited to, the United Kingdom, the United States and Canada (among others). The amount of such regulation and the penalties for any breaches can vary. While the Group is not engaged in a highly regulated industry, it is subject to the laws governing businesses generally, including laws relating to competition, product safety, timber sourcing, data protection, labor and employment practices, accounting and tax standards, international trade, fraud, bribery and corruption, land usage, the environment, health and safety, transportation, payment terms and other matters. Intellectual Property The Group relies on a combination of intellectual property laws, confidentiality procedures and contractual provisions to protect its proprietary assets and its brand. We have registered or applied for registration of trademarks, service marks, copyrights and internet domain names, both domestically and internationally. Litigation Group companies are, from time to time, subject to certain claims and litigation arising in the normal course of business in relation to, among other things, the products that they supply, contractual

90 and commercial disputes and disputes with employees. Provision is made if, on the basis of current information and professional advice, liabilities are considered likely to arise. In the case of unfavorable outcomes, the Group may benefit from applicable insurance protection. Property, Plant and Equipment The Group’s headquarters are located at Grafenauweg 10, CH-6301 Zug Switzerland. For the year ended July 31, 2018, the Group operated from 1,448 branches and 10 distribution centers and facilities in United States, from 567 branches and 6 distribution centers and facilities in the United Kingdom and from 265 branches and 3 distribution centers and facilities in Canada and Central Europe. The majority of these properties are leased, and none is considered to have a value that is significant in relation to the Group’s assets as a whole. Key Subsidiaries The Group comprises a large number of companies. This table below lists the Group’s principal subsidiaries as determined for the Group Consolidated Financial Statements.

Company Name Principal Activity Country of Incorporation Capstone Global Solutions AG Operating company Switzerland Ferguson Enterprises Inc Operating company USA Ferguson Finance plc Financing company England and Wales Ferguson Finance (Switzerland) AG Financing company Switzerland Ferguson Holdings (Switzerland) AG* Investment company Switzerland Ferguson Group Services Limited Service company England and Wales Wasco Holding B.V. Operating company The Netherlands Wolseley Canada Inc. Operating company Canada Wolseley UK Limited Operating company England and Wales Wolseley Capital, Inc. Financing company USA Wolseley Insurance Limited Operating company Isle of Man Wolseley Investments, Inc. Investment company USA Wolseley Limited* Investment company England and Wales

(1) Shareholdings in companies marked * are held 100% directly by Ferguson plc. The proportion of the voting rights in the subsidiary undertakings held directly by Ferguson plc do not differ from the proportion of the ordinary shares held. All other shareholdings in the above-mentioned companies are held by intermediate subsidiary undertakings. (2) All shareholdings in the above subsidiary undertakings are of ordinary shares or equity capital. (3) All subsidiary undertakings have been included in the Group Consolidated Financial Statements.

91 DIRECTORS AND SENIOR MANAGEMENT The following table shows the Board of Directors (the ‘‘Board’’) and senior management of the Company as at the date hereof.

Date of Board of Directors Title Appointment Gareth Davis(1) ...... Chairman and Non-Executive Director 2003 John Martin(2) ...... Group Chief Executive and Executive 2010 Director Mike Powell ...... Group Chief Financial Officer and 2017 Executive Director Kevin Murphy ...... Chief Executive Officer, USA and 2017 Executive Director Tessa Bamford ...... Independent Non-Executive Director 2011 Alan Murray ...... Independent Non-Executive Director 2013 Darren Shapland ...... Independent Non-Executive Director 2014 Nadia Shouraboura ...... Independent Non-Executive Director 2017 Jacky Simmonds ...... Independent Non-Executive Director 2014 Graham Middlemiss ...... Company Secretary 2012

(1) Appointed to the Board as Chairman in 2011. (2) Appointed to the Board as Group Chief Financial Officer in 2010 and then as Group Chief Executive in 2016.

Date of Board Executive Team Title Appointment John Martin ...... Group Chief Executive and Executive 2010 Director Mike Powell ...... Group Chief Financial Officer and 2017 Executive Director Kevin Murphy ...... Chief Executive Officer, USA and 2017 Executive Director On May 31, 2018 John Daly stepped down from the Board as a Non-Executive Director following more than four years’ service. John’s resignation from the Board was as a result of his increased business commitments elsewhere. On July 31, 2018 Pilar Lopez stepped down from the Board as a Non-Executive Director following more than five years’ service. Pilar’s resignation from the Board was as a result of her increased business commitments, including her recent appointment as a Non-Executive Director of Inditex SA. The business address of each of the directors is Grafenauweg 10, CH 6301, Zug, Switzerland. Board of Directors Gareth Davis. Mr. Davis has extensive international board and general management experience, having served on various company boards for many years. He has served as a Non-Executive Director since 2003 and was appointed Chairman in 2011. Mr. Davis spent 38 years in the tobacco industry and was Chief Executive of Imperial Tobacco Group plc from its incorporation in 1996 until May 2010. From 2010 to April 2018, he was Chairman of William Hill PLC. He also serves as Chairman of DS Smith Plc. John Martin. Mr. Martin has extensive operational and financial management experience of running large international businesses. Mr. Martin has strong leadership capabilities and significant experience in strategic development and driving improvements in operational performance. He joined the Company as Chief Financial Officer and assumed management responsibility for the Group’s Canadian business between 2013 and 2016. Previously he was a partner at Alchemy Partners, the private equity group, and prior to that was Chief Financial Officer of Travelex Group, the international payments business, and Hays Plc.

92 Mike Powell. Mr. Powell has considerable financial management and operational experience as well as experience of running multi-national businesses with significant U.S. operations. Mr. Powell, a chartered management accountant, joined the Company on June 1, 2017 as Group Chief Financial Officer and Executive Director. From July 2014 until his appointment at Ferguson Mr. Powell was Group Finance Director of BBA Aviation plc, one of the world’s leading providers of aviation support services. Before joining BBA he served as CFO of AZ Electronic Materials plc and CFO of Nippon Sheet Glass, based in Tokyo. Prior to that he spent 15 years at Pilkington plc in a variety of operational and finance roles. He also serves as a Non-Executive Director of Low & Bonar plc. Kevin Murphy. Mr. Murphy has strong leadership skills and deep industry knowledge. He has a strong track record of driving sustainable profitable growth. In our business he is responsible for all of the Group’s businesses based in the United States. From 2007 until his appointment as Chief Executive Officer and Executive Director of Ferguson Enterprises on 1 August 2017, Mr. Murphy was Chief Operating Officer of Ferguson Enterprises and a member of its senior leadership team. He joined Ferguson Enterprises as an Operations Manager in 1999 and subsequently held several leadership positions including three years as Vice President of the U.S. Waterworks division. Nadia Shouraboura. Ms. Shouraboura has considerable expertise in running complex logistics and supply chain activities, with insight in cutting edge technology and deep knowledge of e-commerce. She was a Vice President at Amazon.com, Inc. where she served on the senior leadership team. After eight years at Amazon, she founded Hointer Inc., a consultancy that helps retailers create innovative in-store experiences. Prior to her time at Amazon Ms. Shouraboura was Head of System Development for Trading at Exelon Power Team, Senior Principal at Diamond Management and Technology and Co-founder and Vice President, IT at Starlight Multimedia Inc. in addition to other technology and multimedia roles. She is also the founder and Chief Executive Officer of Hointer Inc., a Non-Executive Director of Cimpress NV, and a member of the Supervisory Board of X5 Retail Group N.V. Tessa Bamford. Ms. Bamford has extensive boardroom and city experience. She has broad business experience having held senior advisory roles in both the United Kingdom and the United States across a range of sectors. She was formerly a founder and Director of Cantos Communications, an online corporate communications service provider (2001 to 2011) and until 30 June 3018, a Non-Executive Director of Barratt Developments plc. Previously, she was a Director of J Henry Schroder & Co, where she worked for 12 years in a number of roles and, prior to that, worked in corporate finance for Barclays de Zoete Wedd. She also serves as a consultant at Spencer Stuart. Alan Murray. Mr. Murray has considerable international operational experience and extensive executive management experience within global businesses. He was, from 2010 until August 2017, a member of the Supervisory Board of HeidelbergCement AG and was previously a Non-Executive Director of International Power plc (2007 to 2011). Prior to that, he spent 19 years at Hanson plc and was Group Chief Executive between 2002 and 2007. From 2007 until 2008, he was a member of the Management Board of HeidelbergCement AG. Mr. Murray is a qualified chartered management accountant. He also serves as a Non-Executive Director of Owens-Illinois, Inc. Jacky Simmonds. Ms. Simmonds has extensive executive remuneration and human resources experience within large international businesses. She was Group People Director of easyJet plc from 2015 to 2017. Before joining easyJet plc, she was Group HR Director of TUI Travel plc from 2010 until 2015, HR Director for TUI UK from 2007 to 2010 and a divisional Director of First Choice Holidays PLC until the business was merged with TUI AG in 2007 to form TUI Travel PLC. She was also a member of the Supervisory Board of TUI Deutschland, GmbH and a Director of PEAK Adventure Travel Group Limited. She also serves as the Group Chief People Officer of VEON Ltd. Darren Shapland. Mr. Shapland has considerable commercial, operational, financial management and broad public company experience in major consumer businesses. Until September 2016, he was Chairman of Poundland Group plc. He was a Non-Executive Director of Ladbrokes plc and was Chairman of its Audit Committee until 2015. Between 2012 and 2013, he was Chief Executive Officer of Carpetright plc. From 2005 to 2010, Mr. Shapland was Chief Financial Officer of J Sainsbury plc and from 2010 to 2011, Group Development Director. He was also Chairman of Sainsbury’s Bank. Prior to that, Mr. Shapland held a variety of senior finance and operational positions at Carpetright plc, Superdrug Stores plc, the Burton Group and Arcadia. He also serves as the Chairman of Topps Tiles Plc.

93 Company Secretary Graham Middlemiss. Mr. Middlemiss was appointed Company Secretary of Ferguson plc on 1 August 2015. He is Secretary to the Board and all of the Committees of the Board. Mr. Middlemiss, a solicitor, joined the Group in August 2004 as the General Counsel of its United Kingdom business and was Group Deputy Company Secretary from November 2012 to July 2015. Executive Leadership Team The biographies for John Martin, Mike Powell and Kevin Murphy are set out above. Board Practices Board and committee meetings The Company is registered in Jersey and is tax resident in Switzerland. During the year, all meetings of the Board, Committees of the Board and all other meetings requiring decisions of a strategic or substantive nature are held outside the United Kingdom. Each Director is required to attend all meetings of the Board and Committees of which they are a member. In addition, senior management from across the Group and advisers attend some of the meetings for the discussion of specific items in greater depth. The Board meets regularly during the year, with Board and Committee meetings scheduled over one or two-day periods. In order to provide the Board with greater visibility of the Group’s operations, to provide further opportunities to meet senior management and to gain a deeper understanding of local market dynamics, the Board aims to visit at least one of the Group’s business unit locations each year. Committees of the Board of Directors The committees of the Board support the Board in the fulfilment of its duties. These take strategic decisions of a substantive nature. Audit Committee The Audit Committee oversees, monitors and makes recommendations as appropriate in relation to the Company’s financial statements, accounting processes, audit (internal and external), risk management and internal controls and matters relating to fraud and whistleblowing. Remuneration Committee The Remuneration Committee reviews and recommends to the Board the framework and policy for the remuneration of the Chairman, the Executive Directors and the Executive Committee. It also takes into account the business strategy of the Group and how the remuneration policy reflects and supports that strategy. Nominations Committee The Nominations Committee regularly reviews the structure, size and composition of the Board and its Committees. It also identifies and nominates suitable candidates to be appointed to the Board (subject to Board approval) and considers succession generally. Major Announcements Committee Meets as required in exceptional circumstances to consider disclosure obligations in relation to material information where the matter is unexpected and non-routine. Other Committees Executive Committee The Executive Committee ensures that the corporate culture and values set by the Board are implemented across the Group, that the behaviors expected from associates are clearly communicated and that actual behaviors are in line with culture and values, and develops and recommends to the

94 Board the strategy for the Group. It is also responsible for monitoring progress against the strategy, and develops and recommends to the Board Group policies and standards and ensures that they are implemented, communicated and maintained. Treasury Committee The Treasury Committee considers treasury policy including financial structures and investments, tax and treasury strategy, policies and certain transactions of the Group. It also reviews performance and compliance of the tax and treasury function and makes recommendations to the Board in matters such as overall financing and strategy, and currency exposure. Disclosure Committee The Disclosure Committee meets as required to deal with all matters relating to public announcements of the Company and the Company’s obligations under the Listing and Disclosure and Transparency Rules of the United Kingdom Listing Authority and EU Market Abuse Regulation. It also assists in the design, implementation and periodic evaluation of the Company’s disclosure controls and procedures.

95 RELATED-PARTY TRANSACTIONS There are no related party transactions requiring disclosure under IAS 24 ‘‘Related Party Disclosures’’ other than the compensation of key management personnel which is set out in in the table below. The Company is exempt under the terms of Financial Reporting Standard 101 from disclosing related party transactions with entities that are 100% owned by Ferguson plc. For the years ended July 31, 2018, 2017 and 2016, the aggregate emoluments for all key management were as follows:

Key management personnel compensation Year ended July 31, (including Directors) 2018 2017 2017 2016 $ million £ million Salaries, bonuses and other short-term employee benefits ..... 14 14 11 8 Termination and post-employment benefits ...... 5 - – 1 Share-based payments ...... 9 5 4 4 Total compensation ...... 28 19 15 13

Related Party Transactions with Key Management Information relating to remuneration and benefits of key management personnel is given in Note 11 to the Group 2018 Consolidated Financial Statements. Information relating to pension fund arrangements is disclosed in Note 25 to the Group 2018 Consolidated Financial Statements. At July 31 2018, the directors of the Group and their immediate relatives controlled 0.07% of the voting shares of the Company.

96 DESCRIPTION OF THE NOTES AND THE GUARANTEES The following is a summary of the material provisions of the Indenture, the Notes and the Guarantees. Copies of the Indenture, the Notes and the Guarantees will be available for inspection during normal business hours at any time after the closing date of the offering of the Notes at the offices of the Trustee, which are currently located at One Canada Square, London E14 5AL, United Kingdom. Any capitalized term used herein but not defined shall have the meaning assigned to such term in the Indenture. General The $750,000,000 4.500% Notes due 2028 (the ‘‘Notes’’) will be issued on or about October 24, 2018 (the ‘‘Issue Date’’) under an Indenture dated as of the same date (the ‘‘Indenture’’), among Ferguson Finance plc (the ‘‘Issuer’’), Ferguson plc (the ‘‘Parent Guarantor’’), Wolseley Limited (the ‘‘Subsidiary Guarantor’’ and, together with the Parent Guarantor, the ‘‘Guarantors’’) and BNY Mellon Corporate Trustee Services Limited, as trustee (the ‘‘Trustee’’), The Bank of New York Mellon SA/NV, Luxembourg Branch, as registrar (the ‘‘Registrar’’) and as transfer agent (the ‘‘Transfer Agent’’) and The Bank of New York Mellon, London Branch, as principal paying agent (the ‘‘Paying Agent’’). The Indenture is not required to be, nor will it be, qualified under the U.S. Trust Indenture Act of 1939, as amended (the ‘‘Trust Indenture Act’’), and will not incorporate by reference any of the provisions of the Trust Indenture Act. Consequently, the Holders of Notes generally will not be entitled to the protections provided under the Trust Indenture Act to holders of debt securities issued under a qualified indenture, including those requiring the Trustee to resign in the event of certain conflicts of interest and to inform the Holders of Notes of certain relationships between it and the Issuer or the Guarantors. In this ‘‘Description of the Notes and the Guarantees’’, the terms ‘‘Holder’’, ‘‘Noteholder’’ and other similar terms refer to a ‘‘registered holder’’ of Notes, and not to a beneficial owner of a book-entry interest in any Notes, unless the context otherwise clearly requires. Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Securities Corp., RBC Capital Markets, LLC and SMBC Nikko Securities America, Inc. (together, the ‘‘Initial Purchasers’’) propose to resell Notes represented by the Rule 144A Global Notes in registered form to certain institutions in the United States in reliance upon Rule 144A under the U.S. Securities Act of 1933, as amended (the ‘‘Securities Act’’). The Rule 144A Global Notes may not be sold or otherwise transferred except pursuant to registration under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Notes represented by the Regulation S Global Notes will be resold by the Initial Purchasers only to non-U.S. persons located outside the United States in offshore transactions in reliance on Regulation S under the Securities Act. Principal, Maturity and Interest The Notes will be direct, unsubordinated and unsecured senior obligations of the Issuer and will be fully and unconditionally guaranteed on a direct, unsubordinated and unsecured senior basis by each Guarantor pursuant to the Indenture. The Notes are initially being issued in an aggregate principal amount of $750 million and will mature on October 24, 2028 (the ‘‘Maturity Date’’). The Notes will bear interest at 4.500% per annum from the Issue Date or from the most recent Interest Payment Date to which interest has been paid or provided for. The Notes are payable semi-annually in arrears in U.S. dollars on each April 24 and October 24, commencing April 24, 2019 to the person in whose name any Note is registered at the close of business in Luxembourg on the April 9 or October 9 (whether or not a business day in Luxembourg) immediately preceding such Interest Payment Date (each, a ‘‘record date’’), notwithstanding any transfer or exchange of the Notes subsequent to the record date and prior to such Interest Payment Date. If and to the extent the Issuer shall default in the payment of the interest due on such Interest Payment Date and the applicable grace period shall have expired, such defaulted interest may, at the option of the Issuer, be paid to the persons in whose names Notes are registered at the close of business on a subsequent record date (which shall not be less than five days which are business days in London prior to the date of payment of such defaulted interest) established by notice given, in the case of Notes that are in the form of Global Notes, in accordance with the applicable procedure of DTC, otherwise by mail by or on behalf of the Issuer to the Holders (which term means registered holders) of the Notes not less than fifteen calendar days preceding such subsequent record date.

97 Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. If the date on which any interest payment or principal payment is to be made is not a business day, such payment will be made on the next day which is a business day without any further interest or other amounts being paid or payable in connection therewith. Form and Denomination The Notes will be issued in fully registered form and only in denominations of $200,000 and integral multiples of $1,000 in excess thereof. The Notes will be issued initially as Global Notes registered in the name of the nominee of DTC. If at any time payments are made other than to DTC or if the Issuer so directs, a paying agent with offices in the Borough of Manhattan in the City of New York or London, United Kingdom shall be appointed. Further Issues The Issuer may, from time to time, without notice to or the consent of the Holders of the Notes, ‘‘reopen’’ the Notes and issue additional notes having identical terms and conditions as the Notes, except for the issue date, issue price, payment of interest accruing prior to the Issue Date of such additional notes and/or except for the first payment of interest following the issue date of such additional notes, so that the additional notes may be consolidated and form a single series of notes with the Notes (a ‘‘Further Issue’’); provided that any additional notes that are not fungible with the outstanding Notes for U.S. federal income tax purposes will not have the same CUSIP, ISIN or other identifying number as the outstanding Notes. Status of the Notes and the Guarantees The Notes will constitute direct, unsubordinated and unsecured senior obligations of the Issuer and rank pari passu and ratably without any preference or priority among themselves and equally with all other existing and future unsecured and unsubordinated obligations of the Issuer from time to time outstanding (subject to certain obligations required to be preferred by law). Upon issue, each Guarantor will fully and unconditionally guarantee on a direct, unsubordinated and unsecured senior basis, the due and punctual payment (and not collectability) of the principal of and interest on the Notes (and the payment of additional amounts described under ‘‘—Payment of Additional Amounts’’) when and as the same shall become due and payable, whether at stated maturity, by declaration of acceleration, call for redemption or otherwise. The obligations of the Guarantors under the Guarantees are direct, unsubordinated and unsecured senior obligations of each Guarantor and rank equally with all other existing and future unsecured and unsubordinated obligations of the Guarantors from time to time outstanding (subject to certain obligations required to be preferred by law). Payment of Additional Amounts The Issuer or, if applicable, the Guarantors (pursuant to the terms of the Guarantees), will make payments of principal, any premium and interest on the Notes or any payment pursuant to the Guarantees, as the case may be, to the Holder without withholding or deduction for or on account of any and all present or future tax, levy, impost or similar governmental charge imposed, assessed, levied or collected (‘‘Taxes’’) by or for the account of a Relevant Jurisdiction (as defined below) or any jurisdiction through which payments are made by or at the direction of the Issuer, the Guarantors or any successors thereto (together with any Relevant Jurisdiction, each a ‘‘Tax Jurisdiction’’), unless such withholding or deduction is required by law. If the Issuer or, if applicable, a Guarantor is required by a Tax Jurisdiction to deduct or withhold Taxes, the Issuer or, if applicable, such Guarantor will pay to a Holder of a Note such additional amounts (‘‘Additional Amounts’’) as may be necessary so that the net amount received by such Holder will not be less than the amount such Holder would have received if such Taxes had not been withheld or deducted; provided, however, that the Issuer or, if applicable, such Guarantor shall not be required to pay any Additional Amounts for or on account of: (i) any Taxes that (A) would not have been so imposed, assessed, levied or collected but for the fact that the Holder or beneficial owner of the applicable Note or Guarantee (or a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of a power over,

98 such Holder, if such Holder is an estate, trust, partnership or corporation) is or has been a domiciliary, national or resident of, or engaging or having been engaged in a trade or business or maintaining or having maintained a permanent establishment or being or having been physically present in the jurisdiction in which such Taxes have been imposed, assessed, levied or collected or otherwise having or having had some connection with such jurisdiction, other than the mere holding or ownership of, or the collection of principal of, and interest on, a Note or the enforcement of a Guarantee, as the case may be, or (B) would have been avoided by the Holder or beneficial owner making a declaration of non-residence to the Issuer or the relevant Tax authority or complying with any certificate, identification or other reporting requirements concerning the nationality, residence or identity of such Holder or beneficial owner or its connection with a Tax Jurisdiction or making any other claim for exemption or any filing to the relevant Tax authority, but such Holder or beneficial owner fails to do so; (ii) any Taxes that would not have been so imposed, assessed, levied or collected but for the fact that, where presentation is required in order to receive payment, the applicable Note or Guarantee was presented more than 30 days after the date on which such payment became due and payable or was provided for, whichever is later, except to the extent that the Holder thereof would have been entitled to Additional Amounts had the applicable Note or Guarantee been presented for payment on any day during such 30-day period; (iii) any estate, inheritance, gift, sales, transfer, excise, personal property or similar Taxes; (iv) any Taxes that are payable otherwise than by deduction or withholding from payments on or in respect of the applicable Note or Guarantee; (v) any withholding or deduction that is imposed where the applicable Note or Guarantee is presented for payment to a paying agent in the European Union by or on behalf of a Holder who would have been able to avoid such withholding or deduction by presenting such Note or Guarantee to another paying agent in a member state of the European Union; or (vi) any combination of the Taxes described in (i) through (vi) above. Notwithstanding any other provision contained herein, any amounts to be paid on the Notes by or on behalf of the Issuer, will be paid net of any deduction or withholding imposed or required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986, as amended (the ‘‘Code’’), or otherwise imposed pursuant to Sections 1471 through 1474 of the Code (or any regulations thereunder or official interpretations thereof) or an intergovernmental agreement between the United States and another jurisdiction facilitating the implementation thereof (or any fiscal or regulatory legislation, rules or practices implementing such an intergovernmental agreement) (any such withholding or deduction, a ‘‘FATCA Withholding’’). Neither the Issuer nor any other person will be required to pay any Additional Amounts in respect of FATCA Withholding. In addition, Additional Amounts will not be paid in respect of any payment in respect of the applicable Notes or Guarantees to any Holder that is a fiduciary, a partnership, a limited liability company or any person other than the sole beneficial owner of such payment to the extent such payment would be required by the laws of a Tax Jurisdiction to be included in the income for tax purposes of a beneficiary or settlor with respect to such fiduciary, a member of such partnership, an interest holder in such limited liability company or a beneficial owner that would not have been entitled to such amounts had such beneficiary, settlor, member, interest holder or beneficial owner been the Holder of such Notes or Guarantees. Whenever this Offering Memorandum refers to the payment of the principal of, any premium, any interest or other amounts to which a Holder is entitled, if any, on or in respect of the Notes or the Guarantees, unless the context otherwise requires, it shall include the payment of Additional Amounts to the extent that Additional Amounts are, were or would be payable.

99 Redemption Optional redemption The Issuer may redeem the Notes in whole or in part, at the Issuer’s option: (1) at any time and from time to time prior to July 24, 2028 (three months prior to the Maturity Date of the Notes) (the ‘‘Par Call Date’’) at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed, and (ii) as determined by the Independent Investment Banker, the sum of the present values of the applicable Remaining Scheduled Payments (not including any portion of payments of interest accrued to the date of redemption) discounted to the date fixed for redemption (the ‘‘Redemption Date’’) on a semi-annual basis (assuming a 360 day year consisting of twelve 30 day months and a redemption on the Par Call Date) at the Treasury Rate plus 25 basis points; and (2) at any time and from time to time on or after the Par Call Date, at a redemption price equal to 100% of the principal amount of the Notes being redeemed; plus, in each case, accrued and unpaid interest (including any Additional Amounts) on the principal amount being redeemed to (but excluding) the date of redemption. In connection with such optional redemption, the following defined terms apply: ‘‘Comparable Treasury Issue’’ means the United States Treasury security or securities selected by the Independent Investment Banker as having an actual or interpolated maturity comparable to the Par Call Date that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the Par Call Date. ‘‘Comparable Treasury Price’’ means, with respect to any Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for that Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Independent Investment Banker for the Notes obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. ‘‘Independent Investment Banker’’ means one of the Reference Treasury Dealers appointed by the Issuer to act as the ‘‘Independent Investment Banker’’. ‘‘Reference Treasury Dealer’’ means each of Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Securities Corp., RBC Capital Markets, LLC and a Primary Treasury Dealer (as defined below) selected by SMBC Nikko Securities America, Inc., or their affiliates, which are primary U.S. Government securities dealers, and their respective successors and one other nationally recognized investment banking firm that is a Primary Treasury Dealer specified by the Issuer; provided, however, that if any of the foregoing or their affiliates shall cease to be a primary U.S. Government securities dealer in The City of New York (a ‘‘Primary Treasury Dealer’’), the Issuer shall substitute therefor another Primary Treasury Dealer. ‘‘Reference Treasury Dealer Quotation’’ means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day in New York City preceding that Redemption Date. ‘‘Remaining Scheduled Payments’’ means, with respect to each Note to be redeemed, the remaining scheduled payments of the principal thereof and interest thereon that would be due after the relevant Redemption Date but for such redemption as if the Notes were redeemed on the Par Call Date; provided, however, that if the Redemption Date is not an Interest Payment Date with respect to the Notes, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to that Redemption Date. ‘‘Treasury Rate’’ means, with respect to any Redemption Date, the rate per annum equal to the semi-annual equivalent yield to maturity (computed as at the third business day immediately preceding that Redemption Date or interpolated on a day count basis) of the Comparable Treasury Issue,

100 assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for that Redemption Date. Notice of any optional redemption will be given in accordance with the provisions set forth in ‘‘—Notices’’ below at least 10 days but not more than 60 days before the Redemption Date to each Holder of the Notes to be redeemed. Unless the Issuer defaults in payment of the redemption price, on and after any Redemption Date, interest will cease to accrue on the Notes or any portion thereof called for redemption. Upon presentation of any Note redeemed in part only, the Issuer will execute and instruct the Trustee to authenticate and deliver to or on the order of the Holder thereof, at the expense of the Issuer, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Note so presented. On or before the business day prior to any Redemption Date, the Issuer must irrevocably deposit with the Trustee or one or more paying agents money sufficient to pay the redemption price of and accrued interest (including Additional Amounts, if any) on the Notes to be redeemed on such date. If less than all the Notes are to be redeemed, the Notes to be redeemed shall be selected by the Trustee or the Registrar in compliance with the requirements, if any, of the principal Securities exchange on which the Notes are listed, or, if not so listed, by such manner as the Trustee or Registrar shall deem fair and appropriate, which may include selection pro rata or by lot. The redemption price shall be calculated by the Independent Investment Banker and the Issuer, and the Trustee or Registrar and any paying agent for the Notes shall be entitled to rely conclusively on such calculation. Repurchase upon Change of Control Repurchase Event Upon the occurrence of a Change of Control Repurchase Event, unless the Issuer has exercised its right to redeem all of the Notes as described under ‘‘—Optional redemption,’’ the Issuer will make an offer to purchase all the Notes as described below (the ‘‘Change of Control Offer’’), at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to, but not including, the date of purchase. Within 30 days following the date upon which the Change of Control Repurchase Event occurred or, at the Issuer’s option, prior to the date upon which such Change of Control occurs but after the public announcement of the pending Change of Control, the Issuer will be required to provide a notice to each holder of Notes, with a copy to the Trustee, which notice will govern the terms of the Change of Control Offer. Such notice will state, among other things, the purchase date, which must be no earlier than 10 days nor later than 60 days from the date such notice is sent, other than as may be required by law (the ‘‘Change of Control Payment Date’’). The notice, if sent prior to the date of consummation of the Change of Control, will state that the Change of Control Offer is conditioned on the Change of Control being consummated on or prior to the Change of Control Payment Date. Holders of Notes electing to have Notes purchased pursuant to a Change of Control Offer will be required to surrender such Notes, with the form entitled ‘‘Option of Holder to Elect Purchase’’ on the reverse of such Notes completed, to DTC at the address specified in the notice, or transfer such Notes to the paying agent by book-entry transfer pursuant to the applicable procedures of the paying agent, prior to the close of business on the third Business Day prior to the Change of Control Payment Date. If the Change of Control Payment Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest to the Change of Control Payment Date will be paid on the relevant interest payment date to the Person in whose name a Note is registered at the close of business on such record date. The Issuer will not be required to make a Change of Control Offer if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for such an offer made by us and such third party purchases all Notes validly tendered and not withdrawn under its offer. The Issuer will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or

101 regulations conflict with provisions of the Indenture, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of the conflict. Provisions under the Indenture relative to the Issuer’s obligation to make an offer to repurchase Notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Notes. The Change of Control Repurchase Event feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of the Parent Guarantor and, thus, the removal of incumbent management. Subject to the limitations discussed below, the Issuer or the Guarantors could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Notes, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Issuer’s or the Guarantors’ capital structure or credit ratings on the Notes. The Issuer may not have sufficient funds to repurchase all the Notes, or any other outstanding debt securities that the Issuer or the Guarantors would be required to repurchase, upon a Change of Control Repurchase Event. Final Maturity Unless previously purchased or redeemed by the Issuer or the Guarantors or any of their respective Subsidiaries (as defined below), and cancelled, the principal amount of the Notes will mature and become due and payable on October 24, 2028 in an amount equal to their principal amount, with accrued and unpaid interest (including Additional Amounts, if any) to such date. Reacquisition There is no restriction on the ability of the Issuer or the Guarantors or any of their respective Subsidiaries, or any holding company of the Guarantors or any Subsidiary to purchase or repurchase Notes, provided that the Notes which are from time to time held by or on behalf of the Issuer, the Guarantors, or any of their respective Subsidiaries thereof, or any holding company of the Guarantors or any Subsidiary shall (unless and until ceasing to be so held) be disregarded and deemed not to remain outstanding for purposes of voting. Redemption for Tax Reasons The Notes are redeemable by the Issuer, in whole but not in part, at 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to the applicable Redemption Date and any Additional Amounts payable with respect thereto at the Issuer’s option at any time prior to their maturity if due to a Change in Tax Law (as defined below) (i) the Issuer or, if applicable, either of the Guarantors, respectively, has, or would, become obligated to pay any Additional Amounts with respect to the Notes; (ii) in the case of each Guarantor, (A) such Guarantor would be unable to procure payment by the Issuer or (B) the procuring of such payment by the Issuer would be subject to withholding taxes imposed by a Relevant Jurisdiction; and (iii) the obligation to pay such Additional Amounts described in (i) cannot otherwise be avoided by the Issuer or, if applicable, such Guarantor taking reasonable measures available to it. In such case, the Issuer may redeem the Notes in whole, but not in part, upon not less than 10 nor more than 60 days’ notice as provided in ‘‘—Notices’’ below; provided that (a) no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer or, if applicable, the Guarantors would be obligated to pay any such Additional Amounts were a payment in respect of the Notes or the Guarantees, as applicable, then due and (b) at the time such notice is given, such obligation to pay such Additional Amounts remains in effect. The Issuer’s right to redeem the Notes shall continue as long as the Issuer or the Guarantors, as the case may be, is obligated to pay such Additional Amounts, notwithstanding that the Issuer or the Guarantors shall have made payments of Additional Amounts. Prior to the giving of any such notice of redemption, the Issuer must deliver to the Trustee (1) an officer’s certificate stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred and (2) an opinion of independent counsel of recognized standing with respect to tax matters of the Relevant Jurisdiction to the effect that the Issuer or the Guarantors has, or would, become obligated to pay such Additional Amounts as a result of such Change in Tax Law.

102 For purposes hereof, ‘‘Change in Tax Law’’ shall mean (i) any changes in, or amendment to, any law of a Relevant Jurisdiction (including any regulations or rulings promulgated thereunder) or any amendment to or change in the application or official interpretation (including judicial or administrative interpretation) of such law, which change or amendment becomes effective or in the case of a change in the application or official interpretation is announced, on or after the Issue Date or (ii) if the Issuer or either Guarantor consolidates or merges with, or transfers or leases its assets substantially as an entirety to, any person that is incorporated or tax resident under the laws of any jurisdiction other than a Relevant Jurisdiction, as defined immediately prior to such consolidation, merger or other transaction, and as a consequence thereof such person becomes the successor obligor to the Issuer or a Guarantor in respect of Additional Amounts that may become payable (in which case, for purposes of this redemption provision, all references to the Issuer, or the Guarantors hereunder, as applicable, shall be deemed to be and include references to such person), any change in, or amendment to, any law of the jurisdiction of incorporation or residence for tax purposes of such successor obligor, or any political subdivision or taxing authority thereof or therein for purposes of taxation (including any regulations or rulings promulgated thereunder) or any amendment to or change in the application or official interpretation (including judicial or administrative interpretation) of such law, which change or amendment is announced on or after the date of such consolidation, merger or other transaction. Covenants of the Issuer and the Guarantors Negative pledge The Issuer and each of the Guarantors will covenant under the Indenture that for so long as any of the Notes are outstanding under the Indenture, and subject to the provisions of the Indenture, the Issuer will not, and each of the Guarantors will not, create or permit to subsist, and the Parent Guarantor shall procure that no other member of the Group shall create or permit to subsist, any Lien (as defined below) upon, or with respect to, any of its present or future revenues or assets to secure any of the Issuer’s or a Guarantor’s Relevant Indebtedness or any Relevant Indebtedness of any other member of the Group, unless the Issuer, the relevant Guarantor or such other member of the Group, as the case may be, shall simultaneously with, or prior to, the creation of any such Lien, take any and all action necessary to procure that all amounts payable by the Issuer in respect of the Notes and by the Guarantors under the Guarantees are secured equally and ratably for so long as any such Lien securing Relevant Indebtedness subsists; provided, however, such negative pledge will not apply to or operate to prevent or restrict the creation or permitting to subsist of the following permitted encumbrances with respect to the Issuer, the Guarantors or any other member of the Group: (i) any Lien arising by operation of law or any right of set-off; (ii) a Lien which secures any of the Issuer’s or a Guarantor’s indebtedness for borrowed money or any indebtedness for borrowed money of any other member of the Group existing as at the Issue Date, or any replacement or substitute of such Lien where the principal amount of indebtedness secured thereby does not exceed the principal amount of indebtedness secured by the Lien which it replaces or substitutes (at the time of such replacement or substitution); (iii) (x) any Lien which exists on any asset or group of assets which secures any indebtedness for borrowed money where such asset or group of assets is acquired after the Issue Date provided such Lien only secures the indebtedness secured thereby at the date of acquisition, or any replacement or substitute of such Lien where the principal amount of indebtedness secured thereby does not exceed the principal amount of indebtedness secured by the Lien on the date of such acquisition; (y) any Lien created with respect to an asset or group of assets solely for the purpose of financing the costs of acquiring such asset or group of assets, or any replacement or substitute of such Lien where the principal amount of indebtedness secured thereby does not exceed such costs of acquisition; and (z) any Lien created by any member of the Group prior to its becoming a member of the Group and securing only indebtedness incurred by such member of the Group prior to its becoming a member of the Group and not incurred in contemplation of its so becoming a member of the Group and which secures only indebtedness secured thereby at the date on which such member becomes a member of the Group, or any replacement or substitute of such Lien where the principal amount of indebtedness secured thereby does not exceed

103 the principal amount of indebtedness secured by the Lien which it substitutes or replaces (at the time of such replacement or substitution); and (iv) any Lien securing any indebtedness for borrowed money or any guarantee of any indebtedness for borrowed money if the liability for the repayment of the principal of and interest on such indebtedness for borrowed money is restricted to, or by reference to, funds available from a particular source or sources (including, in particular, any project, projects or assets) for the undertaking or acquisition or development, as the case may be, of which the indebtedness for borrowed money has been incurred. Limitation on mergers and consolidations The Issuer and each of the Guarantors will covenant under the Indenture that for so long as any of the Notes are outstanding under the Indenture, the Issuer and each of the Guarantors will not consolidate or amalgamate with or merge (including by way of a scheme of arrangement) into or with any other Person or, directly or indirectly, sell, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person (other than a Person satisfying the condition set forth in clause (i), below, that is directly or indirectly wholly owned by the Parent Guarantor), unless: (i) the Person formed by or continuing from such consolidation or amalgamation or into which the Issuer or the relevant Guarantor is merged or the Person which acquires or leases the Issuer’s or Guarantor’s properties and assets as an entirety or substantially as an entirety is organized and existing under the laws of the United States, the United Kingdom, the Channel Islands (including Jersey and Guernsey) or any other country that is a member of the Organization for Economic Cooperation and Development; (ii) if the Issuer or the relevant Guarantor, as applicable, is not the continuing entity, the successor Person expressly assumes by a supplemental indenture all of the Issuer’s or such Guarantor’s obligations under the Notes, the Guarantees and the Indenture, including to pay Additional Amounts; (iii) immediately before and after giving effect to such transaction, no Event of Default (as defined below) and no event which, after notice or lapse of time or both, would become an Event of Default, will have happened and be continuing which has not otherwise been waived or remedied in compliance with the terms of the Indenture; and (iv) certain other conditions are met (as set out in the Indenture). If, as a result of any such transaction, any of the Issuer’s or a Guarantor’s present or future revenues or assets become subject to a Lien to secure the Issuer’s or such Guarantor’s Relevant Indebtedness or any Relevant Indebtedness of any other member of the Group, then, unless such Lien could be created pursuant to the Indenture provisions described above under ‘‘—Negative pledge’’ without equally and ratably securing the Notes, the Issuer or such Guarantor, simultaneously with or prior to such transaction, will cause the Notes to be secured equally and ratably with or prior to the Relevant Indebtedness secured by such Lien. The Notes will not contain covenants or other provisions to afford protection to Holders in the event of a highly leveraged transaction or a change in control of the Issuer or the Guarantors except as provided herein. Upon any amalgamations, mergers or consolidations between the Issuer or a Guarantor, as the case may be, and any Person or upon certain sales, conveyances, transfers or leases of the respective properties and assets of the Issuer or a Guarantor as an entirety or substantially as an entirety to any Person (other than in the case of an acquisition of such property, for any Person satisfying the condition set forth in clause (i) above, that is directly or indirectly wholly owned of such Guarantor), the obligations of the Issuer or such Guarantor, as the case may be, under the Indenture and the Notes or the Guarantees, as the case may be, will be assumed by the Person formed by such amalgamation or consolidation, or surviving such merger, or which will have acquired such property or assets, as the case may be, and upon such assumptions such Person will succeed to and be substituted for the Issuer or such Guarantor, as the case may be, and then the Issuer or such Guarantor, as the case may be, will be relieved and released from all obligations under the Indenture and the Notes or the Guarantees, as the case may be.

104 Notwithstanding the covenant described above, if the Parent Guarantor becomes a direct or indirect wholly owned subsidiary of a holding company through whatever means and the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of the Parent Guarantor’s Voting Stock immediately prior to that transaction, provided the conditions set forth in clauses (i), (ii) and (iv) in the first paragraph of this section are satisfied (where the holding company is the continuing entity), the obligations of the Parent Guarantor shall be assumed by such holding company and upon such assumption such holding company shall succeed to and be substituted for the Parent Guarantor and then the Parent Guarantor will be relieved and released from all obligations under the Indenture and the Guarantees provided that the Parent Guarantor may elect, by notice to the Trustee, to provide a Guarantee. The terms ‘‘Issuer’’, ‘‘Parent Guarantor’’, ‘‘Subsidiary Guarantor’’, ‘‘Guarantor’’ and ‘‘Guarantors’’, as used in the Notes, the Guarantees and the Indenture, shall refer to any such successors or assigns so substituted or any such additional Guarantor. Events of Default The following will be Events of Default (each an ‘‘Event of Default’’) with respect to the Notes: (i) default in the payment of any installment of interest (excluding Additional Amounts) upon any Note as and when the same shall become due and payable, and continuance of such default for 30 days; or (ii) default in the payment of the Additional Amounts as and when the same shall become due and payable, and continuance of such default for 30 days; or (iii) default in the payment of all or any part of the principal of or premium on any Note as and when the same shall become due and payable either at maturity, upon any redemption, by declaration or otherwise, and continuance of such default for a period of one business day; or (iv) default in the performance or breach of any covenant of the Issuer or the Guarantors in respect of the Notes or the Indenture (other than those described in paragraphs (i), (ii) and (iii) above), and continuance of such default or breach for a period of 60 days after there has been given a written notice, by registered or certified mail, to the Issuer and the Guarantors by the Trustee or to the Issuer, the Guarantors and the Trustee by the Holders of at least 25% in principal amount of the outstanding Notes affected thereby, specifying such default or breach and requiring it to be remedied and stating that such notice is a ‘‘Notice of Default’’ under the Indenture; or (v) if any other indebtedness for borrowed moneys (as defined below) of the Issuer or either Guarantor, other than indebtedness for borrowed moneys which is of a limited recourse nature (being indebtedness for borrowed moneys of the Issuer or a Guarantor the liability for repayment of which is restricted to a particular source as referred to in clause (iv) above under ‘‘—Covenants of the Issuer and the Guarantors—Negative pledge’’), is not paid when due or within any applicable grace period relating thereto, or any indebtedness for borrowed moneys of the Issuer or either Guarantor is declared to be or otherwise becomes due and payable prior to its specified maturity by reason of default; provided that any such event shall only be capable of being an Event of Default if the aggregate amount of all such indebtedness for borrowed moneys exceeds $75 million (or its equivalent in other currencies); or (vi) if: (a) any order shall be made by any competent court or resolution passed for the winding up or dissolution of the Issuer or either Guarantor or a Principal Subsidiary, or an administration order is made in relation to the Issuer or either Guarantor or a Principal Subsidiary other than (i) (in each such case) for the purpose of a reconstruction or amalgamation that is either not prohibited under the covenants described above in ‘‘—Limitation on mergers and consolidations’’ or the terms of which have previously been approved in writing by a resolution of Noteholders representing not less than 75% in aggregate principal amount of the Notes at the time outstanding, or (ii) in the case of a

105 Principal Subsidiary, whereby all or the majority of the undertaking and assets of the Principal Subsidiary are transferred to or otherwise vested in a Guarantor or the Issuer or another of the Parent Guarantor’s direct or indirect Subsidiaries; or (b) an encumbrancer takes possession or an administrator or other receiver is appointed of the Issuer or either Guarantor or a Principal Subsidiary or of the whole or any material part of the assets of the Issuer or either Guarantor or a Principal Subsidiary, or if a distress or execution is levied or enforced upon or sued out against any material part of the assets of the Issuer or either Guarantor or a Principal Subsidiary and, in each case, is not removed, discharged or paid out within 90 days; or (c) the Issuer or either Guarantor or a Principal Subsidiary is unable to pay its debts or if the Issuer or either Guarantor or a Principal Subsidiary makes a general assignment for the benefit of or enters into a composition with its creditors; or (vii) the Guarantees cease to be valid and legally binding for any reason other than a termination in accordance with their terms or the Indenture, or either Guarantor denies or disaffirms its obligations under the Guarantees in writing. The Issuer and/or the Guarantors shall promptly notify the Trustee in writing upon becoming aware of the occurrence of an Event of Default. The Indenture provides that if an Event of Default with respect to the Notes occurs and is continuing, then and in each and every such case (other than certain Events of Default specified in paragraph (vi) above with respect to the Issuer or the Guarantors or a Principal Subsidiary), unless the principal of the Notes shall have already become due and payable, either the Trustee (at the direction of the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding) or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, by notice in writing to the Issuer and the Guarantors (and to the Trustee if given by the Holders), may declare the entire principal amount of all outstanding Notes issued pursuant to the Indenture and interest accrued and unpaid thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, without any further declaration or other act on the part of the Trustee or any Holder. If certain Events of Default described in paragraph (vi) above occur with respect to the Issuer or a Guarantor and are continuing, the entire principal amount of and accrued and unpaid interest on all outstanding Notes issued pursuant to the Indenture shall become immediately due and payable, without any declaration or other act on the part of the Trustee or any Holder. Under certain circumstances, the Holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Issuer, the Guarantors and the Trustee, may waive defaults and rescind and annul declarations of acceleration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. The Indenture provides that no Holder of any Note may institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to the Indenture, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy under the Indenture (except suits for the enforcement of payment of overdue principal or interest) unless such Holder previously shall have given to the Trustee written notice of an Event of Default and continuance thereof and unless the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as Trustee and shall have offered the Trustee indemnity satisfactory to it, the Trustee shall not have instituted any such action or proceeding within 90 days of its receipt of such notice, request and offer of indemnity and the Trustee shall not have received direction inconsistent with such written request by the Holders of a majority in aggregate principal amount of the applicable Notes at the time outstanding. The Holders of a majority in aggregate principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, subject to certain limitations to be specified in the Indenture.

