Annual Report and Accounts 2011

The best local distributor Contents

Strategic overview Corporate governance Other information

01 Highlights 54 Board of Directors 153 Five year summary 02 Group overview 56 Corporate governance report 155 Pro forma information in United States dollars 04 Chairman’s statement 71 Directors’ responsibility statement 156 Principal subsidiary undertakings and their directors 06 Chief Executive’s review 72 Remuneration report 158 Shareholder information 08 Key performance indicators (“KPIs”) 83 Other statutory information 159 Group information 10 Value creation in action 160 Forward-looking statements 10 Best customer service Financial statements

12 Best branch staff 87 Index to financial statements 14 Preferred vendor relationships 88 Group income statement 16 Most efficient operating model 89 Group statement of comprehensive income 89 Group statement of changes in equity Business and performance 90 Group balance sheet 18 The business 91 Group cash flow statement 22 USA 92 Notes to the consolidated financial statements 24 Canada 145 Independent auditors’ report to the members 26 UK of Wolseley plc (in respect of consolidated 28 Nordic region financial statements) 30 France 146 Company profit and loss account 32 Central Europe 146 Company balance sheet 34 Financial review 147 Notes to the Company financial statements 38 Risk management and internal control 152 Independent auditors’ report to the members of Wolseley plc (in respect of Company 44 Corporate responsibility financial statements)

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If you don’t have a QR code reader app on your phone, download one free here: scanlife.com Strategic overview Business and performance Corporate governance Financial statements Other information 01 Wolseley plc Annual Report and Accounts 2011 Highlights

Despite a weak economic climate, a return to like-for-like growth, together with a continuing focus on improving customer service, cash generation, cost reduction and margin protection have produced a strong set of results.

Generated like-for-like Improved gross margin Improved customer growth We want each of our business service During the year the Group units to make incremental A key objective for each business generated revenue of £13,558 improvements in gross margin unit is to improve customer service. million (2009/10: £13,203 million). every year. In 2010/11, in tough Processes for tracking and This was 5 per cent ahead of markets the Group’s gross margin reporting monthly customer service last year on a like-for-like basis improved by 0.2 per cent to 27.9 data by branch are now in place in including strong growth in the USA. per cent (2009/10: 27.7 per cent). every business unit. This is helping us drive further improvements in our businesses.

Gained market share Rationalised portfolio Reinstated dividend Our objective for each business During the year we announced our In March we reinstated ordinary unit is to increase market share plans to exit five underperforming dividends reflecting the strength every year. In 2010/11, three business units. The significant of the balance sheet and our quarters of our business units business disposals planned confidence in the future trading held or improved market share. following last year’s strategic review prospects of the Group. The total is now largely complete. This will dividend for 2010/11 was 45 pence allow us to focus our resources on per share. our strategically strong businesses going forward.

For our Financial review see page 34 02 Wolseley plc Annual Report and Accounts 2011 Group overview

We are the largest specialist trade distributor of plumbing and heating products to professional contractors and a leading supplier of building materials to the professional market. Our businesses often hold leading positions in their local markets.

USA Canada UK

Revenue Revenue Revenue

40% of 6% of 18% of £5,500m total £811m total £2,404m total +6% revenue +6% revenue –3% revenue

Trading profit Number of Trading profit Number of Trading profit Number of business units business units business units* £314m 7 £39m 4 £109m 7 +31% –5% +19%

Key brands Key brands Key brands

Market drivers Market drivers Market drivers Revenue contribution Revenue contribution Revenue contribution

28% 30% 14% 14% 14% 8% 23% 34% 35% 52% 16% 12% 18%

USA regional performance Canada regional performance UK regional performance see page 22 see page 24 see page 26

Regional focus Market drivers * Excluding Build Center and Encon Wolseley operates in six geographic regions – Our six geographic regions supply customers (disposal in progress) the United States, Canada, United Kingdom, in the new residential repair, maintenance and ** Excluding Brossette (disposal in progress) France, the Nordic region and Central Europe. improvement (“RMI”), commercial, industrial and construction sectors. The exposure to each Within each region the Group operates a number market differs by geography and by business unit. of distinct business units with strong trading brand Please see above for the contribution to revenue names, including many with market leading of each market driver by region. positions in their local markets. Q Residential RMI Q Non-residential RMI Q Residential new construction Q Non-residential new construction Q Civil infrastructure Strategic overview Business and performance Corporate governance Financial statements Other information 03 Wolseley plc Annual Report and Accounts 2011

Group revenue Group trading proﬁt £13,558m £622m +3% +38%

Nordic region France Central Europe

Revenue Revenue Revenue

16% of 14% of 6% of £2,128m total £1,943m total £772m total +6% revenue +0% revenue –9% revenue

Trading profit Number of Trading profit Number of Trading profit Number of business units business units** business units £113m 7 £53m 4 £30m 4 +12% +77% +233%

Key brands Key brands Key brands

Market drivers Market drivers Market drivers Revenue contribution Revenue contribution Revenue contribution

51% 14% 21% 11% 38% 16% 31% 13% 28% 9% 30% 27%

3% 2% 6%

Nordic regional performance France regional performance Central Europe regional performance see page 28 see page 30 see page 32

Number of branches Number of customers Number of countries 3,837 >1m 23 Number of vendors Number of employees >100,000 45,888 04 Wolseley plc Annual Report and Accounts 2011 Chairman’s statement

Delivering shareholder value I am pleased to present my first statement to shareholders as Chairman of Wolseley and to report on a year of substantial progress across the Group. A return to like-for-like revenue growth, together with a continuing focus on improving customer service, cash generation, cost reduction and margin protection have produced a strong set of results despite a weak economic climate. Our Executive team, led by Ian Meakins, has also made robust and encouraging progress during the year on strategic initiatives, in particular in refocusing Wolseley on those businesses where we have In summary or can create leading market positions. Several disposals Strong financial results. of non-core businesses have been announced in the year. At the same time, in the core business the leadership teams Dividend reinstated. have continued to impose greater rigour on the management and execution of strategy at the business unit level, which Successful redomiciliation to Switzerland. will serve us well in the future. Board refreshed with three new appointments. Group results I am particularly pleased to report a strong set of financial results for 2010/11. Like-for-like revenue growth for the year ended 31 July 2011 was 5 per cent and headline earnings per share was strongly ahead at 142.9 pence (2010: 74.1 pence). We continue to place a high degree of emphasis on generating cash. Our balance sheet remains strong and our adjusted net debt position at 31 July 2011 improved by £490 million to £705 million. Dividend In view of the Group’s improved prospects and strengthened financial position, the Board is recommending a final dividend of 30 pence per share. Together with an interim dividend of 15 pence per share paid in May 2011, the total dividend for financial year 2010/11 will amount to 45 pence per share, costing £127 million. Our policy is to grow the dividend over time, taking into account the significant opportunities for investment in profitable organic growth and selected bolt-on acquisitions. The Group will continue to target adjusted net debt in the range of 1x and 2x EBITDA, consistent with investment grade credit metrics.