106 The Indenture provides that the Parent Guarantor will furnish to the Trustee on or before November 30 in each year (commencing on November 30, 2019), if any Notes are then outstanding, a certificate from an officer as to his or her knowledge of the Parent Guarantor’s compliance with all conditions and covenants under the Indenture. Defeasance The Indenture provides that the Issuer will have the option either (a) to be deemed (together with the Guarantors) to have paid and discharged the entire indebtedness represented by, and obligations under, the Notes and the Guarantees and to have satisfied all the obligations under the Indenture relating to the Notes and the Guarantees (except for certain obligations, including those relating to the defeasance trust and obligations to register the transfer or exchange of Notes, to replace mutilated, destroyed, lost or stolen Notes, to pay Additional Amounts and to maintain paying agencies) on the day after the applicable conditions described below have been satisfied or (b) to cease (together with the Guarantors) to be under any obligation to comply with the covenants described under ‘‘—Covenants of the Issuer and the Guarantors—Negative pledge’’, and ‘‘—Covenants of the Issuer and the Guarantors— Provision of financial information’’ and the condition relating to the absence of any events of default under ‘‘—Covenants of the Issuer and the Guarantors—Limitation on mergers and consolidations’’ under the Notes, and noncompliance with such covenants and the occurrence of certain events described above under ‘‘—Events of Default’’ will not give rise to any Event of Default under the Notes, in each case at any time after the applicable conditions described below have been satisfied. In order to exercise either defeasance option set out in (a) and (b) above, (i) the Issuer must deposit with the Trustee (or another entity designated by the Trustee for such purpose), irrevocably in trust, money and/or Government Obligations sufficient in the opinion of an independent accounting firm without reinvestment for the payment of principal of and interest on the outstanding Notes when and as due to and including the Redemption Date or Maturity Date, as the case may be, irrevocably designated by the Issuer on or prior to the date of deposit of such money and/or Government Obligations (ii) the Issuer must comply with certain other conditions, including delivering to the Trustee an opinion of U.S. counsel, or a ruling received from or published by the United States Internal Revenue Service, to the effect that beneficial owners of the Notes will not recognize income, gain or loss for United States federal income tax purposes as a result of the exercise of such option and will be subject to United States federal income tax on the same amount and in the same manner and at the same time as would have been the case if such option had not been exercised and, in the case of (a) above, such opinion must state that it is based on a change of law or ruling received from or published by the United States Internal Revenue Service after the Issue Date (iii) no Event of Default or event which with notice or lapse of time would become an Event of Default shall have occurred and be continuing on the date of such deposit after having given effect thereto and (iv) the Issuer shall have paid in full all other amounts due and owing under the Indenture. Modification and Waiver Without consent of Noteholders The Indenture includes provisions permitting the Issuer, the Guarantors and the Trustee, without the consent of the Holders of any of the Notes at any time outstanding, from time to time and at any time, to enter into an indenture or indentures supplemental to the Indenture or to otherwise amend the Indenture: • to convey, transfer, assign, mortgage or pledge to the Trustee or a security agent on behalf of the Noteholders as security for the Notes any property or assets; • to evidence the succession of another Person to the Issuer or a Guarantor, as the case may be, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of the Issuer or a Guarantor, as the case may be, and the release of the Issuer and the Guarantors from their obligations under the Indenture and Notes or Guarantees, in each case, pursuant to the Indenture; • to evidence and provide for the acceptance of appointment of a successor trustee, paying agent, registrar or transfer agent, as the case may be; • to add to the covenants of the Issuer and the Guarantors, as the case may be, such further covenants, restrictions, conditions or provisions as the Issuer and the Guarantors, as the case

107 may be, shall consider to be for the protection of the Holders, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default under the Indenture permitting the enforcement of all or any of the several remedies provided in the Indenture, Notes or Guarantees; provided that, in respect of any such additional covenant, restriction, condition or provision, such supplemental indenture or amendments to the indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may limit the remedies available to the Trustee upon such an Event of Default or may limit the right of the Holders of a majority in aggregate principal amount of the applicable Notes to waive such an Event of Default; • to modify the restrictions on, and procedures for, resale and other transfers of the Notes pursuant to law, regulation or practice relating to the resale or transfer of restricted securities generally; • to cure any ambiguity or to correct or supplement any provision contained in the Indenture which may be defective or inconsistent with any other provision contained therein or to make such other provision in regard to matters or questions arising under the Indenture as the Issuer or a Guarantor may deem necessary or desirable and which will not adversely affect the interests of the Holders of the Notes in any material respect (provided that any modification or amendment to conform language in the Indenture to that appearing in this description shall be deemed not to adversely affect the interests of the Holders of the Notes in any material respect), or to confirm the text of the Indenture, Notes or Guarantees to any provision of this ‘‘Description of the Notes and the Guarantees’’ to the extent that such provision in this ‘‘Description of the Notes and the Guarantees’’ was intended to be a verbatim or substantially verbatim recitation of a provision of the Indenture, Notes or Guarantees; or • to ‘‘reopen’’ the Notes and create and issue additional notes having identical terms and conditions as the existing Notes (or in all respects except for the issue date, issue price, payment of interest accruing prior to the issue date of such additional notes and/or except for the first payment of interest following the issue date of such additional notes) so that the additional notes are consolidated and form a single series with the Notes. With consent of Noteholders The Indenture includes provisions permitting the Issuer, the Guarantors and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), from time to time and at any time, to enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or any indenture supplemental to the Indenture or of modifying in any manner the rights of the Holders of the Notes or the Guarantees; provided that no such indenture may, without the consent of the Holder of the Notes so affected: • change the stated maturity of the principal of or the date for payment of any installment of interest on any Note; • reduce the principal amount of or interest on any Note or Additional Amounts payable with respect thereto or reduce the amount payable thereon in the event of redemption or default; • change the currency of payment of principal of or interest on any Note or Additional Amounts payable with respect thereto; • change the required place at which payment with respect to principal of or interest on any Note or Additional Amounts is payable to a place other than as contemplated by the Indenture on the Issue Date; • change the obligation of the Issuer or the Guarantors, as the case may be, to pay Additional Amounts; • impair the right to institute suit for the enforcement of any such payment on or with respect to any Note;

108 • reduce the percentage in principal amount of the outstanding Notes, the consent of whose Holders is required for any such supplemental indenture; or • reduce the aggregate principal amount of any Note outstanding necessary to modify or amend the Indenture or any such Notes or to waive any future compliance or past default or reduce the percentage of aggregate principal amount of any Notes outstanding required for any written consent or reduce the percentage of the aggregate principal amount of such Notes outstanding necessary to rescind or annul any declaration of the principal of and all accrued and unpaid interest on any Notes to be due and payable; provided that no consent of any Holder of any Note shall be necessary to permit the Trustee, the Issuer and the Guarantors to execute supplemental indentures described under ‘‘—Without consent of Noteholders’’ above. Any modifications, amendments or waivers to the Indenture or to the conditions of any Note will be conclusive and binding on all Holders of Notes, whether or not they have consented to such action or were present at the meeting at which such action was taken, and on all future holders of such Notes, whether or not notation of such modifications, amendments or waivers is made upon such Notes. Any instrument given by or on behalf of any Holder of such a Note in connection with any consent to any such modification, amendment or waiver will be irrevocable once given and will be conclusive and binding on all subsequent registered holders of such Note. Prescription Under New York’s statute of limitations, any legal action upon the Notes in respect of interest or principal must be commenced within six years after the payment thereof is due. Thereafter the Notes and the Guarantees will become generally unenforceable. Listing The Issuer has made an application to Euronext Dublin for admission of the Notes to the Official List and to trading on the Global Exchange Market thereof. The Issuer and the Guarantors will use their reasonable best efforts to have such (i) admission of the Notes to trading on the Global Exchange Market of Euronext Dublin and (ii) admission of listing of such Notes on the Official List of Euronext Dublin thereof become effective and then maintain such listing for so long as any of the Notes remain outstanding, provided, however, that if in the opinion of the Issuer or either of the Guarantors, the continuation of such listing shall become unduly onerous, then the Issuer may delist the Notes from Euronext Dublin; provided, further, that the Issuer and the Guarantors will use their best efforts to obtain the admission to listing, trading and/or quotation of the Notes by another substantially equivalent listing authority, securities exchange and/or quotation system prior to the delisting of the Notes from Euronext Dublin. Notices Notices to Holders of Notes will be mailed by first-class mail (or equivalent) postage or internationally recognized courier service prepaid to Holders of Notes at their last registered addresses as they appear in the Notes register. The Issuer and the Guarantors will consider any mailed notice to have been given two business days in New York City after it has been sent. In addition, for so long as the Notes are listed on the Official List of Euronext Dublin and admitted to trading on the Global Exchange Market thereof and insofar as required, the Issuer and the Guarantors will publish notices to the Holders of the Notes on the Euronext Dublin’s announcement platform. The Issuer and the Guarantors will consider any published notice to be given on the date of its first publication. For so long as the Notes are represented by Global Note and the Global Note are held on behalf of any one or more of DTC, Euroclear, Clearstream or any alternative clearing system, notices required to be given to Holders of the Notes shall be given by their being delivered to the relevant clearing system for communication by it to entitled accountholders in substitution for notification as required by the foregoing.

109 Consent to Service, Submission to Jurisdiction; Enforceability of Judgments Each of the Issuer and the Guarantors will appoint Corporate Creations Network Inc. at 15 North Mill Street, Nyack, New York, 10960, United States, as its authorized agent for service of process for any action brought by the Trustee or by a Holder based on the Indenture or the Notes or Guarantees, as applicable, instituted in the federal courts of the United States of America on the courts of the State of New York, in each case, located in the City and County of New York. Each of the Issuer and the Guarantors will irrevocably submit to the non-exclusive jurisdiction of the federal courts of the United States of America or the courts of the State of New York, in each case, located in the City and County of New York, in respect of any action brought by the Trustee or by a Holder based on the Notes, the Guarantees or the Indenture. Each of the Issuer and the Guarantors will also irrevocably waive, to the extent permitted by applicable law, any objection to the venue of any of these courts in an action of that type. Holders of the Notes may, however, be precluded from initiating actions based on the Notes, the Guarantees or the Indenture in courts other than those mentioned above. Each of the Issuer and the Guarantors will, to the fullest extent permitted by law, irrevocably waive and agree not to plead any immunity from the jurisdiction of any of the above courts in any action based upon the Notes, the Guarantees or the Indenture. Since all or substantially all of the Issuer’s assets and a portion of the assets of each of the Guarantors is outside the United States, any judgment obtained in the United States against the Issuer or the Guarantors, including judgments with respect to the payment of principal, premium, interest and any redemption price and any purchase price with respect to the Notes or payments due under the Guarantees, may not be collectable within the United States. Governing Law The Indenture, the Notes and the Guarantees shall be governed by and construed in accordance with the laws of the State of New York. Book-Entry System; Delivery and Form Upon issuance, the Notes will be represented by beneficial interests in Global Notes. Each Global Note will be deposited with, or on behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC. Except under the circumstances described below, Global Notes will not be exchangeable at the option of the Holder for certificated notes and Global Notes will not otherwise be issuable in definitive form. Upon issuance of the Global Notes, DTC will credit the respective principal amounts of the Notes represented by the Global Notes to the accounts of institutions that have accounts with DTC or its nominee (called participants of DTC), including Euroclear and Clearstream. The accounts to be credited shall be designated by the Initial Purchasers. Ownership of beneficial interests in the Global Notes will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interest in the Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to participants’ interests) or by participants or persons that hold through participants. Such beneficial interest shall be in denominations of $200,000 and in multiples of $1,000 in excess thereof. So long as DTC, or its nominee, is the registered owner or holder of the Global Notes, DTC or its nominee, as the case may be, will be considered the sole owner and holder of the Global Notes for all purposes under the Indenture. Except as set forth below, owners of beneficial interests in the Global Notes: • will not be entitled to have the Notes represented by the Global Notes registered in their names, and • will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owners or holders thereof under the Indenture. Accordingly, each person owning a beneficial interest in the Global Notes must rely on the procedures of DTC, and indirectly Euroclear and Clearstream, and, if such person is not a participant,

110 on the procedures of the participant through which such person owns its interest, to exercise any rights of a Holder under the Indenture. Principal and interest payments on Global Notes registered in the name of or held by DTC or its nominee will be made to DTC or its nominee, as the case may be, as the registered owner or Holder of the Global Note. None of the Issuer, the Guarantors, the Trustee or any of their respective agents, including any paying agent for such Global Notes will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Issuer expects that DTC, upon receipt of any payments of principal or interest in respect of the Global Notes, will credit the accounts of the related participants (including Euroclear and Clearstream), with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Notes as shown on the records of DTC. Payments by participants to owners of beneficial interest in the Global Notes held through such participants will be the responsibility of the participants, as is now the case with securities held for the accounts of customers in bearer form or registered in ‘‘street name’’. Unless and until it is exchanged in whole or in part for Notes in definitive form in accordance with the terms of the Indenture, a Global Note may not be transferred except as a whole by the depositary to a nominee of the depositary or by a nominee of DTC to DTC or another nominee of DTC. If any note, including a Global Note, is mutilated, defaced, stolen, destroyed or lost, such note may be replaced with a replacement note at the office of the registrar or any successor registrar or transfer agent, on payment by the Noteholder of such costs and expenses as may be incurred in connection with the replacement, and on such terms, including the provision of such indemnity or security, as the Issuer, the Guarantors, the Trustee (or any of their agents) may require. Mutilated or defaced Notes must be surrendered before replacement Notes will be issued. Exchanges of Global Notes for Definitive Notes Global Notes shall be exchangeable for definitive notes registered in the names of persons other than DTC or its nominee for such Global Notes only if: • DTC has notified the Issuer that it is unwilling or unable to continue as depositary or has ceased to be a clearing agency registered under the Exchange Act, and in either case, the Issuer has failed to appoint a successor depositary within 90 days of such notice; • the Trustee has instituted or has been directed to institute any judicial proceeding in a court to enforce the rights of the Noteholders under the Notes or the Guarantees and has been advised by counsel that in connection with such proceedings it is necessary for the Trustee to obtain possession of the Notes; or • the Issuer shall have determined in its sole discretion that the Notes shall no longer be represented by the applicable Global Notes. Any Global Note that is exchangeable for definitive notes pursuant to the preceding sentence shall be exchangeable for Notes issuable in denominations of $200,000 and in multiples of $1,000 in excess thereof and registered in such names as DTC shall direct. Subject to the foregoing, a Global Note shall not be exchangeable, except for a Global Note of like denomination to be registered in the name of DTC or its nominee. Bearer notes will not be issued. Exchanges Between and Among Global Notes The ‘‘distribution compliance period’’, as defined in Regulation S under the Securities Act, will begin on the closing date and end 40 days after the closing date of the offering. Beneficial interests in one Global Note may generally be exchanged for interests in another Global Note. Depending on whether the transfer is being made during or after the distribution compliance period, and to which Global Note the transfer is being made, the Trustee may require the seller to provide certain written certifications in the form provided in the Indenture.

111 A beneficial interest in a Global Note that is transferred to a person who takes delivery through another Global Note will, upon transfer, become subject to any transfer restrictions and other procedures applicable to beneficial interests in the other Global Note. Certain Definitions Set forth below are certain of the defined terms used in the Notes and the Indenture. You should refer to the Notes and the Indenture for the full set of definitions. ‘‘Below Investment Grade Ratings Event’’ means the Notes cease to be rated Investment Grade by both Rating Agencies on any date during the period commencing on, and ending 60 days after (which 60-day period will be extended so long as the rating of the notes is under publicly announced consideration for a possible downgrade by any Rating Agency), the earlier of (1) the occurrence of a Change of Control; or (2) public notice of the occurrence of a Change of Control or the intention of the Parent Guarantor to effect a Change of Control. Notwithstanding the foregoing, a Below Investment Grade Ratings Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Ratings Event for purposes of the definition of Change of Control Repurchase Event hereunder) if the Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the ratings event). ‘‘business day’’ means, unless stated otherwise, any day which is not, in London, New York City, Luxembourg or a place of payment of interest or principal, a Saturday, Sunday or a day on which banking institutions in any such location are authorized or obligated by law, regulation or executive order to close. ‘‘Change of Control’’ means the occurrence of one or more of the following: 1. the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of consolidation, amalgamation or merger), in one or a series of related transactions, of all or substantially all of the assets of the Parent Guarantor and its respective Subsidiaries taken as a whole to any ‘‘person’’ (as that term is used in Section 13(d)(3) of the Exchange Act), other than to the Parent Guarantor or one of its Subsidiaries; or 2. the consummation of any transaction (including, without limitation, any consolidation, amalgamation, or merger or other combination (including by way of a scheme of arrangement)) the result of which is that any ‘‘person’’ (as that term is used in Section 13(d)(3) of the Exchange Act) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the voting power of the total outstanding Voting Stock of the Parent Guarantor. A transaction shall not constitute a change of control for the purposes of this definition if (1) the Parent Guarantor becomes a direct or indirect wholly owned subsidiary of a holding company and (2) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of the Parent Guarantor’s Voting Stock immediately prior to that transaction. ‘‘Change of Control Repurchase Event’’ means the occurrence of both a Change of Control and a Below Investment Grade Ratings Event. ‘‘Exchange Act’’ means the United States Securities Exchange Act of 1934, as amended. ‘‘Government Obligations’’ means any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is directly and fully guaranteed or insured as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof.

112 ‘‘Group’’ means, at any time, the Parent Guarantor and its Subsidiaries including the Issuer and ‘‘member of the Group’’ shall be construed accordingly. ‘‘Guarantor Jurisdiction’’ means any of the jurisdictions of incorporation or residence for tax purposes of a Guarantor or any successor entity, or any political subdivision or taxing authority thereof or therein. ‘‘indebtedness for borrowed moneys’’ means any present or future indebtedness (whether being principal, premium, interest or other amounts and whether actual or contingent) for or in respect of (i) money borrowed, (ii) liabilities under or in respect of any guarantee, indemnity, acceptance or acceptance credit or any notes, bonds, debentures, debenture stock, loan stock or other securities offered, issued or distributed whether by way of public offer, private placing, acquisition consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash. ‘‘Investment Grade’’ means a rating of Baa3 or better by Moody’s (or its equivalent under any successor rating categories of Moody’s) or a rating of BBB- or better by S&P (or its equivalent under any successor rating categories of S&P); or the equivalent Investment Grade credit rating from any additional Rating Agency or Rating Agencies selected by the Issuer or the Parent Guarantor. ‘‘Issuer Jurisdiction’’ means any of the jurisdictions of incorporation or residence for tax purposes of the Issuer or any successor entity, or any political subdivision or taxing authority thereof or therein. ‘‘Lien’’ means any mortgage, lien, pledge or other security interest. ‘‘Moody’s’’ means Moody’s Investor Services Ltd. ‘‘Person’’ means any individual, corporation, partnership, joint venture, association, limited liability company, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. ‘‘Principal Subsidiary’’ means any Subsidiary of the Parent Guarantor from time to time whose turnover, as shown in its latest audited income statement, exceeds 25% of the consolidated turnover of the Group as shown by the latest published audited consolidated income statement of the Group and either (i) whose profits or (in the case of a Subsidiary which has Subsidiaries) consolidated profits, before taxation and extraordinary items, as shown by its latest audited income statement, exceed 25% of the consolidated profits, before taxation and extraordinary items, of the Group as shown by the latest published audited consolidated income statement of the Group or (ii) whose total assets or (in the case of a Subsidiary of the Parent Guarantor which has Subsidiaries) total consolidated assets, as shown by its latest audited balance sheet, are at least 25% of the total consolidated assets of the Group as shown by the latest published audited consolidated balance sheet of the Group. For the purpose of calculating the profits or (in the case of a Subsidiary which has Subsidiaries) consolidated profits or (in the case of a Subsidiary which has Subsidiaries) total consolidated assets of any Subsidiary which is not a wholly- owned Subsidiary pursuant to (i) or (ii) above, only such proportion of the above-mentioned profits or total assets shall be taken into account as the relevant holding, either direct or indirect, of issued equity share capital in such Subsidiary bears to that Subsidiary’s total issued equity share capital. A certificate, signed in good faith by the Parent Guarantor’s chief financial officer, that in his or her opinion a Subsidiary is or is not or was or was not at a specified date a Principal Subsidiary shall, in the absence of manifest error, be conclusive and binding. References herein to the audited income statement and balance sheet and audited accounts of a Subsidiary which has Subsidiaries shall be construed as references to the audited consolidated income statement, consolidated balance sheet and consolidated accounts of such Subsidiary and its Subsidiaries, if such are required to be produced and audited, or, if no such accounts or balance sheet are produced, to unaudited pro forma accounts and balance sheet, prepared for the purpose of such reports. If the latest published audited consolidated income statement of the Group shows a loss before taxation and extraordinary items, then every Subsidiary whose turnover exceeds 25% of the consolidated turnover of the Group as aforesaid and whose latest audited income statement (consolidated if appropriate) shows a profit before taxation and extraordinary items shall be a Principal Subsidiary. ‘‘Rating Agency’’ means (1) each of Moody’s and S&P and (2) if either of S&P and Moody’s ceases to rate the Notes or fails to make a rating of the Notes publicly available for reasons outside of the control of the Issuer, the Issuer may appoint a replacement for such Rating Agency that is a nationally recognized statistical rating organization.

113 ‘‘Relevant Indebtedness’’ means any indebtedness for borrowed money which is in the form of or represented by any bonds, notes or other securities which have a final maturity of more than one year from the date of their creation and which are for the time being quoted, listed or dealt in, at the request of the Issuer or either Guarantor, as the case may be, on any stock exchange or recognized securities market. ‘‘Relevant Jurisdiction’’ means an Issuer Jurisdiction, a Guarantor Jurisdiction or, if applicable, the United States. ‘‘S&P’’ means Standard & Poor’s Credit Market Services Europe Limited. ‘‘Subsidiary’’ means, at any relevant time, any person of which the voting shares or other interests carrying more than 50% of the outstanding voting rights attached to all outstanding voting shares or other interests are owned, directly or indirectly, by or for the Parent Guarantor and/or one or more subsidiaries of the Parent Guarantor. ‘‘Voting Stock’’ of any specified ‘‘person’’ (as that term is used in Section 13(d)(3) of the Exchange Act) as of any date means the capital stock of such person that is at the time entitled to vote generally in the election of the board of directors of such person.

114 BOOK-ENTRY SETTLEMENT AND CLEARANCE The Global Notes The Notes will be issued in the form of several registered notes in global form, without interest coupons, which are referred to as the Global Notes, as follows: • Notes sold to QIBs under Rule 144A will be represented by one or more Rule 144A Global Notes; and • Notes sold in offshore transactions to non-U.S. persons in reliance on Regulation S will be represented by one or more Regulation S Global Notes. Upon issuance, each of the Global Notes will be deposited with The Bank of New York Mellon, London Branch, as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC. Ownership of beneficial interests in each Global Note will be limited to persons who have accounts with DTC, or DTC participants, or persons who hold interests through DTC participants. Under procedures established by DTC it is expected that: • upon deposit of each Global Note with DTC’s custodian, DTC will credit portions of the principal amount of the Global Note to the accounts of the DTC participants designated by the Initial Purchasers; and • ownership of beneficial interests in each Global Note will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants) and the records of DTC participants (with respect to other owners of beneficial interests in the Global Note). Each Global Note and beneficial interests in each Global Note will be subject to restrictions on transfer as described under ‘‘Transfer Restrictions’’. See ‘‘Description of the Notes and the Guarantee—Book-Entry System; Delivery and Form’’. Book-Entry Procedures for the Global Notes All interests in the Global Notes will be subject to the operations and procedures of DTC, Euroclear and Clearstream. The following summaries of those operations and procedures are provided solely for the convenience of investors. The information in this section concerning DTC, Euroclear and Clearstream and their book-entry systems has been obtained from sources that the Issuer and the Guarantors believe to be reliable, but neither we nor the Initial Purchasers take any responsibility for or make any representation or warranty with respect to the accuracy of this information. DTC, Euroclear and Clearstream are under no obligation to follow the procedures described herein to facilitate the transfer of interest in Global Notes among participants and account holders of DTC, Euroclear and Clearstream, and such procedures may be discontinued or modified at any time. Neither the Issuer, the Company, the Trustee nor any of their respective agents, including any paying agent, will have any responsibility for the performance of DTC, Euroclear and Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. DTC has advised the Issuer and the Guarantors that it is: • a limited purpose trust company organized under the laws of the State of New York; • a ‘‘banking organization’’ within the meaning of the New York State Banking Law; • a member of the Federal Reserve System; • a ‘‘clearing corporation’’ within the meaning of the Uniform Commercial Code; and • a ‘‘clearing agency’’ registered under Section 17A of the Securities Exchange Act of 1934. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC’s participants include securities brokers and dealers, including the Initial Purchasers, banks and trust companies, clearing corporations, and other organizations. Indirect access to DTC’s system is also available to others such as banks, brokers, dealers and trust companies;

115 these indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC. So long as DTC’s nominee is the registered owner of a Global Note, that nominee will be considered the sole owner or holder of the Notes represented by that Global Note for all purposes under the Indenture. As a result, each investor who owns a beneficial interest in a Global Note must rely on the procedures of DTC to exercise any rights of a holder of Notes under the Indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of the DTC participant through which the investor owns its interest). Payments of principal, premium (if any) and interest with respect to the Notes represented by a Global Note will be made by the Trustee to DTC’s nominee as the registered holder of the Global Note. Neither the Issuer, the Guarantors nor the Trustee, nor any of their respective agents, including any paying agent, will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a Global Note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests. Payments by participants and indirect participants in DTC to the owners of beneficial interests in a Global Note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC. Transfers between participants in DTC will be effected under DTC’s procedures and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream will be effected in the ordinary way under the rules and operating procedures of those systems. Cross-market transfers between DTC participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected within DTC through the DTC participants that are acting as depositaries for Euroclear and Clearstream. To deliver or receive an interest in a Global Note held in a Euroclear or Clearstream account, an investor must send transfer instructions to Euroclear or Clearstream, as the case may be, under the rules and procedures of that system and within the established deadlines of that system. If the transaction meets its settlement requirements, Euroclear or Clearstream, as the case may be, will send instructions to its DTC depositary to take action to effect final settlement by delivering or receiving interests in the relevant Global Notes in DTC and making or receiving payment under normal procedures for same-day funds settlement applicable to DTC. Euroclear and Clearstream participants may not deliver instructions directly to the DTC depositaries that are acting for Euroclear or Clearstream. Because of time-zone differences, the securities account of a Euroclear or Clearstream participant that purchases an interest in a Global Note from a DTC participant will be credited on the business day for Euroclear or Clearstream immediately following the DTC settlement date. Cash received in Euroclear or Clearstream from the sale of an interest in a Global Note to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account as of the business day for Euroclear or Clearstream following the DTC settlement date. DTC, Euroclear and Clearstream have agreed to the above procedures to facilitate transfers of interests in the Global Notes among participants in those settlement systems. However, the settlement systems are not obligated to perform these procedures and may discontinue or change these procedures at any time. Neither the Issuer, the Guarantors nor the Trustee nor any of their respective agents, including any paying agent, will have any responsibility for the performance by DTC, Euroclear or Clearstream or their participants or indirect participants of their obligations under the rules and procedures governing their operations.

116 CERTAIN UNITED KINGDOM TAX CONSIDERATIONS The comments below are of a general nature and are based on the Issuer’s understanding of current United Kingdom tax law as applied in England and Wales and HM Revenue & Customs (‘‘HMRC’’) generally published practice (which may not be binding on HMRC) as of the date of this Offering Memorandum. They are not exhaustive. Such law and practice is subject to change, possibly with retrospective effect. The following paragraphs only apply to persons who hold the Notes as absolute beneficial owners and do not address the tax consequences which may be relevant to certain categories of holders, for example, dealers in securities, financial institutions, banks, insurance companies, collective investment schemes or persons connected with us or clearance services, intermediaries or persons who benefit from special exemptions or rules. The comments below are not intended to be, nor should they be considered as, legal or tax advice. Noteholders and prospective investors who are in any doubt as to their tax position, should consult their own independent professional adviser immediately. Interest Payments Payments of interest on the Notes may be made without withholding or deduction for or on account of United Kingdom tax provided that the Notes are and continue to be ‘‘listed on a recognized stock exchange’’ within the meaning of section 1005 of the Income Tax Act 2007. Section 1005 of the Income Tax Act 2007 provides that securities will be treated as ‘‘listed on a recognized stock exchange’’ if (and only if) they are admitted to trading on that exchange, and either they are included in the United Kingdom Official List (within the meaning of Part 6 of the Financial Services and Markets Act 2000) or they are officially listed, in accordance with provisions corresponding to those generally applicable in European Economic Area states, in a country outside the United Kingdom in which there is a ‘‘recognized stock exchange.’’ The Irish Stock Exchange (referred to herein as ‘‘Euronext Dublin’’) is a ‘‘recognized stock exchange’’ for these purposes. Provided, therefore, that the Notes are and remain so listed and admitted to trading, interest on the Notes will be payable without withholding or deduction for or on account of United Kingdom income tax. In other cases, an amount must generally be withheld from payments of interest with a United Kingdom source on the Notes on account of United Kingdom income tax at the basic rate (currently 20%) subject (i) to any direction to the contrary from HMRC in respect of such relief as may be available pursuant to the provisions of an applicable double taxation treaty or (ii) to the interest being paid to the persons (including companies within the charge to United Kingdom corporation tax) and in the circumstances specified in Section 930 to 937 of the Income Tax Act 2007. The United Kingdom withholding tax treatment of payments with a United Kingdom source that are made by the Guarantors under the terms of the guarantees in respect of interest on the Notes (or other amounts due under the Notes other than the repayment of amounts subscribed for the Notes) is uncertain. Accordingly, if the Guarantors are required to make a payment under the guarantees and that payment has a United Kingdom source then, depending on the correct legal analysis of such a payment, it may have to be paid under deduction of United Kingdom income tax (currently at the rate of 20%), subject to the availability of exemptions including a direction to the payor by HMRC pursuant to the provisions of an applicable double taxation treaty. Such payments by the Guarantors may not be eligible for the exemption from withholding on account of United Kingdom tax in respect of securities listed on a recognized stock exchange described above in relation to payments of interest by the Issuer. The interest on Notes issued by the Issuer is expected to have a United Kingdom source for United Kingdom tax purposes and, as such, may be subject to United Kingdom tax by direct assessment (including self-assessment) even where paid without withholding or deduction for or on account of United Kingdom income tax. However, interest with a United Kingdom source received without withholding or deduction for or on account of United Kingdom income tax will not be chargeable to United Kingdom tax in the hands of a person (other than certain trustees) who is not resident for tax purposes in the United Kingdom unless that person carries on a trade, profession or vocation in the United Kingdom through a branch or agency (or, for holders who are companies, carries on a trade through a permanent establishment) in the United Kingdom in connection with which the interest is received or to which the Notes are attributable, in which case (subject to exemptions for interest received by certain categories of agent) tax may be levied on the United Kingdom branch, agency or permanent establishment.

117 The references to ‘‘interest’’ above are to ‘‘interest’’ as understood for the purposes of United Kingdom tax law. They do not take into account any different definition of ‘‘interest’’ that may prevail under any other law or that may apply under the terms and conditions of the Notes or any related document. United Kingdom Corporation Taxpayers In general, holders within the charge to United Kingdom corporation tax will be treated for United Kingdom tax purposes as realizing profits, gains or losses in respect of the Notes on a basis which is broadly in accordance with their accounting treatment, so long as that accounting treatment is in accordance with generally accepted accounting practice (as that term is defined for United Kingdom tax purposes). Such profits, gains and losses (including those attributable to currency fluctuations) will be taken into account in computing taxable income for United Kingdom corporation tax purposes. Other United Kingdom Taxpayers An individual holder of Notes who is resident in the United Kingdom, or who carries on a trade, profession or vocation in the United Kingdom through a branch or agency to which the Notes are attributable, may have to account for capital gains tax in respect of any gains arising on a disposal of the Notes. Any capital gains would be calculated by comparing the pound sterling values at the time of acquisition and disposal. Non-United Kingdom Taxpayers Noteholders who are resident in a jurisdiction outside the United Kingdom and who are neither resident in the United Kingdom nor carrying on a trade, profession or vocation in the United Kingdom through a branch or agency (or, for holders who are companies, through a permanent establishment in the United Kingdom) to which the Notes are attributable should not generally be liable to United Kingdom taxation in respect of a disposal (including redemption) of a Note. Special rules may apply to individual holders who have ceased to be resident for United Kingdom tax purposes in the United Kingdom and once again become resident for United Kingdom tax purposes in the United Kingdom after a period of non-residence. Such holders should consult their own tax advisers. Stamp Duty and Stamp Duty Reserve Tax No United Kingdom stamp duty or stamp duty reserve tax should be payable on the issue or transfer of the Notes through the facilities of DTC. Provision of Information HMRC has powers to obtain information and documents relating to the Notes, including in relation to issues of and other transactions in the Notes, interest, payments treated as interest, and other payments derived from the Notes. This may include details of the beneficial owners of the Notes, of the persons for whom the Notes are held and of the persons to whom payments derived from the Notes are or may be paid. Information may be obtained from a range of persons including persons who effect or are a party to such transactions on behalf of others, registrars and administrators of such transactions, the registered holders of the Notes, persons who make, receive or are entitled to receive payments derived from the Notes and persons by or through whom interest and payments treated as interest are paid or credited.

118 CERTAIN U.S. FEDERAL TAX CONSIDERATIONS The following is a description of certain U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of Notes, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to acquire the Notes. This discussion applies only to U.S. Holders that (i) purchase Notes in this offering at the ‘‘issue price’’, which will equal the first price to the public (not including bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers) at which a substantial amount of the Notes is sold for money and (ii) hold the Notes as capital assets for U.S. federal income tax purposes. This discussion does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including alternative minimum tax and Medicare contribution tax consequences, or the special tax accounting rules under section 451(b) of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), which may require certain U.S. Holders to conform the timing of income accruals to their financial statements. This discussion also does not describe all of the tax consequences applicable to U.S. Holders subject to special rules, such as: • certain financial institutions; • regulated investment companies; • dealers or traders in securities that use a mark-to-market method of tax accounting; • persons holding Notes as part of a straddle or other integrated transaction; • persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; • entities or arrangements classified as partnerships for U.S. federal income tax purposes; • tax-exempt entities, including ‘‘individual retirement accounts,’’ or ‘‘Roth IRAs’’; or • persons holding Notes in connection with a trade or business conducted outside of the United States. If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes owns Notes, the U.S. federal income tax treatment of a partner in such a partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships owning Notes and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of the Notes. This discussion is based on the Code, administrative pronouncements, judicial decisions, and Treasury Regulations, all as of the date hereof, any of which is subject to change, possibly with retroactive effect. This discussion does not address any aspect of state, local or non-U.S. taxation, or any taxes other than income taxes. U.S. Holders should consult their tax advisers with regard to the application of the U.S. federal tax laws to their particular situation, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. As used herein, a ‘‘U.S. Holder’’ is a person that for U.S. federal income tax purposes is a beneficial owner of a Note and is: • an individual who is a citizen or resident of the United States; • a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or • an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. Payments of Interest. It is expected, and therefore this discussion assumes, that the Notes will be issued with less than a de minimis amount of original issue discount for U.S. federal income tax purposes. Interest payable in respect of the Notes (including any amounts withheld in respect of U.K. taxes and, without duplication, any Additional Amounts paid with respect thereto) will be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received, in accordance with the

119 U.S. Holder’s method of accounting for U.S. federal income tax purposes. The interest income will constitute foreign-source income, which may be relevant to a U.S. Holder in calculating the U.S. Holder’s foreign tax credit limitation. The rules governing foreign tax credits are complex, and U.S. Holders should consult their tax advisers regarding the creditability of any U.K. taxes in their particular circumstances. Sale, Retirement or Other Taxable Disposition of the Notes. Upon the sale, retirement or other taxable disposition of a Note, a U.S. Holder will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale, retirement or other taxable disposition and the U.S. Holder’s tax basis in the Note. For these purposes, the amount realized does not include any amount attributable to accrued interest, which will be taxable as interest income, as described under ‘‘—Payments of Interest’’ above. A U.S. Holder’s tax basis in a Note will generally equal the cost of such Note to the U.S. Holder. Any gain or loss realized on the sale, retirement or other taxable disposition of a Note will be U.S.-source capital gain or loss and will be long-term capital gain or loss if at the time of the sale, retirement or disposition the U.S. Holder has owned the Note for more than one year. Long-term capital gains recognized by non-corporate U.S. Holders are subject to reduced tax rates. The deductibility of capital losses may be subject to limitations. Information Reporting and Backup Withholding. Payments of interest and proceeds from the sale of a Note that are made within the United States or through one of certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding, unless (i) the U.S. Holder is an exempt recipient and, if required, establishes its status as such, or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against the U.S. Holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the Internal Revenue Service. U.S. Holders should consult their tax advisers regarding any reporting or filing obligations they may have as a result of owning or disposing of a Note. Certain U.S. Holders who are individuals (and certain specified entities) may be required to report information relating to non-U.S. accounts through which such persons hold their Notes. U.S. Holders should consult their own tax advisers regarding their reporting obligations with respect to the Notes.

120 PLAN OF DISTRIBUTION Subject to the terms and conditions set forth in a purchase agreement among the Issuer, the Guarantors and the Initial Purchasers, the Issuer has agreed to sell to the Initial Purchasers, and each of the Initial Purchasers has agreed, severally and not jointly, to purchase from the Issuer, the principal amount of Notes set forth opposite its name in the table below.

Principal Amount of the Initial Purchaser Notes Barclays Capital Inc...... $208,333,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated ...... $208,334,000 BNP Paribas Securities Corp...... $150,000,000 RBC Capital Markets, LLC ...... $150,000,000 SMBC Nikko Securities America, Inc...... $ 33,333,000 Total ...... $750,000,000 The Initial Purchasers may offer and sell Notes through certain of their affiliates. Subject to the terms and conditions set forth in the purchase agreement, the Initial Purchasers have agreed, severally and not jointly, to purchase all of the Notes sold under the purchase agreement if any of these Notes are purchased. If an Initial Purchaser defaults, the purchase agreement provides that the purchase commitments of the non-defaulting Initial Purchasers may be increased or, in certain cases, the purchase agreement may be terminated. The Issuer and the Guarantors have agreed to indemnify the several Initial Purchasers against certain liabilities in connection with this offering, including liabilities under the Securities Act, or to contribute to payments the Initial Purchasers may be required to make in respect of those liabilities. The Initial Purchasers are offering the Notes, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the Notes, and other conditions contained in the purchase agreement, such as the receipt by the Initial Purchasers of officer’s certificates and legal opinions. The Initial Purchasers reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. Commissions and Discounts The representatives have advised the Issuer and the Guarantors that the Initial Purchasers propose initially to offer the Notes at the offering prices set forth on the cover page of this Offering Memorandum. After the initial offering, the offering price or any other term of the offering may be changed. Notes Are Not Being Registered The Notes have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States. The Initial Purchasers propose to offer the Notes for resale in transactions not requiring registration under the Securities Act or applicable state securities laws, including sales pursuant to Rule 144A and Regulation S under the Securities Act. The Initial Purchasers will not offer or sell the Notes except to persons they reasonably believe to be QIBs or pursuant to offers and sales to non-U.S. persons that occur outside of the United States within the meaning of Regulation S. In addition, until the end of the 40th day following the commencement of this offering, an offer or sale of Notes within the United States by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act unless the dealer makes the offer or sale in compliance with Rule 144A or another exemption from registration under the Securities Act. Each purchaser of the Notes will be deemed to have made acknowledgments, representations and agreements as described under ‘‘Notice to Investors’’. New Issue of Notes The Notes are a new issue of securities with no established trading market. The Issuer has made an application to Euronext Dublin for the Notes to be admitted to its Official List and to be admitted to trading on its Global Exchange Market. However, there is no assurance that a liquid trading market in

121 the Notes will develop. The Issuer has been advised by the Initial Purchasers that they presently intend to make a market in the Notes after completion of the offering. However, they are under no obligation to do so and may discontinue any market-making activities at any time without any notice. The Issuer cannot assure the liquidity of the trading market for the Notes. If an active trading market for the Notes does not develop, the market price and liquidity of the Notes may be adversely affected. If the Notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, the operating performance and financial condition of the Group, general economic conditions and other factors. See ‘‘Risk Factors—Risks Relating to the Notes—There is no established trading market for the Notes and one may not develop.’’ Settlement The Issuer expects that delivery of the Notes will be made to investors on or about , 2018, which will be the fifth business day following the date of this Offering Memorandum (such settlement being referred to as ‘‘T+5’’). Under Rule 15c6-1 under the Exchange Act, trades in the secondary market are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes prior to the delivery of the Notes hereunder may be required, by virtue of the fact that the Notes initially settle in T+5, to specify an alternate settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes prior to their date of delivery hereunder should consult their advisors. Price Stabilization, Short Positions In connection with the offering, the Initial Purchasers may purchase and sell the Notes in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the Initial Purchasers of a greater principal amount of Notes than they are required to purchase in the offering. The Initial Purchasers must close out any short position by purchasing Notes in the open market. See also ‘‘Stabilization’’. Similar to other purchase transactions, the Initial Purchasers’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the Notes or preventing or retarding a decline in the market price of the Notes. As a result, the price of the Notes may be higher than the price that might otherwise exist in the open market. None of the Issuer, the Guarantors or any of the Initial Purchasers makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes. In addition, none of the Issuer, the Guarantors or any of the Initial Purchasers makes any representation that the Initial Purchasers will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. Other Relationships The Initial Purchasers and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with the Issuer, the Guarantors or their respective affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. The Initial Purchasers and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. In the ordinary course of their business activities, the Initial Purchasers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer, the Guarantors or their respective affiliates. Certain of the Initial Purchasers

122 or their affiliates that have a lending relationship with the Issuer or the Guarantors routinely hedge their credit exposure to the Issuer or the Guarantors consistent with their customary risk management policies. Typically, such Initial Purchasers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in the Issuer’s or the Guarantors’ securities, including potentially the Notes offered hereby. Any such short positions could adversely affect the future trading prices of the Notes offered hereby. The Initial Purchasers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. Selling Restrictions Notice to prospective investors in the United States The Notes and the Guarantees have not been registered, and we do not intend to register the Notes or the Guarantees, under the Securities Act, or any securities laws of any other jurisdiction. Accordingly, the Notes are being offered and sold (1) in the United States only to QIBs in accordance with Rule 144A and (2) outside the United States to certain non-U.S. persons in accordance with Regulation S. The Notes have not been offered or sold, and will not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act, including (A) those persons reasonably believed to be ‘‘qualified institutional buyers’’ (‘‘QIBs’’) (as defined in Rule 144A under the Securities Act) or (B) to non-U.S. persons outside the United States to whom the offer or seller reasonably believes offers and sales of the Notes may be made in reliance upon Regulation S. Each Initial Purchaser has agreed that, except as permitted by the Purchase Agreement, it will not offer or sell the Notes (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes (other than a sale pursuant to Rule 144A) during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S. The Notes are being offered and sold outside of the United States to non-U.S. persons in reliance on Regulation S. The Purchase Agreement provides that Initial Purchaser may directly or through their respective U.S. broker-dealer affiliates arrange for the offer and resale of Notes within the United States only to qualified institutional buyers in reliance on Rule 144A. In addition, until the end of the 40th day after the commencement of the offering of the Notes, an offer or sale of Securities within the United States by any dealer (whether or not participating in the offering of the Notes) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A. European Economic Area Each Initial Purchaser has represented and agreed that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes to any retail investor in the EEA. For the purposes of this provision: (a) the expression ‘‘retail investor’’ means a person who is one (or more) of the following: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, ‘‘MiFID II’’); or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the ‘‘Insurance Mediation Directive’’), where the customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or

123 (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the ‘‘Prospectus Directive’’); and (b) the expression ‘‘offer’’ includes the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes. Notice to prospective investors in the United Kingdom Each Initial Purchaser has: (a) only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of FSMA) received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Guarantors; and (b) complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom. Notice to prospective investors in Canada The Notes may be sold only to purchasers in the provinces of Canada, purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the Notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this Offering Memorandum (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (‘‘NI 33-105’’), the Initial Purchasers are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering. Notice to prospective investors in Hong Kong The Notes have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to ‘‘professional investors’’ as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a ‘‘prospectus’’ as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the Notes has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ as defined in the Securities and Futures Ordinance and any rules made under that Ordinance. Notice to prospective investors in Japan The Notes have not been and will not be registered under the Securities and Exchange Law of Japan, and have not been offered or sold, directly or indirectly, in Japan or for the account of any resident thereof except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law.

124 Notice to prospective investors in Singapore This offering memorandum has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Offering Memorandum and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except: (a) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (b) where no consideration is or will be given for the transfer; (c) where the transfer is by operation of law; (d) as specified in Section 276(7) of the SFA; or (e) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. In connection with Section 309B of the SFA and the CMP Regulations 2018, the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309(A)(1) of the SFA), that the Notes are ‘prescribed capital markets products’ (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products). Notice to prospective investors in Switzerland This Offering Memorandum is not intended to constitute an offer or solicitation to purchase or invest in the Notes described herein. The Notes may not be publicly offered, sold or advertised, directly or indirectly, in, into or from Switzerland and will not be listed on the SIX Swiss Exchange or on any other exchange or regulated trading facility in Switzerland. Neither this Offering Memorandum nor any other offering or marketing material relating to the Notes constitutes a prospectus as such term is understood pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations, and neither this Offering Memorandum nor any other offering or marketing material relating to the Notes may be publicly distributed or otherwise made publicly available in Switzerland. Notice to prospective investors in other jurisdictions All persons offering, selling or delivering the Notes shall comply with all relevant laws, regulations and directives in each jurisdiction in which the Notes are purchased, offered, sold or delivered or, insofar as such laws, regulations and directives relate to the purchase, offer, sale or delivery of the Notes.

125 TRANSFER RESTRICTIONS The Notes and the Guarantees have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and, unless so registered, may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with applicable state securities laws. Accordingly, the Notes offered hereby are being offered and sold only (i) within the United States to QIBs in reliance on Rule 144A under the Securities Act and (ii) outside of the United States in reliance on Regulation S under the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act (‘‘Regulation S’’).Each purchaser of Notes, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with the Issuer and the Initial Purchasers as follows: 1. It understands and acknowledges that the Notes and the Guarantees; (i) have not been, and will not be, registered under the Securities Act or any other applicable securities law; (ii) are being offered for resale in transactions not requiring registration under the Securities Act or any other securities law, including sales pursuant to Rule 144A under the Securities Act, and (iii) that, prior to the expiration of the distribution compliance period, the Notes and the Guarantees may not be offered, sold, pledged or otherwise transferred within the United States except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the account of a QIB, (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (c) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), in each case in accordance with any applicable securities laws of any State of the United States. 2. It is either: • a QIB and is aware, and each beneficial owner of such Notes has been advised, that any sale of Notes to it will be made in reliance on Rule 144A under the Securities Act, of which the purchase will be for its own account or for the account of another QIB; or • a non-U.S. person purchasing the Notes outside of the United States in accordance with Regulation S under the Securities Act. 3. It acknowledges that none of the Issuer, the Guarantors, or the Initial Purchasers, nor any person representing the Issuer, the Guarantors, their respective subsidiaries or the Initial Purchasers, has made any representation to it with respect to the Offering or sale of any Notes and related Guarantees, other than the information contained in this Offering Memorandum, which has been delivered to it and upon which it is relying in making its investment decision with respect to the Notes or related Guarantees. It has had access to such financial and other information concerning the Issuer, the Guarantors and the Notes and related Guarantees as it has deemed necessary in connection with its decision to purchase any of the Notes. 4. It is purchasing the Notes for its own account, or for one or more investor accounts for which it is acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, subject to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and subject to its or their ability to resell such Notes and related Guarantees pursuant to Rule 144A, Regulation S or any other exemption from registration available under the Securities Act. 5. If such a purchaser is a purchaser of Notes issued in reliance on Rule 144A, it agrees on its own behalf and on behalf of any investor account for which it is purchasing the Notes, and each subsequent holder of the Notes by its acceptance thereof will be deemed to agree not to offer, sell or otherwise transfer such Notes and related Guarantees except (i) to the Issuer, the Guarantors and any subsidiary or affiliate thereof, (ii) pursuant to a registration statement that has been declared effective under the Securities Act, (iii) for so

126 long as the Notes and related Guarantees are eligible for resale pursuant to Rule 144A under the Securities Act, to a person it reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on Rule 144A under the Securities Act, (iv) pursuant to offers and sales that occur outside the U.S. in compliance with Regulation S under the Securities Act or (v) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and in compliance with any applicable state securities laws, and any applicable local laws and regulations, and further subject to the Issuer’s, the Trustee’s and the Transfer Agent’s rights prior to any such offer, sale or transfer (A) pursuant to clause (v) to require the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them and (B) in each of the foregoing cases, to require that a transfer notice in the form attached as a schedule to the Indenture is completed and delivered by the transferor to the Transfer Agent. 6. It understands that the Notes and related Guarantees, unless otherwise agreed between the Issuer and the Trustee in accordance with applicable law, are being sold pursuant to Rule 144A and will bear a legend to the following effect: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF OR A SUCCESSOR DEPOSITARY. NEITHER THIS NOTE, THE RELATED GUARANTEE, NOR ANY BENEFICIAL INTEREST HEREIN OR THEREIN HAS BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NEITHER THIS NOTE, THE RELATED GUARANTEE NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE UNITED STATES EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (‘‘RULE 144A’’) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE. 7. It understands that the Notes and related Guarantees being sold in reliance on Regulation S will bear a legend to the following effect: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF OR A SUCCESSOR DEPOSITARY. NEITHER THIS NOTE, THE RELATED GUARANTEE, NOR ANY BENEFICIAL INTEREST HEREIN OR THEREIN HAS BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), AND MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS SUCH NOTES AND RELATED GUARANTEE ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF FORTY DAYS FROM THE

127 LATER OF (i) THE DATE ON WHICH THESE NOTES ARE FIRST OFFERED AND (ii) THE DATE OF ISSUE OF THESE NOTES. 8. It agrees that it will give to each person to whom it transfers the Notes notice of any restrictions on transfer of such Notes and related Guarantees. 9. It acknowledges that until 40 days after the commencement of the Offering, any offer or sale of the Notes and related Guarantees within the United States by a dealer (whether or not participating in the Offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the Securities Act. 10. (i) It is neither an employee benefit plan subject to Title I of ERISA or Section 4975 of the Code or any entity whose underlying assets include Plans nor a plan subject to similar laws and it is not purchasing or holding Notes and related Guarantees on behalf of or with the assets of any Plan or plan subject to similar laws; or (ii) its purchase, holding and subsequent disposition of such Notes and related Guarantees shall not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA, Section 4975 of the Code or any similar law. 11. It acknowledges that the Trustee and/or Transfer Agent will not be required to accept for registration of transfer any Notes and related Guarantees except upon presentation of evidence satisfactory to the Issuer and the Guarantors, the Trustee and/or the Transfer Agent that the restrictions set forth therein have been complied with. 12. It acknowledges that the Issuer, the Company, the Initial Purchasers and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations, warranties and agreements and agrees that if any of the acknowledgements, representations, warranties and agreements deemed to have been made by its purchase of the Notes and related Guarantees are no longer accurate, it shall promptly notify the Initial Purchasers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts or for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each such investor account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such investor account. 13. It understands that the Notes offered in reliance on Rule 144A will be represented by the DTC Restricted Global Note. Before any interest in the DTC Restricted Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the DTC Unrestricted Global Note, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Indenture) as to compliance with applicable securities laws. 14. It understands that the Notes offered in reliance on Regulation S will be represented by the DTC Unrestricted Global Note. Prior to the expiration of the distribution compliance period, before any interest in the DTC Unrestricted Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the DTC Restricted Global Note, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Indenture) as to compliance with applicable securities laws. 15. Prospective purchasers are hereby notified that sellers of the Notes and the Guarantees may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

128 GENERAL INFORMATION Listing The Issuer has made an application to Euronext Dublin for the Notes to be admitted to the Official List and to trading on the Global Exchange Market thereof. Clearing Reference Numbers The Notes have been accepted for clearance through DTC’s book-entry settlement system. The CUSIP and ISIN numbers for the Notes are as follows: Clearing The Notes have been accepted for clearance through DTC’s book-entry settlement system. The CUSIP and ISIN numbers for the Notes are as follows: Notes distributed pursuant to Rule 144A: CUSIP 314890 AA2, ISIN US314890AA22 Notes distributed pursuant to Regulation S: CUSIP G33760 AA0, ISIN USG33760AA01 Interests of Natural and Legal Persons Involved in the Issuance of the Notes Save as discussed in the section of this Offering Memorandum entitled ‘‘Plan of Distribution,’’ so far as the Issuer and the Guarantors are aware, no person involved in the offer of the Notes has an interest material to such offer. Incorporation of the Issuer Ferguson Finance plc is a limited liability company organized under the laws of England and Wales, registration number 11581816, and is wholly owned by the Company. The Issuer is a wholly owned direct subsidiary of Wolseley Limited which in turn is, a wholly owned direct subsidiary of Ferguson plc, and its principal function is to operate as a finance company which provides funding for Ferguson plc subsidiaries. Ferguson Finance plc’s authorized share capital is £50,000. All of Ferguson Finance plc’s issued shares are wholly owned by Wolseley Limited. The Issuer has measures in place to ensure that control is not abused. The following table shows the Board of Directors of the Issuer as at the date hereof:

Principal directorships outside Ferguson Finance plc and Ferguson Group Board of Directors Title companies Mike Powell ...... Director Non-Executive Director of Low & Bonar plc Paul Simon Fox ...... Director None Philip Andrew Scott ...... Director None Katherine Mary McCormick . . . Company Secretary None The principal offices of Ferguson Finance plc and the contact address for the Board of Directors are located at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire, RG41 5TS, United Kingdom and the telephone number is +44 (0) 118 929 8700. There are no existing or potential conflicts of interest between any duties to the Issuer of the directors and/or their private interests and other duties. Incorporation of the Parent Guarantor Ferguson plc is a public limited company organized under the laws of Jersey, Channel Islands, registration number 106605. The registered offices of Ferguson plc are located at 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands and its headquarters are located at Grafenauweg 10, CH 6301, Zug, Switzerland. The Parent Guarantor, headquartered in Zug, Switzerland. Prior to August 1, 2017, Ferguson plc was known as Wolseley plc. The Parent Guarantor is the Issuer’s indirect parent company and is the ultimate holding company for the Group. The duties owed by the directors do not give rise to any potential conflicts of interests with such directors’ private interests and other duties.

129 Incorporation of the Subsidiary Guarantor Wolseley Limited is a private limited company organized under the laws of England and Wales on April 14, 1986, with registration number 00029846 and is wholly owned by the Company. The principal offices of Wolseley Limited are located at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire, RG41 5TS, United Kingdom. The Subsidiary Guarantor is the Issuer’s direct parent company and a wholly-owned subsidiary of the Parent Guarantor. The duties owed by the directors do not give rise to any potential conflicts of interests with such directors’ private interests and other duties. The following table shows the Board of Directors of the Subsidiary Guarantor as at the date hereof:

Principal directorships outside Wolseley Board of Directors Title Limited and Ferguson Group companies Mike Powell ...... Director Non-Executive Director of Low & Bonar plc Paul Simon Fox ...... Director None Simon Gray ...... Director None Mary Ann Geralyn Lemere .... Director None Philip Andrew Scott ...... Director None Katherine Mary McCormick . . . Company Secretary None The principal offices of Wolseley Limited are located at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire RG41 5TS, England and the telephone number is +44 (0) 118 929 8700. There are no existing or potential conflicts of interest between any duties to the Issuer of the directors and/or their private interests and other duties. The Subsidiary Guarantor and the Parent Guarantor will, pursuant to the Indenture, fully and unconditionally guarantee, on a joint and several basis, the due and punctual payment of all sums from time to time payable by the Issuer in respect of the Notes. Based on the Guarantors’ financial information for and as of the year ended 31 July, 2018: (a) the Guarantors collectively recorded negative adjusted EBITDA of $7 million and net liabilities of $222 million representing ǁ0.4% and ǁ5.5%, respectively, of the Group’s adjusted EBITDA and net consolidated assets; and (b) the members of the Group (excluding the Guarantors) collectively recorded adjusted EBITDA of $1,694 million and net assets of $4,279 million, representing 100.4% and 105.5%, respectively, of the Group’s adjusted EBITDA and net consolidated assets. Corporate Authority We have obtained all necessary consents, approvals and authorizations in connection with the issuance and performance of the Notes. Resolutions of the Issuer’s board of directors, dated October 1, 2018, authorized the issuance of the Notes. The guarantee of the Notes has been authorized by resolutions of the Parent Guarantor’s board of directors, dated September 25, 2018. The guarantee of the Notes has been authorized by resolutions of the Subsidiary Guarantor’s board of directors, dated October 1, 2018. Persons Responsible The Issuer and the Guarantors accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Issuer and the Guarantors (having taken all reasonable care to ensure that such is the case), the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information.

130 Absence of Significant Change There has been no material adverse change in the prospects of the Group taken as a whole since July 31, 2018. There has been no significant change in the financial or trading position of the Group taken as a whole since July 31, 2018. Absence of Litigation Except as set forth in the section entitled ‘‘Description of the Group and its Business—Litigation’’ and ‘‘Risk Factors—We may incur property, casualty or other losses not covered by our insurance’’ and as disclosed in our Consolidated Financial Statements included elsewhere in this Offering Memorandum, neither the Issuer, nor the Guarantors, nor any of their respective subsidiaries is (or has been in the 12 months preceding the date of this Offering Memorandum) involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer, the Guarantors or any of their respective subsidiaries is aware) which may have, or have had in the recent past, significant effects on the financial position or profitability of the Issuer, the Guarantors or any of their respective subsidiaries taken as a whole. Since many of the pending cases seek unspecified damages, it is not possible to quantify the total amount being claimed. Third Party Information The information contained in this document which has been sourced from third parties has been correctly reproduced, and, as far as the Issuer and the Guarantors are aware and able to ascertain from information published by that third party, no facts have been omitted which could render the reproduced information inaccurate or misleading. See ‘‘Market and Industry Data.’’ Periodic Reporting Under the Exchange Act We are not currently subject to the periodic reporting and other information requirements of the U.S. Securities Exchange Act of 1934. Documents Available for Inspection Copies of the following documents will be available for inspection in physical form/electronic form during normal office hours (local time) on any weekday (Saturdays, Sundays and public holidays excluded) at the registered office of the Company and the Issuer: (a) this Offering Memorandum; (b) the Memorandum and Articles of Association of the Issuer, Parent Guarantor and Subsidiary Guarantor; (c) the 2018 Consolidated Financial Statements and the 2017 Consolidated Financial Statements; and (d) the Indenture.

131 LEGAL MATTERS Certain legal matters in connection with this offering will be passed upon for the Issuer, the Guarantor and the Subsidiary Guarantor by Davis Polk & Wardwell London LLP, as to matters of United States federal, New York State law and English law and by Carey Olsen as to Jersey law. Certain legal matters in connection with this offering will be passed upon for the Initial Purchasers by Linklaters LLP, as to matters of United States federal, New York State law and English law.

132 INDEPENDENT AUDITORS The Group 2018 and 2017 Consolidated Financial Statements included in this Offering Memorandum have been audited by Deloitte LLP. Deloitte LLP are independent accountants and Registered Auditors and members of the Institute of Chartered Accountants in England and Wales, with an address at 1 New Street Square, London, EC4A 3HQ, as stated in the reports appearing therein. In accordance with International Auditing Standard (United Kingdom and Ireland) 700, the audit reports on the Group Financial Statements include a description of the risks of material misstatement that had the greatest effect on the audit, the key audit procedures to address those risks and the findings from those procedures in order that the Company’s members as a body may better understand the process by which the auditor arrived at its audit opinion. The risks of material misstatement detailed in the sections of the reports titled ‘‘Key audit matters’’ are those risks that, in the auditor’s professional judgment, had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. The audit procedures relating to these risks were designed in the context and solely for the purposes of the audit of the financial statements in accordance with the requirements of the Companies (Jersey) Law, 1991. The findings with respect to these risks are therefore limited by the scope of the audit and are incidental to the opinion on the financial statements as a whole. The auditor does not express discrete opinions on individual risks or the separate elements of the financial statements to which these individual risks relate. The opinion on the financial statements is not modified with respect to any of these risks. The audit reports included in the offering memorandum were given in the context of the annual reports referred to above and contain language limiting the scope of the Auditors’ duty of care in relation to such reports and the financial statements to which they relate. In particular, the audit report on the 2018 Consolidated Financial Statements includes the following: ‘‘This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies(Jersey) Law, 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those further any further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for our report, or for the opinions we have formed.’’ and the audit reports on the 2017 Consolidated Financial Statements includes the following: ‘‘This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.’’ The SEC would not permit such limiting language to be included in a registration statement or a prospectus used in connection with an offering of securities registered under the Securities Act, or in a report filed under the Exchange Act. If a U.S. court (or any other court) were to give effect to this limiting language, the recourse that investors in the Notes may have against the Auditors based on their reports or the financial statements to which they relate could be limited.

133 INDEX TO FINANCIAL STATEMENTS Investors should refer to the explanations provided under ‘‘Presentation of Financial, Market and Other Information—General’’ and ‘‘Independent Auditors’’ for an explanation of the financial information and related reports included in this Offering Memorandum.

Consolidated Financial Statements 2018 of Ferguson plc Consolidated Income Statement for the year ended July 31, 2018 ...... F-2 Consolidated Statement of Comprehensive Income for the year ended July 31, 2018 ...... F-3 Consolidated Statement of Changes in Equity for the year ended July 31, 2018 ...... F-4 Consolidated Balance Sheet as at July 31, 2018 ...... F-5 Consolidated Cash Flow Statement for the year ended July 31, 2018 ...... F-6 Notes to the Consolidated Financial Statements as at and for the year ended July 31, 2018 .... F-7 Independent auditor’s report for the year ended July 31, 2018 ...... F-58 Consolidated Financial Statements 2017 of Ferguson plc (formerly Wolseley plc) Consolidated Income Statement for the year ended July 31, 2017 ...... F-70 Consolidated Statement of Comprehensive Income for the year ended July 31, 2017 ...... F-71 Consolidated Statement of Changes in Equity for the year ended July 31, 2017 ...... F-72 Consolidated Balance Sheet as at July 31, 2017 ...... F-73 Consolidated Cash Flow Statement for the year ended July 31, 2017 ...... F-74 Notes to the Consolidated Financial Statements as at and for the year ended July 31, 2017 .... F-75 Independent auditor’s report for the year ended July 31, 2017 ...... F-128

F-1 Group income statement Year ended 31 July 2018

2018 Restated(1) 2017 Before Exceptional Before Exceptional exceptional items exceptional items items (note 5) Total items (note 5) Total Notes $m $m $m $m $m $m Revenue ...... 3 20,752 — 20,752 19,284 — 19,284 Cost of sales ...... (14,689) (19) (14,708) (13,698) (3) (13,701) Gross profit ...... 6,063 (19) 6,044 5,586 (3) 5,583 Operating costs: amortisation of acquired intangible assets ...... (65) — (65) (81) — (81) other ...... (4,556) (63) (4,619) (4,245) 221 (4,024) Operating costs ...... (4,621) (63) (4,684) (4,326) 221 (4,105) Operating profit ...... 3, 4 1,442 (82) 1,360 1,260 218 1,478 Net finance costs ...... 6 (53) — (53) (54) — (54) Share of profit/(loss) after tax of associates ...... 15 2— 2 (1) — (1) Impairment of interests in associates .... 15 (122) — (122) —— — Profit before tax ...... 1,269 (82) 1,187 1,205 218 1,423 Tax...... 7 (361) 15 (346) (342) (28) (370) Profit from continuing operations ...... 908 (67) 841 863 190 1,053 Profit/(loss) from discontinued operations 8 22 404 426 (60) (73) (133) Profit for the year attributable to shareholders of the Company ...... 930 337 1,267 803 117 920 Earnings per share ...... 10 Continuing operations and discontinued operations Basic earnings per share ...... 515.7c 366.1c Diluted earnings per share ...... 511.9c 363.5c Continuing operations only Basic earnings per share ...... 342.3c 419.0c Diluted earnings per share ...... 339.8c 416.0c Alternative performance measures Trading profit from ongoing operations . . 2 1,507 1,307 Trading profit from non-ongoing operations ...... 2 — 34 Trading profit from continuing operations 2, 3 1,507 1,341 Adjusted EBITDA ...... 2 1,687 1,519 Headline earnings per share ...... 2, 10 444.4c 366.1c

(1) All comparative information has been restated to be presented in US dollars, see note 1.

F-2 Group statement of comprehensive income Year ended 31 July 2018

Restated 2018 2017 Notes $m $m Profit for the year ...... 1,267 920 Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Exchange gain on translation of overseas operations(1) ...... 7 58 Exchange loss on translation of borrowings and derivatives designated as hedges of overseas operations(1) ...... (11) (8) Cumulative currency translation differences on disposals(1) ...... 194 11 Tax credit on items that may be reclassified to profit or loss(2) ...... 7 — 1 Items that will not be reclassified subsequently to profit or loss: Actuarial gain/(loss) on retirement benefit plans(2) ...... 25 104 (2) Tax charge on items that will not be reclassified to profit or loss(2) ...... 7, 25 (17) (1) Other comprehensive income for the year ...... 277 59 Total comprehensive income for the year ...... 1,544 979 Total comprehensive income/(expense) attributable to: Continuing operations ...... 926 1,106 Discontinued operations ...... 618 (127) Total comprehensive income for the year attributable to shareholders of the Company ...... 1,544 979

(1) Impacting the translation reserve. (2) Impacting retained earnings.

F-3 Group statement of changes in equity

Reserves Non- Share Share Translation Treasury Own Retained controlling Total capital premium reserve shares shares earnings interest equity Notes $m $m $m $m $m $m $m $m At 1 August 2016 restated .... 45 67 (807) (792) (92) 5,419 (3) 3,837 Profit for the year ...... — — — — — 920 — 920 Other comprehensive income/ (expense) ...... — — 61 — — (2) — 59 Total comprehensive income . . — — 61 — — 918 — 979 Purchase of own shares by Employee Benefit Trusts .... 26 — — — — (8) — — (8) Issue of own shares by Employee Benefit Trusts .... 26 — — — — 24 (24) — — Credit to equity for share-based payments ...... — — — — — 28 — 28 Tax relating to share-based payments ...... 7 — — — — — 5 — 5 Disposal of Treasury shares . . . 26 — — — 49 — (22) — 27 Dividends paid ...... 9 — — — — — (328) — (328) At 31 July 2017 restated ..... 45 67 (746) (743) (76) 5,996 (3) 4,540 Profit for the year ...... — — — — — 1,267 — 1,267 Other comprehensive income . . — — 190 — — 87 — 277 Total comprehensive income . . — — 190 — — 1,354 — 1,544 Purchase of own shares by Employee Benefit Trusts .... 26 — — — — (41) — — (41) Issue of own shares by Employee Benefit Trusts .... 26 — — — — 27 (27) — — Credit to equity for share-based payments ...... —— — ——35— 35 Tax relating to share-based payments ...... 7 —— — —— 8— 8 Adjustment arising from change in non-controlling interest . . . — — — — — (16) 2 (14) Purchase of Treasury shares . . . 26 — — — (675) — — — (675) Disposal of Treasury shares . . . 26 — — — 38 — (14) — 24 Dividends paid ...... 9 — — — — — (1,364) — (1,364) At 31 July 2018 ...... 45 67 (556) (1,380) (90) 5,972 (1) 4,057

F-4 Group balance sheet As at 31 July 2018

Restated Restated 2018 2017 2016 Notes $m $m $m Assets Non-current assets Intangible assets: goodwill ...... 12 1,408 1,173 1,193 Intangible assets: other ...... 13 308 240 267 Property, plant and equipment ...... 14 1,086 1,068 1,897 Interests in associates ...... 15 64 164 — Financial assets ...... 11 15 30 Retirement benefit assets ...... 25 193 4— Deferred tax assets ...... 16 130 160 168 Trade and other receivables ...... 18 328 299 280 Derivative financial assets ...... 23 17 19 26 3,545 3,142 3,861 Current assets Inventories ...... 17 2,516 2,399 2,668 Trade and other receivables ...... 18 3,094 2,766 2,920 Current tax receivable ...... 10 3— Derivative financial assets ...... 23 — 715 Cash and cash equivalents ...... 19 833 2,525 1,243 6,453 7,700 6,846 Assets held for sale ...... 20 151 1,715 74 Total assets ...... 10,149 12,557 10,781 Liabilities Current liabilities Trade and other payables ...... 21 3,341 3,011 3,483 Current tax payable ...... 188 116 134 Derivative financial liabilities ...... 23 2 —— Bank loans and overdrafts ...... 22 383 2,150 927 Obligations under finance leases ...... 3 45 Provisions ...... 24 95 107 116 Retirement benefit obligations ...... 25 4 11 12 4,016 5,399 4,677 Non-current liabilities Trade and other payables ...... 21 298 238 216 Derivative financial liabilities ...... 23 17 —— Bank loans ...... 22 1,522 1,098 1,554 Obligations under finance leases ...... 3 536 Deferred tax liabilities ...... 16 42 12 86 Provisions ...... 24 179 159 176 Retirement benefit obligations ...... 25 15 21 183 2,076 1,533 2,251 Liabilities held for sale ...... 20 — 1,085 16 Total liabilities ...... 6,092 8,017 6,944 Net assets ...... 4,057 4,540 3,837 Equity Share capital ...... 26 45 45 45 Share premium ...... 67 67 67 Reserves ...... 3,946 4,431 3,728 Equity attributable to shareholders of the Company ...... 4,058 4,543 3,840 Non-controlling interest ...... (1) (3) (3) Total equity ...... 4,057 4,540 3,837

The accompanying notes are an integral part of these consolidated financial statements. The consolidated financial statements on pages 98 to 139 were approved and authorised for issue by the Board of Directors on 1 October 2018 and were signed on its behalf by:

5OCT201808472009 5OCT201808473595 John Martin Mike Powell Group Chief Executive Group Chief Financial Officer

F-5 Group cash flow statement Year ended 31 July 2018

Restated 2018 2017 Notes $m $m Cash flows from operating activities Cash generated from operations ...... 27 1,323 1,410 Interest received ...... 9 4 Interest paid ...... (62) (71) Tax paid ...... (234) (393) Net cash generated from operating activities ...... 1,036 950 Cash flows from investing activities Acquisition of businesses (net of cash acquired) ...... 28 (416) (331) Disposals of businesses (net of cash disposed of) ...... 29 1,320 300 Purchases of property, plant and equipment ...... (265) (192) Proceeds from sale of property, plant and equipment and assets held for sale . 120 24 Purchases of intangible assets ...... (34) (32) Disposals of financial assets ...... — 22 Acquisition of associates ...... (35) — Dividends received from associates ...... 10 — Net cash generated from/(used in) investing activities ...... 700 (209) Cash flows from financing activities Purchase of own shares by Employee Benefit Trusts ...... 26 (41) (8) Purchase of Treasury shares ...... 26 (675) — Proceeds from the sale of Treasury shares ...... 26 24 27 Proceeds from borrowings and derivatives ...... 30 459 430 Repayments of borrowings ...... 30 (261) (587) Finance lease capital payments ...... 30 (4) (6) Dividends paid to shareholders ...... (1,359) (328) Net cash used by financing activities ...... (1,857) (472) Net cash (used)/generated ...... (121) 269 Effects of exchange rate changes ...... (7) (13) Net (decrease)/increase in cash, cash equivalents and bank overdrafts ...... (128) 256 Cash, cash equivalents and bank overdrafts at the beginning of the year ..... 586 330 Cash, cash equivalents and bank overdrafts at the end of the year ...... 458 586

Restated 2018 2017 Notes $m $m Cash, cash equivalents and bank overdrafts at the end of the year in the Group balance sheet ...... 30 458 543 Cash, cash equivalents and bank overdrafts at the end of the year in assets held for sale ...... 20 — 43 Cash, cash equivalents and bank overdrafts at the end of the year ...... 458 586

F-6 Notes to the consolidated financial statements Year ended 31 July 2018

1—Accounting policies Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) as adopted by the European Union, including interpretations issued by the International Accounting Standards Board (‘‘IASB’’) and its committees. The Group’s subsidiary undertakings are set out on pages 152 and 153. Ferguson plc is a public company limited by shares incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland. It operates as the ultimate parent company of the Ferguson Group. Its registered office is 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands. The consolidated financial statements have been prepared on a going concern basis (see page 68) and under the historical cost convention as modified by the revaluation of financial assets and liabilities held for trading.

Functional and presentational currency The functional currency of the Company changed from pounds sterling to US dollars, as this is now the primary currency in which the Company’s financing activities and investment returns are denominated. The change was effective from 1 August 2017 and in line with IAS 21 ‘‘The Effects of Changes in Foreign Exchange Rates’’ has been accounted for prospectively from this date. The Group changed its presentational currency to US dollars, to better align with the Group’s operations, which generate the majority of revenue and profit in US dollars, and is expected to reduce the impact of foreign exchange rate movements. The change in presentational currency was effective from 1 August 2017 and, in line with IAS 21, is accounted for retrospectively. Financial information included in the consolidated financial statements for the years ended 31 July 2017 and 31 July 2016 previously reported in pounds sterling have been restated into US dollars using the procedures outlined below: • Assets and liabilities denominated in non-US dollar currencies were translated into US dollars at the closing rates of exchange on the relevant balance sheet date; • Non-US dollar income and expenditure were translated at the average rates of exchange prevailing for the relevant period; and • Share capital, share premium and the other reserves were translated at the historic rates of exchange prevailing on the date of each transaction. The cumulative translation reserve was set to nil at 1 August 2004, the date of transition to IFRS, and has been restated on the basis that the Group has reported in US dollars since that date. The exchange rates of US dollar to pounds sterling over the periods presented in this report are as follows:

2018 2017 2016 US dollar/pounds sterling translation rate Income statement ...... 0.74 0.79 0.68 Balance sheet ...... 0.76 0.76 0.76

Accounting developments and changes At the time of this report a number of accounting standards have been published and endorsed, but not yet applied. IFRS 9 ‘‘Financial Instruments’’ will be adopted by the Group on 1 August 2018. The standard makes changes to the classification and measurement of financial assets and liabilities, revises the requirements of hedge accounting and introduces a new impairment model for financial assets.

F-7 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) The Group has completed an assessment of the impact of IFRS 9 and has concluded there will be no material impact on the Group’s consolidated financial statements. IFRS 15 ‘‘Revenue from Contracts with Customers’’ will be adopted by the Group on 1 August 2018. The standard introduces revised principles for the recognition of revenue with a new five-step model that focuses on the transfer of control instead of a risks and rewards approach. The Group has completed an assessment of the impact of IFRS 15 and as the Group’s current revenue recognition is consistent with the passing of control under IFRS 15 it has been concluded that there will be no material impact on the Group’s consolidated financial statements. IFRS 16 ‘‘Leases’’ is effective for the Group for the year ending 31 July 2020. IFRS 16 represents a significant change to the treatment of leases in the lessee’s financial results. Lessees will be required to apply a single model to recognise a lease liability and asset for all leases, including those classified as operating leases under current accounting standards (note 32), unless the underlying asset has a low value or the lease term is 12 months or less. On adoption of IFRS 16 there will be a significant change to the consolidated financial statements, as each lease will give rise to a right of use asset, which will be depreciated on a straight-line basis, and a lease liability, with the related interest charge. This will replace existing lease balances on the balance sheet and charges to the income statement. The Group continues to assess the full impact of IFRS 16, however the impact will depend on the transition approach and the contracts in effect at the time of adoption. It is therefore not yet practicable to provide a reliable estimate of the financial impact on the Group’s consolidated financial statements.

Choices permitted by IFRS The Group has elected to apply hedge accounting to some of its financial instruments.

Critical accounting judgements Exceptional Items Note 2 provides a definition of exceptional items. The classification of exceptional items requires significant management judgement to determine the nature and intentions of a transaction. Note 5 provides further details on exceptional items.

Pensions and other post-retirement benefits The Group operates defined benefit pension plans in the UK and in a number of overseas locations that are accounted for using methods that rely on actuarial assumptions to estimate costs and liabilities for inclusion in the consolidated financial statements. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. The cost of providing benefits is determined annually using the Projected Unit Credit Method, which includes actuarial assumptions for discount rates, expected salary and pension increases, inflation and life expectancy and are disclosed in note 25. The discount rate used is the yield at the valuation date on high quality corporate bonds that have a maturity approximating to the terms of the pension obligations. Significant judgement is required when setting the criteria from which the yield curve is derived.

Sources of estimation uncertainty In applying the Group’s accounting policies, various transactions and balances are valued using estimates or assumptions. Should these estimates or assumptions prove incorrect there may be an impact on the following year’s financial statements. The Group believes that the estimates and assumptions that have been applied would not give rise to a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

F-8 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) Accounting policies A summary of the principal accounting policies applied by the Group in the preparation of the consolidated financial statements is set out below. The accounting policies have been applied consistently throughout the current and preceding year.

Basis of consolidation The consolidated financial information includes the results of the parent company and entities controlled by the Company (its subsidiary undertakings and controlling interests) and its share of profit/(loss) after tax of its associates. The financial performance of business operations are included in profit from continuing operations from the date of acquisition and up to the date of classification as a discontinued operation or sale. Intra-group transactions and balances and any unrealised gains and losses arising from intra-group transactions are eliminated on consolidation, with the exception of gains or losses required under relevant IFRS accounting standards.

Discontinued operations When the Group has disposed of or intends to dispose of a business component that represents a separate major line of business or geographical area of operations, it classifies such operations as discontinued. The post-tax profit or loss of the discontinued operations is shown as a single line on the face of the income statement, separate from the other results of the Group.

Foreign currencies Items included in the financial statements of the parent and of each of the Group’s subsidiary undertakings are measured using the currency of the primary economic environment in which the subsidiary undertaking operates (the ‘‘functional currency’’). The consolidated financial statements are presented in US dollars, which is the presentational currency of the Group and the functional currency of the parent company. The trading results of overseas subsidiary undertakings are translated into US dollars using the average rates of exchange ruling during the relevant financial period. The balance sheets of overseas subsidiary undertakings are translated into US dollars at the rates of exchange ruling at the period end. Exchange differences arising on the translation into US dollars of the net assets of these subsidiary undertakings are recognised in the currency translation reserve. In the event that a subsidiary undertaking which has a non-US dollar functional currency is disposed of, the gain or loss on disposal recognised in the income statement is determined after taking into account the cumulative currency translation differences that are attributable to the subsidiary undertaking concerned. Foreign currency transactions entered into during the year are translated into the functional currency of the entity at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the income statement. Except as noted above, changes in the fair value of derivative financial instruments, entered into to hedge foreign currency net assets and that satisfy the hedging conditions of IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’, are recognised in the currency translation reserve (see the separate accounting policy on derivative financial instruments).

Business combinations The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the

F-9 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) acquisition date, irrespective of the extent of any non-controlling interest. Acquisition-related costs are expensed as incurred. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Interests in associates Investments in companies where significant influence is exercised are accounted for as interests in associates using the equity method of accounting from the date the investee becomes an associate. The investment is initially recognised at cost and adjusted thereafter for changes in the Group’s share in the net assets of the investee. The Group’s share of profit or loss after tax is recognised in the Group income statement and share of other comprehensive income or expense is recognised in the Group statement of other comprehensive income. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net assets of the investee is recognised as goodwill, which is included within the carrying amount of the investment. The requirements of IAS 36 ‘‘Impairment of Assets’’, are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate.

Revenue Revenue is the amount receivable for the provision of goods and services falling within the Group’s ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade and early settlement discounts, value added tax and similar sales taxes. The Group acts as principal for direct sales which are delivered directly to the customer by the supplier. Revenue from the provision of goods is recognised when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are delivered to, or picked up by, the customer and title has passed to them. Revenue from services is recognised by reference to the stage of completion of the contract. Revenue from the provision of goods and services is only recognised when the amounts to be recognised are fixed or determinable and collectability is reasonably assured.

Cost of sales Cost of sales includes purchased goods, the cost of bringing inventory to its present location and condition and labour and overheads attributable to assembly and construction services.

Supplier rebates In line with industry practice, the Group has agreements (‘‘supplier rebates’’) with a number of its suppliers whereby volume-based rebates, marketing support and other discounts are received in connection with the purchase of goods for resale from those suppliers. Rebates relating to the purchase of goods for resale are accrued as earned and are recorded initially as a deduction in inventory with a subsequent reduction in cost of sales when the related product is sold.

Volume-based rebates The majority of volume-based rebates are determined by reference to guaranteed rates of rebate. These are calculated through a mechanical process with minimal judgement required to determine the amount recorded in the income statement.

F-10 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) A small proportion of volume-based rebates are subject to tiered targets where the rebate percentage increases as volumes purchased reach agreed targets within a set period of time. The majority of rebate agreements apply to purchases in a calendar year and therefore, for tiered rebates, judgement is required to estimate the rebate amount recorded in the income statement at the end of the period. The Group assesses the probability that targeted volumes will be achieved in the year based on forecasts which are informed by historical trading patterns, current performance and trends. This judgement is exercised consistently with historically insignificant true ups at the end of the period. An amount due in respect of supplier rebates is not recognised within the income statement until all the relevant performance criteria, where applicable, have been met and the goods have been sold to a third party.

Other rebates The Group has also entered into other rebate agreements which represent a smaller element of the Group’s overall supplier rebates and which are recognised in the income statement when all performance conditions have been fulfilled.

Supplier rebates receivable Supplier rebates are offset with amounts owing to each supplier at the balance sheet date and are included within trade payables, where the Group has the legal right to offset and net settles balances. Where the supplier rebates are not offset against amounts owing to a supplier, the outstanding amount is included within prepayments.

Operating leases Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. The cost of operating leases (net of any incentives received from the lessor) is charged to the income statement on a straight-line basis over the period of the leases.

Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary undertaking at the date of acquisition. Goodwill on acquisitions of subsidiary undertakings is included within intangible assets. Goodwill is allocated to cash generating units or aggregations of cash generating units (together ‘‘CGUs’’) where synergy benefits are expected. CGUs are independent sources of income streams and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes. The Group considers that a CGU is a business unit because independent cash flows cannot be identified below this level. Goodwill is not amortised but is tested annually for impairment and carried at cost less accumulated impairment losses. For goodwill impairment testing purposes, no CGU is larger than the operating segments determined in accordance with IFRS 8 ‘‘Operating Segments’’. The recoverable amount of goodwill and acquired intangible assets is assessed on the basis of the value in use estimate for CGUs to which they are attributed. Where carrying value exceeds the recoverable amount a provision for the impairment is established with a charge included in the income statement. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Other intangible assets An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights.

F-11 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) Intangible assets, primarily brands, trade names and customer relationships, acquired as part of a business combination are capitalised separately from goodwill and are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the reducing balance method for customer relationships and the straight-line method for other intangible assets. The cost of the intangible assets is amortised and charged to operating costs in the income statement over their estimated useful lives as follows:

Customer relationships ...... 4–25 years Trade names and brands ...... 1–15 years Other ...... 1–4 years Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset and is carried at cost less accumulated amortisation and accumulated impairment losses. Costs include software licences and external and internal costs directly attributable to the development, design and implementation of the computer software. Costs in respect of training and data conversion are expensed as incurred. Amortisation is calculated using the straight-line method so as to charge the cost of the computer software to operating costs in the income statement over its estimated useful life of between three and five years.

Property, plant and equipment (‘‘PPE’’) PPE is carried at cost less accumulated depreciation and accumulated impairment losses, except for land and assets in the course of construction, which are not depreciated and are carried at cost less accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. In addition, subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Assets are depreciated to their estimated residual value using the straight-line method over their useful lives as follows:

Freehold buildings and long leaseholds ...... 20–50 years Operating leasehold improvements ...... over the period of the lease Plant and machinery ...... 7–10 years Computer hardware ...... 3–5 years Fixtures and fittings ...... 5–7 years Motor vehicles ...... 4 years The residual values and useful lives of PPE are reviewed and adjusted if appropriate at each balance sheet date. Borrowing costs directly attributable to the long-term construction or production of an asset are capitalised as part of the cost of the asset.

Assets and disposal groups held for sale Assets are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. Where a group of assets and their directly associated liabilities are to be disposed of in a single transaction, such disposal groups are also classified as held for sale. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition and management must be committed to and have initiated a plan to sell the asset or disposal group which, when initiated, was expected to result in a completed sale within 12 months. Assets that are classified as held for sale are not depreciated. Assets or disposal groups that are classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

F-12 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) Inventories Inventories, which comprise goods purchased for resale, are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (‘‘FIFO’’) method or the average cost method as appropriate to the nature of the transactions in those items of inventory. The cost of goods purchased for resale includes import and custom duties, transport and handling costs, freight and packing costs and other attributable costs less trade discounts, rebates and other subsidies. It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provisions are made against slow-moving, obsolete and damaged inventories for which the net realisable value is estimated to be less than the cost. The risk of obsolescence of slow-moving inventory is assessed by comparing the level of inventory held to estimated future sales on the basis of historical experience.

Trade receivables Trade receivables are recognised initially at fair value and measured subsequently at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the loss is recognised in the income statement. Trade receivables are written off against the provision when recoverability is assessed as being remote. Subsequent recoveries of amounts previously written off are credited to the income statement.

Provisions Provisions for self-insured risks, legal claims, environmental restoration and onerous leases are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Such provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money. Provisions are not recognised for future operating losses.

Retirement benefit obligations Contributions to defined contribution pension plans and other post-retirement benefits are charged to the income statement as incurred. For defined benefit pension plans and other retirement benefits, the cost of providing benefits is determined annually using the Projected Unit Credit Method by independent qualified actuaries. The current and past service cost of defined benefit plans is recorded within operating profit. The net interest amount is calculated by applying the discount rate to the defined benefit net asset or liability at the beginning of the period. The pension plan net interest is presented as finance income or expense. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. The liability/asset recognised in the balance sheet in respect of defined benefit pension plans is the fair value of plan assets less the present value of the defined benefit obligation at the end of the reporting period. Where a plan is in a net asset position the asset is recognised where trustees do not have unilateral power to augment benefits prior to a wind-up.

F-13 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) Ta x Current tax represents the expected tax payable (or recoverable) on the taxable income (or losses) for the year using tax rates enacted or substantively enacted at the balance sheet date and taking into account any adjustments arising from prior years. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Tax provisions The Group is subject to income taxes in numerous jurisdictions. Judgement is sometimes required in determining the worldwide provision for income taxes. There may be transactions for which the ultimate tax determination is uncertain and may be challenged by the tax authorities. The Group recognises liabilities for anticipated or actual tax audit issues based on estimates of whether additional taxes will be due. Where an outflow of funds to a tax authority is considered probable and the Group can make a reliable estimate of the outcome of the dispute, management calculates the provision using the single best estimate of likely outcome approach. In assessing its uncertain tax provisions, management takes into account the specific facts of each dispute, the likelihood of settlement and professional advice where required. Where the ultimate liability in a dispute varies from the amounts provided, such differences could impact the current and deferred income tax assets and liabilities in the period in which the dispute is concluded.

Share capital Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax. Where any Group company purchases the Company’s equity share capital (Treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity attributable to shareholders of the Company until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to shareholders of the Company.

Share-based payments Share-based incentives are provided to employees under the Group’s long-term incentive plans and all-employee sharesave plans. The Group recognises a compensation cost in respect of these plans that is based on the fair value of the awards, measured using Binomial and Monte Carlo valuation methodologies. For equity-settled plans, the fair value is determined at the date of grant (including the impact of any non-vesting conditions such as a requirement for employees to save) and is not subsequently remeasured unless the conditions on which the award were granted are modified. For cash-settled plans, the fair value is determined at the date of grant and is remeasured at each balance sheet date until the liability is settled. Generally, the compensation cost is recognised on a straight-line basis over the vesting period.

F-14 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) Adjustments are made to reflect expected and actual forfeitures during the vesting period due to the failure to satisfy service conditions or non-market performance conditions.

Dividends payable Dividends on ordinary shares are recognised in the Group’s consolidated financial statements in the period in which the dividends are approved by the shareholders of the Company or paid.

Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet to the extent that there is no legal right of offset or no practice of net settlement with cash balances. Cash which is not freely available to the Group is disclosed as restricted cash.

Derivative financial instruments Derivative financial instruments, in particular interest rate swaps and foreign exchange swaps, are used to manage the financial risks arising from the business activities of the Group and the financing of those activities. There is no trading activity in derivative financial instruments. At the inception of a hedging transaction involving the use of derivative financial instruments, the Group documents the relationship between the hedged item and the hedging instrument together with its risk management objective and the strategy underlying the proposed transaction. The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedge in offsetting movements in the fair values or cash flows of the hedged items. Derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. Where derivative financial instruments do not fulfil the criteria for hedge accounting contained in IAS 39, changes in their fair values are recognised in the income statement. When hedge accounting is used, the relevant hedging relationships are classified as fair value hedges, cash flow hedges or net investment hedges. Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability is adjusted by the increase or decrease in its fair value attributable to the hedged risk and the resulting gain or loss is recognised in the income statement where, to the extent that the hedge is effective, it will be offset by the change in the fair value of the hedging instrument. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognised directly in other comprehensive income. When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in equity are either recycled to the income statement or, if the hedged item results in a non-financial asset, are recognised as adjustments to its initial carrying amount. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

Borrowings Borrowings are recognised initially at the fair value of the consideration received net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the proceeds

F-15 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

1—Accounting policies (Continued) (net of transaction costs) and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

2—Alternative performance measures The Group uses alternative performance measures (‘‘APMs’’), which are not defined or specified under IFRS. These APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide comparable information across the Group.

Ongoing and non-ongoing The Group reports some financial measures net of businesses that have been disposed of, closed or classified as held for sale and uses the following terminology: Non-ongoing operations are businesses, which do not meet the criteria to be classified as discontinued operations under IFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’, which have been disposed of, closed or classified as held for sale. In 2017, the Group’s Swiss business, Tobler, and a small Industrial business in the USA, Endries, were classified as non-ongoing and subsequently sold during 2017. There are no businesses classified as non-ongoing in 2018. Ongoing operations are continuing operations excluding non-ongoing operations.

Constant exchange rates The Group measures some financial metrics on both a reported basis and at constant exchange rates. The constant exchange rate basis re-translates the prior year at the current year exchange rates to eliminate the effect of exchange rate fluctuations when comparing information year-on-year.