For our Corporate governance report see page 56 Strategic overview Business and performance Corporate governance Financial statements Other information 05 Wolseley plc Annual Report and Accounts 2011

Redomiciliation to Switzerland At the same time Nigel Stein also stepped down as a Non Executive Director as a result of his increasing commitments In November 2010, we completed the incorporation of as Chief Executive of GKN plc and President of the Society Wolseley plc in Jersey, a new holding company for the of Motor Manufacturers and Traders. He was a valued Group, tax resident in Switzerland, which has a less complex colleague and we wish him continued success. Andy Duff and more certain system of taxation compared to the UK. has assumed responsibility as the Company’s Senior The business case for redomiciling was compelling and the Independent Director. Board felt strongly that action was required to keep the Group’s effective tax rate competitive and that the action In March 2011, Tessa Bamford and Michael Clarke joined was in the best interests of shareholders. The redomiciliation the Board as Non Executive Directors. Tessa is a Consultant does not make any substantive changes to our corporate at search firm Spencer Stuart and is also a Non Executive governance or to any existing investor protection measures, Director of Barratt Developments plc. Michael was recently nor has it had any adverse tax implications for shareholders. appointed as Chief Executive of Premier Foods Plc and was I am conscious of the UK coalition Government’s publicly previously President of Kraft Foods, Europe. We recently stated desire to simplify UK tax law as it applies to announced that Karen Witts will join the Board as a multinational corporations such as Wolseley, and the Board Non Executive Director, she brings with her tremendous will keep the Company’s position under review should the UK experience in senior finance roles at Vodafone and BT. tax environment change materially. The Board and I welcome the findings of the Davies Report “Women on Boards” which recommends that targets are set Governance for the appointment of women to Boards and Executive Committees. Our recent appointments to the Board The Board is committed to the highest standards of mean that we are substantially in line with Lord Davies’ corporate governance. It recognises that it is accountable recommendations. Our objective here is to deliver an to the Company’s shareholders for good governance, optimum level of skills and experience to lead the Company to facilitate efficient and effective management in order in its future developments. We also continue to put a to deliver shareholder value over the long term, within significant effort into succession planning for Executives, appropriately established risk parameters. The Directors, Non Executive Directors and all senior management. both individually and collectively, take governance seriously and I am satisfied, as borne out again by this year’s Board review, that our Board operates effectively, is properly People engaged on critical matters and that all Directors set Lastly and most importantly, I would like to thank all our aside the time required to fulfil their duties. Following the employees and pay tribute to their dedication, professionalism redomiciliation to Switzerland, a new meeting schedule and loyalty to Wolseley; they have delivered a very good set was developed for the Board and its Committees, which of results for our shareholders. As a service business, at has resulted in higher quality discussion of the issues facing Wolseley our people really do make all the difference. the business. Further details are outlined on pages 56 to 70. Board changes I have also reviewed the composition of the Board with the Nominations Committee and we have refreshed the team with three new Non Executive Directors. I am confident that these appointments will ensure that the Board continues to operate with a broad and diverse range of complementary skills and Gareth Davis specialised knowledge to take the Company forward. Chairman In November 2010, following the redomiciliation, Alain Le Goff stepped down from the Board as a Non Executive Director. The Board and I were sorry to see Alain leave and we wish him well for the future. In January 2011, John Whybrow retired as Chairman having served nearly 13 years as a Non Executive Director, eight of which were as Wolseley Chairman. John steered the Company and the Board through a time of considerable change and we thank him for his steadfast leadership and his wise counsel. We wish him well for his retirement. 06 Wolseley plc Annual Report and Accounts 2011 Chief Executive’s review

Overview We have delivered a decent performance this year despite the challenging economic conditions. Further improvements in customer service and a return to like-for-like growth contributed to strong trading profit growth. Our ongoing focus on operational efficiency has enabled us to both invest in future growth and deliver another increase in the trading margin of 120 basis points as well as delivering strong cash generation. During the year we announced our intention to exit some businesses and signed or completed most of the major disposals that were planned. This will allow In summary us to focus all our resources on our strategically strong Markets broadly stabilised. businesses going forward. Operating performance improving. Group results Exit of non-core businesses largely During the year our markets broadly stabilised, driven completed in the year. principally by improving New Residential construction and the more resilient Repair, Maintenance and Improvement Improving customer service and markets. employee engagement scores. The Group reported revenue up 3 per cent to £13,558 million Focus on organic expansion (2010: £13,203 million). Like-for-like revenue was ahead by and bolt-on acquisition. 5 per cent which, coupled with an ongoing focus on protecting gross margins and careful cost control, led to a strong operating performance. We have continued to focus hard on achieving a better mix of products and vendors and despite considerable pressure on selling prices the gross margin was 20 basis points higher at 27.9 per cent (2010: 27.7 per cent). We also continued to keep the cost base under tight control and operating costs excluding exceptional items were reduced by £45 million. Consequently the Group experienced strong operating leverage from incremental revenue and Group trading profit in the year was up 38 per cent to £622 million (2010: £450 million).

Value creation model

Operational Gain share of existing customers and gain Strategy performance new customers

Business Within Cross- Best Best Preferred Resource unit business business customer branch vendor allocation strategies units unit service staff relationships

Proﬁtable growth Most efﬁcient operating model

For Value creation in action see pages 10–17 Strategic overview Business and performance Corporate governance Financial statements Other information 07 Wolseley plc Annual Report and Accounts 2011

During the year we continued to manage the balance sheet Operational performance conservatively. Cash was tightly controlled enabling us Our objective for each business unit strategy is to improve to invest in additional capital expenditure of £93 million customer service by developing and training our staff so (2010: £84 million). that we can win market share from our competition. Therefore in every branch we want to gain a greater share Strategy update of our existing customers’ business and also attract new Our strategy remains unchanged: focusing Wolseley through customers by providing the best local customer service, a top down resource allocation process on those businesses delivered by the best branch staff in the industry. which already have, or are capable of market leadership Underpinning this is an efficient operating model which which will give us the best returns in the long term. Alongside ensures we are competitive and can attract favourable terms this we have developed bottom up detailed business unit from our vendors. Here we have focused on establishing strategies to make sure we grow these businesses faster preferred partnership relationships to achieve the most than the competition. In short, we are driving a parallel path competitive costs. of resource allocation and performance management to Underpinning this is a performance review process which generate profitable growth which is outlined in our value continues to gain traction. We now have good visibility down creation model opposite. In addition, you can read about the to business unit level and also down into our 3,837 branches. progress we are making on delivering the strategy on pages For example, in Ferguson for each branch we now have a 10 to 17. dashboard of performance for customer service, product Resource allocation availability, local market share performance and branch manager performance as well as key financial data. Regular During the year we have re-run the resource allocation process customer feedback is now embedded in every business unit and we have disposed of a number of underperforming and it is informing our thinking and decisions every day. businesses which we felt had insufficient scale or no clear economic synergies with our major businesses. These There is a clear correlation in our business between engaged Performance Builder businesses included Brandon Hire employees delivering excellent customer service and strong and Electric Center in the UK and the plumbing and heating financial results in a branch. We are now therefore measuring business in Italy. In July 2011 we also announced the sale of employee engagement on a regular basis. This has improved Build Center in the UK and exclusive negotiations for the sale in the last year even in the tough markets we have had to of Brossette, our French plumbing and heating business. contend with. So having the right staff, properly trained and Both transactions are subject to clearance from the developed and with a clear view on how we can build their relevant competition authorities. On completion the total careers long term is fundamental to our future success. We are consideration for the two transactions is expected to be also beginning to share best practices across our business £310 million. Completion of the above transactions will units and have increased our IT investment in projects that will conclude Wolseley’s significant business disposals planned deliver better front line performance. This includes sales force following last year’s strategic review. productivity, pricing and trade terms management, and product availability at the branch level. Our business model also remains unchanged: we believe that delivering excellent customer service will allow us to deliver attractive levels of organic revenue growth Priorities whilst driving sustainable profit and margin improvement. Looking forward, we are well placed to exploit the significant In combination with disciplined capital investment and tight growth opportunities in our chosen distribution markets. control over working capital, this will result in strong cash The performance of the business is improving and we are flows. Our markets are typically highly fragmented and have now getting good visibility down to a branch level across all some really exciting growth prospects. We have some the key performance measures. We know we still have great excellent businesses with strong market positions. opportunities for the future. We will continue to invest, both organically and in value Lastly, I would like to reiterate Gareth’s comments about creating bolt-on acquisitions where we can generate all our staff. I am very proud and lucky to lead this great synergies. With acquisitions, our strong preference is for small organisation. So I would like to take this opportunity to thank to medium sized businesses in our existing geographies, so our staff – their commitment during another tough year has that we can integrate them rapidly into our strong businesses made all the difference to our results. and deliver attractive returns. In line with this approach we made three small bolt-on acquisitions this year, including a small Waterworks business in the USA and two small building materials businesses in Denmark. Overall, we believe this focused approach will deliver real value to our shareholders.