Organic revenue growth Management uses organic revenue growth as it provides a consistent measure of the percentage increase/ decrease in revenue year-on-year, excluding the effect of currency exchange rate fluctuations, trading days, acquisitions and disposals. A reconciliation of revenue using the above APMs to statutory revenue is provided below:

Ongoing Non-ongoing Continuing Revenue $m % growth $m $m Reported 2017 restated ...... 18,845 439 19,284 Impact of exchange rate movements ...... 229 — 229 Reported 2017 at 2018 exchange rates ...... 19,074 439 19,513 Organic growth ...... 1,439 7.5 — 1,439 Acquistions ...... 239 1.3 — 239 Disposals ...... — — (439) (439) Growth at constant exchange rates ...... 1,678 8.8 (439) 1,239 Reported 2018 ...... 20,752 — 20,752

Like-for-like revenue growth To aid understanding of the UK business management reports like-for-like revenue growth, which is organic revenue growth excluding the effect of branch openings and closures and the exit of low margin business.

F-16 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

2—Alternative performance measures (Continued) Exceptional items Exceptional items are those which are considered significant by virtue of their nature, size or incidence. These items are presented as exceptional within their relevant income statement category to assist in the understanding of the trading and financial results of the Group as these types of cost/credit do not form part of the underlying business. Examples of items that are considered by the Directors for designation as exceptional items include, but are not limited to: • restructuring costs within a segment which are both material and incurred as part of a significant change in strategy or due to the closure of a large part of a business and are not expected to be repeated on a regular basis; • significant costs incurred as part of the integration of an acquired business and which are considered to be material; • gains or losses on disposals of businesses are considered to be exceptional in nature as they do not reflect the performance of the trading business; • material costs or credits arising as a result of regulatory and litigation matters; • gains or losses arising on significant changes to or closures of defined benefit pension plans are considered to be exceptional in nature as they do not reflect the performance of the trading business; and • other items which are material and considered to be non-recurring in nature and/or are not as a result of the underlying trading activities of the business. If provisions have been made for exceptional items in previous years, any reversal of these provisions is treated as exceptional. Exceptional items for the current and prior year are disclosed in note 5.

Ongoing gross margin The ratio of ongoing gross profit, excluding exceptional items, to ongoing revenue. Ongoing gross margin is used by management for assessing business unit performance and it is a key performance indicator for the Group (see page 28). A reconciliation of ongoing gross margin is provided below:

Restated 2018 2017 Ongoing Ongoing gross Gross profit Revenue gross margin Gross profit Revenue margin $m $m % $m $m % Continuing ...... 6,044 20,752 5,583 19,284 Non-ongoing ...... —— (138) (439) Exceptional items ...... 19 — 3— Ongoing ...... 6,063 20,752 29.2 5,448 18,845 28.9

Trading profit and ongoing trading margin Trading profit is defined as operating profit before exceptional items and the amortisation and impairment of acquired intangible assets. Trading profit is used as a performance measure because it excludes costs and other items that do not form part of the underlying trading business. The ongoing trading margin is the ratio of ongoing trading profit to ongoing revenue and is used to assess business unit profitability and is a key performance indicator for the Group (see page 28).

F-17 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

2—Alternative performance measures (Continued) A reconciliation of trading profit to statutory operating profit and the calculation of ongoing trading margin are provided below:

Restated 2018 2017 Ongoing Non-ongoing Continuing Ongoing Non-ongoing Continuing $m growth % $m $m $m $m $m Trading profit 2017 ...... 1,307 34 1,341 Impact of exchange rate movements . 7—7 Trading profit 2017 at 2018 exchange rates ...... 1,314 34 1,348 Growth at constant exchange rates . . 193 14.7 (34) 159 Trading profit ...... 1,507 — 1,507 1,307 34 1,341 Amortisation of acquired intangible assets ...... (65) — (65) (81) — (81) Exceptional items ...... (82) — (82) (47) 265 218 Operating profit ...... 1,360 — 1,360 1,179 299 1,478

Revenue, trading profit and trading margin by reportable segment are shown below. For information on our reportable segments see note 3.

Revenue Trading profit Trading margin Restated Restated Restated 2018 2017 2018 2017 2018 2017 $m $m $m $m % % USA...... 16,670 14,977 1,406 1,204 8.4 8.0 UK...... 2,568 2,548 73 96 2.8 3.8 Canada and Central Europe ...... 1,514 1,320 83 57 5.5 4.3 Central and other costs ...... — — (55) (50) — — Total ongoing operations ...... 20,752 18,845 1,507 1,307 7.3 6.9 USA...... — 216 — 20 Canada and Central Europe ...... — 223 — 14 Total non-ongoing operations ...... — 439 — 34 Continuing operations ...... 20,752 19,284 1,507 1,341

Adjusted EBITDA Adjusted EBITDA is operating profit before charges/credits relating to depreciation, amortisation, impairment and exceptional items. Adjusted EBITDA is used in the net debt to adjusted EBITDA ratio to

F-18 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

2—Alternative performance measures (Continued) assess the appropriateness of the Group’s financial gearing. A reconciliation of statutory operating profit to adjusted EBITDA is provided below:

2018 Restated 2017 Continuing Discontinued Group Continuing Discontinued Group $m $m $m $m $m $m Operating profit ...... 1,360 461 1,821 1,478 (141) 1,337 Exceptional items ...... 82 (402) (320) (218) 86 (132) Amortisation and impairment of goodwill and acquired intangible assets ...... 65 — 65 81 135 216 Trading profit ...... 1,507 59 1,566 1,341 80 1,421 Depreciation and impairment of property, plant and equipment .... 152 — 152 151 29 180 Amortisation and impairment of non-acquired intangible assets ..... 28 — 28 27 4 31 Adjusted EBITDA ...... 1,687 59 1,746 1,519 113 1,632

Ongoing effective tax rate The ongoing effective tax rate is the ratio of the ongoing tax charge to ongoing profit before tax and is used as a measure of the tax rate of the ongoing business. See reconciliation in note 7.

Headline profit after tax and headline earnings per share Headline profit after tax is calculated as the profit from continuing operations after tax, before charges for amortisation and impairment of acquired intangible assets and impairment of interests in associates net of tax, exceptional items net of tax and non-recurring tax relating to changes in tax rates and other adjustments. The Group excludes amortisation and impairment of acquired intangible assests to improve the comparability between acquired and organically grown operations, as the latter cannot recognise internally generated intangible assets. Headline earnings per share is the ratio of headline profit after tax to the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Benefit Trusts and those held by the Company as Treasury shares. Headline earnings per share is used for the purpose of setting remuneration targets for executive directors and other senior executives. See reconciliation in note 10.

Net debt Net debt comprises cash and cash equivalents and liabilities from financing activities, including bank overdrafts, bank loans, derivative financial instruments and obligations under finance leases. Net debt is a good indicator of the strength of the Group’s balance sheet position and is widely used by credit rating agencies. See note 30 for a reconciliation.

Return on gross capital employed Return on gross capital employed is the ratio of the Group’s trading profit to the average year-end shareholders’ equity, adjusted net debt and accumulated amortisation and impairment of goodwill and

F-19 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

2—Alternative performance measures (Continued) acquired intangible assets. Return on gross capital employed is a key performance indicator (see page 29). The calculation of return on gross capital employed is shown below:

Restated 2018 2017 $m $m Net debt (note 30) ...... 1,080 706 Cash and cash equivalents in assets held for sale (note 20) ...... — (43) Bank loans in assets held for sale (note 20) ...... — 105 Adjusted net debt ...... 1,080 768 Accumulated impairment losses of goodwill (note 12)(1) ...... 197 1,330 Accumulated amortisation and impairment losses of acquired intangible assets (note 13)(2) ...... 586 1,231 Shareholders’ equity ...... 4,058 4,543 Gross capital employed ...... 5,921 7,872 Average gross capital employed(3) ...... 6,897 7,643 Group trading profit(4) ...... 1,566 1,421 Return on gross capital employed % ...... 22.7 18.6

(1) In 2017 includes $1,131 million reclassified as held for sale. (2) Excludes software and in 2017 includes $708 million reclassified as held for sale. (3) Gross capital employed in 2016 was $7,414 million. (4) Reconciliation provided above under adjusted EBITDA.

3—Segmental analysis The Group’s operating segments are established on the basis of the operating businesses overseen by distinct divisional management teams responsible for their performance. These operating businesses are managed on a geographical basis and are regularly reviewed by the chief operating decision maker in deciding how to allocate resources and assess the performance of the businesses. All operating segments derive their revenue from a single business activity, the distribution of plumbing and heating products. Revenue is attributed to a country based on the location of the Group company reporting the revenue. The Group has combined the Canada and Central Europe operating segments into one reportable segment as individually they do not meet the quantitative thresholds set out in IFRS 8 ‘‘Operating Segments’’ to be separately disclosed. The Group’s business is not highly seasonal and the Group’s customer base is highly diversified, with no individually significant customer. The changes in revenue and trading profit for continuing operations between the years ended 31 July 2017 and 31 July 2018 include changes in exchange rates, disposals, acquisitions and organic change. Where businesses are disposed in the year, the difference between the revenue and trading profit in the current year up to the date of disposal and the revenue and trading profit in the equivalent portion of the prior year is included in organic change.

F-20 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

3—Segmental analysis (Continued) An analysis of the change in revenue by reportable segment for continuing operations is as follows:

Restated Organic 2017 Exchange Disposals Acquisitions change 2018 $m $m $m $m $m $m USA...... 15,193 — (216) 205 1,488 16,670 UK...... 2,548 163 — — (143) 2,568 Canada and Central Europe ...... 1,543 66 (223) 34 94 1,514 Continuing operations ...... 19,284 229 (439) 239 1,439 20,752

An analysis of the change in trading profit/(loss) (note 2) by reportable segment for continuing operations is as follows:

Restated Organic 2017 Exchange Disposals Acquisitions change 2018 $m $m $m $m $m $m USA...... 1,224 — (20) 4 198 1,406 UK...... 96 6 — — (29) 73 Canada and Central Europe ...... 71 3 (14) 4 19 83 Central and other costs ...... (50) (2) — — (3) (55) Continuing operations ...... 1,341 7 (34) 8 185 1,507

The reconciliation between trading profit/(loss) (note 2) and operating profit/(loss) by reportable segment for continuing operations is as follows:

2018 Restated 2017 Amortisation Amortisation of acquired of acquired Trading Exceptional intangible Operating Trading Exceptional intangible Operating profit/(loss) items assets profit/(loss) profit/(loss) items assets profit/(loss) $m $m $m $m $m $m $m $m USA...... 1,406 (5) (58) 1,343 1,224 86 (79) 1,231 UK...... 73 (70) — 3 96 (35) — 61 Canada and Central Europe . 83 — (7) 76 71 176 (2) 245 Central and other costs ...... (55) (7) — (62) (50) (9) — (59) Group ...... 1,507 (82) (65) 1,360 1,341 218 (81) 1,478 Net finance costs . (53) (54) Share of profit/ (loss) after tax of associates .... 2 (1) Impairment of interests in associates .... (122) — Profit before tax . . 1,187 1,423

F-21 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

3—Segmental analysis (Continued) Other information on assets and liabilities by segment is set out in the tables below:

2018 Restated 2017 Segment Segment Segment Segment net assets/ Segment Segment net assets/ assets liabilities (liabilities) assets liabilities (liabilities) $m $m $m $m $m $m USA...... 6,964 (2,772) 4,192 6,187 (2,475) 3,712 UK...... 1,301 (656) 645 1,122 (650) 472 Canada and Central Europe ...... 690 (297) 393 626 (258) 368 Central and other costs(1) ...... 88 (141) (53) 185 (125) 60 Discontinued ...... 116 (66) 50 1,723 (1,124) 599 Total ...... 9,159 (3,932) 5,227 9,843 (4,632) 5,211 Tax assets/(liabilities) ...... 140 (230) (90) 163 (128) 35 Net cash/(debt) ...... 850 (1,930) (1,080) 2,551 (3,257) (706) Group assets/(liabilities) ...... 10,149 (6,092) 4,057 12,557 (8,017) 4,540

(1) Segmental assets include $64 million (2017: $164 million) relating to interests in associates. Geographical information of non-current assets is set out in the table below. Non-current assets includes goodwill, other intangible assets, property, plant and equipment and interests in associates.

Restated 2018 2017 $m $m USA...... 2,343 2,012 UK...... 258 272 Canada and Central Europe ...... 265 361 Group ...... 2,866 2,645

2018 Restated 2017 Additions Additions to other to other acquired acquired intangible Additions to Additions to intangible Additions to Additions to assets and non-acquired property, assets and non-acquired property, Additions interests in intangible plant and Additions interests in intangible plant and to goodwill associates assets equipment to goodwill associates assets equipment $m $m $m $m $m $m $m $m USA...... 208 120 8 182 178 102 15 102 UK...... — — 16 32 — — 10 27 Canada and Central Europe . 33 10 5 13 —— 4 11 Central and other costs ...... —351 1 — 162 1 — Discontinued .... —— — — 32 258 Group ...... 241 165 30 228 181 266 32 198

F-22 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

3—Segmental analysis (Continued)

2018 Restated 2017 Impairment Impairment of goodwill, of goodwill, other Amortisation Depreciation other Amortisation Depreciation acquired Amortisation and and acquired Amortisation and and intangible of other impairment of impairment intangible of other impairment of impairment assets and acquired non-acquired of property, assets and acquired non-acquired of property, interests in intangible intangible plant and interests in intangible intangible plant and associates assets assets equipment associates assets assets equipment $m $m $m $m $m $m $m $m USA...... — 58 15 113 — 79 15 117 UK...... — — 10 30 —— 6 22 Canada and Central Europe ...... —7 2 8—2 210 Central and other costs ...... 122 — 1 1 —— 4 2 Discontinued .... —— — —129 6 4 29 Group ...... 122 65 28 152 129 87 31 180

4—Operating profit Amounts charged/(credited) in arriving at operating profit from continuing operations include:

Restated 2018 2017 Notes $m $m Amortisation of acquired intangible assets ...... 13 65 81 Amortisation of non-acquired intangible assets ...... 13 26 24 Impairment of non-acquired intangible assets ...... 13 2 3 Depreciation of property, plant and equipment ...... 14 145 150 Impairment of property, plant and equipment ...... 14 7 1 Gain on disposal of businesses ...... — (265) Amounts included in costs of sales with respect to inventory ...... 14,618 13,627 Staff costs ...... 11 2,913 2,710 Operating lease rentals: land and buildings ...... 240 236 Operating lease rentals: plant and machinery ...... 85 75 Trade receivables impairment ...... 13 12 During the year, the Group obtained the following services from the Company’s auditor and its associates:

Restated 2018 2017 $m $m Fees for the audit of the Company and consolidated financial statements ...... 1.4 1.2 Fees for the audit of the Company’s subsidiaries pursuant to legislation ...... 2.6 3.1 Total audit fees ...... 4.0 4.3 Audit related assurance services ...... 0.3 0.6 Other assurance services ...... — 0.1 Other services ...... 0.2 0.3 Total non-audit fees ...... 0.5 1.0 Total fees payable to the auditor ...... 4.5 5.3

During the year fees of $1 million were paid to the auditor in relation to the purchase of Stark Group by Lone Star Funds. These fees were paid by the Group and recharged to Lone Star Funds so are not included in the above analysis. Details of the Company’s policy on the use of the auditor for non-audit services, the reasons why the auditor was used and how the auditor’s independence and objectivity were safeguarded are set out in the

F-23 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

4—Operating profit (Continued) Audit Committee Report on pages 62 to 66. No services were provided pursuant to contingent fee arrangements.

5—Exceptional items Exceptional items (charged)/credited to operating profit from continuing operations are analysed by purpose as follows:

Restated 2018 2017 $m $m Gain on disposal of businesses ...... — 265 Business restructuring ...... (72) (51) Other exceptional items ...... (10) 4 Total included in operating profit ...... (82) 218

For the year ended 31 July 2018, business restructuring comprises costs incurred in the UK in respect of its business transformation strategy and includes $19 million (2017: $3 million) charged to cost of sales for inventory write downs. Other exceptional items include a $5 million settlement cost on the closure of a defined benefit pension plan in the USA. The net cash outflow from exceptional items, excluding the gain on disposal of businesses, was $59 million (2017: $25 million). Exceptional items relating to discontinued operations are disclosed in note 8.

6—Net finance costs

Restated 2018 2017 $m $m Interest receivable ...... 8 — Interest payable —Bank loans and overdrafts ...... (65) (60) —Unwind of fair value adjustment to senior unsecured loan notes ...... 7 10 —Finance lease charges ...... (1) (1) (59) (51) Net interest expense on defined benefit obligation (note 25) ...... (1) (3) Valuation losses on financial instruments ...... (1) — Total net finance costs ...... (53) (54)

Finance costs relating to discontinued operations are detailed in note 8.

F-24 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

7—Tax The tax charge for the year comprises:

Restated 2018 2017 $m $m Current year tax charge ...... 297 373 Adjustments to tax charge in respect of prior years ...... 7 1 Total current tax charge ...... 304 374 Deferred tax charge/(credit): origination and reversal of temporary differences ...... 42 (4) Total tax charge ...... 346 370

An exceptional tax credit of $15 million was recorded against exceptional items (2017: charge $28 million). The deferred tax charge of $42 million (2017: credit $4 million) includes a credit of $8 million (2017: charge $13 million) resulting from changes in tax rates. Tax on items (charged)/credited to the Group statement of comprehensive income:

Restated 2018 2017 $m $m Deferred tax charge on actuarial loss on retirement benefits ...... (17) (4) Current tax credit on actuarial loss on retirement benefits ...... — 3 Deferred tax credit on losses ...... — 1 Total tax on items charged to the Group statement of comprehensive income ...... (17) —

Tax on items credited to equity:

Restated 2018 2017 $m $m Current tax credit on share-based payments ...... 7 4 Deferred tax credit on share-based payments ...... 1 1 Total tax on items credited to equity ...... 8 5

The tax charge in the statement of changes in equity relating to tax rate changes is $3 million (2017: $nil). The Group has made provisions for the liabilities likely to arise from open audits and assessments. At 31 July 2018, the Group has recognised provisions of $237 million in respect of its uncertain tax positions (2017: $214 million). The total provision has increased by $23 million in the year due primarily to increases related to certain cross border transfer pricing risks, partly offset by the settlement of a transfer pricing enquiry through a Mutual Agreement Procedure between the US Internal Revenue Service and HM Revenue & Customs. The remaining open significant tax issues relate predominantly to cross border transfer pricing risks. Although there is uncertainty regarding the timing of the resolution of these matters, management do not believe that the Group’s uncertain tax provisions constitute a major source of

F-25 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

7—Tax (Continued) estimation uncertainty as they consider that there is no significant risk of a material change to its estimate of these provisions within the next 12 months.

2018 Total profit/ Non-ongoing tax from Ongoing and other continuing profit/tax(7) profit/tax(8) operations Tax reconciliation: $m % $m % $m % Profit before tax ...... 1,456 (269) 1,187 Expected tax at weighted average tax rate(1) ...... (327) 22.5 59 (22.0) (268) 22.6 Adjusted for the effects of: over/(under) provisions in respect of prior periods(2) .... 11 (0.7) (14) 5.1 (3) 0.3 exceptional items which are (non-tax deductible)/ non-taxable ...... — — (1) 0.5 (1) 0.1 current year charge in relation to uncertain tax provisions(4) ...... (43) 2.9 — — (43) 3.6 tax credits and incentives ...... 5 (0.3) — — 5 (0.4) non-tax deductible amortisation/impairment of acquired intangible assets ...... — — (24) 9.0 (24) 2.0 non-taxable income ...... 7 (0.5) — — 7 (0.6) other non-tax deductible expenditure(5) ...... (28) 1.9 — — (28) 2.3 other ...... 1 (0.1) — — 1 (0.1) effect of tax rate changes(6) ...... 10 (0.7) (2) 0.7 8 (0.7) Tax (charge)/credit / effective tax rate ...... (364) 25.0 18 (6.7) (346) 29.1

Restated 2017 Total profit/ Non-ongoing tax from Ongoing and other continuing profit/tax(7) profit/tax(8) operations Tax reconciliation: $m % $m % $m % Profit before tax ...... 1,253 170 1,423 Expected tax at weighted average tax rate(1) ...... (306) 24.4 (52) 30.6 (358) 25.2 Adjusted for the effects of: (under)/over provisions in respect of prior periods(2) ..... (6) 0.5 14 (8.2) 8 (0.6) exceptional items which are non-taxable/(non-tax deductible)(3) ...... — — 19 (11.2) 19 (1.3) current year charge in relation to uncertain tax provisions(4) ...... (32) 2.5 — — (32) 2.2 tax credits and incentives ...... 4 (0.3) — — 4 (0.3) non-taxable income ...... 10 (0.8) — — 10 (0.7) other non-tax deductible expenditure(5) ...... (11) 0.9 — — (11) 0.8 other ...... 3 (0.2) — — 3 (0.2) effect of tax rate changes ...... (13) 1.0 — — (13) 0.9 Tax charge/effective tax rate ...... (351) 28.0 (19) 11.2 (370) 26.0

(1) This expected weighted average tax rate reflects the applicable statutory corporate tax rates on the accounting profits/losses in the countries in which the Group operates after intra-group financing. The intra-group financing reduces taxable profits in many of the countries and therefore reduces the tax rate. The pre intra-group financing ongoing expected weighted average tax rate is 31.6 per cent (2017: 37.2 per cent) and this is reduced to a post intra-group financing ongoing expected weighted average tax rate of 22.5 per cent (2017: 24.4 per cent). The decrease in the expected weighted average tax rates is primarily due to the reduction in US statutory rate and a change in profit mix.

F-26 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

7—Tax (Continued) (2) This includes adjustments arising out of movements in uncertain tax provisions regarding prior periods and differences between the final tax liabilities in the tax computations and the tax liabilities provided in the consolidated financial statements. (3) In 2017, this related primarily to non-taxable disposals of businesses. (4) This reflects management’s assessment of the potential tax liability for the current year in relation to open tax issues and audits. (5) This relates to certain expenditure for which no tax relief is available such as disallowable business entertaining costs and restrictions on interest deductions. (6) In 2018, this relates to the reduction in the US federal rate of tax from 35 per cent to 21 per cent from 1 January 2018. (7) Ongoing profit means profit before tax, exceptional items, the amortisation and impairment of acquired intangible assets and impairment of interests in associates for ongoing operations as defined in note 2. Ongoing tax is the tax expense arising on ongoing profit. (8) Non-ongoing and other profit or loss is profit or loss from non-ongoing operations as defined in note 2 and from the amortisation and impairment of acquired intangible assets, impairment of interests in associates and exceptional items. Non-ongoing and other tax is the tax expense or credit arising on the non-ongoing and other profit or loss and includes other non-recurring tax items. In 2018, the non-ongoing and other credit of $18 million relates primarily to exceptional UK restructuring costs, an increase in uncertain tax provisions in respect of prior periods and the settlement of a transfer pricing enquiry.

8—Discontinued operations The Group disposed of Silvan on 31 August 2017, Stark Group on 29 March 2018 and is in the process of selling its remaining property assets in the Nordic region (together the ‘‘disposal group’’). In accordance with IFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’, the disposal group has been classified as discontinued and prior periods have been restated to reflect this. The results from discontinued operations, which have been included in the Group income statement, are set out below:

2018 Restated 2017 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total $m $m $m $m $m $m Revenue ...... 1,705 — 1,705 2,660 — 2,660 Cost of sales ...... (1,280) (5) (1,285) (1,982) (10) (1,992) Gross profit ...... 425 (5) 420 678 (10) 668 Operating costs: gain on disposal of businesses . . — 439 439 —— — amortisation of acquired intangible assets ...... —— —(6) — (6) impairment of goodwill and acquired intangible assets .... —— —(129) — (129) other ...... (366) (32) (398) (598) (76) (674) Operating income/(costs) ...... (366) 407 41 (733) (76) (809) Operating profit/(loss) ...... 59 402 461 (55) (86) (141) Net finance (costs)/income ...... (6) 2 (4) (5) 10 5 Profit/(loss) before tax ...... 53 404 457 (60) (76) (136) Tax...... (31) — (31) —3 3 Profit/(loss) from discontinued operations ...... 22 404 426 (60) (73) (133) Basic earnings/(loss) per share .... 173.4c (52.9)c Diluted earnings/(loss) per share . . 172.1c (52.5)c

F-27 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

8—Discontinued operations (Continued) The discontinued exceptional items in 2018 relate predominantly to the disposal of Stark Group (see note 29), gains from the sale of Nordic property assets and an impairment charge for the remaining Nordic properties. The discontinued exceptional items in 2017 relate predominantly to restructuring activities in the Nordic region. During the year, discontinued operations used cash of $120 million (2017: generated $66 million) in respect of operating activities, generated $1,368 million (2017: used $36 million) in respect of investing activities and used $99 million (2017: used $68 million) in respect of financing activities.

9—Dividends Amounts recognised as distributions to equity shareholders:

Restated 2018 2017 $m $m Final dividend for the year ended 31 July 2016: 66.72 pence per share ...... — 209 Interim dividend for the year ended 31 July 2017: 36.67 pence per share ...... — 119 Final dividend for the year ended 31 July 2017: 73.33 pence per share ...... 248 — Interim dividend for the year ended 31 July 2018: 57.4 cents per share ...... 142 — Special dividend: $4 per share ...... 974 — Dividends paid ...... 1,364 328

Since the end of the financial year, the Directors have proposed a final ordinary dividend of $304 million (131.9 cents per share). The dividend is subject to approval by shareholders at the Annual General Meeting and is therefore not included in the balance sheet as a liability at 31 July 2018. The interim dividend for the year ended 31 July 2018 and the special dividend were declared in US dollars and paid in both pounds sterling and US dollars. For those shareholders paid in pounds sterling, the exchange rate used to translate the declared value was set in advance of the payment date. As a result of foreign exchange rate movements between these dates, the total amount paid (shown in the Group cash flow statement) will be different to that stated above.

F-28 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

10—Earnings per share

2018 Restated 2017 Basic Diluted Basic Diluted earnings earnings earnings earnings Earnings per share per share Earnings per share per share $m cents cents $m cents cents Profit from continuing and discontinued operations attributable to shareholders of the Company ...... 1,267 515.7 511.9 920 366.1 363.5 (Profit)/loss from discontinued operations . (426) (173.4) (172.1) 133 52.9 52.5 Profit from continuing operations ...... 841 342.3 339.8 1,053 419.0 416.0 Non-recurring tax charge relating to changes in tax rates and other adjustments ...... 16 6.4 —— Amortisation and impairment of acquired intangible assets and impairment of interests in associates (net of tax) ..... 168 68.4 57 22.7 Exceptional items (net of tax) ...... 67 27.3 (190) (75.6) Headline profit after tax from continuing operations ...... 1,092 444.4 920 366.1

The weighted average number of ordinary shares in issue during the year, excluding those held by Employee Benefit Trusts and those held by the Company as Treasury shares, was 245.7 million (2017: 251.3 million). The impact of all potentially dilutive share options on earnings per share would be to increase the weighted average number of shares in issue to 247.5 million (2017: 253.1 million). On 11 June 2018, the shares of Ferguson plc were consolidated on an 18 for 19 basis. The impact of the share consolidation on the weighted average number of shares used to calculate basic and diluted earnings per share is 1.9 million. Further details in respect of the share consolidation are given in note 26.

11—Employee and key management information

Restated 2018 2017 $m $m Wages and salaries ...... 2,608 2,449 Social security costs ...... 183 170 Pension costs—defined contribution plans ...... 78 72 Pension costs/(credit)—defined benefit plans (note 25) ...... 9 (9) Share-based payments ...... 35 28 Total staff costs ...... 2,913 2,710

The total staff costs, including discontinued operations, was $3,155 million (2017: $3,105 million).

Average number of employees 2018 2017 USA...... 25,129 24,086 UK...... 5,871 6,064 Canada and Central Europe ...... 2,962 3,257 Central and other ...... 94 104 Continuing operations ...... 34,056 33,511

The average number of employees including discontinued operations was 37,877 (2017: 39,205).

F-29 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

11—Employee and key management information (Continued) Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any Director of the Company. The aggregate emoluments for all key management are set out in the following table:

Restated 2018 2017 Key management personnel compensation (including Directors) $m $m Salaries, bonuses and other short-term employee benefits ...... 14 14 Post-employment benefits ...... 1 — Termination benefits ...... 4 — Share-based payments ...... 9 5 Total compensation ...... 28 19

Further details of Directors’ remuneration and share options are set out in the Remuneration Report on pages 70 to 96.

12—Intangible assets—goodwill

Restated 2018 2017 $m $m Cost At 1 August ...... 1,372 2,356 Exchange rate adjustment ...... (8) 71 Acquisitions ...... 241 181 Disposal of businesses ...... — (85) Reclassification as held for sale ...... — (1,151) At 31 July ...... 1,605 1,372 Accumulated impairment losses At 1 August ...... 199 1,163 Exchange rate adjustment ...... (2) 68 Impairment charge for the year ...... — 103 Disposal of businesses ...... — (4) Reclassification as held for sale ...... — (1,131) At 31 July ...... 197 199 Net book value at 31 July ...... 1,408 1,173

The impairment charge in 2017 comprises $103 million in respect of discontinued operations. Goodwill and intangible assets acquired during the year have been allocated to the individual cash generating units or aggregated cash generating units (together ‘‘CGUs’’) which are deemed to be the smallest identifiable group of assets generating independent cash inflows. CGUs have been aggregated in the disclosure below at a segmental level except for certain CGUs in the USA which are considered to be

F-30 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

12—Intangible assets—goodwill (Continued) significant (more than 10 per cent of the current year goodwill balance). Impairment reviews were performed for each individual CGU during the year ended 31 July 2018.

2018 Restated 2017 Long-term Post-tax Pre-tax Long-term Post-tax Pre-tax growth discount discount growth discount discount rate rate rate Goodwill rate rate rate Goodwill %%%$m%%%$m Blended Branches ...... 442 432 B2C...... 316 263 Waterworks ...... 169 169 Rest of USA ...... 290 145 USA...... 2.1 9.0 12.0 1,217 2.3 9.3 15.2 1,009 UK...... 2.0 7.6 9.3 43 2.0 8.1 10.0 43 Canada ...... 2.0 8.4 11.5 148 2.0 8.7 11.9 121 Total ...... 1,408 1,173

The relevant inputs, including key assumptions, to the value in use calculations of each CGU are set out below. Cash flow forecasts for years one to three are derived from the most recent Board approved strategic plan. The forecast for year five represents an estimate of ‘‘mid-cycle’’ trading performance for the CGU based on historic analysis. Year four is calculated as the average of the final year of the strategic plan and year five’s mid-cycle estimate. The other inputs include a risk-adjusted, pre-tax discount rate, calculated by reference to the weighted average cost of capital (‘‘WACC’’) of each country and the 30-year long-term growth rate by country, as published by the IMF in April 2018. The strategic plan is developed based on analyses of sales, markets and costs at a regional level. Consideration is given to past events, knowledge of future contracts and the wider economy. It takes into account both current business and future initiatives. Management has performed a sensitivity analysis across all CGUs which have goodwill and acquired intangible assets using reasonably possible changes in the following key impairment review assumptions: compound average revenue growth rate, post-tax discount rate and long-term growth rate, keeping all other assumptions constant. The sensitivity testing identified no reasonably possible changes in key assumptions that would cause the carrying amount of any CGU to exceed its recoverable amount.

F-31 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

13—Intangible assets—other

Acquired intangible assets Trade names Customer Software and brands relationships Other Total $m $m $m $m $m Cost At 1 August 2016 restated ...... 201 425 768 102 1,496 Exchange rate adjustment ...... 2 21 20 — 43 Acquisitions ...... — 60 31 13 104 Additions ...... 32 — — — 32 Disposals ...... (9) — — — (9) Disposal of businesses ...... (16) (2) (26) (5) (49) Reclassification as held for sale ...... (15) (382) (331) — (728) At 31 July 2017 restated ...... 195 122 462 110 889 Exchange rate adjustment ...... (1) — (1) — (2) Acquisitions ...... — 54 21 55 130 Additions ...... 30 — — — 30 At 31 July 2018 ...... 224 176 482 165 1,047 Accumulated amortisation and impairment losses At 1 August 2016 restated ...... 123 381 661 64 1,229 Exchange rate adjustment ...... 1 22 20 — 43 Amortisation charge for the year ...... 28 17 45 25 115 Impairment charge for the year ...... 3 17 9 — 29 Disposals ...... (9) — — — (9) Disposal of businesses ...... (13) (2) (23) (5) (43) Reclassification as held for sale ...... (7) (378) (330) — (715) At 31 July 2017 restated ...... 126 57 382 84 649 Exchange rate adjustment ...... (1) (1) (1) — (3) Amortisation charge for the year ...... 26 16 39 10 91 Impairment charge for the year ...... 2— ——2 At 31 July 2018 ...... 153 72 420 94 739 Net book value at 31 July 2018 ...... 71 104 62 71 308 Net book value at 31 July 2017 restated ...... 69 65 80 26 240

The amortisation charge includes $nil (2017: $10 million) in respect of discontinued operations of which $nil (2017: $4 million) relates to software. The impairment charge includes $nil (2017: $26 million) in respect of discontinued operations of which $nil (2017: $nil) relates to software.

F-32 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

14—Property, plant and equipment

Land and buildings Operating Finance leasehold Plant and Other Freehold leases improvements machinery equipment Total $m $m $m $m $m $m Cost At 1 August 2016 restated ...... 1,798 42 431 768 268 3,307 Exchange rate adjustment ...... 57 (1) 3 6 2 67 Acquisitions ...... 16 — — 17 — 33 Additions ...... 70 — 31 66 31 198 Disposal of businesses ...... (15) (31) (2) (39) (16) (103) Disposals and transfers ...... (9) (7) (29) (56) (26) (127) Reclassification as held for sale ...... (984) — (9) (99) (27) (1,119) At 31 July 2017 restated ...... 933 3 425 663 232 2,256 Exchange rate adjustment ...... — — (2) (2) (1) (5) Acquisitions ...... 9— — 3 — 12 Additions ...... 83 — 49 70 26 228 Disposals ...... (7) — (24) (33) (22) (86) Reclassification as held for sale ...... (69) — — (21) (3) (93) At 31 July 2018 ...... 949 3 448 680 232 2,312 Accumulated depreciation and impairment losses At 1 August 2016 restated ...... 386 10 295 533 186 1,410 Exchange rate adjustment ...... 11 — 1 3 2 17 Depreciation charge for the year ...... 44 — 31 70 34 179 Impairment charge for the year ...... 1 — — — — 1 Disposal of businesses ...... (2) (4) (2) (31) (13) (52) Disposals and transfers ...... (2) (6) (9) (50) (28) (95) Reclassification as held for sale ...... (188) — (8) (56) (20) (272) At 31 July 2017 restated ...... 250 — 308 469 161 1,188 Exchange rate adjustment ...... — — (1) (1) — (2) Depreciation charge for the year ...... 28 — 31 60 26 145 Impairment charge for the year ...... 6— — — 1 7 Disposals ...... (3) — (16) (27) (21) (67) Reclassification as held for sale ...... (22) — — (20) (3) (45) At 31 July 2018 ...... 259 — 322 481 164 1,226 Owned assets ...... 690 — 126 197 65 1,078 Assets under finance leases ...... —3 — 2 3 8 Net book value at 31 July 2018 ...... 690 3 126 199 68 1,086 Owned assets ...... 683 — 117 194 63 1,057 Assets under finance leases ...... — 3 — — 8 11 Net book value at 31 July 2017 restated 683 3 117 194 71 1,068

At 31 July 2018, the book value of property, plant and equipment that had been pledged as security for liabilities was $8 million (2017: $16 million). In addition, $nil (2017: $237 million) of property, plant and equipment included in assets held for sale (note 20) had been pledged as security for liabilities at 31 July 2018. The depreciation charge for the year includes $nil (2017: $29 million) relating to discontinued operations.

F-33 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

15—Associates

Restated 2018 2017 $m $m Meier Tobler Group AG ...... 31 164 Other associates(1) ...... 33 — Total interests in associates ...... 64 164

(1) Other associates comprise individually immaterial associates which contributed $nil (2017: $nil) to the Group’s share of profit/ (loss) from continuing operations and $nil (2017: $nil) to the Group’s share of total comprehensive income. The Group holds a 39.21 per cent share in Meier Tobler Group AG (previously Walter Meier AG), a trading company whose principal place of business is Switzerland and which is engaged in the distribution and maintenance of heating and air conditioning systems.

Meier Tobler Group AG The investment in Meier Tobler Group AG is accounted for as an associate using the equity method. Meier Tobler Group AG prepares accounts under Swiss GAAP FER with a year-end of 31 December. The Group’s accounts have been prepared based on Meier Tobler Group AG’s half-year accounts ended 30 June 2018. There were no significant transactions between that date and 31 July 2018. Summarised financial information from Meier Tobler Group AG’s half-year accounts ended 30 June 2018 is set out below. Trading results are for the 12 months ending 30 June 2018 (2017: from date of acquisition) and have been adjusted for IFRS.

Restated 2018 2017 $m $m Non-current assets ...... 309 323 Current assets ...... 180 182 Current liabilities ...... (157) (127) Non-current liabilities ...... (174) (197) Net assets ...... 158 181 Revenue ...... 564 138 Profit/(loss) from continuing operations ...... 6 (4) Other comprehensive income attributable to the owners of the company ...... — — Total comprehensive income/(expense) ...... 6 (4)

The amount recognised in the Group’s consolidated financial statements is as follows:

Restated 2018 2017 $m $m Share of profit/(loss) after tax of associate ...... 2 (1)

Dividends received from the associate amount to $10 million (2017: $nil).

F-34 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

15—Associates (Continued) The reconciliation of associate net assets to the carrying amount recognised in the Group’s consolidated financial statements is as follows:

Restated 2018 2017 %$m%$m Net assets of associate ...... 158 181 Proportion of the Group’s ownership interest in the associate ...... 39.21 62 39.21 71 Goodwill ...... 91 93 Impairment ...... (122) — Carrying amount of the Group’s interest in the associate ...... 31 164

During the period there were a number of public announcements made by Meier Tobler Group AG regarding difficult trading conditions and the temporary suspension of dividends until 2020. This generated a trigger event for management to reassess the recoverability of the carrying value recognised in the Group’s consolidated financial statements. Due to the size of the Group’s shareholding and the illiquid nature of the shares, it was not appropriate to use the quoted share price for assessing the fair value. This assessment resulted in an impairment charge, as follows:

Remaining Post-tax Pre-tax Carrying value Impairment balance discount rate discount rate $m $m $m % % Meier Tobler Group AG ...... 153 (122) 31 6.7 8.7

Any change in trading conditions or outlook could result in further impairment or a reversal of part of the recorded impairment. Management does not consider that there is a significant risk that this change could be material.

16—Deferred tax assets and liabilities Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so, which are shown in the balance sheet after offset as follows:

Restated 2018 2017 $m $m Deferred tax assets ...... 130 160 Deferred tax liabilities ...... (42) (12) 88 148

F-35 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

16—Deferred tax assets and liabilities (Continued) The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting year:

Goodwill and Property, Retirement intangible Share-based plant and benefit assets payments equipment obligations Inventories Tax losses Other Total $m $m $m $m $m $m $m $m At 31 July 2016 restated .... (69) 24 (9) 111 (103) 67 61 82 Credit/(charge) to income . . . 9 (1) (5) (4) (5) 26 (11) 9 (Charge)/credit to other comprehensive income .... — — — (4) — 1 — (3) Credit to equity ...... — 1 — — — — — 1 Acquisitions ...... (7) — (4) — — — — (11) Disposal of businesses ...... — — 1 (1) 3 — — 3 Transferred to held for sale . . 2 (1) 80 (4) (5) (8) 3 67 Transfers between categories . — — — — — (9) 9 — Exchange rate adjustment . . . — — (1) 1 (1) 2 (1) — At 31 July 2017 restated .... (65) 23 62 99 (111) 79 61 148 Credit/(charge) to income . . . 17 (2) (24) (44) 16 6 (11) (42) Charge to other comprehensive income .... — — — (17) — — — (17) Credit to equity ...... —1—————1 Acquisitions ...... (1) — — — — — — (1) Transferred to held for sale . . — — (2) — — — — (2) Exchange rate adjustment . . . 2 1 (2) (2) — 2 — 1 At 31 July 2018 ...... (47) 23 34 36 (95) 87 50 88

Legislation has been enacted in the US to reduce the US federal corporate income tax rate, effective 1 January 2018. Accordingly, the US deferred tax assets and liabilities have predominately been calculated based on a 26 per cent tax rate (combined federal and state rates) which materially reflects the rate for the period in which the deferred tax assets and liabilities are expected to reverse. Legislation has been enacted in the UK to reduce the standard rate of UK corporation tax from 19 per cent to 17 per cent with effect from 1 April 2020. Accordingly, the UK deferred tax assets and liabilities have predominantly been calculated based on a 17 per cent tax rate which materially reflects the rate for the period in which the deferred tax assets and liabilities are expected to reverse. Net deferred tax assets have been recognised on the basis that sufficient taxable profits are forecast to be available in the future to enable them to be utilised. In addition, the Group has unrecognised gross tax losses totalling $469 million (2017: $433 million) that have not been recognised on the basis that their future economic benefit is uncertain. These losses have no expiry date and relate predominantly to capital losses. No deferred tax liability has been recognised in respect of temporary differences associated with unremitted earnings from its investments in subsidiaries. However, tax may arise on $408 million (2017: $375 million) of temporary differences but the Group is in a position to control the timing of their reversal and it is probable that such differences will not reverse in the foreseeable future.

F-36 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

17—Inventories

Restated 2018 2017 $m $m Goods purchased for resale ...... 2,680 2,548 Inventory provisions ...... (164) (149) Net inventories ...... 2,516 2,399

18—Trade and other receivables

Restated 2018 2017 Current $m $m Trade receivables ...... 2,642 2,372 Less: provision for impairment ...... (32) (32) Net trade receivables ...... 2,610 2,340 Other receivables ...... 135 122 Prepayments ...... 349 304 3,094 2,766 Non-current Other receivables ...... 328 299

Included in prepayments is $266 million (2017: $234 million) due in relation to supplier rebates where there is no right of offset against trade payable balances. Trade receivables have been aged with respect to the payment terms specified in the terms and conditions established with customers as follows:

Restated 2018 2017 $m $m Amounts not yet due ...... 1,790 1,576 Less than one month past due ...... 580 565 More than one month past due ...... 272 231 2,642 2,372

19—Cash and cash equivalents

Restated 2018 2017 $m $m Cash and cash equivalents ...... 833 2,525

Included in the balance at 31 July 2018 is an amount of $255 million (2017: $1,876 million) which is part of the Group’s cash pooling arrangements where there is an equal and opposite balance included within bank overdrafts (note 22). These amounts are subject to a master netting arrangement. At 31 July 2018, cash and cash equivalents included $86 million (2017: $85 million) which is used to collateralise letters of credit on behalf of Wolseley Insurance Limited.

F-37 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

20—Assets and liabilities held for sale

Restated 2018 2017 $m $m Properties awaiting disposal ...... 151 87 Assets of disposal groups held for sale ...... — 1,628 Assets held for sale ...... 151 1,715 Liabilities of disposal groups held for sale ...... — 1,085

During the previous year, the Group announced its decision to sell its Nordic business and at 31 July 2017 the assets of the business were classified as a disposal group held for sale. Properties awaiting disposal principally comprises the Nordic property assets, which were retained following the disposal of the Nordic business, and properties in the UK which are in the process of being exited as a result of the business restructuring. The assets and liabilities of disposal groups held for sale consist of:

Restated 2018 2017 $m $m Intangible assets ...... — 33 Property, plant and equipment ...... — 812 Inventories ...... — 364 Trade and other receivables ...... — 337 Tax receivables ...... — 39 Cash and cash equivalents ...... — 43 Bank loans ...... — (105) Trade and other payables ...... — (790) Provisions and retirement benefit obligations ...... — (96) Tax payables ...... — (94) — 543

21—Trade and other payables

Restated 2018 2017 Current $m $m Trade payables ...... 2,597 2,335 Tax and social security ...... 108 88 Other payables ...... 97 117 Accruals and deferred income ...... 539 471 3,341 3,011

Non-current Other payables ...... 298 238

Trade payables are stated net of $32 million (2017: $nil) due from suppliers with respect to supplier rebates where an agreement exists that allows these to be net settled.

F-38 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

22—Bank loans and overdrafts

2018 Restated 2017 Current Non-current Total Current Non-current Total $m $m $m $m $m $m Bank overdrafts ...... 375 — 375 1,982 — 1,982 Bank and other loans ...... 2—2358 Senior unsecured loan notes ...... 6 1,522 1,528 165 1,093 1,258 Total bank loans ...... 8 1,522 1,530 168 1,098 1,266 Total bank loans and overdrafts ...... 383 1,522 1,905 2,150 1,098 3,248

Included in bank overdrafts at 31 July 2018 is an amount of $255 million (2017: $1,876 million) which is part of the Group’s cash pooling arrangements where there is an equal and opposite balance included within cash and cash equivalents (note 19). These amounts are subject to a master netting arrangement. No bank loans are secured against the Group’s freehold property (2017: $2 million). In addition, no bank loans included in liabilities held for sale (note 20) are secured against freehold property included in assets held for sale (2017: $104 million). No bank loans were secured against trade receivables at 31 July 2018 (2017: $nil) as the trade receivables facility of $600 million was undrawn as at 31 July 2018 and 31 July 2017. Non-current loans are repayable as follows:

Restated 2018 2017 $m $m Due in one to two years ...... 5 8 Due in two to three years ...... 283 5 Due in three to four years ...... — 283 Due in four to five years ...... 250 1 Due in over five years ...... 984 801 Total ...... 1,522 1,098

The carrying value of the senior unsecured loan notes of $1,528 million comprises a par value of $1,530 million and a fair value adjustment of $2 million (2017: $1,258 million, $1,238 million and $20 million respectively). During the year the Group applied fair value hedge accounting to debt of $355 million, swapping fixed interest rates into floating interest rates using a series of interest rate swaps. There have been no significant changes during the year to the Group’s policies on accounting for, valuing and managing the risk of financial instruments. These policies are summarised in note 1.