Ian Meakins Chief Executive 08 Wolseley plc Annual Report and Accounts 2011 Key performance indicators (“KPIs”)

The Group has used the following Like-for-like revenue Gross margin performance indicators to assess its development against its growth strategy and ﬁnancial objectives during the year. The Group gives % % prominence to different +5.1 –2.3–13.9 –6.0 +5.0 28.3 28.227.7 27.7 27.9 indicators as the economic environment changes.

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Definition Definition The total increase or decrease in revenue The ratio of gross profit excluding for the year, excluding the effect of currency exceptional items to revenue. exchange, trading days, new acquisitions, Performance disposals, branch openings or closures Gross margin improved to 27.9 per cent as in the year, and the incremental effect of a result of a continued focus on improving acquisitions, branch openings and branch customer service and product mix despite closures in the prior year. The Group expects competitive market conditions. changes in like-for-like revenue in each of its markets to exceed that achieved by the remainder of the market. Performance Group like-for-like revenue growth was 5.0 per cent for the year, compared to a reduction of 6.0 per cent in the previous year.

Trading margin Average cash-to-cash days

% No. of days

6.0 5.33.1 3.4 4.6 57 5053 50 54

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Old calculation method New calculation method

Definition Definition The ratio of trading profit to revenue. Over the Cash-to-cash days are defined as the average number of days from cycle, the Group seeks to achieve a growth in payment for items of inventory to receipt of cash from customers. trading profit higher than the growth in revenue The Group uses the 12 month average number of cash-to-cash days, as a result of increasing the efficiency of excluding the benefit of factored receivables, to monitor working capital operations and benefiting from its economies efficiency throughout the year. of scale and strong market positions. Performance Performance A change in calculation method took place in 2011 to include rebates Group trading margin increased from 3.4 per receivable and net rather than gross trade receivables within the cent to 4.6 per cent as the Group grew calculation. After excluding the estimated impact of year-end working revenue at a faster rate than overheads. capital measures, the Group has improved its average cash-to-cash day performance in the year using this new measure. Strategic overview Business and performance Corporate governance Financial statements Other information 09 Wolseley plc Annual Report and Accounts 2011

Return on gross capital Return on capital Labour cost as % of employed employed gross proﬁt

% % %

15.6 12.56.9 7.1 10.6 26.9 24.314.4 16.4 25.4 46.7 47.050.9 51.0 49.0

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Definition Definition Definition Return on gross capital employed is the ratio Return on capital employed is the ratio Total labour cost as a percentage of gross profit, of trading profit to the average year-end of trading profit to the average year-end excluding exceptional items. aggregate of shareholders’ funds, adjusted aggregate of shareholders’ funds and Performance net debt and cumulative goodwill written off. adjusted net debt, excluding goodwill Labour cost as a percentage of gross profit and other acquired intangible assets. Performance improved from 51.0 per cent to 49.0 per cent Return on gross capital employed increased Performance in the year. from 7.1 per cent to 10.6 per cent. Return on capital employed improved from 16.4 per cent to 25.4 per cent.

Customer service Supply chain Employees and health and safety

Definition There are numerous supply chain initiatives The safety of Wolseley’s people is paramount Different types of customer have different around the Group. Some are monitored and lost time incident rates are monitored requirements, or different priorities in ranking by financial measures, such as annualised closely in each of our businesses. The Group’s their requirements. Each business unit needs savings in transportation costs, and others health and safety performance is monitored to understand what these requirements are by non-financial measures such as inventory using three standard KPIs: medical injury and how its service performance is perceived turns and, for the Group’s distribution centres, frequency, lost workdays and vehicle collision relative to the competition. Regular customer the fill rate achieved. This is the proportion of frequency. More information is provided in the surveys have been introduced in all business orders that can be fulfilled from inventory on Corporate responsibility report on page 48. units to establish a base point from which hand at the time of the order. In addition, all of our business units measure progress can be measured. employee engagement levels on a regular basis. Performance Processes for tracking and reporting of customer service KPIs differ by geography and by business unit. 10 Wolseley plc Annual Report and Accounts 2011 Value creation in action

1 2

Best customer service Strategic overview Business and performance Corporate governance Financial statements Other information 11 Wolseley plc Annual Report and Accounts 2011

In order for us to be a supplier of The advantages of this tool are that Gain share of existing customers and gain choice for our customers we need individual branches can see how they new customers to give them the best possible score; they can log into the tool and see service. All of our business units the results for their own customers the measure customer service on a next day. This means that the branches Best Best Preferred customer branch vendor regular basis and use the results can take action straight away to follow up service staff relationships to drive improved performance. on the customer feedback. The surveys ask customers to rate how competitive Stark, the leading building materials Stark is and how they feel treated by Most efﬁcient operating model business in Denmark, surveys all of its employees. Depending on the rating that customers at least twice a year. the customer gives Stark, the My Maze For Value creation model Throughout the year they also send out see pages 06–07 survey tool generates a red unhappy, targeted surveys asking customers about amber or green smiley face. This is a a particular initiative or part of their simple way of capturing customer Using your smartphone, scan this service. They use an online survey tool feedback and allows Stark employees code to view a short ﬁlm about called My Maze to capture customer “Stark customer service”. to quickly identify the areas in which feedback and measure satisfaction in Or visit: they need to take action. http://annualreport2011. every branch. wolseleyplc.com/

Images of staff from Stark, Aalborg, Denmark 1 Kirsten Hedeman, Accounts Manager. 2 Claus Bo Nielsen, Sales Assistant, Hardware. 3 Lars Ersted Nielsen, Sales Manager, Stark Selvbyg. 4 Henning Jørgensen, Sales Assistant, Hardware. 5 Kasper Hansen, Sales Apprentice, Building materials. 6 Kasper Borup Green, Warehouse.