F-39 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

23—Financial instruments and financial risk management Financial instruments by measurement basis The carrying value of financial instruments by category as defined by IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ is as follows:

Restated 2018 2017 $m $m Financial assets Financial assets at fair value through profit and loss ...... 17 26 Loans and receivables ...... 3,350 3,010 Financial liabilities Financial liabilities at fair value through profit and loss ...... 19 — Financial liabilities at amortised cost ...... 5,063 6,071

Financial instruments in the category ‘‘fair value through profit and loss’’ are measured in the balance sheet at fair value. Fair value measurements can be classified in the following hierarchy: • quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); • inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and • inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The Group’s derivatives are measured at fair value through profit and loss at 31 July 2018 and 31 July 2017 using level 2 inputs. The Group uses interest rate swaps to manage its exposure to interest rate movements on its borrowings and foreign exchange swaps to hedge cash flows in respect of committed transactions or to hedge its investment in overseas operations. The current element of derivative financial assets is $nil (2017: $7 million) and the non-current element is $17 million (2017: $19 million). The current element of derivative financial liabilities is $2 million (2017: $nil) and the non-current element is $17 million (2017: $nil). Total net derivative financial instruments is a liability of $2 million (2017: asset $26 million). No transfers between levels occurred during the current or prior year. The fair value of financial instruments that are not traded in an active market (such as over-the-counter derivatives) is determined by using valuation techniques. The Group’s other financial instruments are measured on bases other than fair value. Other receivables include an amount of $67 million (2017: $66 million) which has been discounted at a rate of 3.0 per cent (2017: 2.3 per cent) due to the long-term nature of the receivable. Other current assets and liabilities are either of short maturity or bear floating rate interest and their fair values approximate to book values. The only non-current financial assets or liabilities for which fair value does not approximate to book value are the senior unsecured loan notes, which had a book value of $1,528 million (2017: $1,258 million) and a fair value (level 2) of $1,621 million (2017: $1,309 million).

F-40 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

23—Financial instruments and financial risk management (Continued) Disclosure of offsetting arrangements The financial instruments which have been offset in the financial statements are disclosed below:

Gross Offset Financial Cash pooling balances(1) amounts(2) statements(3) amounts(4) Net total(5) At 31 July 2018 Notes $m $m $m $m $m Financial assets Non-current assets Derivative financial assets ...... 31 (14) 17 — 17 Current assets Derivative financial assets ...... 23 (23) — — — Cash and cash equivalents ...... 19 833 — 833 (255) 578 887 (37) 850 (255) 595 Financial liabilities Current liabilities Derivative financial liabilities .... 25 (23) 2 — 2 Bank loans and overdrafts ...... 22 383 — 383 (255) 128 Finance leases ...... 3— 3 — 3 Non-current liabilities Derivative financial liabilities .... 31 (14) 17 — 17 Bank loans ...... 22 1,522 — 1,522 — 1,522 Finance leases ...... 3— 3 — 3 1,967 (37) 1,930 (255) 1,675 Closing net debt ...... 30 (1,080) — (1,080) — (1,080)

Gross Offset Financial Cash pooling balances(1) amounts(2) statements(3) amounts(4) Net total(5) At 31 July 2017 restated Notes $m $m $m $m $m Financial assets Non-current assets Derivative financial assets ...... 51 (32) 19 — 19 Current assets Derivative financial assets ...... 23 (16) 7 — 7 Cash and cash equivalents ...... 19 2,525 — 2,525 (1,876) 649 2,599 (48) 2,551 (1,876) 675 Financial liabilities Current liabilities Derivative financial liabilities ..... 16 (16) — — — Bank loans and overdrafts ...... 22 2,150 — 2,150 (1,876) 274 Finance leases ...... 4 — 4 — 4 Non-current liabilities Derivative financial liabilities ..... 32 (32) — — — Bank loans ...... 22 1,098 — 1,098 — 1,098 Finance leases ...... 5 — 5 — 5 3,305 (48) 3,257 (1,876) 1,381 Closing net debt ...... 30 (706) — (706) — (706)

(1) The gross amounts of the recognised financial assets and liabilities under a master netting agreement, or similar arrangement. (2) The amounts offset in accordance with the criteria in IAS 32. (3) The net amounts presented in the Group balance sheet.

F-41 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

23—Financial instruments and financial risk management (Continued) (4) The amounts subject to a master netting arrangement, or similar arrangement, not included in (3). (5) The net amount after deducting the amounts in (4) from the amounts in (3).

Risk management policies The Group is exposed to market risks arising from its international operations and the financial instruments which fund them. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk and liquidity risk. The Group has well-defined policies for the management of interest rate, liquidity, foreign exchange and counterparty exposures, which have been consistently applied during the financial years ended 31 July 2018 and 31 July 2017. By the nature of its business, the Group also has trade credit and commodity price exposures, the management of which is delegated to the operating businesses. There has been no change since the previous year in the major financial risks faced by the Group. Policies for managing each of these risks are regularly reviewed and are summarised below. When the Group enters into derivative transactions (principally interest rate swaps and foreign exchange contracts), the purpose of such transactions is to hedge certain interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments or speculative transactions be undertaken.

Capital structure and risk management To assess the appropriateness of its capital structure based on current and forecast trading, the Group’s principal measure of financial gearing is the ratio of net debt to adjusted EBITDA. The Group aims to operate with investment grade credit metrics and ensure this ratio remains within 1 to 2 times. The Group’s main borrowing facilities contain a financial covenant limiting the ratio of net debt to adjusted EBITDA to 3.5:1. The reconciliation of opening to closing net debt is detailed in note 30. The Group’s sources of funding currently comprise cash flows generated from operations, equity contributed by shareholders and borrowings from banks and other financial institutions. In order to maintain or adjust the capital structure, the Group may pay a special dividend, return capital to shareholders, repurchase its own shares, issue new shares or sell assets to reduce debt.

Credit risk The Group provides sales on credit terms to most of its customers. There is an associated risk that customers may not be able to pay outstanding balances. At 31 July 2018, the maximum exposure to credit risk was $3,005 million (2017: $2,673 million). Each of the Group’s businesses have established procedures in place to review and collect outstanding receivables. Significant outstanding and overdue balances are reviewed on a regular basis and resulting actions are put in place on a timely basis. In some cases, protection is provided through credit insurance arrangements. All of the major businesses use professional and dedicated credit teams, in some cases field- based. Appropriate provisions are made for debts that may be impaired on a timely basis. Concentration of credit risk in trade receivables is limited as the Group’s customer base is large and unrelated. Accordingly, the Group considers that there is no further credit risk provision required above the current provision for impairment. The ageing of trade receivables is detailed in note 18. The Group has cash balances deposited for short periods with financial institutions and enters into certain contracts (such as interest rate swaps) which entitle the Group to receive future cash flows from financial institutions. These transactions give rise to credit risk on amounts due from counterparties with a maximum exposure of $429 million (2017: $560 million). This risk is managed by setting credit and settlement limits for a panel of approved counterparties. The limits are approved by the Treasury Committee and ratings are monitored regularly.

F-42 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

23—Financial instruments and financial risk management (Continued) Liquidity risk The Group maintains a policy of ensuring sufficient borrowing headroom to finance all investment and capital expenditure included in its strategic plan, with an additional contingent safety margin. The Group has estimated its anticipated contractual cash outflows (excluding interest income and income from derivatives), including interest payable in respect of its trade and other payables and bank borrowings, on an undiscounted basis. The principal assumptions are that floating rate interest is calculated using the prevailing interest rate at the balance sheet date and cash flows in foreign currency are translated using spot rates at the balance sheet date. These cash flows can be analysed by maturity as follows:

2018 Restated 2017 Trade and Interest Trade and Interest other payables Debt on debt Total other payables Debt on debt Total $m $m $m $m $m $m $m $m Due in less than one year ...... 2,829 5 68 2,902 2,557 165 51 2,773 Due in one to two years ...... 44 1 63 108 26 5 47 78 Due in two to three years ...... 59 281 52 392 28 1 43 72 Due in three to four years ...... 19 — 44 63 13 281 43 337 Due in four to five years ...... 16 250 40 306 12 1 34 47 Due in over five years ...... 160 1,001 92 1,253 159 801 84 1,044 Total ...... 3,127 1,538 359 5,024 2,795 1,254 302 4,351

The Group holds three main bank facilities: an £800 million (2017: £800 million) revolving credit facility that matures in September 2021, a $290 million (2017: $190 million) bi-lateral facility that matures in November 2018 and a $600 million (2017: $600 million) securitisation facility that matures in December 2020. This facility is secured against the trade receivables of Ferguson Enterprises Inc. All facilities were undrawn at 31 July 2018 and 31 July 2017. The maturity profile of the Group’s undrawn facilities is as follows:

Restated 2018 2017 $m $m Less than one year ...... 290 190 Between one and two years ...... — — Between two and three years ...... 600 600 Between three and four years ...... 1,050 — Between four and five years ...... — 1,057 After five years ...... — — Total ...... 1,940 1,847

At 31 July 2018 the Group has total available facilities, excluding bank overdrafts, of $3,470 million (2017: $3,085 million), of which $1,530 million is drawn (note 22) and $1,940 million is undrawn (2017: $1,238 million and $1,847 million respectively). The Group does not have any debt factoring or supply chain financing arrangements.

Foreign currency risk The Group has significant overseas businesses whose revenues are mainly denominated in the currencies of the countries in which the operations are located. Approximately 80 per cent of the Group’s revenue is in US dollars. Within each country it operates, the Group does not have significant transactional foreign currency cash flow exposures. However, those that do arise may be hedged with either forward contracts or currency options. The Group does not normally hedge profit translation exposure since such hedges have only a temporary effect.

F-43 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

23—Financial instruments and financial risk management (Continued) The Group’s policy is to adjust the currencies in which its net debt is denominated materially to match the currencies in which its trading profit is generated. Details of average exchange rates used in the translation of overseas earnings and of year-end exchange rates used in the translation of overseas balance sheets for the principal currencies used by the Group are shown in the five-year summary on page 151. The net effect of currency translation was to increase revenue by $229 million (2017: decrease by $391 million) and to increase trading profit by $7 million (2017: decrease by $6 million). These currency effects primarily reflect a movement of the average US dollar exchange rate against pounds sterling, euro and Canadian dollars as follows:

2017 2018 Strengthening/ Weakening (weakening)of of USD USD Pounds sterling ...... (6.4)% 13.3% Euro ...... (9.2)% 1.6% Canadian dollars ...... (4.0)% (0.2)%

The Group has net financial liabilities denominated in foreign currencies which have been designated as hedges of the net investment in its overseas subsidiaries. The principal value of those financial liabilities designated as hedges at the balance sheet date was $431 million (2017: pounds sterling equivalent of $2,019 million). The loss on translation of these financial instruments into US dollars of $11 million (2017: pounds sterling equivalent of $8 million) has been taken to the translation reserve. Net debt by currency was as follows:

Finance Cash, Currency Interest lease overdrafts and sold rate swaps obligations bank loans forward Total As at 31 July 2018 $m $m $m $m $m US dollars ...... — (2) (1,297) — (1,299) Pounds sterling ...... — (4) 101 — 97 Euro, Danish kroner and Swedish kronor ..... — — 23 — 23 Other currencies ...... — — 101 (2) 99 Total ...... — (6) (1,072) (2) (1,080)

Finance Cash, Currency Interest lease overdrafts and bought/(sold) rate swaps obligations bank loans forward Total As at 31 July 2017 restated $m $m $m $m $m US dollars ...... 26 (5) (798) 9 (768) Pounds sterling ...... — (4) 82 (9) 69 Euro, Danish kroner and Swedish kronor .... — — 8 — 8 Other currencies ...... — — (15) — (15) Total ...... 26 (9) (723) — (706)

Currency (sold)/bought forward comprises short-term foreign exchange contracts which were designated and effective as hedges of overseas operations.

Net investment hedging Exchange differences arising from the translation of the net investment in foreign operations are recognised in the currency translation reserve. Gains and losses on those hedging instruments designated as hedges of the net investments in foreign operations are recognised in equity to the extent that the hedging relationship is effective. These amounts are included in exchange differences on translation of foreign operations as stated in the Group statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognised immediately in the income statement for the period. Gains and losses

F-44 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

23—Financial instruments and financial risk management (Continued) accumulated in the translation reserve are included in the income statement when the foreign operation is disposed of.

Interest rate risk At 31 July 2018, 70 per cent of loans were at fixed rates. The Group borrows in the desired currencies principally at rates determined by reference to short-term benchmark rates applicable to the relevant currency or market, such as LIBOR. Rates which reset at least every 12 months are regarded as floating rates and the Group then, if appropriate, considers interest rate swaps to generate the desired interest rate profile. The Group reviews deposits and borrowings by currency at Treasury Committee and Board meetings. The Treasury Committee gives prior approval to any variations from floating rate arrangements. The interest rate profile of the Group’s net debt including the effect of interest rate swaps is set out below:

Restated 2018 2017 Floating Fixed Total Floating Fixed Total $m $m $m $m $m $m US dollars ...... (217) (1,082) (1,299) 475 (1,243) (768) Pounds sterling ...... 101 (4) 97 73 (4) 69 Euro, Danish kroner and Swedish kronor ...... 23 — 23 8—8 Other currencies ...... 99 — 99 (15) — (15) Total ...... 6 (1,086) (1,080) 541 (1,247) (706)

The Group’s weighted average cost of debt is 4.0 per cent. Fixed rate borrowings at 31 July 2018 carried a weighted average interest rate of 3.4 per cent fixed for a weighted average duration of 6.6 years (31 July 2017: 3.3 per cent for 6.5 years). Floating rate borrowings, excluding overdrafts, at 31 July 2018 had a weighted average interest rate of 2.6 per cent (31 July 2017: the Group had no floating rate borrowings, excluding overdrafts). In November 2017, the Group entered into interest rate swap contracts comprising fixed interest receivable on $355 million of notional principal. These contracts expire between November 2023 and November 2026 and the fixed interest rates range between 3.30 per cent and 3.51 per cent. These swaps were designated as a fair value hedge against a portion of the Group’s outstanding debt. The table below shows the income statement movement on interest rate swaps at fair value through profit and loss:

Restated 2018 2017 $m $m At 1 August ...... 26 38 Settled ...... (9) (12) Valuation loss debited to income statement ...... (17) — At 31 July ...... — 26

Monitoring interest rate and foreign currency risk The Group monitors its interest rate and foreign currency risk by reviewing the effect on financial instruments over various periods of a range of possible changes in interest rates and exchange rates. The financial impact for reasonable approximation of possible changes in interest rates and exchange rates are as follows. The Group has estimated that an increase of one per cent in the principal floating interest rates to which it is exposed would result in a charge to the income statement of $nil (2017: $nil). The Group has estimated that a weakening of the US dollar by 10 per cent against gross borrowings denominated in a foreign currency in which the Group does business would result in a charge to the currency translation reserve of $4 million (2017: $146 million). The Group does not consider that there is a useful way of quantifying the Group’s exposure to any of the macroeconomic variables that might affect the collectability of receivables or the prices of commodities.

F-45 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

24—Provisions

Environmental Wolseley Other and legal Insurance Restructuring provisions Total $m $m $m $m $m At 31 July 2016 restated ...... 101 70 36 85 292 Utilised in the year ...... (14) (16) (29) (5) (64) Changes in discount rate ...... (13) — — — (13) Charge for the year ...... 9 18 63 6 96 Disposal of businesses and reclassified as held for sale ...... (5) — (12) (30) (47) Exchange rate adjustment ...... — — 1 1 2 At 31 July 2017 restated ...... 78 72 59 57 266 Utilised in the year ...... (3) (23) (38) (7) (71) Changes in discount rate ...... (4) — — — (4) Charge for the year ...... 12 24 31 12 79 Acquisition of businesses ...... ——— 44 Exchange rate adjustment ...... (1) 1 (1) 1 — At 31 July 2018 ...... 82 74 51 67 274

Provisions have been analysed between current and non-current as follows:

Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2018 $m $m $m $m $m Current ...... 16 11 32 36 95 Non-current ...... 66 63 19 31 179 Total provisions ...... 82 74 51 67 274

Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2017 restated $m $m $m $m $m Current ...... 13 24 37 33 107 Non-current ...... 65 48 22 24 159 Total provisions ...... 78 72 59 57 266

The environmental and legal provision includes $69 million (2017: $69 million) for the estimated liability for asbestos litigation on a discounted basis using a long-term discount rate of 3.0 per cent (2017: 2.3 per cent). This amount has been actuarially determined as at 31 July 2018 based on advice from independent professional advisers. The Group has insurance that it currently believes significantly covers the estimated liability and accordingly an insurance receivable has been recorded in other receivables. Based on current estimates, the amount of performing insurance cover significantly exceeds the expected level of future claims and no material profit or cash flow impact is therefore expected to arise in the foreseeable future. Due to the nature of these provisions, the timing of any settlements is uncertain. Wolseley Insurance provisions represent an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported on certain risks retained by the Group (principally USA casualty and global property damage). Due to the nature of these provisions, the timing of any settlements is uncertain. Restructuring provisions include provisions for staff redundancy costs and future lease rentals on closed branches. The weighted average maturity of these obligations is approximately three years. Other provisions include warranty costs relating to businesses disposed of, rental commitments on vacant properties and dilapidations on leased properties. The weighted average maturity of these obligations is approximately three years.

F-46 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

25—Retirement benefit obligations (i) Long-term benefit plans provided by the Group The principal UK defined benefit plan is the Wolseley Group Retirement Benefits Plan which provides benefits based on final pensionable salaries. This plan was closed to new entrants in 2009. The assets are held in separate trustee administered funds. The Group contribution rate is calculated on the Projected Unit Credit Method and agreed with an independent consulting actuary. The Group Retirement Benefits Plan was closed to future service accrual in December 2013 and was replaced by a defined contribution plan. During October 2016, the plan was closed for future non-inflationary salary accrual. In 2017, the Group secured a buy-in insurance policy with Pension Insurance Corporation (PIC) for the UK pension plan. This policy covered all of the pensioner members of the plan at the time and exactly matches the benefits provided by the plan. The deferred members of the plan at the time were not covered by this policy. The insurance asset is valued as exactly equal to the insured liabilities. The principal plans operated for USA employees are defined contribution plans, which are established in accordance with USA 401k rules. Companies contribute to both employee compensation deferral and profit sharing plans. The Group completed a buy out of its primary defined benefit plan in the USA during the year. In Canada, defined benefit plans and a defined contribution plan are operated. Most of the Canadian defined benefit plans are funded. The contribution rate is calculated on the Projected Unit Credit Method as agreed with independent consulting actuaries. The Group operates a number of smaller defined benefit and defined contribution plans providing pensions or other long-term benefits such as long service or termination awards.

Investment policy The Group’s investment strategy for its funded post-employment plans is decided locally and, if relevant, by the trustees of the plan and takes account of the relevant statutory requirements. The Group’s objective for the investment strategy is to achieve a target rate of return in excess of the increase in the liabilities, while taking an acceptable amount of investment risk relative to the liabilities. This objective is implemented by using specific allocations to a variety of asset classes that are expected over the long term to deliver the target rate of return. Most investment strategies have significant allocations to equities, with the intention that this will result in the ongoing cost to the Group of the post-employment plans being lower over the long term and within acceptable boundaries of risk. For the UK plan, the buy-in insurance policy represents approximately 30 per cent of the plan assets. For the remaining assets, the strategy is to invest in a balanced portfolio of equities, government bonds and corporate bonds. The investment strategy is subject to regular review by the plan trustees in consultation with the Company. For the overseas plans, the investment strategy involves the investment in defined levels, predominantly equities with the remainder of the assets being invested in cash and bonds.

Investment risk The present value of the UK defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the actual return on plan assets is below this rate, it will decrease a net surplus or increase a net pension liability. Currently, the plan has a relatively balanced investment in equity securities, debt instruments and property. Due to the long-term nature of the plan liabilities, the trustees of the pension plan consider it appropriate that a reasonable portion of the plan assets should be invested in equity securities to leverage the return generated by the fund.

Interest risk A decrease in the bond interest rate will increase the UK plan liability and this will be partially offset by an increase in the value of the plan’s debt investments.

F-47 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

25—Retirement benefit obligations (Continued) Longevity risk The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of the UK plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

(ii) Financial impact of plans 2018 Restated As disclosed in the Group balance sheet $m 2017 $m Non-current asset ...... 193 4 Current liability ...... (4) (11) Non-current liability ...... (15) (21) Total liability ...... (19) (32) Net asset/(liability) ...... 174 (28)

2018 Restated 2017 UK Non-UK Total UK Non-UK Total Analysis of Group balance sheet net asset/(liability) $m $m $m $m $m $m Fair value of plan assets ...... 1,824 121 1,945 1,766 217 1,983 Present value of defined benefit obligations ..... (1,631) (140) (1,771) (1,762) (249) (2,011) Net asset/(liability) ...... 193 (19) 174 4 (32) (28)

Restated 2018 2017 Analysis of total expense/(income) recognised in the Group income statement $m $m Current service cost ...... 1 6 Administration costs ...... 3 4 Exceptional settlement losses and past service gains (note 5) ...... 5 (14) Past service gain from settlements ...... — (3) Charged/(credited) to operating costs (note 11)(1) ...... 9 (7) Charged to finance costs (note 6)(2) ...... 1 4 Total expense/(income) recognised in the Group income statement ...... 10 (3)

(1) Includes a charge of $nil (2017: $2 million) relating to discontinued operations. (2) Includes a charge of $nil (2017: $1 million) relating to discontinued operations. Expected employer contributions to the defined benefit plans for the year ending 31 July 2019 are $39 million. The remeasurement of the defined benefit net asset is included in the Group statement of comprehensive income.

Restated 2018 2017 Analysis of amount recognised in the Group statement of comprehensive income $m $m The return on plan assets (excluding amounts included in net interest expense) ...... 22 6 Actuarial gain arising from changes in demographic assumptions ...... 12 40 Actuarial gain/(loss) arising from changes in financial assumptions ...... 74 (99) Actuarial (loss)/gain arising from experience adjustments ...... (4) 51 Tax...... (17) (1) Total amount recognised in the Group statement of comprehensive income ...... 87 (3)

The cumulative amount of actuarial losses recognised in the Group statement of comprehensive income is $488 million (2017: $592 million).

F-48 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

25—Retirement benefit obligations (Continued) (ii) Financial impact of plans (Continued) The fair value of plan assets is as follows:

2018 Restated 2017 UK Non-UK Total UK Non-UK Total $m $m $m $m $m $m At 1 August ...... 1,766 217 1,983 1,730 331 2,061 Interest income ...... 46 5 51 39 6 45 Employer’s contributions ...... 97 13 110 47 38 85 Participants’ contributions ...... —— ——3 3 Benefit payments ...... (89) (8) (97) (58) (18) (76) Settlement payments ...... — (105) (105) — (4) (4) Disposal of businesses ...... —— —— (129) (129) Reclassification as held for sale ...... —— —— (10) (10) Remeasurement gain/(loss): Return on plan assets (excluding amounts included in net interest expense) ...... 17 5 22 9(3)6 Currency translation ...... (13) (6) (19) (1) 3 2 At 31 July ...... 1,824 121 1,945 1,766 217 1,983 Actual return on plan assets ...... 63 10 73 48 3 51

Employer’s contributions included special funding contributions of $99 million (2017: $70 million), including $94 million to the UK pension scheme. At 31 July 2018, the plan assets were invested in a diversified portfolio comprised of:

2018 Restated 2017 UK Non-UK Total UK Non-UK Total $m $m $m $m $m $m Equity type assets quoted ...... 284 72 356 536 71 607 Government bonds quoted ...... 464 20 484 337 47 384 Corporate bonds quoted ...... 253 22 275 41 74 115 Real estate ...... 25 — 25 52 — 52 Cash ...... 61 — 61 47 10 57 Insurance policies ...... 626 — 626 667 — 667 Other ...... 111 7 118 86 15 101 Total market value of assets ...... 1,824 121 1,945 1,766 217 1,983

F-49 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

25—Retirement benefit obligations (Continued) (ii) Financial impact of plans (Continued) The present value of defined benefit obligations is as follows:

2018 Restated 2017 UK Non-UK Total UK Non-UK Total $m $m $m $m $m $m At 1 August ...... 1,762 249 2,011 1,768 488 2,256 Current service cost (including administrative costs) . 31 43710 Past service gain ...... —— —(14) (3) (17) Interest cost ...... 46 6 52 39 10 49 Benefit payments ...... (89) (8) (97) (58) (18) (76) Settlement and curtailment payments ...... — (100) (100) — (6) (6) Participants’ contributions ...... —— ——3 3 Remeasurement (gain)/loss: Actuarial gain arising from changes in demographic assumptions ...... (12) — (12) (39) (1) (40) Actuarial (gain)/loss arising from changes in financial assumptions ...... (74) — (74) 115 (16) 99 Actuarial loss/(gain) arising from experience adjustments ...... 4— 4(48) (3) (51) Disposal of businesses ...... —— —— (152) (152) Reclassified as held for sale ...... —— —— (69) (69) Currency translation ...... (9) (8) (17) (4) 9 5 At 31 July ...... 1,631 140 1,771 1,762 249 2,011

An analysis of the present value of defined benefit obligations by funding status is shown below:

Restated 2018 2017 $m $m Amounts arising from wholly unfunded plans ...... 3 3 Amounts arising from plans that are wholly or partly funded ...... 1,768 2,008 1,771 2,011

(iii) Valuation assumptions

The financial assumptions used to estimate defined benefit obligations are:

2018 2017 UK Non-UK UK Non-UK %%%% Discount rate ...... 2.7 3.5 2.6 3.6 Inflation rate ...... 3.2 2.5 3.2 2.5 Increase to deferred benefits during deferment ...... 2.1 n/a 2.1 n/a Increases to pensions in payment ...... 2.8 2.0 2.9 2.0 Salary increases ...... 2.1 2.5 2.1 2.5

F-50 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

25—Retirement benefit obligations (Continued) (iii) Valuation assumptions (Continued) The life expectancy assumptions used to estimate defined benefit obligations are:

2018 2017 UK Non-UK UK Non-UK Years Years Years Years Current pensioners (at age 65)—male ...... 22 22 22 21 Current pensioners (at age 65)—female ...... 23 24 24 24 Future pensioners (at age 65)—male ...... 24 23 24 23 Future pensioners (at age 65)—female ...... 26 25 26 25 The weighted average duration of the defined benefit obligation is 21.5 years (2017: 20.4 years).

(iv) Sensitivity analysis The Group considers that the most sensitive assumptions are the discount rate, inflation rate and life expectancy. The sensitivity analyses below shows the impact on the Group’s defined benefit plan net asset of reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

2018 Restated 2017 UK Non-UK UK Non-UK Change $m $m Change $m $m Discount rate ...... +0.25% 70 5 +0.25% 74 5 (0.25)% (76) (4) (0.25)% (81) (5) Inflation rate ...... +0.25% (64) — +0.25% (73) — (0.25)% 66 — (0.25)% 69 — Life expectancy ...... +1 year (33) (4) +1 year (36) (8) The UK defined benefit plan holds a buy-in policy asset which exactly equals the insured liabilty. The above sensitivities are in respect of the Group’s remaining defined benefit plan net asset.

26—Share capital (i) Ordinary shares in issue

2018 Restated 2017 Number of Cost Number of Cost Allotted and issued shares shares $m shares $m

Number / cost of ordinary 1053⁄66 pence shares in the Company (million) ...... ——267 45 Number / cost of ordinary 11227⁄563 pence shares in the Company (million) ...... 253 45 —— As at 31 July ...... 253 45 267 45

The authorised share capital of the Company is 439 million ordinary 11227⁄563 pence shares (2017: 463 million ordinary 1053⁄66 pence shares). All the allotted and issued shares, including those held by Employee Benefit Trusts and in Treasury, are fully paid or credited as fully paid. Following approval at the General Meeting held on 23 May 2018 and in connection with the special dividend approved at that meeting, a share consolidation under which shareholders received 18 new ordinary shares of 11227⁄563 pence each for every 19 existing ordinary shares of 1053⁄66 pence each, became effective on 11 June 2018.

F-51 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

26—Share capital (Continued) (i) Ordinary shares in issue (Continued) A summary of the movements in the year is detailed in the following table:

2018 2017

Number of 1053⁄66 pence ordinary shares in the Company in issue at 1 August ...... 266,636,106 266,636,106 Cancellation of Treasury shares ...... (5) — Effect of share consolidation ...... (14,033,479) —

Number of 11227⁄563 pence (2017: 1053⁄66 pence) ordinary shares in the Company in issue at 31 July ...... 252,602,622 266,636,106

(ii) Treasury shares The shares purchased under the Group’s buyback programme have been retained in issue as Treasury shares and represent a deduction from equity attributable to shareholders of the Company. A summary of the movements in Treasury shares in the year is detailed in the following table:

2018 Restated 2017 Number of Cost Number of Cost shares $m shares $m As at 1 August ...... 13,382,580 743 14,259,276 792 Treasury shares purchased ...... 9,178,209 675 —— Disposal of Treasury shares to settle share options ...... (646,988) (38) (876,696) (49) Cancellation of Treasury shares ...... (5) — —— Effect of share consolidation ...... (1,135,924) — —— As at 31 July ...... 20,777,872 1,380 13,382,580 743

Consideration received in respect of shares transferred to participants in certain long-term incentive plans and all-employee plans amounted to $24 million (2017: $27 million).

(iii) Own shares

Two Employee Benefit Trusts have been established in connection with the Company’s discretionary share option plans and long-term incentive plans. A summary of the movements in own shares held in Employee Benefit Trusts is detailed in the following table below:

2018 Restated 2017 Number of Cost Number of Cost shares $m shares $m As at 1 August ...... 1,435,155 76 1,762,657 92 New shares purchased ...... 564,476 41 142,000 8 Exercise of share options ...... (492,870) (27) (469,502) (24) Effect of share consolidation ...... (80,156) — —— As at 31 July ...... 1,426,605 90 1,435,155 76

Consideration received in respect of shares transferred to participants in the discretionary share option plans and long-term incentive plans amounted to $nil (2017: $nil). At 31 July 2018, the shares held in the trusts had a market value of $113 million (2017: $86 million). Dividends due on shares held by the Employee Benefit Trusts are waived in accordance with the provisions of the trust deeds.

F-52 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

27—Reconciliation of profit to cash generated from operations Profit for the year is reconciled to cash generated from continuing and discontinued operations as follows:

Restated 2018 2017 $m $m Profit for the year attributable to shareholders ...... 1,267 920 Net finance costs ...... 57 49 Share of (profit)/loss after tax of associates ...... (2) 1 Impairment of interests in associates ...... 122 — Tax charge ...... 377 367 Profit on disposal and closure of businesses and revaluation of assets held for sale . . . (407) (255) Amortisation and impairment of goodwill and acquired intangible assets ...... 65 216 Amortisation and impairment of non-acquired intangible assets ...... 28 31 Depreciation and impairment of property, plant and equipment ...... 152 180 (Profit)/loss on disposal of property, plant and equipment and assets held for sale . . . (6) 11 Increase in inventories ...... (102) (121) Increase in trade and other receivables ...... (351) (267) Increase in trade and other payables ...... 208 293 Decrease in provisions and other liabilities ...... (120) (43) Share-based payments ...... 35 28 Cash generated from operations ...... 1,323 1,410

28—Acquisitions The Group acquired the following businesses in the year ended 31 July 2018. All these businesses are engaged in the distribution of plumbing and heating products and were acquired to support growth principally in the USA and Canada. All transactions have been accounted for by the purchase method of accounting.

Date of Country of Shares/asset Name acquisition incorporation deal % acquired Wholesale Group, Inc...... August 2017 USA Asset 100 Aircovent B.V...... August 2017 Netherlands Shares 100 HM Wallace, Inc...... September 2017 USA Shares 100 3097-3275 Quebec Inc...... September 2017 Canada Shares 100 Tackaberry Heating Supplies Limited ...... September 2017 Canada Shares 100 Duhig and Co., Inc...... January 2018 USA Shares 100 National Fire Products, L.L.C.(1) ...... May 2018 USA Asset 100 National Fire Protection of Albuquerque, LLC(1) ...... May 2018 USA Asset 100 National Fire Protection Manufacturing & Supply, Inc.(1) ...... May 2018 USA Asset 100 Cooper National Leasing, L.L.C.(1) ...... May 2018 USA Asset 100 AMRE Supply Inc.(2) ...... July 2018 Canada Shares 100 AMRE Supply Company Limited(2) ...... July 2018 Canada Asset 100 Wright Plumbing Supply, Inc...... July 2018 USA Asset 100 Lighting Design Enterprises, Inc...... July 2018 USA Asset 100 Appliance Distributors of Louisiana—Baton Rouge, LLC...... July 2018 USA Asset 100 Brock-McVey Company ...... July 2018 USA Asset 100 Safe Step Walk In Tub, LLC ...... July 2018 USA Shares 100

(1) These businesses trade as National Fire and were acquired together. (2) These businesses trade as AMRE Supply and were acquired together.

F-53 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

28—Acquisitions (Continued) The assets and liabilities acquired and the consideration for all acquisitions in the period are as follows:

Provisional fair values acquired $m Intangible assets —Customer relationships ...... 21 —Trade names and brands ...... 54 —Other ...... 55 Property, plant and equipment ...... 12 Inventories ...... 34 Receivables ...... 34 Cash, cash equivalents and bank overdrafts ...... 7 Payables ...... (38) Deferred tax ...... (1) Provisions ...... (4) Total ...... 174 Goodwill arising ...... 241 Consideration ...... 415 Satisfied by: Cash ...... 376 Deferred consideration ...... 39 Total consideration ...... 415

The fair values acquired are provisional figures, being the best estimates currently available. Further adjustments may be necessary when additional information is available for some of the judgemental areas. The goodwill arising on these acquisitions is attributable to the anticipated profitability of the new markets and product ranges to which the Group has gained access and additional profitability and operating efficiencies available in respect of existing markets. The acquisitions contributed $187 million to revenue, $6 million to trading profit and $3 million loss to the Group’s operating profit for the period between the date of acquisition and the balance sheet date. It is not practicable to disclose profit before and after tax, as the Group manages its borrowings as a portfolio and cannot attribute an effective borrowing rate to an individual acquisition. If each acquisition had been completed on the first day of the financial year, continuing revenue would have been $21,000 million and continuing trading profit would have been $1,532 million. It is not practicable to disclose profit before tax or profit attributable to shareholders of the Company, as stated above. It is also not practicable to disclose operating profit as the Group cannot estimate the amount of intangible assets that would have been acquired at a date other than the acquisition date. The net outflow of cash in respect of the purchase of businesses is as follows:

Restated 2018 2017 $m $m Purchase consideration ...... 376 326 Deferred and contingent consideration in respect of prior year acquisitions ...... 47 15 Cash consideration ...... 423 341 Cash, cash equivalents and bank overdrafts acquired ...... (7) (10) Net cash outflow in respect of the purchase of businesses ...... 416 331

F-54 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

29—Disposals In the year ended 31 July 2018, the Group disposed of the following businesses:

Shares/asset Name Country Date of disposal deal Silvan A/S ...... Denmark August 2017 Shares Stark Group A/S ...... Denmark March 2018 Shares Ferguson Property (Norway) AS ...... Norway June 2018 Shares Arhus Property Denmark A/S ...... Denmark June 2018 Shares The Group recognised a total gain on current year disposals of $439 million, which is reported within discontinued operations.

2018 $m Consideration received ...... 1,411 Net assets disposed of ...... (697) Disposal costs and provisions ...... (81) Recycling of deferred foreign exchange losses(1) ...... (194) Gain on disposal ...... 439

(1) Includes recycling of remaining foreign exchange relating to France and other European assets following the abandonment of operations. Net assets disposed of were previously reported in assets and liabilities held for sale. The net inflow of cash in respect of the disposal of businesses is as follows:

2018 $m Cash consideration received for current year disposals (net of cash disposed of) ...... 1,367 Cash paid in respect of prior year disposals ...... (2) Disposal costs paid ...... (45) Net cash inflow ...... 1,320

F-55 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

30—Reconciliation of opening to closing net debt

Total Liabilities from financing activities cash, cash Derivative Obligations Cash and cash Bank equivalents financial under equivalents overdrafts and bank Instruments Bank loans finance (note 19) (note 22) overdrafts (note 23) (note 22) leases Net debt $m $m $m $m $m $m $m At 1 August 2017 restated . . . 2,525 (1,982) 543 26 (1,266) (9) (706) Cash movements Proceeds from borrowings and derivatives ...... — (9) (450) — (459) Repayments of borrowings . — — 261 — 261 Finance lease capital payments ...... —— —4 4 Changes in net debt due to disposal of businesses . . . (42) — 7 — (35) Changes in net debt due to acquisition of businesses . 7— ——7 Held for sale movements . . 43 — (105) — (62) Other cash flows ...... (86) — — — (86) Non-cash movements New finance leases ...... — — — (1) (1) Fair value and other adjustments ...... — (17) 16 — (1) Exchange movements ..... (7) (2) 7 — (2) At 31 July 2018 ...... 833 (375) 458 (2) (1,530) (6) (1,080)

31—Related party transactions There are no related party transactions requiring disclosure under IAS 24 ‘‘Related Party Disclosures’’ other than the compensation of key management personnel which is set out in note 11.

32—Operating lease commitments Future minimum lease payments under non-cancellable operating leases for the following periods are:

Restated 2018 2017 $m $m Less than one year ...... 328 344 After one year and less than five years ...... 591 609 After five years ...... 162 176 Total operating lease commitments ...... 1,081 1,129

Operating lease payments mainly represent rents payable for properties. Some of the Group’s operating lease arrangements have renewal options and rental escalation clauses. No arrangements have been entered into for contingent rental payments. The commitments shown above include commitments for onerous leases which have already been provided for. At 31 July 2018, provisions include an amount of $32 million (2017: $36 million) in respect of minimum lease payments for such onerous leases net of sublease income expected to be received. The total minimum sublease income expected to be received under non-cancellable subleases at 31 July 2018 is $6 million (2017: $10 million). The commitments above include $nil operating lease commitments (2017: $120 million) for discontinued operations.

F-56 Notes to the consolidated financial statements (Continued) Year ended 31 July 2018

33—Contingent liabilities Group companies are, from time to time, subject to certain claims and litigation arising in the normal course of business in relation to, among other things, the products that they supply, contractual and commercial disputes and disputes with employees. Provision is made if, on the basis of current information and professional advice, liabilities are considered likely to arise. In the case of unfavourable outcomes, the Group may benefit from applicable insurance protection.

Warranties and indemnities in relation to business disposals Over the past few years, the Group has disposed of a number of non-core businesses and various Group companies have provided certain standard warranties and indemnities to acquirers and other third parties. Provision is made where the Group considers that a liability is likely to crystallise, though it is possible that claims in respect of which no provision has been made could crystallise in the future. Group companies have also made contractual commitments for certain property and other obligations which could be called upon in an event of default. As at the date of this report, there are no significant outstanding claims in relation to business disposals.

Environmental liabilities The operations of certain Group companies are subject to specific environmental regulations. From time to time, the Group conducts preliminary investigations through third parties to assess potential risks including potential soil or groundwater contamination of sites. Where an obligation to remediate contamination arises, this is provided for, though future liabilities could arise from sites for which no provision is made.

Outcome of claims and litigation The outcome of claims and litigation to which Group companies are party cannot readily be foreseen as, in some cases, the facts are unclear, further time is needed to assess properly the merits of the case, or they are part of continuing legal proceedings. However, based on information currently available, the Directors consider that the cost to the Group of an unfavourable outcome arising from such litigation is not expected to have a material adverse effect on the financial position of the Group.

34—Post-balance sheet events Since the year-end, the Group has acquired five businesses, four in the USA and one in Canada for total consideration of $240 million with a combined annual revenue of $171 million. These acquisitions include Plumbing Holdings Corporation (trading as Jones Stephens), a master distributor of own brand plumbing speciality products. 100% of this company was acquired to further develop our product strategy and expand our customer base in the USA. As at the date of this report, the accounting for these transactions has not been finalised. Since the year-end, the Group has initiated a process to dispose of Wasco Holding B.V., a Dutch plumbing and heating business.

F-57 Independent auditor’s report to the members of Ferguson plc Report on the audit of the financial statements Opinion In our opinion: — the financial statements of Ferguson plc (the ‘‘Company’’) and its subsidiaries (the ‘‘Group’’) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 July 2018 and of the Group’s profit for the year then ended; — the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘‘IFRSs’’) as adopted by the European Union; — the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice including Financial Reporting Standard 101 ‘‘Reduced Disclosure Framework’’; and — the financial statements have been properly prepared in accordance with the requirements of Companies (Jersey) Law, 1991. We have audited the financial statements which comprise: — the Group income statement; — the Group statement of comprehensive income; — the Company profit and loss account; — the Group and Company balance sheets; — the Group cash flow statement; — the Group and Company statements of changes in equity; — the notes to the consolidated financial statements 1 to 34; and — the notes to the Company financial statements 1 to 15. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘‘Reduced Disclosure Framework’’ (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘‘ISAs (UK)’’) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘‘FRC’s’’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company.

F-58 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Summary of our audit approach Key audit matters The key matters that we identified in the current year were: — appropriateness of supplier rebates; — inventory provision for slow-moving and obsolete inventory; and — accounting for the disposal of the Nordic businesses. Within this report, any new key audit matters are identified8OCT201810292659 with and any key audit matters which are the same as the prior year identified8OCT201810293253 with . Materiality The materiality that we used in the current year was $65 million (2017: £45 million) which was determined on the basis of approximately 5% of profit before tax excluding exceptional items and impairment of interests in associates. Scoping We performed full audits on the three key regions of continuing businesses, Head Office entities and the consolidation process, representing 99% of revenue, 99% of profit before tax and 98% of net assets. Significant changes in our Our approach is consistent with the previous year with the exception approach of: — the inclusion of an additional key audit matter relating to the accounting for the disposal of the Nordic businesses which were completed in the year; and — the exclusion of the key audit matter relating to restructuring costs. The Nordic related restructuring was completed during the prior year and in the context of our Group materiality level we have concluded that there is no longer a significant risk of material misstatement in the accounting for UK restructuring costs.

Conclusions relating to going concern, principal risks and viability statement Going concern We have reviewed the Directors’ statement in note 1 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements. We are required to state whether we have anything material to add or draw attention to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in the audit. We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

Principal risks and viability statement Based solely on reading the Directors’ statements and considering whether they were consistent with the knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to: — the disclosures on pages 44-49 that describe the principal risks and explain how they are being managed or mitigated;

F-59 — the Directors’ confirmation on page 69 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; or — the Directors’ explanation on page 45 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to report whether the Directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Appropriateness of supplier8OCT201810293253 rebates Key audit matter description As described in the Audit Committee report on page 63 as a 8OCT201810292780 significant judgement and the accounting policies in note 1 to the financial statements, the Group recognises a reduction in cost of sales as a result of amounts receivable from suppliers in the form of rebate arrangements. Where the rebate arrangements are non-tiered arrangements (flat rate), there is limited judgement. However, a proportion of the rebate arrangements comprise annual tiered volume rebates, for which the end of the period is often non-coterminous with the Group’s year-end. Notes 18 and 21 to the financial statements disclose the quantum of accrued supplier rebates at year-end. There is complexity in supplier rebates which give rise to management judgement and scope for potential fraud or error in accounting for this income. Judgement is required in estimating the expected level of rebates for the rebate year, driven by the forecast purchase volumes. This requires a detailed understanding of the specific contractual arrangements themselves as well as complete and accurate source data to apply the arrangements to.

F-60 Appropriateness of supplier8OCT201810293253 rebates How the scope of our audit We assessed the design and implementation of manual and automated responded to the key audit controls over the recording of supplier rebate income. matter Our procedures on supplier rebates included: 8OCT201810292898 — in certain components, testing the operating effectiveness of the controls relating to supplier rebates; — making inquiries of members of management responsible either for buying decisions or managing vendor relationships to supplement our understanding of the key contractual rebate arrangements; — testing the accuracy of the amounts recognised by agreeing a sample to individual supplier agreements; — circularising a sample of suppliers to test whether the arrangements recorded were complete; — testing the completeness and accuracy of the inputs to the calculations for recording supplier rebates by agreement to supporting evidence, including historical volume data. We challenged the assumptions underlying management’s estimates of purchase volumes including looking at the historical accuracy of previous estimates and historical purchase trends; — recalculating the rebate recognised for a sample of suppliers; — considering the adequacy of rebate related disclosure within the Group’s financial statements; — holding discussions with management to understand if there has been any whistleblowing; and — testing a sample of rebate receivables to cash receipts, where relevant, to test the recoverability of amounts recorded. Key observations We consider the Group’s estimation methodology to be prudent based 8OCT201810293017 on a number of factors, including a look back at historical cash receipts. However, the methodology is consistently applied year-on-year and the understatement of rebate income is not material to the financial position or the reported financial result as at 31 July 2018.