5 6 12 Wolseley plc Annual Report and Accounts 2011

Value creation in action continued

Best branch staff

2 Strategic overview Business and performance Corporate governance Financial statements Other information 13 Wolseley plc Annual Report and Accounts 2011

There is a direct link in our business Wolseley UK’s most recent employee Gain share of existing customers and gain between engaged employees survey showed a significant new customers delivering excellent customer improvement in the overall engagement service and strong financial results score which increased from 49 per cent in a branch. We want our staff to in 2008 to 58 per cent in 2010. This was Best Best Preferred customer branch vendor feel valued and proud to work for particularly encouraging in view of the service staff relationships us and we want them to have the restructuring activities that had taken right skills and knowledge to place over the previous two years in deliver the best possible service response to the downturn in the Most efficient operating model for our customers. All of our UK markets. businesses measure employee For Value creation model Examples of the specific initiatives that see pages 06–07 engagement levels. had the biggest impact on the positive engagement score include the Branch Using your smartphone, scan this Management training programme – code to view a short film about Addvance – and the continuation of the “Best branch staff in Wolseley UK”. Reward and Recognition programme – Or visit: http://annualreport2011. Wow! Factor. wolseleyplc.com/

Images of staff from Pipe Center, West Horndon, UK 1 Dave Woodberry, Branch Manager. 2 John Kinchlea, Warehouse. 3 Ron Hughes, LGV Driver. 4 Joe Hainesborough, Trade Counter. 14 Wolseley plc Annual Report and Accounts 2011

Value creation in action continued

Preferred vendor relationships Strategic overview Business and performance Corporate governance Financial statements Other information 15 Wolseley plc Annual Report and Accounts 2011

Wolseley is building strong long-term to ensure that front line staff support Gain share of existing customers and gain partnerships with vendors so that these vendor programmes to drive new customers we can grow our business with higher volumes of more profitable them and benefit from improved products. terms and pricing. Best Best Preferred Ferguson developed a sales tool for customer branch vendor service staff relationships Like many Wolseley businesses, branch managers which showed how Ferguson has a preferred vendor they graded vendors depending on programme whereby purchasing spend profitability by product category. Managers in the USA is prioritised with the vendors then coached associates on how to Most efficient operating model that offer the best terms and pricing. promote the most profitable products. For Value creation model While an important aspect of the process see pages 06–07 Already they have seen improvements is negotiating with vendors to leverage in the mix of higher margin products Ferguson’s spend nationally, the key to going through the distribution network. Using your smartphone, scan this the partnerships being successful is code to view a short film about This initiative has been shared with the “Preferred vendor relationships other Wolseley businesses in Europe and at Ferguson”. is being adopted by our sourcing teams Or visit: http://annualreport2011. in other countries. wolseleyplc.com/

Images from Ferguson branch, Chantilly, USA 1 Kathy Scull, Branch Manager. 2 Butch Doane, Senior Sourcing Manager and Steve David, Director of Procurement. 3 Lamonta Bailey, Counter Assistant.

3 16 Wolseley plc Annual Report and Accounts 2011

Value creation in action continued

Most efﬁcient operating model Strategic overview Business and performance Corporate governance Financial statements Other information 17 Wolseley plc Annual Report and Accounts 2011

Our objective is to operate the vendors to get better support in terms Gain share of existing customers and gain lowest cost, most efficient of stock and delivery and marginally new customers operating model in our industry. increased inventory and delivery This means ensuring that our frequency to all branches. distribution activities benefit Best Best Preferred Ferguson expanded the initiative to the customer branch vendor from national scale and an efficient service staff relationships top 3,000 SKUs earlier this year and they supply chain either through a are now achieving almost 100 per cent network of distribution centres or availability. This is a significant competitive direct deliveries from our vendors Most efficient operating model advantage and the initiative has been key to customers. to improved customer satisfaction scores For Value creation model In November 2009, Ferguson, in the in Ferguson as well as driving higher see pages 06–07 USA, launched an initiative to provide share of customer spend and market 100 per cent availability of the top 2,000 share gains this year. Using your smartphone, scan this Stock Keeping Units (“SKUs”) at the code to view a short film about branch. They worked with their key “Operational efficiency at Ferguson”. Or visit: http://annualreport2011. wolseleyplc.com/

Images from Ferguson branch, Chantilly, USA 1 Eric Huggins, Sales Management Trainee. 2 Mark Fox, Residential Sales Manager. 18 Wolseley plc Annual Report and Accounts 2011 The business

Wolseley is the world’s largest specialist Within each geography the Group operates a number of distinct business units with strong trading identities, including trade distributor of plumbing and heating many with market leading positions in their local markets. products to professional contractors and The Group has strong management teams in each region. a leading supplier of building materials Business units report on operational performance and to the professional market. strategic progress through regular performance review meetings with senior executives. The business model Business unit strategies Wolseley is a distributor bridging the gap between over 100,000 vendors and over 1 million customers by bringing Business unit strategies are aligned with the Group value together a wide range of products from different vendors that creation model as outlined on pages 6 and 7. Each business our customers need and providing our vendors with access unit aims to grow profitability faster than the competition to these customers cost effectively. through gaining a greater share of its existing customers’ business and through attracting new customers. To achieve this each business unit focuses on achieving: Over Over • best customer service; 100,000 pf1 million vendors customers • best branch staff; and • preferred vendor relationships. Underlying this, Wolseley aims to operate the most efficient operating model in the industry, ensuring its distribution Source Distribute Sell We source a wide We distribute them We sell through a activities benefit from national scale and an efficient supply range of products efficiently to our variety of channels chain. efficiently and branches and including branches, responsibly, bringing customers, allowing call centres and together the mix of us to provide great online, with a strong Synergies products from product availability focus on providing different vendors that levels for our excellent customer The business model offers opportunities for synergies to be our customers need customers service achieved by being part of the Group. These include: • management synergies such as sharing best practice, management development and corporate finance; and For more information For more information For more information see page 19 see page 20 see page 21 • operating synergies in the areas of joint sourcing, own label development and the sharing of costs and infrastructure.

Business and management structure Market overview Wolseley is an international business, operating 3,837 The markets for plumbing and heating and building materials branches in 23 countries and employing over 45,000 people. are directly exposed to macroeconomic cycles. Most of the countries in which the Group operates began to return to The Group’s business falls into six geographic regions – the growth in the second half of last ﬁnancial year and continued United States, Canada, United Kingdom, France, the Nordic to recover throughout 2011. Further detail by geography is region and Central Europe. provided in the regional performance overviews on pages Revenue split by region 22 to 33. Total Group revenue £13.6 billion Although our markets are cyclical, the business model is Central Europe strong and it is underpinned by demographic trends towards 6% ageing populations and smaller households and by the France ageing of housing stocks. 14%

USA 40% Nordic region 16%

UK 18% Canada 6% Strategic overview Business and performance Corporate governance Financial statements Other information 19 Wolseley plc Annual Report and Accounts 2011

Our businesses sell to customers ranging across the Vendor relationships residential, commercial and industrial sectors. The exposure to each market differs by geography and by business unit. Our vendors need distributors who can give them access Further detail is provided on pages 22 to 33. to many smaller customers cost effectively. Our relationships with these vendors are key to our success; we want to build Revenue by market driver strong relationships and grow our business with them. % of total 2010/11 revenue The Group has over 100,000 trade vendors. Key vendors are Civil manufacturers with market leading brands, usually focused infrastructure on the needs of local markets. We work in partnership with 7% Residential new construction our key vendors to offer market breadth and penetration Non- 20% residential and to collaborate on promotions and incentive programmes. RMI Our primary focus is to derive beneﬁt from national scale. 21% Whilst the vendor base is predominantly based on national geographies, some international sourcing beneﬁts exist, for example across Europe and for the sourcing of own label products. The Group continues to work with low cost, high Non- residential Residential quality manufacturers to supply our own label product ranges. new construction RMI In the year ended 31 July 2011 sales of own label products 16% 36% represented 8 per cent of Group revenue (2010: 8 per cent).

Competition Products The Group sources and supplies a broad range of products. The distribution of plumbing and heating and building The main product categories are set out in the following list: materials is fundamentally a local business, in that the majority of our customers are serviced by a local branch Plumbing, heating and air conditioning a short distance from their workplace. It is also highly • Baths, showers and accessories. fragmented, with no dominant supplier and few large players. • Sanitaryware. Wolseley aims to have a leading market position in the • Brassware. territories and sectors in which it operates, with strong • Bathroom furniture. local and national brands. • Boilers and burners. Using public and private sources of information, the • Radiators and valves. management of each of our business units assesses its • Hot water cylinders and flues. position in its chosen markets relative to its competitors. • Control equipment. These estimates are presented for our larger business units • Ventilation and air conditioning equipment. in each geographic region on pages 22 to 33. • Heat pumps and solar equipment. • Plastic pipes and fittings. • Copper tubing and fittings. Source Building materials We source a wide range of products efficiently and • Insulation. responsibly, bringing together the mix of products from • Plaster and plasterboard. different vendors that our customers need. • Roofing materials. • Bricks, blocks and aggregates. • Over 100,000 trade vendors supplying a broad mix • Tiles and flooring. of products including own label ranges. • Timber products. • Strong vendor relationships and use of preferred • Doors and frames. vendor programmes. • Glass. • Scale advantages in sourcing are a key • Beams, trusses and frames. competitive advantage. • Hardware and tools. • Cement. • Commitment to responsible sourcing practices. Civils/waterworks, industrial and commercial • Drainage pipes, associated supplies and covers. Sourcing programme • Underground pressure pipes. The aims of the sourcing programme are to standardise • Small bore pressure pipes and fittings. quality, improve product availability and choice, and • Carbon and stainless steel pipes, valves and fittings. maximise the synergies offered by the Group’s scale • Other pipes, valves and fittings. and size, benefiting both Wolseley and our customers. Other • Electrical cables, wiring and lighting. • Services, including installation, maintenance and management of customer inventory. 20 Wolseley plc Annual Report and Accounts 2011

The business continued

The proportion of Group revenue derived from each product Our objective is to operate the lowest cost, most efficient category is shown in the chart below. operating model in our industry, ensuring that our distribution activities benefit from national scale and an efficient supply Product mix by category chain. The Group has invested significantly in supply chain technology to manage inventory in our distribution centres Other and branches in order to maximise efficiency. Civils/ 2% waterworks Plumbing, industrial heating and Product availability and air conditioning commercial 40% The availability of a wide rage of products to our customers is 28% fundamental to the Wolseley business model. Our distribution network is key to allowing us to outperform the competition in this area. Each distribution centre aims to maximise the fill rate that it achieves, which is the proportion of orders that Building materials can be fulfilled from inventory on hand at the time of order. 30% In many cases the distribution centres operate with fill rates that are substantially better than those we receive from our vendors – the distribution centres absorb the gap between Responsible sourcing vendor fill rates and fill rates to our branches. The Group is committed to responsible sourcing and has a At a branch level, product ranges are focused on the fastest range of procedures and policies in place related to product moving products, with the distribution centres able to safety and ethical sourcing practices. We work to ensure quickly deliver a wide range of other products as required. that the vendors we deal with adhere to our expected For example, the Ferguson business in the US aims to ethical standards. provide 100 per cent fill rates on its top 3,000 products which Further detail is given in the Corporate responsibility report has been key to the improved customer satisfaction scores, on pages 44 to 53. higher share of customer spend and market share gains achieved this year. Further details can be found on page 17. Branches Distribute With 3,837 branches (at 31 July 2011) across 23 countries, We distribute products efficiently to our branches and Wolseley is an international business but also a local customers, allowing us to provide great product availability business, with the majority of the Group’s customers levels for our customers. travelling less than 20 miles to a branch. We rely on the strength of our brands in their local markets, and the local • Branch network of 3,837 branches. knowledge of our employees in the branches to meet our • Large scale network of distribution centres supporting customers’ needs. the plumbing and heating businesses. • Market leading levels of product availability across a Transport broad range of products is a key competitive advantage. The Group uses a range of different transport solutions in each of its businesses including both owned and leased fleet and third party delivery. The Group uses fleet Distribution network management systems and backhauling arrangements Distribution centres are a key competitive advantage for to maximise the efficiency of its transport network and Wolseley, allowing the Group to purchase in bulk and better minimise its environmental impact. Further detail on the serve customers through reduced delivery times, broader environmental impact of our transport requirements and product selection, increased fill rates and improved product actions taken to minimise CO2 emissions is given in the availability, as well as enabling the Group to better manage Corporate responsibility report on pages 44 to 53. inventory. The Group has a large scale network of distribution centres which serve branches for our plumbing and heating businesses. By contrast the majority of products in our building materials businesses are delivered directly to our branches or customers. Strategic overview Business and performance Corporate governance Financial statements Other information 21 Wolseley plc Annual Report and Accounts 2011

Sell Customer service Wolseley is a relationship business and our focus is to meet We sell through a variety of channels including branches, our customers’ needs better than the competition, ensuring call centres and online, with a strong focus on providing we deliver the right products, at the right price, at the right excellent customer service. time, on every occasion they do business with us. We use • Continued focus on customer service measured regular customer surveys in all of our business units so that through regular customer surveys. we can take actions to improve our performance, both nationally and within each branch operation. • Investment in employee training programmes and tools to allow our branch staff to deliver the best Branch staff customer service. In order to achieve the best customer service in the industry • Investment in online sales channels to drive we need to have the right talent with relevant training, organic growth. skills and knowledge in our locations. Within each of the business units there is a strong focus on ensuring that Channels training programmes and tools are available for our people so they are equipped to give the best service in the industry. Sales to customers are made over the counter at our Employee engagement is measured in each business branches, through supply contracts which are managed unit at least annually and the results are used to make centrally, or through orders that can be placed with improvements in working practices and environments. branches, into call centres, or over the internet. In some regions we also operate a network of showrooms which enables us to showcase our product range. E-commerce is a rapidly growing sales channel for the Group and we continue to invest in our business-to-business and business-to-consumer websites across the Group. For example, Plumb Center in the UK has recently launched its online Trade Superstore allowing its customers to order from across the product range online for either delivery or collection in the branch. Customers The Group has a wide range of customers operating in different industry sectors, ranging from individual plumbers and builders through to national contractor chains and house builders. Wolseley’s primary customer focus is on professional contractors, who constituted 87 per cent of the Group’s customer base during the year ended 31 July 2011.