Inventory provision for slow-moving and obsolete8OCT201810293253 inventory Key audit matter description The Group had inventories of $2,516 million at 31 July 2018, held in 8OCT201810292780 distribution centres, warehouses and numerous branches, and across multiple product lines. Details of its valuation are included in the Audit Committee report on page 63 and the accounting policies in note 1 to the consolidated financial statements. Inventories are carried at the lower of cost and net realisable value. As a result, the Directors apply judgement in determining the appropriate values for slow-moving or obsolete items. As outlined in note 17 to the consolidated financial statements, inventories are net of a provision of $164 million which is primarily driven by comparing the level of inventory held to future projected sales.

F-61 Inventory provision for slow-moving and obsolete8OCT201810293253 inventory The provision is calculated within the Group’s accounting systems using an automated process. We consider the assessment of inventory provisions to require judgement based on the size of the inventories balance held at year-end and the manual intervention required in the calculation. There is risk that inappropriate management override and/or error may occur. How the scope of our audit We challenged the appropriateness of management’s assumptions responded to the key audit applied in calculating the value of the inventory provisions by: matter — evaluating the design and implementation of key inventory 8OCT201810292898 provision controls operating across the Group, including those at a sample of distribution centres, warehouses and branches; — comparing the net realisable value, obtained through a detailed review of sales subsequent to the year-end, to the cost price of a sample of inventories and comparison to the associated provision to assess whether inventory provisions are complete; — reviewing the historical accuracy of inventory provisioning, and the level of inventory write-offs during the year; — recalculating for a sample of inventory items the required provision based on a look-back at historical demand over several years to predict forward future demand, to test the validity of the provisioning methodology; — evaluating the business rationale behind any significant change in product strategy that had a consequential impact on inventory provisions recognised; and — challenging the completeness of inventory provisions through assessing actual and forecast sales of inventory lines to assess whether provisions for slow-moving or obsolete inventories are valid and complete. Key observations We consider the Group’s provisioning methodology to be prudent 8OCT201810293017 when compared with historical levels of inventory write-offs. However, the methodology is consistently applied year-on-year and our estimate of the potential overstatement of the provision is not material to the financial position or the reported financial result as at 31 July 2018.

Accounting for the disposal of the Nordic8OCT201810292659 businesses Key audit matter description As described in the Audit Committee report on page 63 as a 8OCT201810292780 significant judgement and in notes 8 and 29 to the consolidated financial statements, the Group completed its disposal of the Nordic businesses in the period with a resultant gain of $439 million. The key judgements related to this key audit matter lie in the determination of the amount of foreign exchange balances to recycle from reserves and the balance sheet adjustments to net assets in respect of the completion accounts process for Stark Group.

F-62 How the scope of our audit Our procedures on the disposal included: responded to the key audit — reviewing the completion account submissions and assessing the matter net asset values in light of the completion accounts process, 8OCT201810292898 including management’s estimation of any final payment or receipt; — challenging the nature of the amounts recycled from reserves to the income statement to determine whether they relate to the entities disposed of or abandoned in the year; — testing the quantum of the amount recycled from reserves back to underlying accounting records; and — performing a completeness check on amounts remaining in reserves with reference to the Group structure, historical transactions and a proof of the closing balance. Key observations We consider that the judgements taken by management in concluding 8OCT201810293017 on the total gain to be recognised in the financial statements are reasonable and materially consistent with the results of our audit work, reflecting the substance and nature of the businesses disposed of or abandoned.

Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

F-63 Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group financial statements Company financial statements Materiality $65 million (2017: £45 million) $30 million (2017: £23 million) Basis for determining Approximately 5% of profit Materiality was determined on materiality before tax excluding exceptional the basis of the Company’s net items and impairment of assets. This was then capped at interests in associates. approximately 50% of Group materiality. The profit before tax excluding exceptional items and impairment of interests in associates was $1,391 million which was $204 million higher than statutory profit. The exceptional items we excluded from our determination are explained further in note 5. We have also excluded impairment of interests in associates. These amounts were excluded to normalise for items which are considered significant by virtue of their nature, size or incidence. Rationale for the benchmark Profit before tax is a key metric The entity is non-trading and applied for users of the financial contains investments in all of statements and adjusting for the Group’s trading components exceptional items and and as a result, we have impairment of interests in determined net assets for the associates is to reflect the current year to be the manner in which business appropriate basis. performance is reported and assessed by external users of the financial statements.

Group materiality $65m

$1,391m $65m Component materiality range $24m to $48m Audit Committee reporting threshold $3m

PBT excluding exceptionals and impairment of interests in associates Group materialit8OCT201811081697y We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $3 million (2017: £2 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. Based on that assessment we focused our Group audit scope primarily on the audit work at the three key regions of continuing businesses (USA, UK and Canada). Full audits were performed in these locations, as was the case in the prior year. At the Group level we also tested Head Office entities and the consolidation

F-64 process. Of continuing results, this provided coverage of 99% (2017: 97%) of revenue, 99% (2017: 99%) of the profit before tax and 98% (2017: 98%) of the net assets.

Revenue Profit before tax Net assets Full audit scope 99% 99% 98% Analytical procedures 1% 1%8OCT201811081938 2% The Group team is responsible for the Head Office entities and the consolidation. The Group team carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit. The component teams in the USA, UK and Canada perform audit work and report into the Group team. The Group audit team continued to follow a programme of planned visits that has been designed to enhance our oversight of the component teams. A senior member of the Group audit team visited each of the most significant locations where the Group audit scope was focused, being the USA, UK and Canada. We included the component audit partners in our team briefing, sent detailed instructions to our component audit teams, reviewed their planned audit work and challenged their risk assessment. We communicated regularly with all components to discuss the progress of their work and a senior member of the Group audit team performed a review of the work performed on significant risks and other areas of focus set out in our instructions. For all components we attended the local close meetings.

Other information The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that: — Fair, balanced and understandable—the statement given by the Directors that they consider the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or — Audit Committee reporting—the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or — Directors’ statement of compliance with the UK Corporate Governance Code—the parts of the Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. We have nothing to report in respect of these matters.

F-65 Responsibilities of the Directors As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Extent to which the audit was considered capable of detecting irregularities, including fraud We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: — enquiring of management, internal audit, and the Audit Committee, including obtaining and reviewing supporting documentation, concerning the Group’s policies and procedures relating to: — identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; — detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and — the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations. — discussing among the engagement team including the USA, UK and Canadian component audit teams and involving relevant internal specialists, including tax, treasury, valuations and IT specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in relation to supplier rebates given the complexity of the annual tiered volume rebates and manual adjustments to revenue; and — obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and regulations we considered in this context included the UK Companies Act, Jersey Law, Listing Rules, pensions legislation and tax legislation.

F-66 Audit response to risks identified As a result of performing the above, we identified the appropriateness of supplier rebates as a key audit matter. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. Our procedures to respond to risks identified included the following: — reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above; — enquiring of management, the Audit Committee and in-house legal counsel concerning actual and potential litigation and claims; — profiling the manual revenue postings made and tested the appropriateness of a sample that met certain risk criteria; — performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; — reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with tax authorities; — in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; — assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and — evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

F-67 Report on other legal and regulatory requirements Opinions on other matters prescribed by our engagement letter In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the provisions of UK Companies Act 2006 as if that Act applied to the Company. In our opinion, based on the work undertaken in the course of the audit: — the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and — the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and of the Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.

Matters on which we are required to report by exception Adequacy of explanations received and accounting records Under the Companies (Jersey) Law, 1991 we are required to report to you if, in our opinion: — we have not received all the information and explanations we require for our audit; or — proper accounting records have not been kept by the Company, or proper returns adequate for our audit have not been received from branches not visited by us; or — the Company financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters.

Directors’ remuneration We are also required to report if in our opinion certain disclosures of Directors’ remuneration that would be required under the UK Companies Act 2006 have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report arising from these matters.

Other matters Auditor tenure Following the recommendation of the Audit Committee, we were appointed by the Company on 12 November 2015 to audit the financial statements for the year ending 31 July 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is three years, covering periods from our appointment to 31 July 2018.

Consistency of the audit report with the additional report to the Audit Committee Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).

Use of our report This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other

F-68 than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

5OCT201808472894 Ian Waller (Senior statutory auditor) For and on behalf of Deloitte LLP Recognised Auditor London, UK 1 October 2018

F-69 Group income statement Year ended 31 July 2017

Restated* 2017 2017 2016 2016 Before Exceptional Before Exceptional exceptional items 2017 exceptional items 2016 items (note 5) Total items (note 5) Total Notes £m £m £m £m £m £m Revenue ...... 3 15,224 — 15,224 12,549 — 12,549 Cost of sales ...... (10,814) (2) (10,816) (8,956) (1) (8,957) Gross profit ...... 4,410 (2) 4,408 3,593 (1) 3,592 Operating costs: amortisation of acquired intangible assets ...... (64) — (64) (48) — (48) impairment of goodwill and acquired intangible assets ...... —— —(94) — (94) other ...... (3,351) 231 (3,120) (2,736) (3) (2,739) Operating costs ...... (3,415) 231 (3,184) (2,878) (3) (2,881) Operating profit ...... 3, 4 995 229 1,224 715 (4) 711 Finance costs ...... 6 (43) — (43) (36) — (36) Share of result of associate ...... 15 (1) — (1) —— — Profit before tax ...... 951 229 1,180 679 (4) 675 Tax...... 7 (270) (22) (292) (211) 1 (210) Profit from continuing operations ...... 681 207 888 468 (3) 465 (Loss)/profit from discontinued operations 8 (47) (58) (105) 31 154 185 Profit for the year ...... 634 149 783 499 151 650 Attributable to: Shareholders of the Company ...... 634 149 783 508 151 659 Non-controlling interests ...... —— —(9) — (9) 634 149 783 499 151 650 Earnings per share ...... 10 Continuing operations and discontinued operations Basic earnings per share ...... 311.6p 256.4p Diluted earnings per share ...... 309.4p 254.8p Continuing operations only Basic earnings per share ...... 353.4p 183.4p Diluted earnings per share ...... 350.8p 182.3p Alternative performance measures Trading profit from ongoing operations . . . 2, 3 1,032 827 Trading profit from non-ongoing operations ...... 2, 3 27 30 Trading profit from continuing operations . 2, 3 1,059 857 EBITDA before exceptional items ...... 2 1,199 971 Headline earnings per share ...... 2, 10 288.9p 234.7p

* Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.

F-70 Group statement of comprehensive income Year ended 31 July 2017

Restated 2017 2016 Notes £m £m Profit for the year ...... 783 650 Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Exchange gain on translation of overseas operations(a) ...... 26 495 Exchange loss on translation of borrowings and derivatives designated as hedges of overseas operations(a) ...... (6) (107) Cumulative currency translation differences on disposals(a) ...... (49) (125) Tax credit/(charge) on items that may be reclassified to profit or loss(b) ..... 7 1 (7) Items that will not be reclassified subsequently to profit or loss: Actuarial loss on retirement benefit plans(b) ...... 26 (1) (120) Tax (charge)/credit on items that will not be reclassified to profit or loss(b) . . . 7, 26 (1) 25 Other comprehensive (expense)/income for the year ...... (30) 161 Total comprehensive income for the year ...... 753 811 Total comprehensive income/(expense) attributable to: Continuing operations ...... 850 744 Discontinued operations ...... (97) 67 Total comprehensive income for the year ...... 753 811

(a) Impacting the translation reserve. (b) Impacting retained earnings.

F-71 Group statement of changes in equity

Reserves Non- Share Share Translation Treasury Own Retained controlling Total capital premium reserve shares shares earnings interest equity Notes £m £m £m £m £m £m £m £m At 1 August 2015 ...... 29 42 117 (240) (63) 2,715 7 2,607 Profit for the year ...... — — — — — 659 (9) 650 Other comprehensive income/ (expense) ...... — — 263 — — (102) — 161 Total comprehensive income/ (expense) ...... — — 263 — — 557 (9) 811 Purchase of own shares by Employee Benefit Trusts .... 27 — — — — (14) — — (14) Issue of own shares by Employee Benefit Trusts .... 27 — — — — 20 (19) — 1 Credit to equity for share-based payments ...... 28 — — — — — 20 — 20 Purchase of Treasury shares .... 27 — — — (300) — — — (300) Disposal of Treasury shares .... 27 — — — 24 — (10) — 14 Dividends paid ...... 9 — — — — — (238) — (238) At 31 July 2016 ...... 29 42 380 (516) (57) 3,025 (2) 2,901 Profit for the year ...... — — — — — 783 — 783 Other comprehensive expense . . — — (29) — — (1) — (30) Total comprehensive (expense)/ income ...... — — (29) — — 782 — 753 Purchase of own shares by Employee Benefit Trusts .... 27 — — — — (6) — — (6) Issue of own shares by Employee Benefit Trusts .... 27 — — — — 15 (15) — — Credit to equity for share-based payments ...... 28 —— — ——22— 22 Tax relating to share-based payments ...... 7 —— — —— 4 — 4 Disposal of Treasury shares .... 27 — — — 31 — (10) — 21 Dividends paid ...... 9 — — — — — (259) — (259) At 31 July 2017 ...... 29 42 351 (485) (48) 3,549 (2) 3,436

F-72 Group balance sheet As at 31 July 2017

2017 2016 Notes £m £m Assets Non-current assets Intangible assets: goodwill ...... 12 888 902 Intangible assets: other ...... 13 182 202 Property, plant and equipment ...... 14 808 1,434 Interests in associates ...... 15 124 — Financial assets ...... 11 23 Retirement benefit assets ...... 26 3 — Deferred tax assets ...... 16 121 127 Trade and other receivables ...... 17 226 212 Derivative financial assets ...... 18 15 20 2,378 2,920 Current assets Inventories ...... 1,816 2,017 Trade and other receivables ...... 17 2,093 2,207 Current tax receivable ...... 2 — Derivative financial assets ...... 18 5 11 Cash and cash equivalents ...... 19 1,911 940 5,827 5,175 Assets held for sale ...... 20 1,298 56 Total assets ...... 9,503 8,151 Liabilities Current liabilities Trade and other payables ...... 21 2,279 2,634 Current tax payable ...... 88 101 Bank loans and overdrafts ...... 22 1,627 701 Obligations under finance leases ...... 24 3 4 Provisions ...... 25 81 88 Retirement benefit obligations ...... 26 8 9 4,086 3,537 Non-current liabilities Trade and other payables ...... 21 180 163 Bank loans ...... 22 831 1,175 Obligations under finance leases ...... 24 4 27 Deferred tax liabilities ...... 16 9 65 Provisions ...... 25 120 133 Retirement benefit obligations ...... 26 16 138 1,160 1,701 Liabilities held for sale ...... 20 821 12 Total liabilities ...... 6,067 5,250 Net assets ...... 3,436 2,901 Equity Share capital ...... 27 29 29 Share premium ...... 42 42 Reserves ...... 3,367 2,832 Equity attributable to shareholders of the Company ...... 3,438 2,903 Non-controlling interest ...... (2) (2) Total equity ...... 3,436 2,901

The accompanying notes are an integral part of these consolidated financial statements. The consolidated financial statements on pages 86 to 127 were approved and authorised for issue by the Board of Directors on 2 October 2017 and were signed on its behalf by:

5OCT201808472009 5OCT201808473595 John Martin Mike Powell Group Chief Executive Chief Financial Officer

F-73 Group cash flow statement Year ended 31 July 2017

2017 2016 Notes £m £m Cash flows from operating activities Cash generated from operations ...... 29 1,115 1,019 Interest received ...... 3 2 Interest paid ...... (56) (41) Tax paid ...... (310) (193) Net cash generated from operating activities ...... 752 787 Cash flows from investing activities Acquisition of businesses (net of cash acquired) ...... 30 (256) (113) Disposals of businesses (net of cash disposed of) ...... 31 231 9 Purchases of property, plant and equipment ...... (153) (187) Proceeds from sale of property, plant and equipment and assets held for sale . . . 19 56 Purchases of intangible assets ...... (25) (31) Disposals of financial assets ...... 17 — Net cash used in investing activities ...... (167) (266) Cash flows from financing activities Purchase of own shares by Employee Benefit Trusts ...... 27 (6) (14) Purchase of Treasury shares ...... 27 — (300) Proceeds from the sale of shares by Employee Benefit Trusts ...... 27 — 1 Proceeds from the sale of Treasury shares ...... 27 21 14 Proceeds from borrowings and derivatives ...... 339 585 Repayments of borrowings ...... (464) (591) Finance lease capital payments ...... (5) (4) Dividends paid to shareholders ...... 9 (259) (238) Net cash used by financing activities ...... (374) (547) Net cash generated/(used) ...... 211 (26) Effects of exchange rate changes ...... (15) 18 Net increase/(decrease) in cash, cash equivalents and bank overdrafts ...... 196 (8) Cash, cash equivalents and bank overdrafts at the beginning of the year ...... 248 256 Cash, cash equivalents and bank overdrafts at the end of the year ...... 444 248

2017 2016 £m £m Cash, cash equivalents and bank overdrafts at the end of the year in the Group balance sheet ...... 32 411 248 Cash, cash equivalents and bank overdrafts in assets held for sale ...... 20 33 — Cash, cash equivalents and bank overdrafts at the end of the year ...... 444 248

F-74 Notes to the consolidated financial statements Year ended 31 July 2017

1—Accounting policies and critical estimates and judgements Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) as adopted by the European Union, including interpretations issued by the International Accounting Standards Board (‘‘IASB’’) and its committees. Ferguson plc is a public company limited by shares incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland. The Company changed its name from Wolseley plc to Ferguson plc on 31 July 2017. The consolidated financial statements have been prepared on a going concern basis (see page 41) and under the historical cost convention as modified by the revaluation of financial assets and liabilities held for trading. The consolidated financial statements are presented in sterling, which is the presentational currency of the Group. The Group’s presentational currency will change from sterling to US dollars from 1 August 2017. The Nordic businesses have been reclassified as discontinued operations in accordance with IFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’ and the consolidated financial statements and affected notes for the year ended 31 July 2016 have been restated to reflect this.

Accounting developments and changes At the time of this report a number of accounting standards have been published, but not yet applied. IFRS 9 ‘‘Financial Instruments’’ and IFRS 15 ‘‘Revenue from Contracts with Customers’’ are effective for the Group from the year ending 31 July 2019. The Group has completed an initial assessment of the impact of IFRS 9 and IFRS 15 and it is expected adoption will not have a material impact on the Group’s consolidated financial results. IFRS 16 ‘‘Leases’’, which is yet to be endorsed by the EU, is effective for the Group for the year ending 31 July 2020. IFRS 16 represents a significant change for the treatment of leases in the lessee’s financial results. Lessees will be required to apply a single model to recognise a lease liability and asset for all leases, including those classified as operating leases under current accounting standards (note 34), unless the underlying asset has a low value or the lease term is 12 months or less. On adoption of IFRS 16 there will be a significant change to the financial statements, as each lease will give rise to a right of use asset, which will be depreciated on a straight-line basis, and a lease liability, with the related interest charge. This will replace existing lease balances on the balance sheet and charges to the income statement. The Group continues to assess the full impact of IFRS 16, however the impact will depend on the transition approach and the contracts in effect at the time of adoption. It is therefore not yet practicable to provide a reliable estimate of the financial impact on the Group’s consolidated financial results.

Choices permitted by IFRS The Group has elected to apply hedge accounting to some of its financial instruments.

Accounting policies Note 37 details the principal accounting policies applied in the preparation of the consolidated financial statements.

F-75 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

1—Accounting policies and critical estimates and judgements (Continued) Critical accounting judgements Exceptional Items Note 2 provides a definition of exceptional items. The classification of exceptional items requires significant management judgement to determine the nature and intentions of a transaction. Note 5 provides further details on current year exceptional items.

Pensions and other post-retirement benefits The Group operates defined benefit pension plans in the UK and in a number of overseas locations that are accounted for using methods that rely on actuarial assumptions to estimate costs and liabilities for inclusion in the financial statements. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. The cost of providing benefits is determined annually using the Projected Unit Credit Method, which includes actuarial assumptions for discount rates, expected salary and pension increases, inflation and life expectancy and are disclosed in note 26. The discount rate used is the yield at the valuation date on high quality corporate bonds that have a maturity approximating to the terms of the pension obligations. Significant judgement is required when setting the criteria from which the yield curve is derived.

Sources of estimation uncertainty In applying the Group’s accounting policies, various transactions and balances are valued using estimates or assumptions. Should these estimates or assumptions prove incorrect there may be an impact on the following year’s financial statements. The Group believes that the estimates and assumptions that have been applied would not give rise to a material impact within the next financial year.

2—Alternative performance measures The Group uses alternative performance measures (‘‘APMs’’), which are not defined or specified under IFRS. The Group believes that these APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide comparable information across the Group. The Group reports some financial measures net of businesses or branches that have been disposed of, closed or classified as held for sale and uses the following terminology: Non-ongoing operations: businesses and groups of branches, which do not meet the criteria to be classified as discontinued operations under IFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’, which have been disposed of, closed or classified as held for sale. In 2017, the Group’s Swiss business, Tobler, and a small Industrial business in the USA, Endries, have been classified as non-ongoing. Ongoing operations: continuing operations excluding non-ongoing operations. A reconciliation between ongoing and continuing operations is shown below.

Revenue Trading profit Restated Restated 2017 2016 2017 2016 £m £m £m £m Ongoing operations ...... 14,878 12,146 1,032 827 Non-ongoing operations ...... 346 403 27 30 Continuing operations ...... 15,224 12,549 1,059 857 Discontinued operations ...... 2,100 2,136 63 59

F-76 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

2—Alternative performance measures (Continued) Constant exchange rates The Group measures some financial metrics on both a reported basis and at constant exchange rates. The constant exchange rate basis re-translates the prior year at the current year exchange rate to eliminate the effect of exchange rate fluctuations when comparing information year-on-year.

Ongoing Ongoing trading revenue profit £m % £m % Reported 2016 at 2016 exchange rates ...... 12,146 827 Impact of exchange rates ...... 1,550 122 Reported 2016 at 2017 exchange rates ...... 13,696 949 Constant currency growth ...... 1,182 8.6 83 8.7 Reported 2017 ...... 14,878 1,032

Like-for-like revenue growth Management uses like-for-like revenue growth as it provides a consistent measure of the percentage increase/decrease in revenue year-on-year, excluding the effect of currency exchange, acquisitions and disposals, trading days and branch openings and closures.

Ongoing revenue £m % Reported 2016 at 2017 exchange rates ...... 13,696 Like-for-like revenue growth ...... 818 6.0 Opened and closed branches ...... 10 Trading days ...... 60 Acquisitions and divestments ...... 294 Reported 2017 ...... 14,878

Exceptional items Exceptional items are those which are considered significant by virtue of their nature, size or incidence. These items are presented as exceptional within their relevant income statement category to assist in the understanding of the trading and financial results of the Group as these types of cost do not form part of the underlying business. Examples of items that are considered by the Directors for designation as exceptional items include, but are not limited to: • material restructuring costs within a segment incurred as part of a significant change in strategy or due to the closure of a large part of a business and are not expected to be repeated on a regular basis. • significant costs incurred as part of the integration of an acquired business and which are considered to be material. • gains or losses on disposals of businesses are considered to be exceptional in nature as they do not reflect the performance of the trading business. • costs or credits arising as a result of material regulatory and litigation matters. If provisions have been made for exceptional items in previous years, then any reversal of these provisions is treated as exceptional. Exceptional items for the current and prior year are disclosed in note 5.

F-77 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

2—Alternative performance measures (Continued) Gross margin The ratio of gross profit, excluding exceptional items, to revenue. This is presented for both ongoing operations and continuing operations. Gross margin is used by management for assessing business unit performance and it is a key performance indicator for the Group (see page 26).

Trading profit Trading profit is defined as operating profit before exceptional items and the amortisation and impairment of acquired intangible assets. Trading profit is used as a performance measure because it excludes costs and other items that do not form part of the underlying trading business.

Ongoing Continuing Restated Restated 2017 2016 2017 2016 £m £m £m £m Operating profit ...... 931 675 1,224 711 Amortisation and impairment of acquired intangible assets ...... 64 142 64 142 Exceptional items ...... 37 10 (229) 4 Trading profit ...... 1,032 827 1,059 857

Ongoing trading margin The ratio of ongoing trading profit to ongoing revenue is used to assess business unit profitability and is a key performance indicator for the Group (see page 26).

EBITDA before exceptional items The profit before charges/credits relating to interest, tax, depreciation, amortisation and exceptional items. EBITDA before exceptional items is used in the net debt to EBITDA ratio to assess the appropriateness of the Group’s financial gearing.

Restated 2017 2016 £m £m Trading profit ...... 1,059 857 Depreciation, amortisation and impairment of property, plant and equipment and software excluding exceptional items in operating profit ...... 140 114 EBITDA before exceptional items ...... 1,199 971

Ongoing effective tax rate The ongoing effective tax rate is the ratio of the ongoing tax expense to ongoing profit before tax and is used as a measure of the tax rate of the ongoing business. See reconciliation in note 7.

Headline profit after tax and headline earnings per share Headline profit after tax is calculated as the profit from continuing operations after tax, before charges for amortisation and impairment of acquired intangible assets net of tax, exceptional items net of tax and non-recurring tax relating to changes in tax rates. Headline earnings per share is the ratio of headline profit after tax to the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Benefit Trusts and those held by the Company as Treasury shares. Headline earnings per share is used for the purpose of setting remuneration targets for executive directors and other senior executives. See reconciliation in note 10.

F-78 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

2—Alternative performance measures (Continued) Net debt and adjusted net debt Net debt comprises cash and cash equivalents, bank overdrafts, bank loans, derivative financial instruments and obligations under finance leases. Net debt is a good indicator of the strength of the Group’s balance sheet position and is widely used by credit rating agencies. See note 32 for a reconciliation. Adjusted net debt is net debt after the year-end working capital adjustment used in the return on gross capital employed calculation below.

Return on gross capital employed Return on gross capital employed is the ratio of the Group’s total trading profit to the average year-end aggregate of shareholders’ equity, adjusted net debt and cumulative goodwill and other acquired intangible assets written off. Return on gross capital employed is a key performance indicator (see page 27).

Gross capital Gross capital Average Return on employed employed capital Trading gross 2017 2016 employed profit(c) capital £m £m £m £m employed Net debt(a) ...... 580 936 Year-end working capital adjustment ...... — 120 Adjusted net debt ...... 580 1,056 Cumulative goodwill and other acquired intangibles written off(b) ...... 1,868 1,646 Shareholders’ equity ...... 3,438 2,903 5,886 5,605 5,746 1,122 19.5%

(a) Includes £46 million in assets and liabilities held for sale. (b) Includes amounts in assets held for sale. (c) Includes continuing and discontinued operations.

3—Segmental analysis The Group’s reportable segments are the operating businesses overseen by distinct divisional management teams responsible for their performance. All reportable segments derive their revenue from a single business activity, the distribution of plumbing and heating products. The Group’s business is not highly seasonal and the Group’s customer base is highly diversified, with no individually significant customer. In the year ended 31 July 2017, the Nordic businesses have been reclassified into discontinued operations and all comparatives have been restated for consistency and comparability. The changes in revenue and trading profit for continuing operations between the years ended 31 July 2016 and 31 July 2017 include changes in exchange rates, disposals, acquisitions and organic change. Where businesses are disposed in the year, the difference between the revenue and trading profit in the current year up to the date of disposal and the revenue and trading profit in the equivalent portion of the prior year is included in organic change.

F-79 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

3—Segmental analysis (Continued) Revenue by reportable segment for continuing operations is as follows:

Restated Organic 2016 Exchange Disposals Acquisitions change 2017 Analysis of change in revenue £m £m £m £m £m £m USA...... 9,456 1,445 (35) 285 843 11,994 UK...... 1,996 — — — 16 2,012 Canada and Central Europe ...... 1,097 164 (85) 9 33 1,218 Group ...... 12,549 1,609 (120) 294 892 15,224

Trading profit/(loss) (note 2) by reportable segment for continuing operations is as follows:

Restated Organic 2016 Exchange Disposals Acquisitions change 2017 Analysis of change in trading profit/(loss) (note 2) £m £m £m £m £m £m USA...... 775 118 (4) 33 44 966 UK...... 74 — — — 2 76 Canada and Central Europe ...... 53 8 (5) 1 (1) 56 Central and other costs ...... (45) — — — 6 (39) Group ...... 857 126 (9) 34 51 1,059

The reconciliation between trading profit/(loss) (note 2) and operating profit/(loss) by reportable segment for continuing operations is as follows:

Restated 2017 2016 Amortisation Amortisation and and impairment impairment of acquired of acquired Trading Exceptional intangible Operating Trading Exceptional intangible Operating profit/(loss) items assets profit/(loss) profit/(loss) items assets profit/(loss) £m £m £m £m £m £m £m £m USA...... 966 94 (62) 998 775 2 (34) 743 UK...... 76 (28) — 48 74 (9) (106) (41) Canada and Central Europe . 56 170 (2) 224 53 — (2) 51 Central and other costs ...... (39) (7) — (46) (45) 3 — (42) Group ...... 1,059 229 (64) 1,224 857 (4) (142) 711 Finance costs .... (43) (36) Share of after tax loss of associate (1) — Profit before tax . . 1,180 675

In 2016 and 2017, a number of Group businesses or groups of branches have been disposed of, closed or are classified as held for sale. The revenue and trading profit of the Group’s segments excluding those

F-80 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

3—Segmental analysis (Continued) businesses and branches (‘‘ongoing operations’’) are analysed in the following table. These are alternative performance measures.

Revenue Trading profit Restated Restated 2017 2016 2017 2016 £m £m £m £m Ongoing operations USA...... 11,824 9,288 950 761 UK...... 2,012 1,996 76 74 Canada and Central Europe ...... 1,042 862 45 37 Central and other costs ...... — — (39) (45) Total ongoing operations ...... 14,878 12,146 1,032 827 Non-ongoing operations ...... 346 403 27 30 Continuing operations ...... 15,224 12,549 1,059 857

Other information on assets and liabilities by segment is set out in the tables below:

Restated 2017 2016 Segment Segment Segment Segment net assets/ Segment Segment net assets/ assets liabilities (liabilities) assets liabilities (liabilities) Segment assets and liabilities £m £m £m £m £m £m USA...... 4,681 (1,872) 2,809 4,268 (1,645) 2,623 UK...... 850 (492) 358 856 (508) 348 Canada and Central Europe(a) ...... 598 (195) 403 599 (265) 334 Central and other costs ...... 16 (95) (79) 18 (103) (85) Discontinued ...... 1,304 (851) 453 1,312 (656) 656 Total ...... 7,449 (3,505) 3,944 7,053 (3,177) 3,876 Tax assets and liabilities ...... 123 (97) 26 127 (166) (39) Net cash/(debt) ...... 1,931 (2,465) (534) 971 (1,907) (936) Group assets/(liabilities) ...... 9,503 (6,067) 3,436 8,151 (5,250) 2,901

(a) 2017 segmental assets includes £124 million relating to interest in associate.

Restated 2017 2016 Additions Additions to other Additions to Additions to to other Additions to Additions to acquired non-acquired property, acquired non-acquired property, Additions intangible intangible plant and Additions to intangible intangible plant and to goodwill assets assets equipment goodwill assets assets equipment £m £m £m £m £m £m £m £m USA...... 136 80 11 81 34 25 17 123 UK...... —— 8 21 —— 5 15 Canada and Central Europe . —— 3 9 63 218 Central and other costs ...... —— 1 — —— 1 1 Discontinued .... 31 2 46 —— 6 33 Group ...... 139 81 25 157 40 28 31 190

F-81 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

3—Segmental analysis (Continued)

Restated 2017 2016 Impairment Amortisation Depreciation Impairment Amortisation Depreciation of goodwill Amortisation and and of goodwill Amortisation and and and other of other impairment of impairment and other of other impairment of impairment acquired acquired non-acquired of property, acquired acquired non-acquired of property, intangible intangible intangible plant and intangible intangible intangible plant and assets assets assets equipment assets assets assets equipment £m £m £m £m £m £m £m £m USA...... —621192—347 72 UK...... —— 5 1794 12 5 17 Canada and Central Europe ...... —2 2 8—2 1 9 Central and other costs ...... —— 3 2—— 1 2 Discontinued .... 102 4 3 24 —5 125 Group ...... 102 68 24 143 94 53 15 125

4—Operating profit Amounts charged/(credited) in arriving at operating profit include:

Restated 2017 2016 Notes £m £m Depreciation of property, plant and equipment ...... 14 118 99 Impairment of property, plant and equipment ...... 14 1 1 Gain on disposal and closure of businesses ...... 31 (266) (6) Loss on disposal of property, plant and equipment and assets held for sale . — 1 Staff costs ...... 11 2,140 1,766 Amortisation of non-acquired intangible assets ...... 13 19 14 Amortisation of acquired intangible assets ...... 13 64 48 Impairment of non-acquired intangible assets ...... 13 2 — Impairment of goodwill and acquired intangible assets ...... 12,13 — 94 Operating lease rentals: land and buildings ...... 187 161 Operating lease rentals: plant and machinery ...... 59 49 Amounts included in costs of goods sold with respect to inventory ...... 10,758 8,806 Trade receivables impairment ...... 10 9

2017 2016 £m £m During the year, the Group obtained the following services from the Company’s auditor and its associates: Fees for the audit of the parent company and consolidated financial statements ...... 0.9 0.9 Fees for the audit of the Company’s subsidiaries pursuant to legislation ...... 2.5 2.0 Total audit fees ...... 3.4 2.9 Audit related assurance services ...... 0.5 0.2 Other assurance services ...... 0.1 — Other services ...... 0.2 — Total non-audit fees ...... 0.8 0.2 Total fees payable to the auditor ...... 4.2 3.1

Details of the Company’s policy on the use of the auditor for non-audit services, the reasons why the auditor was used and how the auditor’s independence and objectivity was safeguarded are set out in the Audit Committee Report on page 62. No services were provided pursuant to contingent fee arrangements.

F-82 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

5—Exceptional items Exceptional items included in operating profit from continuing operations are analysed by purpose as follows:

Restated 2017 2016 £m £m Gain on disposal of businesses (note 31) ...... 266 6 Business restructuring ...... (40) (10) Other exceptional items ...... 3 — Total included in operating profit ...... 229 (4)

For the year to 31 July 2017, business restructuring comprises costs incurred in the UK in respect of its business transformation strategy and includes £2 million charged to cost of sales for inventory write downs. Other exceptional items include an £11 million one-off credit relating to the UK defined benefit pension plan which arose as a result of a change in future earnings assumptions. The net cash outflow from exceptional items, excluding the gain on disposal of businesses, was £20 million (2016: £6 million). The net inflow of cash in respect of the disposal of businesses is detailed in note 31. Exceptional items relating to discontinued operations are disclosed in note 8.

6—Finance costs

Restated 2017 2016 £m £m Interest payable —Bank loans and overdrafts ...... 48 45 —Unwind of fair value adjustment to senior unsecured loan notes ...... (8) (9) —Finance lease charges ...... 1 2 Net interest expense/(income) on defined benefit obligation (note 26) ...... 2 (1) Valuation gains on financial instruments —Derivatives held at fair value through profit and loss ...... — (1) Total finance costs ...... 43 36

Finance costs relating to discontinued operations are detailed in note 8.

7—Tax

Restated 2017 2016 The tax charge for the year comprises: £m £m Current year tax charge ...... 294 225 Adjustments to tax charge in respect of prior years ...... 1 (13) Total current tax charge ...... 295 212 Deferred tax credit: origination and reversal of temporary differences ...... (3) (2) Total tax charge ...... 292 210

F-83 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

7—Tax (Continued) An exceptional tax charge of £22 million was recorded against exceptional items (2016: credit £1 million). The deferred tax credit of £3 million (2016: credit £2 million) includes a charge of £10 million (2016: charge £5 million) resulting from changes in tax rates.

2017 2016 Tax on items credited/(charged) to the statement of other comprehensive income: £m £m Deferred tax (charge)/credit on actuarial loss on retirement benefits ...... (3) 25 Current tax credit on actuarial loss on retirement benefits ...... 2 — Deferred tax credit/(charge) on losses ...... 1 (7) Total tax on items credited to the statement of other comprehensive income ...... — 18

In 2017, there is no tax in the statement of other comprehensive income which relates to changes in tax rates. In 2016, £1 million of the £18 million credit related to changes in tax rates.

2017 2016 Tax on items credited/(charged) to equity: £m £m Current tax credit on share-based payments ...... 3 6 Deferred tax credit/(charge) on share-based payments ...... 1 (6) Total tax on items credited to equity ...... 4 —

2017 Non-ongoing Total profit/ and tax from Ongoing other profit/ continuing profit/tax(h) tax(i) operations Tax reconciliation: £m % £m % £m % Profit before tax ...... 989 191 1,180 Expected tax at weighted average tax rate(a) ...... (241) 24.4 (52) 27.2 (293) 24.8 Adjusted for the effects of: (under)/over provisions in respect of prior periods(b) ..... (5) 0.5 11 (5.7) 6 (0.5) exceptional items which are non-taxable/(non-tax deductible)(d) ...... — — 26 (13.6) 26 (2.2) current year increase in uncertain tax provisions(e) ...... (25) 2.5 — — (25) 2.1 tax credits and incentives ...... 3 (0.3) — — 3 (0.2) non-taxable income ...... 8 (0.8) — — 8 (0.7) other non-tax deductible expenditure(f) ...... (9) 0.9 — — (9) 0.8 other ...... 2 (0.2) — — 2 (0.2) effect of UK tax rate changes(g) ...... (10) 1.0 — — (10) 0.8 Tax charge/effective tax rate ...... (277) 28.0 (15) 7.9 (292) 24.7

F-84 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

7—Tax (Continued)

Restated 2016 Non-ongoing Total profit/ and tax from Ongoing other loss/ continuing profit/tax(h) tax(i) operations Tax reconciliation: £m % £m % £m % Profit/(loss) before tax ...... 792 (117) 675 Expected tax at weighted average tax rate(a) ...... (202) 25.5 26 22.2 (176) 26.1 Adjusted for the effects of: over provisions in respect of prior periods(b) ...... 18 (2.3) — — 18 (2.7) non-tax deductible amortisation/impairment of acquired intangible assets(c) ...... — — (15) (12.8) (15) 2.2 exceptional items which are non-taxable/(non-tax deductible)(d) ...... — — 1 0.9 1 (0.1) current year increase in uncertain tax provisions(e) ...... (31) 3.9 — — (31) 4.6 tax credits and incentives ...... 3 (0.4) — — 3 (0.4) non-taxable income ...... 4 (0.5) — — 4 (0.6) other non-tax deductible expenditure(f) ...... (6) 0.8 — — (6) 0.9 other ...... (3) 0.4 — — (3) 0.4 effect of UK tax rate changes(g) ...... — — (5) (4.3) (5) 0.7 Tax (charge)/credit/effective tax rate ...... (217) 27.4 7 6.0 (210) 31.1

(a) This expected weighted average tax rate reflects the applicable statutory corporate tax rates on the accounting profits/losses in the countries in which the Group operates after intra-group financing. This results in interest deductions and lower taxable profits in many of the countries and therefore reduces the tax rate. The pre intra-group financing ongoing expected weighted average tax rate is 37.2 per cent (2016: 37.6 per cent) and this is reduced to a post intra-group financing ongoing expected weighted average tax rate of 24.4 per cent (2016: 25.5 per cent). The 1.1 per cent decrease in the post intra-group financing ongoing expected weighted average tax rate is primarily due to a change in profit mix. (b) This includes adjustments arising out of movements in uncertain tax provisions regarding prior periods and differences between the final tax liabilities in the tax computations and the tax liabilities provided in the accounts. The non-ongoing and other credit of £11 million relates primarily to a one-off settlement of tax enquiries in the UK. (c) In 2016, this relates primarily to non-tax deductible impairment of goodwill in the UK. (d) In 2017, this relates primarily to non-taxable disposals of businesses. (e) This reflects management’s assessment of the potential tax liability for the current year in relation to open tax issues and audits. (f) This relates to certain expenditure for which no tax relief is available such as disallowable business entertaining costs. (g) This relates to the reduction in the UK standard rate of corporation tax from 20 per cent to 19 per cent from 1 April 2017 and to 17 per cent from 1 April 2020. The rate change was considered exceptional in 2016 on the grounds that it was only announced at the end of the 2015 financial year and could not be foreseen in the Group’s forecast ongoing effective tax rate for the 2016 financial year. (h) Ongoing profit means profit before tax, exceptional items and the amortisation and impairment of acquired intangible assets for ongoing operations as defined in note 2. Ongoing tax is the tax expense arising on ongoing profit. (i) Non-ongoing and other profit or loss is profit or loss from non-ongoing operations as defined in note 2 and from the amortisation and impairment of acquired intangible assets and exceptional items. Non-ongoing and other tax is the tax expense or credit arising on the non-ongoing and other profit or loss.

8—Discontinued operations The Group is in the process of selling its business and property assets (the ‘‘disposal group’’) in the Nordic region and, in accordance with IFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’, the disposal group has been classified as discontinued and prior periods have been restated to reflect this. As at 31 July 2017, the sales process for the remaining French property assets is in progress and these are classified as discontinued.

F-85 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

8—Discontinued operations (Continued) The results from discontinued operations, which have been included in the Group income statement, are set out below.

Restated 2017 2016 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Revenue ...... 2,100 — 2,100 2,136 — 2,136 Cost of sales ...... (1,565) (8) (1,573) (1,573) — (1,573) Gross profit ...... 535 (8) 527 563 — 563 Operating costs: gain on disposal of businesses .... ———— 139 139 amortisation of acquired intangible assets ...... (4) — (4) (5) — (5) impairment of goodwill and acquired intangible assets ..... (102) — (102) ——— other ...... (472) (60) (532) (504) 16 (488) Operating costs ...... (578) (60) (638) (509) 155 (354) Operating (loss)/profit ...... (43) (68) (111) 54 155 209 Finance (costs)/income ...... (4) 8 4 (2) 4 2 (Loss)/profit before tax ...... (47) (60) (107) 52 159 211 Attributable tax ...... —22(21) (5) (26) (Loss)/profit from discontinued operations ...... (47) (58) (105) 31 154 185 Basic (loss)/earnings per share ..... (18.7)p (23.1)p (41.8)p 12.3p 60.7p 73.0p Diluted (loss)/earnings per share . . . (18.5)p (22.9)p (41.4)p 12.1p 60.4p 72.5p The discontinued exceptional items in 2017 relate predominantly to restructuring activities in the Nordic region. During the year, discontinued operations generated cash of £51 million (2016: £51 million) in respect of operating activities, used £28 million (2016: generated £17 million) in respect of investing activities and used £54 million (2016: generated £26 million) in respect of financing activities.

9—Dividends

2017 2016 Pence Pence £m per share £m per share Amounts recognised as distributions to equity shareholders: Final dividend for the year ended 31 July 2015 ...... ——154 60.50p Interim dividend for the year ended 31 July 2016 ...... ——84 33.28p Final dividend for the year ended 31 July 2016 ...... 167 66.72p —— Interim dividend for the year ended 31 July 2017 ...... 92 36.67p —— Dividends paid ...... 259 238

Since the end of the financial year, the Directors have proposed a final ordinary dividend of £185 million (73.33 pence per share). The dividend is subject to approval by shareholders at the Annual General Meeting and is therefore not included in the balance sheet as a liability at 31 July 2017.

F-86 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

10—Earnings per share

Restated 2017 2016 Basic Diluted Basic Diluted earnings earnings earnings earnings per per per per Earnings share share Earnings share share £m pence pence £m pence pence Headline profit after tax from continuing operations ...... 726 288.9 595 234.7 Exceptional items (net of tax) ...... 207 82.4 (3) (1.2) Amortisation and impairment of acquired intangible assets (net of tax) ...... (45) (17.9) (122) (48.1) Non-recurring tax charge relating to changes in tax rates ...... —— (5) (2.0) Profit from continuing operations ...... 888 353.4 350.8 465 183.4 182.3 (Loss)/profit from discontinued operations . . (105) (41.8) (41.4) 185 73.0 72.5 Profit from continuing and discontinued operations ...... 783 311.6 309.4 650 256.4 254.8

The weighted average number of ordinary shares in issue during the year, excluding those held by Employee Benefit Trusts and those held by the Company as Treasury shares, was 251.3 million (2016: 253.5 million). The impact of all potentially dilutive share options on earnings per share would be to increase the weighted average number of shares in issue to 253.1 million (2016: 255.1 million).

11—Employee information and Directors’ remuneration

Restated 2017 2016 £m £m Wages and salaries ...... 1,936 1,585 Social security costs ...... 134 111 Pension costs—defined contribution plans ...... 57 48 Pension (credit)/costs—defined benefit plans (note 26) ...... (7) 5 Share-based payments (note 28) ...... 20 17 Total staff costs ...... 2,140 1,766

The total staff costs, including discontinued operations, was £2,451 million (2016: £2,071 million).

Restated Average number of employees 2017 2016 USA...... 24,086 22,468 UK...... 6,064 6,208 Canada and Central Europe ...... 3,257 3,489 Central and other ...... 104 104 Group ...... 33,511 32,269

The average number of employees including discontinued operations was 39,205 (2016: 39,717).