Customer mix % of total 2010/11 revenue Heating, ventilation and Electrical air conditioning contractors 6% 1% Utilities Building 10% contractors Mechanical 25% contractors 9%

End users 13%

Industrial Plumbing and 13% heating engineers 23% 22 Wolseley plc Annual Report and Accounts 2011 Regional performance

USA Regional KPIs

Revenue £5,500m (40% of Group) 2011 2010 +/- Trading proﬁt £314m Like-for-like revenue growth 9% (9)% +18% Trading margin 5.7% Trading margin 5.7% 4.6% +1.1%

Business units 7 Five year performance £m Revenue Branches 1,261 Trading proﬁt 5,685 5,6135,820 5,174 5,500 Employees 17,481

• Leading distributor of plumbing and heating products in North America. • Strong business model with large scale distribution 401 389309 239 314 centre network and national branch network. 2007 2008 2009 2010 2011 • Continued strong financial performance despite difficult market conditions. Quarterly like-for-like revenue growth % • Market outperformance in the year with significant market share gains achieved. 10% • Strong customer service and employee engagement scores. 0%

–10%

Business unit portfolio and profile –20% In the US we operate seven business units. Ferguson is the primary operating brand although a number of other brands Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 have been retained to service specific markets. The business 2010 2011 operates in all 50 states and is served by 10 distribution centres across the country that can provide next day product Business unit contribution availability, a key competitive advantage. Ferguson % of total 2010/11 revenue predominantly serves the RMI markets with relatively low exposure to the residential new construction market. Other 7% The Ferguson Blended branches business sells to customers Industrial across the residential, commercial and industrial sectors 11% for new construction and RMI projects through its national HVAC branch network. In smaller markets that may not justify a Blended 8% branches stand alone presence for HVAC and Waterworks, a blended 60% location can also provide the products and services for these customers. Waterworks The Waterworks business distributes pipes, valves, hydrants, 14% fittings and meters to residential, commercial and municipal contractors. This is a strong business which has been diversifying its customer base into private water companies Revenue by market driver and treatment plants, and expanding its product range into % of total 2010/11 revenue new areas such as metering technologies. Civil Residential The HVAC business distributes heating, ventilation, air infrastructure new construction conditioning and refrigeration equipment to specialist 14% 14% contractors, predominantly in the residential and commercial sectors. Vendors have a strong position in this market, and branded dealerships of high quality equipment are the most important parts of the business. The majority of revenues Non- Residential residential RMI are generated by providing parts for the repair and RMI 28% replacement market. 30% Non-residential new construction 14% Strategic overview Business and performance Corporate governance Financial statements Other information 23 Wolseley plc Annual Report and Accounts 2011

The Industrial business distributes pipes, valves and fittings, including specialty high-density polyethylene pipes, to industrial customers across all sectors including oil and gas, mining and power generation sectors. Although project driven, the business has historically performed strongly over the economic cycle. The industrial business also offers maintenance, repair and operations services (MRO) and integrated services, off-site integrated supply with centralised procurement, storeroom and commodity management. The other smaller business units include: • Fire and Fabrication: The supply and fabrication of fire protection systems. Ferguson branch bounced back two weeks after • B2C (Business-to-consumer): Websites and platforms to tornado hit On Saturday 16 April this year a Ferguson branch in Raleigh, support e-business. Through the website Build.com, sales North Carolina was severely damaged by a tornado that are made directly to consumers using the product range ripped through the area. and distribution network of the Blended branches business. Within hours of the crisis, teams from Ferguson headquarters This is a particularly fast growing area of the US business. and the Raleigh branch were working to secure the facility and make arrangements to continue to service customers. • Master distribution: Distribution of plumbing, heating Thanks to the strong communication culture created by and pipe supplies to retailers and small wholesalers. the branch manager and her management team, affected associates were quickly informed, and an action plan These business units have synergies with the distribution was executed. and branch network of the larger units, and frequently By Monday morning (18 April), phone calls were transferred share vendors. to other branches, associates were reassigned and orders were being filled at neighbouring counters. Customers Market position and competitive environment and vendors were notified of the event. Less than two weeks after the tornado hit, a new Ferguson is the market leading distributor of plumbing temporary location was open for business. supplies in the USA. The market positions of the main business units are estimated as follows:

Market position Blended branches 1 Waterworks 2 HVAC 3 Industrial 4

Ferguson has no direct competitor that competes across all business units, but rather each business unit has its own competitor set. Competitors range from large national players, including professional sales from the national Davidson Pipe helps to rebuild home improvement chains, to single-branch operations. World Trade Center towers The market remains fragmented with a large number of Davidson Pipe, Ferguson’s pipes, valves and fittings business, supplies carbon and stainless steel pipe, valves small and regional competitors making up the majority and fittings to many of the contractors who are working of the market. to rebuild the World Trade Center towers in New York. Davidson supplied material for fire protection and plumbing Management believes that Ferguson has continued to gain for both towers, pipe and fittings for the Memorial Fountain, market share in the year to 31 July 2011, growing sales heavy wall pipe used in the foundation, and recently the significantly ahead of the market. fabricated piping system for the chiller plant, which will be used to provide air conditioning for the World Trade Center’s non-commercial areas. The largest pipe diameters that Davidson fabricates were 42 inches (outside diameter) with half an inch wall thickness, and many of these pieces were up to 35 feet long. In total, there were more than 80,000 diameter inches of welding performed in Davidson’s fabrication shop. The total contract for this project, including materials, welding and lining, exceeded £1.6 million. 24 Wolseley plc Annual Report and Accounts 2011

Regional performance continued

Operating performance Canada Revenue in the USA was 9 per cent ahead of last year on a like-for-like basis. Growth was broadly based, supported by Revenue £811m (6% of Group) price inflation of approximately 3 per cent with all of the major Trading profit £39m businesses ahead. The RMI segment has been resilient although it remains subdued as a result of lower consumer Trading margin 4.8% confidence. The recovery in new construction was modest as factors such as high unemployment, low availability of Business units 4 credit and high levels of unsold housing inventory have continued to constrain demand. The Commercial sector Branches 221 showed some resilience although continued to be restricted Employees 2,693 by the lack of availability of finance for construction projects. Industrial markets were generally better. We believe all of our major businesses in the USA continued to gain market share • A leading wholesale distributor of plumbing, heating, in the period. industrial and ventilation equipment. The gross margin was ahead of last year as we continued • National distribution centre in Ontario and branches to focus on improvements in the business mix towards located in all 10 provinces across Canada. showrooms, counter sales and private label products. • Synergies with US. Operating costs increased by 7 per cent in constant currency due to some additional headcount, the reinstatement of merit • Experiencing increasingly difficult market conditions. increases, pension contributions and higher volume related costs. The combination of strong revenue growth and margin Business unit portfolio and profile improvement led to a significant increase in trading profit to £314 million (2010: £239 million). There was a one-off charge Wolseley Canada is a wholesale distributor of plumbing, of £12 million in the period in respect of the settlement of heating, industrial and ventilation products, servicing RMI litigation dating back to 2004. markets and with a higher exposure to new residential markets than most of our regions. Synergies with the US Growth in Blended branches continued throughout the year. include shared supply chain and back office functions A strong focus on gross margins contributed to good profit and combined sourcing activities. flow through and the business was a major contributor to the overall improvement in the Group’s trading profit. The Blended branches mainly supply plumbing equipment to The Industrial and HVAC businesses made good progress. residential and commercial contractors and DIY customers, The Industrial business in particular benefited from a buoyant and have historically delivered a strong performance. oil and gas sector. The Waterworks business was resilient The new national distribution centre in Milton, Ontario despite a fall in state and municipal funded projects. supports the branch network. Our Build.com consumer internet business grew strongly The Waterworks business serves residential, commercial at margins consistent with the rest of the US business. and municipal contractors. Its market leadership is based In the first half of the year we completed a small Waterworks on strong relationships with a base of core contractors and acquisition in Alabama. Since the year end we have also national and international vendors. completed two further small acquisitions of a PVF business The HVAC business supplies a wide range of heating, in Louisiana and a Blended branches business in Chicago. ventilation, air conditioning and refrigeration products The USA trading margin was 5.7 per cent (2010: 4.6 per cent). and parts from leading manufacturers to both residential and commercial contractors. The Industrial business derives three quarters of its revenue from industrial customers and a quarter from municipal contractors. We have the opportunity to gain a greater share of our existing customers’ business and win new customers through technically knowledgeable sales staff, on time in full delivery and value added services. Strategic overview Business and performance Corporate governance Financial statements Other information 25 Wolseley plc Annual Report and Accounts 2011

Market position and competitive Regional KPIs environment

The market positions of the main business units are 2011 2010 +/- estimated as follows: Like-for-like revenue growth 2% 1% +1% Market position Trading margin 4.8% 5.4% (0.6)% Blended branches 2 Waterworks 1 Five year performance £m Revenue Industrial 3 Trading profit 619 684700 765 811 Wolseley Canada is estimated to be the largest national competitor in the Waterworks business and the second largest in blended branches. However its market position varies by region. Wolseley Canada is the only national HVAC distributor, facing 42 3932 41 39 regional competitors. 2007 2008 2009 2010 2011 Operating performance Quarterly like-for-like revenue growth In Canada revenue was 2 per cent ahead of last year on a % like-for-like basis. The growth rate declined as the Canadian economy cooled, following rises in interest rates and 10% weakening consumer sentiment. Last year the business benefited from the impact of tax incentives. 0% Trading profit of £39 million was £2 million lower after one-off costs of £3 million. Higher revenue and an improvement in –10% the gross margin were offset by operating costs which grew by 7 per cent at constant currency as the new distribution Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 centre in Milton came on stream and we also invested in more branch staff. Waterworks and Industrial both improved 2010 2011 their performance during the year. Waterworks benefited from government subsidies whilst the Industrial business Business unit contribution continued to be supported by the strength of the oil and gas % of total 2010/11 revenue sector. HVAC revenues declined as government stimulus Industrial incentives were removed. Blended branches slowed in line 12% with the weakening new residential construction market. The Waterworks and Industrial businesses both gained HVAC market share in the period though HVAC and Blended 11% branches market shares were slightly lower.

The trading margin in Canada overall was lower at 4.8 per cent Blended (2010: 5.4 per cent). Waterworks branches 15% 62%

Revenue by market driver % of total 2010/11 revenue

Non- Residential residential new RMI construction 23% 34%

Wolseley Canada improves efficiencies Wolseley Canada opened a new regional distribution centre (DC) in Milton, Ontario in October last year replacing their existing DC in Oakville. The new DC measures 300,000 Non-residential Residential square feet and allows the business to offer a more extensive new construction RMI inventory of products, offer more vendor programmes and 35% 8% further improve fill rates to its 221 branches. The distribution centre maintains a fill rate to their branches which is on average 25 per cent higher than that of their vendors. This results in better product availability for customers. 26 Wolseley plc Annual Report and Accounts 2011

Regional performance continued

UK Regional KPIs Revenue £2,404m (18% of Group) 2011 2010 +/- Trading proﬁt £109m Like-for-like revenue growth 3% –+3% Trading margin 4.5% Trading margin 4.5% 3.7% +0.8%

Ongoing business units* 7 Five year performance £m Revenue Ongoing branches* 1,059 Trading proﬁt Ongoing employees* 6,673 3,171 3,2032,699 2,466 2,404

* Excludes Build Center and Encon (in disposal).

• Focus of UK portfolio on strongest businesses capable of market leadership. 211 17655 91 109 • Disposal of the non-core businesses in the year, (Build Center subject to competition authority clearance). 2007 2008 2009 2010 2011 • Investment in organic growth initiatives, including substantial investment in the online B2B platform. Quarterly like-for-like revenue growth %

10% Business unit portfolio and profile During the year ended 31 July 2011, Brandon Hire and 0% Electric Center were disposed of in line with the Group’s strategy of focusing on businesses with significant scale –10% and leading market positions. In July, the Group announced an agreement, subject to competition authority clearance, to dispose of Build Center, its building materials distribution Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 business. The UK management team is now in a strong 2010 2011 position to focus on its core, strong businesses with market leading positions. Business unit contribution The majority of the UK’s revenue is generated from the RMI % of total 2010/11 revenue market. The business has particularly high exposure to public Disposals sector work, which accounts for around 25 per cent 6% of revenue. Plumb and Parts Center is a leading distributor of plumbing Others and heating products. The business operates through a 27% Plumb and Parts national branch network and can deliver superior fill rates Centers and a wide range of products through its distribution centres. 43% The business also supplies a wide range of spares and Pipe and replacements. Efficiencies arise from purchasing volumes, Climate from opportunities to cross-sell and from shared sites. Centers Build Center The business has continued to deliver strong financial 10% 14% performance in a tough trading environment and continues to look for opportunities to improve customer service and Revenue by market driver grow sales. % of total 2010/11 revenue Pipe Center and Climate Center distribute pipes, valves, Infrastructure fittings, air conditioning and refrigeration products. 2% Residential Non-residential new construction The business has a sound track record of profitability, RMI 16% 12% and volumes are particularly dependent on non-residential new build projects. Non- The smaller UK business units include: residential new • Drain Center, a specialist in above and below ground construction drainage; 18% Residential • William Wilson, which distributes plumbing and heating RMI products in Scotland; 52% Strategic overview Business and performance Corporate governance Financial statements Other information 27 Wolseley plc Annual Report and Accounts 2011