F-87 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

11—Employee information and Directors’ remuneration (Continued) Further details of Directors’ remuneration and share options are set out in the Remuneration Report on pages 69 to 84, which form part of these financial statements. The aggregate emoluments for all key management are set out in the following table:

2017 2016 Key management personnel compensation (including Directors) £m £m Salaries, bonuses and other short-term employee benefits ...... 11 8 Termination and post-employment benefits ...... — 1 Share-based payments ...... 4 4 Total compensation ...... 15 13

12—Intangible assets—goodwill

2017 2016 £m £m Cost At 1 August ...... 1,711 1,404 Exchange rate adjustment ...... 54 266 Acquisitions ...... 139 40 Adjustment to fair value on prior year acquisitions ...... — 1 Disposal of businesses ...... (65) — Reclassification as held for sale ...... (871) — At 31 July ...... 968 1,711 Accumulated impairment losses At 1 August ...... 809 588 Exchange rate adjustment ...... 48 135 Impairment charge for the year ...... 82 86 Disposal of businesses ...... (3) — Reclassification as held for sale ...... (856) — At 31 July ...... 80 809 Net book amount at 31 July ...... 888 902

The impairment charge for the year includes £82 million (2016: £nil) in respect of discontinued operations. Goodwill and intangible assets acquired during the year have been allocated to the individual cash generating units or aggregated cash generating units (together ‘‘CGUs’’) which are deemed to be the smallest identifiable group of assets generating independent cash inflows. CGUs have been aggregated in the disclosure below at a segmental level except for certain CGUs in the USA which are considered to be

F-88 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

12—Intangible assets—goodwill (Continued) significant (more than 10 per cent of the current year goodwill balance). Impairment reviews were performed for each individual CGU during the year ended 31 July 2017.

2017 2016 Long-term Post-tax Pre-tax Long-term Post-tax Pre-tax growth rate discount rate discount rate Goodwill growth rate discount rate discount rate Goodwill %% %£m%% %£m Blended Branches 327 314 B2C...... 199 89 Waterworks ..... 128 127 Rest of USA .... 110 113 USA...... 2.3 9.3 15.2 764 2.2 8.2 13.4 643 UK...... 2.0 8.1 10.0 32 2.0 8.2 10.2 32 Canada ...... 2.0 8.7 11.9 92 2.0 8.0 10.8 88 Central Europe . . n/a n/a n/a — 1.0 6.6 8.4 48 Nordic (held for sale) ...... n/a n/a n/a — 2.2 7.5 9.7 91 Total ...... 888 902

The relevant inputs to the value in use calculations of each CGU were: Cash flow forecasts for years one to three are derived from the most recent Board approved strategic plan. The forecast for year five represents an estimate of ‘‘mid-cycle’’ trading performance for the CGU based on historic analysis. Year four is calculated as the average of the final year of the strategic plan and year five’s mid-cycle estimate. The other inputs include a risk-adjusted, pre-tax discount rate, calculated by reference to the weighted average cost of capital (‘‘WACC’’) of each country and the 30-year long-term growth rate by country, as published by the IMF in April 2017. The strategic plan is developed based on analyses of sales, markets and costs at a regional level. Consideration is given to past events, knowledge of future contracts and the wider economy. It takes into account both current business and future initiatives. Management has performed a sensitivity analysis across all CGUs which have goodwill and acquired intangible assets using reasonably possible changes in the following key impairment review assumptions: compound average revenue growth rate, post-tax discount rate and long-term growth rate, keeping all other assumptions constant. The sensitivity testing identified no reasonably possible changes in key assumptions that would cause the carrying amount of any CGU to exceed its recoverable amount.

Nordic During the period, the performance of our Swedish building materials business, Beijer, deteriorated sharply with trading profit significantly lower compared with the corresponding period last year and below management’s expectations. This generated a trigger event for management to reassess the recoverability of its associated goodwill and acquired intangible assets. This assessment resulted in an impairment charge, as follows:

Acquired Remaining Post-tax Pre-tax Goodwill intangible Total Impairment balance discount rate discount rate CGU £m assets £m £m £m £m % % Beijer ...... 82 20 102 (102) — 7.5 9.6 As at 31 July 2017, the Nordic businesses have been classified as held for sale (note 20) and discontinued operations (note 8).

F-89 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

13—Intangible assets—other

Acquired intangible assets Trade names Customer Software and brands relationships Other Total £m £m £m £m £m Cost At 1 August 2015 ...... 125 264 481 61 931 Exchange rate adjustment ...... 15 51 86 11 163 Acquisitions ...... — 7 16 5 28 Additions ...... 31 — — — 31 Disposals and transfers ...... (19) — (2) — (21) At 31 July 2016 ...... 152 322 581 77 1,132 Exchange rate adjustment ...... 11714—32 Acquisitions ...... —46251081 Additions ...... 25 — — — 25 Disposals and transfers ...... (7) — — — (7) Disposal of businesses ...... (13) (2) (20) (4) (39) Reclassification as held for sale ...... (11) (289) (251) — (551) At 31 July 2017 ...... 147 94 349 83 673 Accumulated amortisation and impairment losses At 1 August 2015 ...... 82 234 383 37 736 Exchange rate adjustment ...... 10 45 72 7 134 Amortisation charge for the year ...... 15 8 40 5 68 Impairment charge for the year ...... — 2 6 — 8 Disposals and transfers ...... (14) — (2) — (16) At 31 July 2016 ...... 93 289 499 49 930 Exchange rate adjustment ...... —1515—30 Amortisation charge for the year ...... 22 13 36 19 90 Impairment charge for the year ...... 2137—22 Disposals and transfers ...... (7) — — — (7) Disposal of businesses ...... (10) (1) (18) (4) (33) Reclassification as held for sale ...... (5) (286) (250) — (541) At 31 July 2017 ...... 95 43 289 64 491 Net book amount at 31 July 2017 ...... 52 51 60 19 182 Net book amount at 31 July 2016 ...... 59 33 82 28 202

The amortisation charge includes £7 million (2016: £6 million) in respect of discontinued operations of which £3 million relates to software (2016: £1 million). The impairment charge includes £20 million (2016: £nil) in respect of discontinued operations of which £nil relates to software.

F-90 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

14—Property, plant and equipment

Land and buildings Operating Finance leasehold Plant Freehold leases improvements machinery and Total £m £m £m equipment £m £m Cost At 1 August 2015 ...... 1,076 28 278 637 2,019 Exchange rate adjustment ...... 193 4 43 91 331 Acquisitions ...... 9 — — 2 11 Additions ...... 85 1 12 92 190 Disposals and transfers ...... (1) (1) (7) (39) (48) Reclassification as held for sale ...... (3) — — — (3) At 31 July 2016 ...... 1,359 32 326 783 2,500 Exchange rate adjustment ...... 43 — 1 8 52 Acquisitions ...... 12 — — 14 26 Additions ...... 55 — 25 77 157 Disposal of businesses ...... (11) (24) (1) (44) (80) Disposals and transfers ...... (7) (6) (22) (65) (100) Reclassification as held for sale ...... (745) — (7) (96) (848) At 31 July 2017 ...... 706 2 322 677 1,707 Accumulated depreciation At 1 August 2015 ...... 219 7 182 447 855 Exchange rate adjustment ...... 42 — 28 63 133 Depreciation charge for the year ...... 30 1 20 72 123 Impairment charge for the year ...... 2 — — — 2 Disposals and transfers ...... — — (7) (39) (46) Reclassification as held for sale ...... (1) — — — (1) At 31 July 2016 ...... 292 8 223 543 1,066 Exchange rate adjustment ...... 6— 2 3 11 Depreciation charge for the year ...... 35 — 24 83 142 Impairment charge for the year ...... 1— — — 1 Disposal of businesses ...... (1) (3) (2) (34) (40) Disposals and transfers ...... (2) (5) (8) (61) (76) Reclassification as held for sale ...... (142) — (6) (57) (205) At 31 July 2017 ...... 189 — 233 477 899 Owned assets ...... 517 — 89 194 800 Assets under finance leases ...... —2 — 6 8 Net book amount at 31 July 2017 ...... 517 2 89 200 808 Owned assets ...... 1,067 — 103 232 1,402 Assets under finance leases ...... — 24 — 8 32 Net book amount at 31 July 2016 ...... 1,067 24 103 240 1,434

At 31 July 2017, the book value of property, plant and equipment that had been pledged as security for liabilities was £12 million (2016: £591 million). In addition, £179 million of property, plant and equipment included in assets held for sale (note 20) had been pledged as security for liabilities at 31 July 2017. The depreciation charge and impairment charge for the year include £24 million (2016: £24 million) and £nil (2016: £1 million) respectively relating to discontinued operations.

F-91 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

15—Associates In April 2017, the Group acquired a 39.21% share in Walter Meier AG, a trading company whose principal place of business is Switzerland and which is engaged in the distribution and maintenance of heating and air conditioning systems. The investment in Walter Meier AG is accounted for as an associate using the equity method. Walter Meier AG prepares accounts under Swiss GAAP FER with a year-end of 31 December. The Group’s accounts have been prepared based on Walter Meier AG’s half year accounts ended 30 June 2017. There were no significant transactions between that date and 31 July 2017 and no material differences would arise if the accounts were prepared under IFRS. Summarised financial information from Walter Meier AG’s half year accounts ended 30 June 2017 is set out below. Trading results are from the date of acquisition.

2017 £m Non-current assets ...... 138 Current assets ...... 244 Current liabilities ...... (149) Non-current liabilities ...... (96) Net assets ...... 137 Revenue ...... 109 Loss from continuing operations ...... (3) Other comprehensive income attributable to the owners of the company ...... — Total comprehensive income ...... (3) The amount recognised in the Group’s consolidated financial statements is as follows: Share of result of associate ...... 39.21% (1)

There were no dividends received from the associate in the year. The reconciliation of associate net assets to the carrying amount recognised in the Group’s consolidated financial statements is as follows:

2017 %£m Net assets of associate ...... 137 Proportion of the Group’s ownership interest in the associate ...... 39.21 54 Goodwill ...... 70 Carrying amount of the Group’s interest in the associate ...... 124

16—Deferred tax assets and liabilities The deferred tax assets and liabilities shown in the balance sheet are analysed as follows:

2017 2016 Deferred tax £m £m Deferred tax assets ...... 121 127 Deferred tax liabilities ...... (9) (65) 112 62

F-92 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

16—Deferred tax assets and liabilities (Continued) The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting year:

Goodwill and Property, Retirement intangible Share-based plant and benefit assets payments equipment obligations Inventory Tax losses Other Total £m £m £m £m £m £m £m £m At 31 July 2015 ...... (47) 21 16 45 (75) 58 44 62 Credit/(charge) to income .... 5 — (13) 2 9 (2) (5) (4) Credit/(charge) to other comprehensive income ..... — — — 25 — (7) — 18 Charge to equity ...... — (6) — — — — — (6) Acquisitions ...... (2) — — — — — — (2) Exchange rate adjustment .... (8) 3 (10) 12 (12) 2 7 (6) At 31 July 2016 ...... (52) 18 (7) 84 (78) 51 46 62 Credit/(charge) to income .... 7 (1) (4) (3) (4) 21 (9) 7 (Charge)/credit to other comprehensive income ..... — — — (3) — 1 — (2) Credit to equity ...... —1—————1 Acquisitions ...... (6) — (3) — — — — (9) Disposals of businesses ...... ——1(1)2——2 Transferred to held for sale . . . 2 (1) 61 (3) (4) (6) 2 51 Transfers between categories . . — — — — — (7) 7 — Exchange rate adjustment .... — — (1) 1 — — — — At 31 July 2017 ...... (49) 17 47 75 (84) 60 46 112

Legislation has been enacted in the UK to reduce the standard rate of UK corporation tax from 20 per cent to 19 per cent with effect from 1 April 2017 and to 17 per cent with effect from 1 April 2020. Accordingly, the UK deferred tax assets and liabilities have predominantly been calculated based on a 17 per cent tax rate which materially reflects the rate for the period in which the deferred tax assets and liabilities are expected to reverse. Net deferred tax assets have been recognised on the basis that sufficient taxable profits are forecast to be available in the future to enable them to be utilised. In addition, the Group has unrecognised gross tax losses totalling £328 million (2016: £68 million) that have not been recognised on the basis that their future economic benefit is uncertain. These losses have no expiry date and relate predominantly to capital losses. No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries. However, tax may arise on £284 million (2016: £253 million) of temporary differences but the Group is in a position to control the timing of their reversal and it is probable that such diferences will not reverse in the foreseeable future.

F-93 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

17—Trade and other receivables

2017 2016 £m £m Current Trade receivables ...... 1,795 1,933 Less: provision for impairment ...... (24) (39) Net trade receivables ...... 1,771 1,894 Other receivables ...... 92 81 Prepayments ...... 230 232 2,093 2,207 Non-current Other receivables ...... 226 212

Included in prepayments is £177 million (2016: £182 million) due in relation to Supplier Rebates where there is no right to offset against trade payable balances. Movements in the provision for impairment of trade receivables are as follows:

2017 2016 £m £m At 1 August ...... 39 35 Net charge for the year ...... 13 14 Utilised in the year ...... (17) (14) Disposal of businesses and reclassified as held for sale ...... (11) — Exchange rate adjustment ...... — 4 At 31 July ...... 24 39

Provisions for impairment of receivables have two components comprising a provision for amounts that have been individually determined not to be collectable in full, because of known financial difficulties of the debtor or evidence of default or delinquency in payment, amounting to £13 million at 31 July 2017 (2016: £16 million); and a provision based on historic experience of non-collectability of receivables, amounting to £11 million at 31 July 2017 (2016: £23 million). Trade receivables have been aged with respect to the payment terms specified in the terms and conditions established with customers as follows:

2017 2016 £m £m Amounts not yet due and less than one month past due ...... 1,620 1,452 Past due more than one month ...... 175 481 1,795 1,933

F-94 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

18—Derivative financial instruments The Group uses interest rate swaps to manage its exposure to interest rate movements on its borrowings and foreign exchange swaps to hedge cash flows in respect of committed transactions or to hedge its investment in overseas operations. The fair values of derivative financial instruments are as follows:

2017 2016 Assets Liabilities Total Assets Liabilities Total Derivative financial instrument type £m £m £m £m £m £m Interest rate swaps ...... 20 — 20 29 — 29 Foreign exchange swaps ...... ———2— 2 20 — 20 31 — 31

The current element of derivative financial assets is £5 million (2016: £11 million) and the non-current element is £15 million (2016: £20 million). The Group’s accounting and risk management policies, and further information about the derivative financial instruments that it uses, are set out on pages 123 to 126.

19—Cash and cash equivalents

2017 2016 £m £m Cash and cash equivalents ...... 1,911 940 Included in the balance at 31 July 2017 is an amount of £1,420 million (2016: £606 million) which is part of the Group’s cash pooling arrangements where there is an equal and opposite balance included within bank overdrafts (note 22). These amounts are subject to a master netting arrangement. At 31 July 2017, cash and cash equivalents included £64 million (2016: £60 million) which is used to collateralise letters of credit on behalf of Wolseley Insurance Limited. Restricted cash held by the Group at the balance sheet date amounted to £17 million (2016: £3 million) and is recorded in other receivables.

20—Assets and liabilities held for sale

2017 2016 £m £m Properties awaiting disposal ...... 66 10 Assets of disposal groups held for sale ...... 1,232 46 Assets held for sale ...... 1,298 56 Liabilities of disposal groups held for sale ...... 821 12

During the year ended 31 July 2017, the Group announced its decision to sell its Nordic businesses and subsequently classified these as held for sale. At 31 July 2017, the sales process for the remaining French property assets was progressing and accordingly these properties have been reclassified as properties awaiting disposal.

F-95 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

20—Assets and liabilities held for sale (Continued) The assets and liabilities of disposal groups held for sale consist of:

2017 2016 £m £m Intangible assets ...... 25 — Property, plant and equipment ...... 615 42 Inventories ...... 274 — Trade and other receivables ...... 256 4 Tax receivables ...... 29 — Cash and cash equivalents ...... 33 — Bank loans ...... (79) — Trade and other payables ...... (598) (7) Provisions and retirement benefit obligations ...... (73) (1) Tax payables ...... (71) (4) 411 34

21—Trade and other payables

2017 2016 Current £m £m Trade payables ...... 1,767 2,121 Tax and social security ...... 66 88 Other payables ...... 90 71 Accruals ...... 354 346 Deferred income ...... 2 8 2,279 2,634 Non-current Other payables ...... 180 163

Trade payables are stated net of £nil (2016: £15 million) due from suppliers with respect to Supplier Rebates where an agreement exists that allows these to be net settled.

22—Bank loans and overdrafts

2017 2016 Current Non-current Total Current Non-current Total £m £m £m £m £m £m Bank overdrafts ...... 1,500 — 1,500 692 — 692 Bank and other loans ...... 24 61 224 225 Senior unsecured loan notes ...... 125 827 952 8 951 959 Total bank loans and overdrafts ...... 1,627 831 2,458 701 1,175 1,876

Included in bank overdrafts at 31 July 2017 is an amount of £1,420 million (2016: £606 million) which is part of the Group’s cash pooling arrangements where there is an equal and opposite balance included within cash and cash equivalents (note 19). These amounts are subject to a master netting arrangement. £2 million of bank loans are secured against the Group’s freehold property (2016: £130 million). In addition, £79 million of bank loans included in liabilities held for sale (note 20) are secured against freehold property included in assets held for sale. No bank loans were secured against trade receivables at 31 July 2017 (2016: £nil) as the trade receivables facility of £454 million was undrawn as at 31 July 2017.

F-96 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

22—Bank loans and overdrafts (Continued) Non-current loans are repayable as follows:

2017 2016 £m £m Due in one to two years ...... 6 124 Due in two to three years ...... 4 4 Due in three to four years ...... 214 4 Due in four to five years ...... 1 215 Due in over five years ...... 606 828 Total ...... 831 1,175

The carrying value of the senior unsecured loan notes of £952 million comprises a par value of £937 million and a fair value adjustment of £15 million (2016: £959 million, £936 million and £23 million respectively). The fair value adjustment arose before 30 November 2011 when the loan notes were hedged by a series of interest rate swaps. From 30 November 2011, the hedge relationship was de-designated and the fair value adjustment is being released to the income statement on an amortised cost basis and the fair value hedge is based on a recalculated effective interest rate at the date when hedge accounting was discontinued. The adjustment will be fully amortised at the point the unsecured loan notes mature. Finance costs are disclosed in note 6. There have been no significant changes during the year to the Group’s policies on accounting for, valuing and managing the risk of financial instruments. These policies are summarised on pages 123 to 126.

23—Financial instruments and financial risk management Capital structure To assess the appropriateness of its capital structure based on current and forecast trading, the Group’s principal measure of financial gearing is the ratio of net debt to EBITDA before exceptional items. The Group aims to operate with investment grade credit metrics and ensure this ratio remains within 1 to 2 times. The Group’s main borrowing facilities contain a financial covenant limiting the ratio of net debt to EBITDA before exceptional items to 3.5:1. The reconciliation of opening to closing net debt is detailed in note 32. In order to maintain or adjust the capital structure, the Group may return capital to shareholders, repurchase its own shares, issue new shares or sell assets to reduce debt.

Liquidity During the year ended 31 July 2017, the Group’s US$600 million revolving credit facility has been extended by one year and matures in December 2019. The Group also entered into a US$190 million bilateral revolving credit facility agreement maturing in December 2017. As at 31 July 2017, all of the Group’s revolving credit facilities were undrawn. The maturity profile of the Group’s undrawn facilities is as follows:

2017 2016 £m £m Less than one year ...... 144 — Between one and two years ...... — — Between two and three years ...... 454 454 Between three and four years ...... — — Between four and five years ...... 800 — Greater than five years ...... — 705 Total ...... 1,398 1,159

F-97 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

23—Financial instruments and financial risk management (Continued) Foreign currency Net debt by currency was as follows:

Finance Cash, Currency Interest lease overdrafts and (sold)/bought rate swaps obligations bank loans forward Total As at 31 July 2017 £m £m £m £m £m Pounds sterling ...... — (3) 62 (7) 52 US dollars ...... 20 (4) (604) 7 (581) Euro, Danish kroner and Swedish kronor .... —— 6 — 6 Other currencies ...... — — (11) — (11) Total ...... 20 (7) (547) — (534)

Finance Cash, Currency Interest lease overdrafts and bought/(sold) rate swaps obligations bank loans forward Total As at 31 July 2016 £m £m £m £m £m Pounds sterling ...... — (3) (60) 65 2 US dollars ...... 29 (6) (789) (151) (917) Euro, Danish kroner and Swedish kronor .... — — (102) 88 (14) Other currencies ...... — (22) 15 — (7) Total ...... 29 (31) (936) 2 (936)

Currency bought/(sold) forward comprises short-term foreign exchange swaps which were designated and effective as hedges of overseas operations.

Interest rates The interest rate profile of the Group’s net debt including the effect of interest rate swaps is set out in the following tables:

2017 2016 Floating Fixed Total Floating Fixed Total As at 31 July £m £m £m £m £m £m Pounds sterling ...... 55 (3) 52 5(3)2 US dollars ...... 360 (941) (581) 48 (965) (917) Euro, Danish kroner and Swedish kronor ...... 6—6113 (127) (14) Other currencies ...... (11) — (11) 15 (22) (7) Total ...... 410 (944) (534) 181 (1,117) (936)

Fixed rate borrowings at 31 July 2017 carried a weighted average interest rate of 3.3 per cent fixed for a weighted average duration of 6.5 years (31 July 2016: 3.2 per cent for 7.6 years). The Group had no floating rate borrowings at 31 July 2017 (31 July 2016: floating rate borrowings carried a weighted average interest rate of 0.9 per cent).

F-98 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

24—Obligations under finance leases

Gross Gross Net Net 2017 2016 2017 2016 £m £m £m £m Due within one year ...... 4 5 3 4 Due in one to five years ...... 3 10 3 7 Due in over five years ...... 4 25 1 20 11 40 7 31 Less: future finance charges ...... (4) (9) Present value of finance lease obligations ...... 7 31 Current ...... 3 4 Non-current ...... 4 27 Total obligations under finance leases ...... 7 31

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

25—Provisions

Environmental Wolseley Other and legal Insurance Restructuring provisions Total £m £m £m £m £m At 31 July 2015 ...... 70 41 32 63 206 Utilised in the year ...... (7) (12) (12) (4) (35) Amortisation of discount ...... 3 — — — 3 Charge for the year ...... 5 18 8 7 38 Disposal of businesses and reclassified as held for sale ...... (7) — (1) (11) (19) Exchange rate adjustment ...... 11 6 1 10 28 At 31 July 2016 ...... 75 53 28 65 221 Utilised in the year ...... (11) (13) (23) (4) (51) Changes in discount rate ...... (10) — — — (10) Charge for the year ...... 71450576 Disposal of businesses and reclassified as held for sale ...... (3) — (10) (24) (37) Exchange rate adjustment ...... 1—— 12 At 31 July 2017 ...... 59 54 45 43 201

Provisions have been analysed between current and non-current as follows:

Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2017 £m £m £m £m £m Current ...... 10 18 28 25 81 Non-current ...... 49 36 17 18 120 Total provisions ...... 59 54 45 43 201

F-99 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

25—Provisions (Continued)

Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2016 £m £m £m £m £m Current ...... 23 14 16 35 88 Non-current ...... 52 39 12 30 133 Total provisions ...... 75 53 28 65 221

The environmental and legal provision includes £52 million (2016: £61 million) for the estimated liability for asbestos litigation on a discounted basis using a long-term discount rate of 2.3 per cent (2016: 1.5 per cent). This amount has been actuarially determined as at 31 July 2017 based on advice from independent professional advisers. The Group has insurance that it believes is sufficient cover for the estimated liability and accordingly an equivalent insurance receivable has been recorded in other receivables. Based on current estimates, the amount of performing insurance cover significantly exceeds the expected level of future claims and no material profit or cash flow impact is therefore expected to arise in the foreseeable future. Due to the nature of these provisions, the timing of any settlements is uncertain. Wolseley Insurance provisions represent an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported on certain risks retained by the Group (principally USA casualty and global property damage). Due to the nature of these provisions, the timing of any settlements is uncertain. Restructuring provisions include provisions for staff redundancy costs and future lease rentals on closed branches. In determining the provision for onerous leases, the cash flows have been discounted on a pre-tax basis using appropriate government bond rates. The weighted average maturity of these obligations is approximately three years. Other provisions include warranty costs relating to businesses disposed of, rental commitments on vacant properties and dilapidations on leased properties. The weighted average maturity of these obligations is approximately three years.

26—Retirement benefit obligations (i) Long-term benefit plans provided by the Group The Group has a defined benefit pension plan for certain of its UK employees. This plan was closed for future service accrual in December 2013 and during October 2016 the plan was closed for future non-inflationary salary accrual. The Group operates a number of smaller plans in other jurisdictions, providing pensions or other long-term benefits such as long service or termination awards. More information about the plans operated by the Group is set out on page 126. During the year, the Group secured a buy-in insurance policy with Pension Insurance Corporation (PIC) for the UK pension plan. This policy covered all of the pensioner members of the plan and exactly matches the benefits provided by the plan. This has led to the recognition of an asset in respect of this policy exactly equal to the insured liabilities at 31 July 2017. The difference between the premium paid and the asset recognised in respect of this policy has been recognised as an actuarial movement in other comprehensive income.

F-100 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

26—Retirement benefit obligations (Continued) (ii) Financial impact of plans 2017 2016 As disclosed in the Group balance sheet £m £m Non-current asset ...... 3 —

Current liability ...... (8) (9) Non-current liability ...... (16) (138) Total liability ...... (24) (147) Net liability ...... (21) (147)

2017 2016 UK Non-UK Total UK Non-UK Total Analysis of Group balance sheet net asset/(liability) £m £m £m £m £m £m Fair value of plan assets ...... 1,337 164 1,501 1,308 250 1,558 Present value of defined benefit obligation ...... (1,334) (188) (1,522) (1,336) (369) (1,705) Net asset/(liability) ...... 3 (24) (21) (28) (119) (147)

2017 2016 Analysis of total (income)/expense recognised in the Group income statement £m £m Current service cost ...... 5 7 Administration costs ...... 3 2 Exceptional past service gain (note 5) ...... (11) — Past service gain from settlements ...... (2) (4) (Credited)/charged to operating costs(a) ...... (5) 5 Charged to finance costs (note 6)(b) ...... 3 — Total (income)/expense recognised in the Group income statement ...... (2) 5

(a) Includes a charge of £2 million (2016: £nil) relating to discontinued operations. (b) Includes a charge of £1 million (2016: £1 million) relating to discontinued operations. Expected employer contributions to the defined benefit plans for the year ending 31 July 2018 are £14 million. The remeasurement of the defined benefit net liability is included in the Group statement of comprehensive income.

2017 2016 Analysis of amount recognised in the Group statement of comprehensive income £m £m The return on plan assets (excluding amounts included in net interest expense) ...... 5 40 Actuarial gain arising from changes in demographic assumptions ...... 32 17 Actuarial loss arising from changes in financial assumptions ...... (78) (200) Actuarial gain arising from experience adjustments ...... 40 23 Tax...... (1) 25 Total amount recognised in the Group statement of comprehensive income ...... (2) (95)

The cumulative amount of actuarial losses recognised in the Group statement of comprehensive income is £370 million (2016: £369 million).

F-101 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

26—Retirement benefit obligations (Continued) (ii) Financial impact of plans (Continued) The fair value of plan assets is as follows:

2017 2016 UK Non-UK Total UK Non-UK Total Fair value of plan assets £m £m £m £m £m £m At 1 August ...... 1,308 250 1,558 1,262 215 1,477 Interest income ...... 31 5 36 45 6 51 Employer’s contributions ...... 37 30 67 27 9 Participants’ contributions ...... —2 2—3 3 Benefit payments ...... (46) (14) (60) (45) (15) (60) Settlement payments ...... — (3) (3) —— — Disposal of businesses ...... — (102) (102) —— — Reclassification as held for sale ...... — (8) (8) —— — Remeasurement gain/(loss): Return on plan assets (excluding amounts included in net interest expense) ...... 7 (2) 5 44 (4) 40 Currency translation ...... —6 6—383 At 31 July ...... 1,337 164 1,501 1,308 250 1,558 Actual return on plan assets ...... 38 3 41 89 2 91

Employer’s contributions included special funding contributions of £55 million (2016: £nil). At 31 July 2017, the plan assets were invested in a diversified portfolio comprised of:

2017 2016 UK Non-UK Total UK Non-UK Total Value at 31 July £m £m £m £m £m £m Equity type assets quoted ...... 406 53 459 663 85 748 Government bonds quoted ...... 255 36 291 356 22 378 Corporate bonds quoted ...... 31 56 87 147 75 222 Real estate ...... 40 — 40 4242 Cash ...... 35 8 43 12 10 22 Insurance policies ...... 505 — 505 —1717 Other ...... 65 11 76 126 17 143 Total market value of assets ...... 1,337 164 1,501 1,308 250 1,558

F-102 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

26—Retirement benefit obligations (Continued) (ii) Financial impact of plans (Continued)

2017 2016 UK Non-UK Total UK Non-UK Total Present value of defined benefit obligation £m £m £m £m £m £m At 1 August ...... 1,336 369 1,705 1,206 286 1,492 Current service cost (including administrative costs) . 26 827 9 Past service gain ...... (11) (2) (13) (2) (2) (4) Interest cost ...... 31 8 39 41 10 51 Benefit payments ...... (46) (14) (60) (45) (15) (60) Settlement and curtailment payments ...... — (5) (5) —— — Participants’ contributions ...... —2 2—3 3 Remeasurement (gain)/loss: Actuarial gain arising from changes in demographic assumptions ...... (31) (1) (32) (14) (3) (17) Actuarial loss/(gain) arising from changes in financial assumptions ...... 91 (13) 78 174 26 200 Actuarial (gain)/loss arising from experience adjustments ...... (38) (2) (40) (26) 3 (23) Disposal of businesses ...... — (120) (120) —— — Reclassified as held for sale ...... — (49) (49) —— — Currency translation ...... —9 9—545 At 31 July ...... 1,334 188 1,522 1,336 369 1,705

2017 2016 Analysis of present value of defined benefit obligation £m £m Amounts arising from wholly unfunded plans ...... 3 44 Amounts arising from plans that are wholly or partly funded ...... 1,519 1,661 1,522 1,705

(iii) Valuation assumptions The financial assumptions used to estimate defined benefit obligations are:

2017 2016 UK Non-UK UK Non-UK Discount rate ...... 2.6% 3.6% 2.4% 2.2% Inflation rate ...... 3.2% 2.5% 2.8% 1.4% Increase to deferred benefits during deferment ...... 2.1% n/a 1.7% 1.8% Increases to pensions in payment ...... 2.9% 2.0% 2.5% 1.8% Salary increases ...... 2.1% 2.5% 1.7% 1.8% The life expectancy assumptions used to estimate defined benefit obligations are:

2017 2016 UK Non-UK UK Non-UK Years Years Years Years Current pensioners (at age 65)—male ...... 22 21 22 22 Current pensioners (at age 65)—female ...... 24 24 24 24 Future pensioners (at age 65)—male ...... 24 23 25 24 Future pensioners (at age 65)—female ...... 26 25 27 26 The weighted average duration of the defined benefit obligation is 20.4 years (2016: 21.2 years).

F-103 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

26—Retirement benefit obligations (Continued) (iv) Sensitivity analysis The Group considers that the most sensitive assumptions are the discount rate, inflation and life expectancy. The table below shows the impact of the sensitivities on the Group’s defined benefit plan net liability.

2017 2016 UK Non-UK UK Non-UK Change £m £m Change £m £m Discount rate ...... +0.25% 69 4 +0.25% 68 13 (0.25)% (75) (4) (0.25)% (71) (14) Inflation ...... +0.25% (65) — +0.25% (61) (2) (0.25)% 63 — (0.25)% 52 2 Life expectancy ...... +1 year 52 6 +1 year 57 9

27—Share capital (i) Ordinary shares in issue Allotted and Authorised issued numbers numbers 2017 2016 2017 2016

Number of ordinary 1053⁄66 pence shares in the Company (million) ...... 463 463 267 267

Nominal value of ordinary 1053⁄66 pence shares in the Company (£ million) . . . 50 50 29 29

All the allotted and issued shares, including those held by Employee Benefit Trusts and in Treasury, are fully paid or credited as fully paid. A summary of the movements in the year is detailed in the following table:

2017 2016

Number of ordinary shares 1053⁄66 pence ordinary shares in the Company in issue at 1 August ...... 266,636,106 266,592,678 New shares issued to settle share options ...... — 43,428

Number of 1053⁄66 pence ordinary shares in the Company in issue at 31 July 266,636,106 266,636,106

Consideration received, net of transaction costs, in respect of shares issued to participants in the long term incentive plans and all-employee sharesave plans amounted to £nil (2016: £nil). (ii) Treasury shares The shares purchased under the Group’s buyback programme have been retained in issue as Treasury shares and represent a deduction from equity attributable to owners of the parent. A summary of the movements in Treasury shares in the year is detailed in the following table:

2017 2016 Number of Cost Number of Cost Treasury shares shares £m shares £m As at 1 August ...... 14,259,276 516 7,105,842 240 Treasury shares purchased ...... ——7,862,836 300 Disposal of Treasury shares to settle share options ...... (876,696) (31) (709,402) (24) As at 31 July ...... 13,382,580 485 14,259,276 516

F-104 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

27—Share capital (Continued) (ii) Treasury shares (Continued) Consideration received in respect of shares transferred to participants in the long term incentive plans and all-employee sharesave plans amounted to £21 million (2016: £14 million). After the reporting date the Directors proposed a further share buyback programme of up to £500 million. (iii) Own shares Two Employee Benefit Trusts have been established in connection with the Company’s discretionary share option plans and long term incentive plans. A summary of the movements in own shares held in Employee Benefit Trusts is detailed in the following table below:

2017 2016 Number of Cost Number of Cost Own shares shares £m shares £m As at 1 August ...... 1,762,657 57 2,019,377 63 New shares purchased ...... 142,000 6 368,441 14 Exercise of share options ...... (469,502) (15) (625,161) (20) As at 31 July ...... 1,435,155 48 1,762,657 57

Consideration received in respect of shares transferred to participants in the discretionary share option plans and long term incentive plans amounted to £nil (2016: £1 million). At 31 July 2017, the shares held in the trusts had a market value of £65 million (2016: £74 million). Dividends due on shares held by the Employee Benefit Trusts are waived in accordance with the provisions of the trust deeds.

28—Share-based payments

Restated 2017 2016 Analysis of charge to income statement £m £m Executive share option plans ...... — 2 Ordinary share plans ...... 15 12 All-employee sharesave plans ...... 2 1 Long term incentive plans ...... 3 2 20 17

The total share-based payments charge including discontinued operations was £22 million (2016: £20 million).

F-105 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

28—Share-based payments (Continued) The number and weighted average exercise price of outstanding and exercisable share options and share awards are detailed below:

2017 2016 Weighted Weighted average average Number of exercise Number of exercise shares/options price shares/options price 000’s £ 000’s £ Outstanding at 1 August ...... 3,728 13.21 4,423 13.91 Granted ...... 1,282 8.60 1,022 9.80 Options exercised or shares vested ...... (1,350) 15.61 (1,438) 11.89 Surrendered or expired ...... (401) 9.99 (279) 18.65 Outstanding at 31 July ...... 3,259 10.80 3,728 13.21 Exercisable at 31 July ...... 353 18.80 696 18.35

2017 2016 Weighted average fair value per share/option granted during the year (£) ...... 32.95 24.28

At 31 July 2017 and 31 July 2016, all of the shares and options outstanding had an exercise price which was below the market price. The market price at 31 July 2017 was £45.27 (2016: £42.09) and the average share price in the year to 31 July 2017 was £47.28 (2016: £38.30). For executive share option plans and all-employee sharesave plans, the range of exercise prices for shares and options outstanding at 31 July 2017 was £12.69 to £42.96 (2016: £7.01 to £33.62). For the ordinary share plan and long term incentive plans, all share options outstanding at 31 July 2017 had an exercise price of £nil (2016: £nil). For shares and options outstanding at 31 July 2017, the weighted average remaining contractual life was three years (2016: four years). The fair value at the date of grant of options awarded during the year has been estimated using the binomial methodology for all plans except the portion of the grants awarded under the long term incentive plan that are subject to a relative Total Shareholder Return (‘‘TSR’’) performance condition, for which a Monte Carlo simulation was used. The fair value of shares granted under the ordinary share plan was calculated as the market price of the shares at the date of grant reduced by the present value of dividends expected to be paid over the vesting period. The principal assumptions required by these methodologies were:

All-employee Long term Ordinary sharesave incentive share plans plans plans 2017 2016 2017 2016 2017 2016 Risk-free interest rate ...... 0.3% 0.7% 0.1% 0.6% 0.3% 0.7% Expected dividend yield ...... 2.7% 3.0% 2.4% 2.7% 0.0% 2.2% Expected volatility ...... 22% 23% 22% 25% 22% 23% Expected life ...... 1–3 years 3 years 1–6 years 1–6 years 3 years 3 years There were no executive share options granted in the period. Expected volatility has been estimated on the basis of historical volatility over the expected term, excluding the efect of extraordinary volatility due to the Group’s capital reorganisation and rights issue in 2009. Expected life has been estimated on the basis of historical data on the exercise pattern. Additional information on share-based payment plans operated by the Group is provided on page 127.

F-106 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

29—Reconciliation of profit to cash generated from operations Profit for the year is reconciled to cash generated from continuing and discontinued operations as follows:

2017 2016 £m £m Profit for the year ...... 783 650 Net finance costs ...... 39 34 Share of result of associate ...... 1 — Tax expense ...... 290 236 Gain on disposal and closure of businesses and revaluation of assets held for sale ..... (256) (147) Depreciation and impairment of property, plant and equipment ...... 143 125 Amortisation and impairment of non-acquired intangible assets ...... 24 15 Amortisation and impairment of goodwill and acquired intangible assets ...... 170 147 Loss/(profit) on disposal of property, plant and equipment and assets held for sale .... 9 (18) Increase in inventories ...... (97) (36) Increase in trade and other receivables ...... (211) (21) Increase in trade and other payables ...... 231 13 (Decrease)/increase in provisions and other liabilities ...... (33) 1 Share-based payments ...... 22 20 Cash generated from operations ...... 1,115 1,019

Trading profit is reconciled to cash generated from continuing and discontinued operations as follows:

Restated 2017 2016 £m £m Trading profit ...... 1,059 857 Exceptional items in operating profit ...... 229 (4) Gain on disposal and closure of businesses and revaluation of assets held for sale .... (256) (147) Operating (loss)/profit from discontinued operations before the amortisation and impairment of goodwill and acquired intangible assets (note 8) ...... (5) 214 Depreciation and impairment of property, plant and equipment ...... 143 125 Amortisation and impairment of non-acquired intangible assets ...... 24 15 Loss/(profit) on disposal of property, plant and equipment and assets held for sale . . . 9 (18) Increase in inventories ...... (97) (36) Increase in trade and other receivables ...... (211) (21) Increase in trade and other payables ...... 231 13 (Decrease)/increase in provisions and other liabilities ...... (33) 1 Share-based payments ...... 22 20 Cash generated from operations ...... 1,115 1,019

30—Acquisitions The Group acquired the following 11 businesses in the year ended 31 July 2017. All these businesses are engaged in the distribution of plumbing and heating products and building materials. All transactions have

F-107 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

30—Acquisitions (Continued) been accounted for by the purchase method of accounting. The Group also acquired a share of Walter Meier AG (see note 15), which has been accounted for as an associate.

Date of Country of Shares/asset Name acquisition incorporation deal % acquired Clawfoot Supply LLC (t/a Signature Hardware) August 2016 USA Shares 100 Westfield Lighting Co., Inc...... August 2016 USA Asset 100 Molnlycke¨ Tra¨ AB...... October 2016 Sweden Shares 100 Berners Tunga Fordon Fastighet AB ...... October 2016 Sweden Shares 100 Ramapo Wholesalers Inc...... October 2016 USA Asset 100 The Plumbing Source Co., Inc...... October 2016 USA Shares 100 Underground Pipe & Valve, Incorporated .... November 2016 USA Asset 100 Matera Paper Company, Inc...... December 2016 USA Shares 100 P.V. Sullivan Supply Co., Inc...... February 2017 USA Asset 100 Custom Lighting Incorporated and Custom Hardware and Accessories, Inc...... February 2017 USA Asset 100 Lighting Unlimited, LLC ...... February 2017 USA Asset 100 The assets and liabilities acquired and the consideration for all acquisitions in the period are as follows:

Book values Fair value Provisional fair acquired adjustments values acquired £m £m £m Intangible assets —Customer relationships ...... —2525 —Trade names and brands ...... —4646 —Other ...... —1010 Property, plant and equipment ...... 25 1 26 Inventories ...... 47 (9) 38 Receivables ...... 23 — 23 Cash, cash equivalents and bank overdrafts ...... 8— 8 Payables ...... (14) — (14) Deferred tax ...... — (9) (9) Total ...... 89 64 153 Goodwill arising ...... 139 Consideration ...... 292 Satisfied by: Cash ...... 254 Deferred consideration ...... 38 Total consideration ...... 292

The fair value adjustments are provisional figures, being the best estimates currently available. Further adjustments may be necessary when additional information is available for some of the judgemental areas. The goodwill arising on these acquisitions is attributable to the anticipated profitability of the new markets and product ranges to which the Group has gained access and additional profitability and operating efficiencies available in respect of existing markets. The acquisitions contributed £214 million to revenue, £29 million to trading profit and £12 million to the Group’s operating profit for the period between the date of acquisition and the balance sheet date. It is not practicable to disclose profit before and after tax, as the Group manages its borrowings as a portfolio and cannot attribute an effective borrowing rate to an individual acquisition.

F-108 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

30—Acquisitions (Continued) If each acquisition had been completed on the first day of the financial year, Group revenue would have been £15,277 million and Group trading profit would have been £1,062 million. It is not practicable to disclose profit before tax or profit attributable to equity shareholders, as stated above. It is also not practicable to disclose operating profit as the Group cannot estimate the amount of intangible assets that would have been acquired at a date other than the acquisition date. The net outflow of cash in respect of the purchase of businesses is as follows:

2017 2016 £m £m Purchase consideration ...... 254 94 Deferred and contingent consideration in respect of prior year acquisitions ...... 10 21 Cash consideration ...... 264 115 Cash acquired ...... (8) (2) Net cash outflow in respect of the purchase of businesses ...... 256 113

31—Disposals In the year ended 31 July 2017, the Group disposed of the following businesses:

Shares/ Date of asset Name Country disposal deal HR Sandvold AS ...... Norway March 2017 Shares Tobler Haustechnik AG ...... Switzerland April 2017 Shares Endries International Inc...... USA June 2017 Shares Endries International Canada Inc...... Canada June 2017 Shares Endries International de Mexico SA de C.V...... Mexico June 2017 Shares Wolseley Liegenschaftsverwaltung GmbH ...... Austria June 2017 Shares The Group recognised a total gain on current year disposals of £266 million.

Continuing Discontinued Group operations operations 2017 £m £m £m Consideration received ...... 408 — 408 Net assets disposed of ...... (166) — (166) Disposal costs ...... (25) — (25) Recycling of deferred foreign exchange gains ...... 49 — 49 Gain on disposal ...... 266 — 266

F-109 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

31—Disposals (Continued) Details of assets and liabilities at the date of disposal are provided in the following table:

Continuing Discontinued Group operations operations 2017 £m £m £m Goodwill and intangible assets ...... 68 — 68 Property, plant and equipment ...... 40 — 40 Inventories ...... 78 1 79 Receivables ...... 71 — 71 Payables ...... (63) (1) (64) Provisions ...... (2) — (2) Pensions ...... (18) — (18) Current and deferred tax ...... (4) — (4) Net debt ...... (4) — (4) Total net assets disposed of ...... 166 — 166

The net inflow/(outflow) of cash in respect of the disposal of businesses is as follows:

Continuing Discontinued Group operations operations 2017 £m £m £m Cash consideration received for current year disposals (net of cash disposed of) ...... 257 — 257 Cash paid in respect of prior year disposals ...... — (1) (1) Disposal costs paid ...... (25) — (25) Net cash inflow/(outflow) ...... 232 (1) 231

32—Reconciliation of opening to closing net debt

Acquisitions At and new Fair value Held for At 1 August finance Disposal of and other sale Exchange 31 July 2016 Cash flows leases businesses adjustments movements movement 2017 For the year ended 31 July 2017 £m £m £m £m £m £m £m £m Cash and cash equivalents . . 940 1,911 Bank overdrafts ...... (692) (1,500) 248 228 8 (25) — (33) (15) 411 Derivative financial instruments ...... 31 (9) — — — — (2) 20 Bank and other loans ..... (1,184) 134 — 7 8 79 (2) (958) Obligations under finance leases ...... (31) 5 (3) 22 — — — (7) Net debt ...... (936) 358 5 4 8 46 (19) (534)

F-110 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

32—Reconciliation of opening to closing net debt (Continued)

Acquisitions At and new Fair value Held for At 1 August finance Disposal of and other sale Exchange 31 July 2015 Cash flows leases businesses adjustments movements movement 2016 For the year ended 31 July 2016 £m £m £m £m £m £m £m £m Cash and cash equivalents . . 1,105 940 Bank overdrafts ...... (848) (692) 257 (28) 2 — — (1) 18 248 Derivative financial instruments ...... 33 (10) — — 1 — 7 31 Bank and other loans ..... (1,066) 16 — 27 9 — (170) (1,184) Obligations under finance leases ...... (29) 4 (2) — — — (4) (31) Net debt ...... (805) (18) — 27 10 (1) (149) (936)

33—Related party transactions There are no related party transactions requiring disclosure under IAS 24 ‘‘Related Party Disclosures’’ other than the compensation of key management personnel which is set out in note 11.

34—Operating lease commitments Future minimum lease payments under non-cancellable operating leases for the following periods are:

2017 2016 £m £m Within one year ...... 260 253 Later than one year and less than five years ...... 461 457 After five years ...... 133 143 Total operating lease commitments ...... 854 853

Operating lease payments mainly represent rents payable for properties. Some of the Group’s operating lease arrangements have renewal options and rental escalation clauses. No arrangements have been entered into for contingent rental payments. The commitments shown above include commitments for onerous leases which have already been provided for. At 31 July 2017, provisions include an amount of £27 million (2016: £25 million) in respect of minimum lease payments for such onerous leases net of sublease income expected to be received. The total minimum sublease income expected to be received under non-cancellable subleases at 31 July 2017 is £7 million (2016: £8 million). The commitments above include £91 million operating lease commitments (2016: £102 million) for discontinued operations.

35—Contingent liabilities Group companies are, from time to time, subject to certain claims and litigation arising in the normal course of business in relation to, among other things, the products that they supply, contractual and commercial disputes and disputes with employees. Provision is made if, on the basis of current information and professional advice, liabilities are considered likely to arise. In the case of unfavourable outcomes, the Group may benefit from applicable insurance protection.

F-111 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

35—Contingent liabilities (Continued) Warranties and indemnities in relation to business disposals Over the past few years, the Group has disposed of a number of non-core businesses and various Group companies have provided certain standard warranties and indemnities to acquirers and other third parties. Provision is made where the Group considers that a liability is likely to crystallise, though it is possible that claims in respect of which no provision has been made could crystallise in the future. Group companies have also made contractual commitments for certain property and other obligations which could be called upon in an event of default. As at the date of this report, there are no significant outstanding claims in relation to business disposals.

Environmental liabilities The operations of certain Group companies are subject to specific environmental regulations. From time to time, the Group conducts preliminary investigations through third parties to assess potential risks including potential soil or groundwater contamination of sites. Where an obligation to remediate contamination arises then this is provided for, though future liabilities could arise from sites for which no provision is made.

Outcome of claims and litigation The outcome of claims and litigation to which Group companies are party cannot readily be foreseen as, in some cases, the facts are unclear, further time is needed to assess properly the merits of the case, or they are part of continuing legal proceedings. However, based on information currently available, the Directors consider that the cost to the Group of an unfavourable outcome arising from such litigation is not expected to have a material adverse effect on the financial position of the Group.

36—Post-balance sheet events Since the year-end, the Group has acquired five businesses, two in the USA and three in Canada and Central Europe with a combined annual revenue of £109 million. As at the date of this report, the accounting for these transactions has not been finalised. On 31 August 2017, the Group disposed of Silvan, its DIY business in Denmark.

37—Additional information (i) Group accounting policies A summary of the principal accounting policies applied by the Group in the preparation of the consolidated financial statements is set out below. The accounting policies have been applied consistently throughout the current and preceding year.

Consolidation The consolidated financial information includes the results of the parent company and entities controlled by the Company (its subsidiary undertakings and controlling interests) and its share of the results of its associate drawn up to 31 July 2017. The trading results of business operations are included in profit from continuing operations from the date of acquisition or up to the date of sale. Intra-group transactions and balances and any unrealised gains and losses arising from intra-group transactions are eliminated on consolidation, with the exception of gains or losses required under relevant IFRS accounting standards.

F-112 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) Discontinued operations When the Group has disposed of or intends to dispose of a business component that represents a separate major line of business or geographical area of operations, it classifies such operations as discontinued. The post-tax profit or loss of the discontinued operations is shown as a single line on the face of the income statement, separate from the other results of the Group.

Foreign currencies Items included in the financial statements of each of the Group’s subsidiary undertakings are measured using the currency of the primary economic environment in which the subsidiary undertaking operates (the ‘‘functional currency’’). The consolidated financial statements are presented in sterling, which is the presentational currency of the Group and the functional currency of the parent company. The trading results of overseas subsidiary undertakings are translated into sterling using the average rates of exchange ruling during the relevant financial period. The balance sheets of overseas subsidiary undertakings are translated into sterling at the rates of exchange ruling at the period end. Exchange differences arising between the translation into sterling of the net assets of these subsidiary undertakings are recognised in the currency translation reserve (as are exchange differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets). Changes in the fair value of derivative financial instruments, entered into to hedge foreign currency net assets and that satisfy the hedging conditions of IAS 39, are recognised in the currency translation reserve (see the separate accounting policy on derivative financial instruments). In the event that a subsidiary undertaking which has a non-sterling functional currency is disposed of, the gain or loss on disposal recognised in the income statement is determined after taking into account the cumulative currency translation differences that are attributable to the subsidiary undertaking concerned. Foreign currency transactions entered into during the year are translated into sterling at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the income statement with the exception of differences on foreign currency net borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets as detailed above.

Business combinations The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Acquisition-related costs are expensed as incurred. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Non-controlling interests Non-controlling interests in subsidiaries are identified separately from the equity attributable to shareholders of the Company. The interests of non-controlling shareholders are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity.

F-113 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests showing a deficit balance.

Interests in associates Investments in companies where significant influence is exercised are accounted for as interests in associates using the equity method of accounting from the date the investee becomes an associate. The investment is initially recognised at cost and adjusted thereafter for changes in the Group’s share in the net assets of the investee. The Group’s share of profit or loss after tax is recognised in the Group income statement and share of other comprehensive income or expense is recognised in the Group statement of other comprehensive income. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net assets of the investee is recognised as goodwill, which is included within the carrying amount of the investment. The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate.

Revenue Revenue is the amount receivable for the provision of goods and services falling within the Group’s ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade and early settlement discounts, value added tax and similar sales taxes. The Group acts as principal for direct sales which are delivered directly to the customer by the supplier. Revenue from the provision of goods is recognised when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are shipped to, or picked up by, the customer. Revenue from services is recognised when the service provided to the customer has been completed. Customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the loyalty credits and recognised in the period that loyalty credits are redeemed. Revenue from the provision of goods and services is only recognised when the amounts to be recognised are fixed or determinable and collectability is reasonably assured.

Cost of sales Cost of sales includes purchased goods, the cost of bringing inventory to its present location and condition and labour and overheads attributable to assembly and construction services.

Supplier rebates In line with industry practice, the Group has agreements (‘‘Supplier Rebates’’) with a number of its suppliers whereby volume-based rebates, marketing support and other discounts are received in connection with the purchase of goods for resale from those suppliers. Rebates relating to the purchase of goods for resale are accrued as earned and are recorded initially as a deduction in inventory with a subsequent reduction in cost of sales when the related product is sold.

Volume-based rebates The majority of volume-based rebates are determined by reference to guaranteed rates of rebate. These are calculated through a mechanical process with minimal judgement required to determine the amount recorded in the income statement.

F-114 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) A small proportion of volume-based rebates are subject to stepped targets where the rebate percentage increases as volumes purchased reach agreed targets within a set period of time. The majority of rebate agreements apply to purchases in a calendar year and therefore, for stepped rebates, judgement is required to estimate the rebate amount recorded in the income statement at the end of the period. The Group assesses the probability that targeted volumes will be achieved in the year based on forecasts which are informed by historical trading patterns, current performance and trends. This judgement is exercised consistently with historically insignificant true ups at the end of the period. An amount due in respect of Supplier Rebates is not recognised within the income statement until all the relevant performance criteria, where applicable, have been met and the goods have been sold to a third party.

Marketing support Marketing support, which represents a smaller element of the Group’s overall Supplier Rebates, is recognised in the income statement when all performance conditions have been fulfilled.

Supplier Rebates receivable Where Supplier Rebates are netted of the amounts owing to that supplier, any outstanding amount at the balance sheet date is included within trade payables. Where the Supplier Rebates are not offset against amounts owing to a supplier, the outstanding amount is included within prepayments. The carrying value of inventory is reduced by the relevant amount where the inventory has not been sold by the balance sheet date.

Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary undertaking at the date of acquisition. Goodwill on acquisitions of subsidiary undertakings is included within intangible assets. Goodwill is allocated to cash generating units or aggregations of cash generating units (together ‘‘CGUs’’) where synergy benefits are expected. CGUs are independent sources of income streams and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes. The Group considers that a CGU is a business unit because independent cash flows cannot be identified below this level. Goodwill is not amortised but is tested annually for impairment and carried at cost less accumulated impairment losses. For goodwill impairment testing purposes, no CGU is larger than the reporting segments determined in accordance with IFRS 8 ‘‘Operating Segments’’. The recoverable amount of goodwill and acquired intangible assets is assessed on the basis of the value in use estimate for CGUs to which they are attributed. Where carrying value exceeds the recoverable amount a provision for the impairment is established with a charge included in the income statement. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Other intangible assets An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights. Intangible assets, primarily brands, trade names and customer relationships, acquired as part of a business combination are capitalised separately from goodwill and are carried at cost less accumulated amortisation

F-115 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) and accumulated impairment losses. Amortisation is calculated using the reducing balance method for customer relationships and the straight-line method for other intangible assets. The cost of the intangible assets is amortised and charged to operating costs in the income statement over their estimated useful lives as follows:

Customer relationships ...... 4–25 years Trade names and brands ...... 1–15 years Other ...... 1–4 years Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset and is carried at cost less accumulated amortisation and accumulated impairment losses. Costs include software licences and external and internal costs directly attributable to the development, design and implementation of the computer software. Costs in respect of training and data conversion are expensed as incurred. Amortisation is calculated using the straight-line method so as to charge the cost of the computer software to operating costs in the income statement over its estimated useful life of between three and five years.

Property, plant and equipment (‘‘PPE’’) PPE is carried at cost less accumulated depreciation and accumulated impairment losses, except for land and assets in the course of construction, which are not depreciated and are carried at cost less accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. In addition, subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Assets are depreciated to their estimated residual value using the straight-line method over their useful lives as follows:

Freehold buildings and long leaseholds ...... 20–50 years Operating leasehold improvements ...... over the period of the lease Plant and machinery ...... 7–10 years Computer hardware ...... 3–5 years Fixtures and fittings ...... 5–7 years Motor vehicles ...... 4 years The residual values and useful lives of PPE are reviewed and adjusted if appropriate at each balance sheet date. Borrowing costs directly attributable to the long-term construction or production of an asset are capitalised as part of the cost of the asset.

Leased assets Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have transferred to the Group, are capitalised in the balance sheet and depreciated over the shorter of the lease term or their useful lives. The asset is recorded at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease. The capital elements of future obligations under finance leases are included in liabilities in the balance sheet and analysed between current and non-current amounts. The interest elements of future obligations under finance leases are charged to the income statement over the periods of the leases and represent a constant proportion of the balance of capital repayments outstanding in accordance with the effective interest rate method.

F-116 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. The cost of operating leases (net of any incentives received from the lessor) is charged to the income statement on a straight-line basis over the period of the leases.

Assets and disposal groups held for sale Assets are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. Where a group of assets and their directly associated liabilities are to be disposed of in a single transaction, such disposal groups are also classified as held for sale. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition and management must be committed to and have initiated a plan to sell the asset or disposal group which, when initiated, was expected to result in a completed sale within 12 months. Assets that are classified as held for sale are not depreciated. Assets or disposal groups that are classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

Inventories Inventories, which comprise goods purchased for resale, are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (‘‘FIFO’’) method or the average cost method as appropriate to the nature of the transactions in those items of inventory. The cost of goods purchased for resale includes import and custom duties, transport and handling costs, freight and packing costs and other attributable costs less trade discounts, rebates and other subsidies. It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provisions are made against slow-moving, obsolete and damaged inventories for which the net realisable value is estimated to be less than the cost. The risk of obsolescence of slow-moving inventory is assessed by comparing the level of inventory held to estimated future sales on the basis of historical experience.

Trade receivables Trade receivables are recognised initially at fair value and measured subsequently at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the loss is recognised in the income statement. Trade receivables are written of against the provision when recoverability is assessed as being remote. Subsequent recoveries of amounts previously written of are credited to the income statement.

Provisions Provisions for self-insured risks, legal claims, environmental restoration and onerous leases are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Such provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money. Provisions are not recognised for future operating losses.

Retirement benefit obligations Contributions to defined contribution pension plans and other post-retirement benefits are charged to the income statement as incurred.

F-117 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) For defined benefit pension plans and other retirement benefits, the cost of providing benefits is determined annually using the Projected Unit Credit Method by independent qualified actuaries. The current service cost of defined benefit plans is recorded within operating profit. Past service costs are recognised immediately in income. The net interest amount is calculated by applying the discount rate used to measure the defined benefit net asset or liability at the beginning of the period. The pension plan net interest is presented as finance income or expense. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. The liability/asset recognised in the balance sheet in respect of defined benefit pension plans is the fair value of plan assets less the present value of the defined benefit obligation at the end of the reporting period.

Ta x Current tax represents the expected tax payable (or recoverable) on the taxable income (or losses) for the year using tax rates enacted or substantively enacted at the balance sheet date and taking into account any adjustments arising from prior years. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Tax provisions The Group is subject to income taxes in numerous jurisdictions. Judgement is sometimes required in determining the worldwide provision for income taxes. There may be transactions and calculations for which the ultimate tax determination is uncertain and may be challenged by the tax authorities. The Group recognises liabilities for anticipated or actual tax audit issues based on estimates of whether additional taxes will be due. Where an outflow of funds to a tax authority is considered probable and the Group can make a reliable estimate of the outcome of the dispute, management calculates the provision using the single best estimate of likely outcome approach. In assessing its uncertain tax provisions, management takes into account the specific facts of each dispute, the likelihood of settlement and the advice from its in-house tax specialists and professional advisers. Where the ultimate liability in a dispute varies from the amounts provided, such differences could impact the current and deferred income tax assets and liabilities in the period in which the dispute is concluded. The Group believes that it has made adequate provision for the liabilities likely to arise from open audits and assessments. At 31 July 2017, the Group has recognised provisions of £162 million in respect of its uncertain tax positions (2016: £166 million). The total provision has decreased by £4 million in the year due to the settlement of various open tax issues in the UK. The remaining open significant tax issues relate predominantly to cross border transfer pricing risks. Given the uncertainty regarding the timing of the

F-118 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) resolution of these matters, it is difficult for the Group to estimate whether there will be a material change in its estimate of uncertain tax provisions within the next 12 months.

Share capital Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax. Where any Group company purchases the Company’s equity share capital (Treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company’s equity holders.

Share-based payments Share-based incentives are provided to employees under the Group’s executive share option plan, long term incentive plan, all-employee sharesave plan, ordinary share plan, performance ordinary share plan and revised ordinary share plan. The Group recognises a compensation cost in respect of these plans that is based on the fair value of the awards, measured using Binomial and Monte Carlo valuation methodologies. For equity-settled plans, the fair value is determined at the date of grant (including the impact of any non-vesting conditions such as a requirement for employees to save) and is not subsequently remeasured unless the conditions on which the award were granted are modified. For cash-settled plans, the fair value is determined at the date of grant and is remeasured at each balance sheet date until the liability is settled. Generally, the compensation cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to the failure to satisfy service conditions or non-market performance conditions.

Dividends payable Dividends on ordinary shares are recognised in the Group’s financial statements in the period in which the dividends are approved by the shareholders of the Company or paid.

Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet to the extent that there is no legal right of offset and no practice of net settlement with cash balances. Cash which is not freely available to the Group is disclosed as restricted cash.

Derivative financial instruments Derivative financial instruments, in particular interest rate swaps and foreign exchange swaps, are used to manage the financial risks arising from the business activities of the Group and the financing of those activities. There is no trading activity in derivative financial instruments. At the inception of a hedging transaction involving the use of derivative financial instruments, the Group documents the relationship between the hedged item and the hedging instrument together with its risk management objective and the strategy underlying the proposed transaction. The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedge in offsetting movements in the fair values or cash flows of the hedged items.

F-119 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (i) Group accounting policies (Continued) Derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. Where derivative financial instruments do not fulfil the criteria for hedge accounting contained in IAS 39, changes in their fair values are recognised in the income statement. When hedge accounting is used, the relevant hedging relationships are classified as fair value hedges, cash flow hedges or net investment hedges.

(ii) Additional information about financial instruments Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability is adjusted by the increase or decrease in its fair value attributable to the hedged risk and the resulting gain or loss is recognised in the income statement where, to the extent that the hedge is effective, it will be offset by the change in the fair value of the hedging instrument. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognised directly in equity. When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in equity are either recycled to the income statement or, if the hedged item results in a non-financial asset, are recognised as adjustments to its initial carrying amount. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

Borrowings Borrowings are recognised initially at the fair value of the consideration received net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Financial instruments by measurement basis The carrying amount of financial instruments by category as defined by IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ is as follows:

2017 2016 £m £m Financial assets Financial assets at fair value through profit and loss ...... 20 31 Loans and receivables ...... 2,277 2,392 Financial liabilities Financial liabilities at amortised cost ...... 4,596 4,403 Financial instruments in the category ‘‘fair value through profit and loss’’ are measured in the balance sheet at fair value. Fair value measurements can be classified in the following hierarchy: • quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

F-120 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (ii) Additional information about financial instruments (Continued) • inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and • inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following tables present the Group’s assets and liabilities that are measured at fair value at 31 July 2017 and 31 July 2016:

2017 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Derivatives at fair value through profit and loss .... —20—20—31—31

As at 31 July 2017 and 31 July 2016, there were no derivative liabilities held at fair value through profit and loss. No transfers between levels occurred during the current or prior year. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial instruments that are not traded in an active market (such as over-the-counter derivatives) is determined by using valuation techniques. The Group’s other financial instruments are measured on bases other than fair value. Other receivables include an amount of £50 million (2016: £60 million) which has been discounted at a rate of 2.3 per cent (2016: 1.5 per cent) due to the long-term nature of the receivable. Other current assets and liabilities are either of short maturity or bear floating rate interest and their fair values approximate to book values. The only non-current financial assets or liabilities for which fair value does not approximate to book value are the senior unsecured loan notes, which had a book value of £952 million (2016: £959 million) and a fair value (level 2) of £991 million (2016: £1,027 million).

Financial instruments: disclosure of offsetting arrangements The financial instruments that have been offset in the financial statements are disclosed below:

Gross Offset Financial Cash pooling balances(a) amounts(b) statements(c) amounts(d) Net total(e) At 31 July 2017 Notes £m £m £m £m £m Financial assets Non-current assets Derivative financial assets ...... 18 39 (24) 15 — 15 Current assets Derivative financial assets ...... 18 17 (12) 5 — 5 Cash and cash equivalents ...... 19 1,911 — 1,911 (1,420) 491 1,967 (36) 1,931 (1,420) 511 Financial liabilities Current liabilities Derivative financial liabilities ...... 18 12 (12) — — — Bank loans and overdrafts ...... 22 1,627 — 1,627 (1,420) 207 Finance leases ...... 24 3— 3 — 3 Non-current liabilities Derivative financial liabilities ...... 18 24 (24) — — — Bank loans ...... 22 831 — 831 — 831 Finance leases ...... 24 4— 4 — 4 2,501 (36) 2,465 (1,420) 1,045 Closing net debt ...... 32 (534) — (534) — (534)

F-121 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (ii) Additional information about financial instruments (Continued)

Gross Offset Financial Cash pooling balances(a) amounts(b) statements(c) amounts(d) Net total(e) At 31 July 2016 Notes £m £m £m £m £m Financial assets Non-current assets Derivative financial assets ...... 18 51 (31) 20 — 20 Current assets Derivative financial assets ...... 18 24 (13) 11 — 11 Cash and cash equivalents ..... 19 940 — 940 (606) 334 1,015 (44) 971 (606) 365 Financial liabilities Current liabilities Derivative financial liabilities . . . 18 13 (13) — — — Bank loans and overdrafts ..... 22 701 — 701 (606) 95 Finance leases ...... 24 4 — 4 — 4 Non-current liabilities Derivative financial liabilities . . . 18 31 (31) — — — Bank loans ...... 22 1,175 — 1,175 — 1,175 Finance leases ...... 24 27 — 27 — 27 1,951 (44) 1,907 (606) 1,301 Closing net debt ...... 32 (936) — (936) — (936)

(a) The gross amounts of the recognised financial assets and liabilities under a master netting agreement, or similar arrangement. (b) The amounts offset in accordance with the criteria in IAS 32. (c) The net amounts presented in the Group balance sheet. (d) The amounts subject to a master netting arrangement, or similar arrangement, not included in (c). (e) The net amount after deducting the amounts in (d) from the amounts in (c).

Financial instruments: risk management policies The Group is exposed to market risks arising from its international operations and the financial instruments which fund them. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk and liquidity risk. The Group has well-defined policies for the management of interest rate, liquidity, foreign exchange and counterparty exposures, which have been consistently applied during the financial years ended 31 July 2017 and 31 July 2016. By the nature of its business, the Group also has trade credit and commodity price exposures, the management of which is delegated to the operating businesses. There has been no change since the previous year in the major financial risks faced by the Group. Policies for managing each of these risks are regularly reviewed and are summarised below. When the Group enters into derivative transactions (principally interest rate swaps and foreign exchange contracts), the purpose of such transactions is to hedge certain interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments or speculative transactions be undertaken.

Capital risk management The Group’s sources of funding currently comprise cash flows generated by operations, equity contributed by shareholders and borrowings from banks and other financial institutions. In order to maintain or adjust the capital structure, the Group may pay a special dividend, return capital to shareholders, repurchase its own shares, issue new shares or sell assets to reduce debt.

F-122 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (ii) Additional information about financial instruments (Continued) Liquidity risk The Group maintains a policy of ensuring sufficient borrowing headroom to finance all investment and capital expenditure included in its strategic plan, with an additional contingent safety margin. The Group has estimated its anticipated contractual cash outflows (excluding interest income and income from derivatives) including interest payable in respect of its trade and other payables and bank borrowings on an undiscounted basis. The principal assumptions are that floating rate interest is calculated using the prevailing interest rate at the balance sheet date and cash flows in foreign currency are translated using spot rates at the balance sheet date. These cash flows can be analysed by maturity as follows:

2017 2016 Trade and Interest Trade and Interest other payables Debt on debt Total other payables Debt on debt Total As at 31 July £m £m £m £m £m £m £m £m Due in less than one year ...... 1,935 125 40 2,100 2,280 5 44 2,329 Due in one to two years ...... 20 4 37 61 19 122 40 181 Due in two to three years ...... 21 1 34 56 12 2 37 51 Due in three to four years ...... 10 213 34 257 14 1 37 52 Due in four to five years ...... 9 1 27 37 8 215 31 254 Due in over five years ...... 120 606 66 792 110 847 116 1,073 Total ...... 2,115 950 238 3,303 2,443 1,192 305 3,940

Foreign currency risk The Group has significant overseas businesses whose revenues are mainly denominated in the currencies of the countries in which the operations are located. Approximately 79 per cent of the Group’s revenue is in US dollars. Within each country it operates, the Group does not have significant transactional foreign currency cash flow exposures. However, those that do arise may be hedged with either forward contracts or currency options. The Group does not normally hedge profit translation exposure since such hedges have only a temporary effect. The Group’s policy is to adjust the currencies in which its net debt is denominated materially to match the currencies in which its trading profit is generated. Details of average exchange rates used in the translation of overseas earnings and of year-end exchange rates used in the translation of overseas balance sheets for the principal currencies used by the Group are shown in the five-year summary on page 139. The net effect of currency translation was to increase revenue by £1,609 million (2016 restated: increase by £548 million) and to increase trading profit by £126 million (2016 restated: increase by £46 million). These currency effects primarily reflect a movement of the average sterling exchange rate against US dollars, euro and Canadian dollars as follows:

2016 2017 (Weakening)/ Weakening of strengthening sterling of sterling US dollars ...... (15.3)% (6.8)% Euro ...... (13.5)% (0.8)% Canadian dollars ...... (15.5)% 4.1% The Group has net financial liabilities denominated in foreign currencies which have been designated as hedges of the net investment in its overseas subsidiaries. The principal value of those financial liabilities designated as hedges at the balance sheet date was £1,528 million (2016: £1,636 million). The loss on translation of these financial instruments into sterling of £6 million (2016: £107 million) has been taken to the translation reserve.

F-123 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (ii) Additional information about financial instruments (Continued) Net investment hedging Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in equity. Gains and losses on those hedging instruments designated as hedges of the net investments in foreign operations are recognised in equity to the extent that the hedging relationship is effective; these amounts are included in exchange differences on translation of foreign operations as stated in the Group statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognised immediately in the income statement for the period. Gains and losses accumulated in the translation reserve are included in the income statement when the foreign operation is disposed of.

Interest rate risk At 31 July 2017, 100 per cent of loans were at fixed rates. The Group borrows in the desired currencies principally at rates determined by reference to short-term benchmark rates applicable to the relevant currency or market, such as LIBOR. Rates which reset at least every 12 months are regarded as floating rates and the Group then, if appropriate, considers interest rate swaps to generate the desired interest rate profile. The Group reviews deposits and borrowings by currency at Treasury Committee and Board meetings. The Treasury Committee gives prior approval to any variations from floating rate arrangements. During November 2011, the Group entered into interest rate swap contracts comprising fixed interest payable on US$729 million of notional principal. The residual contracts of US$438 million expire between November 2017 and November 2020 and the fixed interest rates range between 2.06 per cent and 2.94 per cent (2016: 2.06 per cent and 2.94 per cent). These contracts have been held since inception at fair value through profit and loss. With effect from 1 December 2011, interest rate swap contracts comprising fixed interest receivable on an original notional principal of US$729 million and as at 31 July 2017, residual contracts of US$438 million have been classified as held at fair value through profit and loss. The contracts expire between November 2017 and November 2020 and the fixed interest rates range between 5.18 per cent and 5.32 per cent (2016: 5.18 per cent and 5.32 per cent). The table below shows the income statement movement on interest rate swaps at fair value through profit and loss.

2017 2016 At fair value through profit and loss (hedge accounting not applied) £m £m At 1 August ...... 29 34 Settled ...... (9) (11) Valuation gain credited to income statement ...... — 1 Exchange ...... — 5 At 31 July ...... 20 29

There are no fixed rate interest borrowings that form part of a hedge relationship.

Monitoring interest rate and foreign currency risk The Group monitors its interest rate and foreign currency risk by reviewing the effect on financial instruments over various periods of a range of possible changes in interest rates and exchange rates. The Group has estimated that an increase of one percentage point in the principal floating interest rates to which it is exposed would result in a charge to the income statement of £nil (2016: £1 million). The Group has estimated that a weakening of sterling by 10 per cent against gross borrowings denominated in foreign currency in which the Group does business would result in a charge to equity of £156 million (2016: £177 million).

F-124 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (ii) Additional information about financial instruments (Continued) The Group does not require operating businesses to adhere to a formalised risk management policy in respect of trade credit risk or commodity price risk and does not consider that there is a useful way of quantifying the Group’s exposure to any of the macroeconomic variables that might affect the collectability of receivables or the prices of commodities.

Credit risk The Group provides sales on credit terms to most of its customers. There is an associated risk that customers may not be able to pay outstanding balances. At 31 July 2017, the maximum exposure to credit risk was £2,022 million (2016: £2,187 million). Each of the Group’s businesses have established procedures in place to review and collect outstanding receivables. Significant outstanding and overdue balances are reviewed on a regular basis and resulting actions are put in place on a timely basis. In some cases, protection is provided through credit insurance arrangements. All of the major businesses use professional, dedicated credit teams, in some cases field- based. Appropriate provisions are made for debts that may be impaired on a timely basis. Concentration of credit risk in trade receivables is limited as the Group’s customer base is large and unrelated. Accordingly, the Group considers that there is no further credit risk provision required above the current provision for impairment. The Group has cash balances deposited for short periods with financial institutions and enters into certain contracts (such as interest rate swaps) which entitle the Group to receive future cash flows from financial institutions. These transactions give rise to credit risk on amounts due from counterparties with a maximum exposure of £424 million (2016: £237 million). This risk is managed by setting credit and settlement limits for a panel of approved counterparties. The limits are approved by the Treasury Committee and ratings are monitored regularly.

(iii) Additional information on the allotment of equity securities for cash During the year, the Company did not issue any ordinary shares to participants in the long term incentive plans and all-employee sharesave plans (2016: issued 43,428 ordinary shares with a nominal value of 1053⁄66 pence per share).

(iv) Additional information about pensions and other long-term employee benefits Description of plans The principal UK defined benefit plan is the Wolseley Group Retirement Benefits Plan which provides benefits based on final pensionable salaries. This plan was closed to new entrants in 2009. The assets are held in separate trustee administered funds. The Group contribution rate is calculated on the Projected Unit Credit Method and agreed with an independent consulting actuary. The Group Retirement Benefits Plan was closed to future service accrual in December 2013 and was replaced by a defined contribution plan. During October 2016, the plan was closed for future non-inflationary salary accrual. The principal plans operated for USA employees are defined contribution plans, which are established in accordance with USA 401k rules. Companies contribute to both employee compensation deferral and profit sharing plans. The Group also operates two defined benefit plans in the USA which are closed to new entrants. One of the plans is funded and the majority of assets are held in trustee administered funds independent of the assets of the companies. The closed plans now provide a minimum pension guarantee in conjunction with a defined contribution plan. The contribution rate is calculated on the Projected Unit Credit Method as agreed with independent consulting actuaries. In Canada, defined benefit plans and a defined contribution plan are operated. Most of the Canadian defined benefit plans are funded.

F-125 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (iv) Additional information about pensions and other long-term employee benefits (Continued) The contribution rate is calculated on the Projected Unit Credit Method as agreed with independent consulting actuaries. In Europe, both defined contribution and defined benefit plans are operated. Liabilities arising under defined benefit plans are calculated in accordance with actuarial advice.

Investment policy The Group’s investment strategy for its funded post-employment plans is decided locally and, if relevant, by the trustees of the plan and takes account of the relevant statutory requirements. The Group’s objective for the investment strategy is to achieve a target rate of return in excess of the increase in the liabilities, while taking an acceptable amount of investment risk relative to the liabilities. This objective is implemented by using specific allocations to a variety of asset classes that are expected over the long term to deliver the target rate of return. Most investment strategies have significant allocations to equities, with the intention that this will result in the ongoing cost to the Group of the post-employment plans being lower over the long-term and within acceptable boundaries of risk. For the UK plan, the buy-in insurance policy represents approximately 40 per cent of the plan assets. For the remaining assets, the strategy is to invest predominantly in growth assets including equities and diversified growth assets. The investment strategy is subject to regular review by the plan trustees in consultation with the Company. For the overseas plans, the investment strategy involves the investment in defined levels of predominantly equities with the remainder of the assets being invested in cash and bonds.

Investment risk The present value of the UK defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the actual return on plan assets is below this rate, it will decrease a net surplus or increase a net pension liability. Currently, the plan has a relatively balanced investment in equity securities, debt instruments and property. Due to the long-term nature of the plan liabilities, the trustees of the pension plan consider it appropriate that a reasonable portion of the plan assets should be invested in equity securities to leverage the return generated by the fund.

Interest risk A decrease in the bond interest rate will increase the UK plan liability and this will be partially offset by an increase in the value of the plan’s debt investments.

Longevity risk The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of the UK plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

(v) Additional information about share-based payment plans The Group currently operates five types of discretionary plans and two types of all-employee sharesave plans. Historical awards granted under the executive share option plans are subject to a condition such that they may not be exercised unless the growth in headline earnings per share over a period of three consecutive financial years exceeds the growth in the UK Retail Price Index over the same period by at least 9 per cent and consequently vest over a period of three years. For historical awards granted under the long term incentive plan (‘‘LTIP 2012’’), senior executives were awarded a variable number of shares depending on the level of total shareholder return over a three-year

F-126 Notes to the consolidated financial statements (Continued) Year ended 31 July 2017

37—Additional information (Continued) (v) Additional information about share-based payment plans (Continued) period relative to that of the FTSE 100. The maximum award under the LTIP 2012 was determined at grant date and then adjusted at vesting date in accordance with the market performance condition. The vesting period is three years. For awards granted under the new long term incentive plan (‘‘LTIP 2015’’) senior executives are awarded a variable number of shares depending on three equally weighted conditions of: (1) level of total shareholder return over a three-year period relative to that of the FTSE 100; (2) growth in headline earnings per share over a period of three consecutive financial years, which must exceed the growth in the UK Retail Price Index over the same period by at least 9 per cent; and (3) a cumulative three-year figure of operating cash flow measured against the agreed three-year target. The vesting period is three years. For awards granted to eligible employees (excluding Executive Directors) under the ordinary share plan, such employees may be granted a variable number of awards in any form or combination of options, restricted share awards, conditional share awards or phantom share awards up to a maximum of 100 per cent of their current salary. The vesting period is typically three years and there are no performance measures other than retained employment. For awards granted to eligible employees (excluding Executive Directors) under the performance ordinary share plan, such employees may be granted a variable number of awards in any form or combination of options, restricted share awards, conditional share awards or phantom share awards with a maximum amount typically set at 5 times salary. The vesting period is typically three years and the performance period relating to the relevant operating business’ performance is typically over a three-year period. For awards granted to eligible employees (excluding Executive Directors) under the revised ordinary share plan, such employees may be granted a variable number of awards in any form or combination of options, restricted share awards, conditional share awards with a maximum amount typically set at 3 times salary. The vesting period is typically three years and the performance period relating to the relevant operating business’ performance is typically over a one-year performance period. Awards granted under the all-employee sharesave plans vest over periods ranging from three to seven years, except for awards granted under the Employee Share Purchase Plan (‘‘ESPP’’) in the USA and Canada, which vest over a one-year period.

(vi) Additional information about the parent company of the Group The Company is incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland. It operates as the ultimate parent company of the Ferguson Group. Its registered office is 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands. The Group’s subsidiary undertakings are set out on pages 140 and 141.

F-127 Independent auditor’s report to the members of Ferguson plc Report on the audit of the financial statements Opinion 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 July 2017 and of the Group’s and the parent company’s profit for the year then ended; — the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘‘IFRSs’’) as adopted by the European Union; — the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice including Financial Reporting Standard 101 ‘‘Reduced Disclosure Framework’’; and — the financial statements have been properly prepared in accordance with the Companies (Jersey) Law, 1991. We have audited the financial statements of Ferguson plc (the ‘‘parent company’’) and its subsidiaries (the ‘‘Group’’) which comprise: — the Group Income Statement; — the Group Statement of Comprehensive Income; — the Parent Company Profit and Loss Account; — the Group and Parent Company Balance Sheets; — the Group Cash Flow Statement; — the Group and Parent Company Statements of Changes in Equity; — the notes to the Group financial statements 1 to 37; and — the notes to the Parent Company financial statements 1 to 15. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘‘Reduced Disclosure Framework’’ (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the parent company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

F-128 While the parent company is not a public interest entity as defined by European Regulation 537/2014, the Directors have decided that the parent company should follow the same requirements as if that Regulation applied to the parent company.

Summary of our audit approach Key audit matters The key risks that we identified in the current year were: — Appropriateness of supplier rebates; — Inventory provision for slow-moving and obsolete inventory; and — Accounting for restructuring costs. Materiality The materiality that we used in the current year was £45m (2016: £40m) which was determined on the basis of approximately 5% of profit before tax excluding exceptional items. Scoping We performed full audits on the three key regions of continuing businesses, Head office entities and the consolidation process, representing 97% (2016: 96%) of revenue, 99% (2016: 86%) of profit before tax and 98% (2016: 99%) of net assets. Significant changes in our Our approach is consistent with the previous year with the exception approach of: — the inclusion of an additional key audit matter relating to the accounting for restructuring costs. This relates to the disposal of the Nordic region businesses and the restructuring in the UK where judgements are made over the costs categorised as exceptional. — the exclusion of the key audit matter relating to goodwill and intangible asset carrying values. Following the impairment charge recognised for Beijer and the proposed sale of the Nordic businesses, the judgement over the carrying value of goodwill and intangible assets reduced; and — our planned audit scope has changed, taking into consideration changes in the Group structure as a result of completed and planned disposals. The Nordic regions (Denmark, Sweden, Finland and Norway) and Switzerland were subject to full scope audits in the previous year. This year the scope has been reduced to analytical procedures.

Conclusions related to principal risks, going concern and viability statement We have reviewed the Directors’ statement regarding the appropriateness of the going concern basis of accounting contained within note 1 to the Financial Statements and the Directors’ statement on the longer-term viability of the Group contained within the principal risks and their management section on page 43. We are required to state whether we have anything material to add or draw attention to in relation to: — the disclosures on pages 42-49 that describe the principal risks and explain how they are being managed or mitigated; — the Directors’ confirmation on page 51 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; — the Directors’ statement in note 1 to the Financial Statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group and the parent company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements;

F-129 — the Directors’ explanation on page 43 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions; or — whether the Directors’ statements relating to going concern and the prospects of the Company required in accordance with Listing Rule 9.8.6R(3) are materially inconsistent with our knowledge obtained in the audit. We confirm that we have nothing material to add or draw attention to in respect of these matters. We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern.

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Appropriateness of supplier rebates Key audit matter description As described in the Audit Committee report on page 61 as a significant judgement and the Accounting Policies in note 37 to the Financial Statements, the Group recognises a reduction in cost of sales as a result of amounts receivable from suppliers in the form of rebate arrangements. Where the rebate arrangements are non-tiered arrangements (flat rate), there is limited judgement. However, a proportion of the rebate arrangements comprise annual volume rebates, for which the end of the period is often non coterminous with the Group’s year-end. Additionally, in some cases the rebate rises as a portion of purchases, as higher quantities or values of the purchases are made. There is complexity in supplier rebates which give rise to management judgement and scope for fraud and error in accounting for this income. Judgement is required in estimating the expected level of rebates for the rebate year, driven by the forecast purchase volumes. This requires a detailed understanding of the specific contractual arrangements themselves as well as complete and accurate source data to apply the arrangements to. How the scope of our audit We assessed the design and implementation of manual and automated responded to the key audit controls over the recording of supplier rebate income. matter Our procedures on supplier rebates included: — evaluating the design and implementation of key controls operating across the Group over the appropriateness of supplier rebates; — in certain components, testing the operating effectiveness of the controls relating to supplier rebates; — interviewing a sample of Ferguson’s internal buyers to supplement our understanding of the key contractual rebate arrangements;

F-130 Appropriateness of supplier rebates — testing the accuracy of the amounts recognised by agreeing a sample to individual supplier agreements; — circularising a sample of suppliers to test whether the arrangements recorded were complete; — testing the completeness and accuracy of the inputs to the calculations for recording supplier rebates by agreement to supporting evidence, including historical volume data. We challenged the assumptions underlying management’s estimates of purchase volumes including looking at the historical accuracy of previous estimates and historical purchase trends and recalculation of rebates for a sample of suppliers; — consider the adequacy of rebate related disclosure within the Group’s financial statement; — holding discussions with management to understand if there has been any whistleblowing; and — testing post year-end cash receipts, where relevant, to test the recoverability of amounts recorded. Key observations We consider the Group’s estimation methodology to be prudent based on a number of factors, including a look back at historical cash receipts. However, the methodology is consistently applied year-on-year and the understatement of rebate income is not material to the financial position or the reported financial result as at 31 July 2017.

Inventory provision for slow-moving and obsolete inventory Key audit matter description The Group had inventory of £1,816m at 31 July 2017, held in distribution centres, warehouses and numerous branches, and across multiple product lines. Details of its valuation are included in the Audit Committee report on page 61 and the Accounting policies in note 37 to the Financial Statements. Inventories are carried at the lower of cost and net realisable value. As a result, the Directors apply judgement in determining the appropriate values for slow-moving or obsolete items. Inventory is net of a provision of £113m which is primarily driven by comparing the level of inventory held to future projected sales. The provision is calculated within the Group’s accounting systems using an automated process. We consider the assessment of inventory provisions to require judgement based on the size of the inventory balance held at year-end and the manual intervention required in the calculation. There is risk that inappropriate management override and/or error may occur. How the scope of our audit We challenged the appropriateness of management’s assumptions responded to the key audit applied in calculating the value of the inventory provisions by: matter — evaluating the design and implementation of key inventory provision controls operating across the Group, including those at a sample of distribution centres, warehouses and branches; — evaluating the design and implementation of key system controls around the provision calculation and their operating effectiveness;

F-131 Inventory provision for slow-moving and obsolete inventory — comparing the net realisable value, obtained through a detailed review of sales subsequent to the year-end, to the cost price of a sample of inventories and comparison to the associated provision to assess whether inventory provisions are complete; — reviewing the historical accuracy of inventory provisioning, and the level of inventory write-offs during the year; and — challenging the completeness of inventory provisions through assessing actual and forecast sales of inventory lines to assess whether provisions for slow moving or obsolete stock are valid and complete. Key observations We consider the Group’s provisioning methodology to be prudent when compared with historical levels of inventory write-offs. However, the methodology is consistently applied year-on-year and our estimate of the potential overstatement of the provision is not material to the financial position or the reported result as at 31 July 2017.

Accounting for restructuring costs Key audit matter description As described in notes 5 and 8 to the Financial Statements, the Group has announced a restructuring plan for the UK business and the disposal of the Nordic region businesses. The key judgements related to this risk lie in the estimation of the restructuring costs where they may differ from the future obligations. By nature, the provision is diffcult to estimate and includes many variables. There is a risk that the provision could be underestimated by management to minimise the liabilities. Additionally, depending on timing there is a risk that costs could be provided inappropriately that are not yet committed. The impact of strategic reviews within the business and other future events gives rise to a source of estimation uncertainty. The Group has recognised a cost of £40m in the year in respect of the UK restructuring, which is reported as an exceptional item in note 5, and an additional amount related to the Nordic region businesses, which is shown within discontinued exceptional items (note 8). There is a judgement required in determining whether disclosure as an exceptional item is appropriate. The UK business is in phase 2 of the restructuring and given the branch closures and expected job losses, there is judgement around the estimated costs. How the scope of our audit Our procedures on restructuring costs included: responded to the key audit — challenging the key judgements made by management including matter evaluating the positions taken on which costs were provided for; — determining whether what is disclosed as exceptional directly related to the restructuring was incremental; — checking the consistency of items included year-on-year and assessing adherence to IFRS requirements and latest Financial Reporting Council (‘‘FRC’’) guidance; — holding discussions with the finance teams on the provision recorded; — testing the provision in place by agreeing it to documentation to assess appropriateness of the level of provisioning; and — understanding if any aspects of the restructuring could result in items to be classified as impaired.

F-132 Accounting for restructuring costs Key observations We consider the restructuring charge recorded in the year to have been appropriately calculated.

Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group materiality ...... £45m (2016: £40m) Basis for determining materiality ...... Approximately 5% of profit before tax excluding exceptional items. The profit before tax excluding exceptional items was £951m, which is £229m lower than the statutory profit of £1,180m. The exceptional items we excluded from our determination are non-recurring in nature and explained further in note 5. Rationale for the benchmark applied ...... Profit before tax is a key metric for users of the financial statements and adjusting for exceptional items is to reflect the manner in which business performance is reported and assessed by external users of the financial statements.

Group materiality £45m Component materiality range £23m to £36m £951m £45m

Audit Committee reporting threshold £2m

PBT excluding exceptionals Group materiality 5OCT201808501432 We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £2m (2016: £1m), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. This is a change from the prior year where we reported all misstatements above £1m. This reflects the continued growth in the business. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. In addition, the understanding gained in our first year audit was utilised in scoping our second year audit. Based on that assessment we focused our Group audit scope primarily on the audit work at the three key regions of continuing businesses (USA, UK and Canada). Full audits were performed in these locations. At the Group level we also tested Head office entities and the consolidation process. Of continuing results, this provided coverage of 97% of revenue, 99% of the profit before tax and 98% of the net assets. In 2016, Switzerland (Tobler) and the Nordic regions (Denmark, Sweden, Norway and Finland) were in full audit scope. Following changes to the Group structure as a result of completed and planned disposals,

F-133 Switzerland and the Nordic regions are subject to analytical procedures in the current year, which is consistent with the remaining entities in the Group.

Revenue Profit before tax Net assets Full audit scope 97% 99% 98% Analytical procedures 3% 1% 2%

The Group team is responsible for the Head Office entities in the UK and Switzerland and the consolidation. The Group team carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit. The component teams in the USA, UK and Canada perform audit work and report into the Group team. The Group audit team continued to follow a programme of planned visits that has been designed so that a senior member of the Group audit team visits each of the most significant locations where the Group audit scope was focused every year, being the USA, UK and Canada. Senior members of the Group team also visited Denmark. In years when we do not visit a significant component we will include the component audit partner in our team briefing, send detailed instructions to our component audit teams, discuss their risk assessment, and review documentation of the findings from their work. For all components we attend the local close meetings.

Other information The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our auditor’s report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that: — Fair, balanced and understandable—the statement given by the Directors that they consider the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or — Audit Committee reporting—the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the audit committee; or — Directors’ statement of compliance with the UK Corporate Governance Code—the parts of the Directors’ statement relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. We have nothing to report in respect of these matters.

F-134 Responsibilities of the Directors As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit for the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

F-135 Report on other legal and regulatory requirements Opinions on other matters prescribed by our engagement letter In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the provisions of the UK Companies Act 2006 as if that Act had applied to the Company. In our opinion, based on the work undertaken in the course of the audit: — the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and — the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and of the parent company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the Directors’ report.

Matters on which we are required to report by exception Adequacy of explanations received and accounting records Under the Companies (Jersey) Law, 1991 we are required to report to you if, in our opinion: — we have not received all the information and explanations we require for our audit; or — adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or — the financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters.

Directors’ remuneration We are also required to report, under the Companies Act 2006 (as if that Act had applied to the Company) if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report arising from these matters.

Other matters Auditor tenure Following the recommendation of the Audit Committee, we were appointed by the Company on 12 November 2015 to audit the financial statements for the year ending 31 July 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is two years, covering periods from our appointment to 31 July 2017.

Consistency of the audit report with the additional report to the Audit Committee Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).

5OCT201808472894 Ian Waller For and on behalf of Deloitte LLP Recognized Auditor London, UK 2 October 2017

F-136 9OCT201809444170

Ferguson Finance plc

U.S.$750,000,000 4.500% Notes due 2028 Guaranteed by Ferguson plc and Wolseley Limited

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24 October 2018

OFFERING MEMORANDUM

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