• Integrated services, outsourced inventory management and procurement services for maintenance activities on a long-term contract basis, mainly to public institutions for example housing associations; • Bathstore, a retail bathroom specialist, whose product range includes baths, basins, showers, toilets, taps and bathroom furniture; • Encon, a specialist distributor of insulation, drywall, ceilings, partitioning and fire protection products (held for disposal at 31 July 2011); and • BCG, which supplies kitchens, bathrooms and associated fittings to other builders merchants and to retailers. Plumb Center launches online trade superstore Plumb Center has launched a comprehensive and interactive plumbing and heating online trade superstore. Market position and competitive environment The website allows customers to check the current stock The market positions of the main business units are availability for 40,000 product lines 24/7, with over 20,000 products available for next day delivery. estimated as follows: Customers are able to register their trade account and see Market position their own exclusive terms, so they can rest assured they are still getting the best possible deal. They can set up job Plumb and Parts Center 2 lists, repeat orders and view their invoice and credit history. The website also saves installers time as they can now click Pipe and Climate Center 2 and collect in branch or arrange delivery direct to site. The website also contains a wide range of useful information The UK market is more consolidated than many of the other for customers. This includes product information, videos, markets in which the Group operates with a few large details about training courses and accreditations, updates national players leading the market, although significant on regulations and legislation and industry events and competition is provided by numerous small local businesses. updates. Visitors can also download or order company brochures and guides. Plumb and Parts Center have historically been the market leader in the UK plumbing and heating distribution market. However, the recent merger of two businesses has created a competitor of a similar size. Build Center holds the number four position in the UK market. The planned disposal is in line with Wolseley’s strategy of focusing resources on its market leading businesses. Operating performance Revenue in the UK was 3 per cent lower in the year due to the impact of disposals and the contract loss referred to at the half year, although the ongoing businesses were 2 per cent ahead due principally to commodity price inflation. Wolseley UK is awarded the Carbon Trust Standard Public sector activity, which represents around 25 per cent of Wolseley UK was recently awarded the Carbon Trust Standard in recognition of measuring, managing, and UK revenue, weakened in the second half. The more resilient reducing carbon emissions. RMI sector, which represents about 65 per cent of revenue The company underwent a rigorous assessment carried held up reasonably well. out by an independent third party in order to achieve this highly regarded national award. It recognises the Trading profit of £109 million was £18 million ahead of last company’s achievements in carbon reduction through year, of which £7 million arose within the ongoing businesses initiatives such as the adoption of its Transport Management with higher revenue and gross margins partly offset by a System, which ensures that vehicles take the most £5 million one-off bad debt charge. efficient routes, and the installation of smart meters (pictured above) across the branch network to provide Despite strong competition, Plumb and Parts Center was consumption data which enables the company able to improve gross margins and gained market share to understand and manage its energy consumption. in the fourth quarter. Pipe and Climate and Drain Center Achieving the standard requires an ongoing commitment performed well, generating strong growth in the period as to reducing carbon emissions. Wolseley UK has already committed to reducing energy consumption in its business a result of improved management focus and some benefits by a minimum of 10 per cent by 2012. from commodity price inflation. Both businesses gained market share. Trading conditions in Bathstore were particularly challenging with revenue down 15 per cent in the year, though the business continued to generate profits. The trading margin for the UK in the ongoing business was 5.2 per cent (2010: 4.9 per cent). 28 Wolseley plc Annual Report and Accounts 2011

Regional performance continued

Nordic region Regional KPIs Revenue £2,128m (16% of Group) 2011 2010 +/- Trading proﬁt £113m Like-for-like revenue growth 4% (7)% +11% Trading margin 5.3% Trading margin 5.3% 5.0% +0.3%

Business units 7 Five year performance £m Revenue Branches 288 Trading proﬁt Employees 6,754 1,678 2,2992,124 2,012 2,128

• The largest distributor of building materials in the Nordic region with number one market positions in Denmark and Sweden. 103 16097 101 113 • A leading retailer in Denmark and Sweden. 2007 2008 2009 2010 2011 • Return to like-for-like revenue growth in all geographies in the year. Quarterly like-for-like revenue growth

Business unit portfolio and proﬁle 10%

Wolseley’s Nordic business principally operates in Denmark, 0% Finland, Sweden and Norway.

Stark is the leading distributor of heavy building materials, –10% tools, hardware, timber and panels in Denmark. Stark’s customers include both professional contractors and DIY builders with around half of stores having a dedicated Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 DIY section. Stark’s market leadership and its efﬁciencies 2010 2011 of scale have historically delivered strong results. During the year we made two small acquisitions and Stark continued Business unit contribution to focus on growing its market share. % of total 2010/11 revenue

Beijer is the leading distributor of building materials in Norway (building Other Sweden. About half its revenue comes from local building materials) 7% 6% contractors and another third from retail consumers. As the Denmark Swedish market is very fragmented, Beijer’s reach is valuable Denmark (building (DIY) to vendors, and by maintaining efficiencies of scale and materials) 9% 35% working capital management it has delivered good results over time. Finland Starkki is a Finnish chain of builders’ merchants with a (building Sweden business model based on large stores and well-trained materials) (building specialist staff. Whilst local building contractors are the 21% materials) largest single customer segment, consumers and small retail 22% stores generate nearly 50 per cent of its revenue. Starkki has a strong record of profitability based on efficiency and a low Revenue by market driver cost base. % of total 2010/11 revenue Silvan is a DIY and retail chain in Denmark. Its specialist DIY Infrastructure Non- 3% Residential market, focused on tools and hardware, is driven by RMI. residential new construction The majority of Silvan’s product range overlaps with other RMI 14% 21% businesses in the Nordic region and therefore the business Non- delivers significant synergies by taking advantage of these residential economies of scale. new construction 11%

Residential RMI 51% Strategic overview Business and performance Corporate governance Financial statements Other information 29 Wolseley plc Annual Report and Accounts 2011

The smaller business units managed in the region include: • Neumann Bygg, a distributor of building materials in Norway; • Cheapy, a DIY chain in Sweden; and • Woodcote, a building materials distribution business operating in Eastern Europe. Market position and competitive environment The market positions of the main business units are estimated as follows: Stark’s Health and Wellbeing pilot programme Market position The Stark business in Denmark has introduced a pilot Denmark (building materials) 1 health and wellbeing programme in some of its stores. It is aimed at raising awareness of employees’ health and Sweden (building materials) 1 physical wellbeing, advising on all aspects including diet, sleep, exercise and general lifestyle. Whilst providing Finland (building materials) 2 positive beneﬁts for employees, it is also hoped that it will reduce sickness absence rates. Denmark (DIY) 2

The Stark and Beijer brands are market leaders in Denmark and Sweden respectively, with Silvan the number two DIY retailer in Denmark and Starkki the second largest builders’ merchant in Finland. Each country in the Nordic region is a distinct market with its own national, regional and local competition. However, there are several major competitors operating across the region in the building materials and DIY markets. The markets in the Nordic region tend to be fragmented and there are signiﬁcant opportunities to consolidate our market positions across the region.

Stark targets a new market Operating performance Stark is the market leader in the building materials market in Denmark. They identified an opportunity to use their In the Nordic region revenue was 4 per cent ahead on a excellent knowledge and position as market leader in the like-for-like basis. The building materials business in Denmark professional market to help private house owners with returned to like-for-like revenue growth in the period, although their building projects and improve the value of their market conditions remained subdued as a result of low levels property through the right choices of building materials. of construction activity and poor consumer confidence. Stark now offers private house owners the same service and product advice as they offer professional customers in In contrast our building materials businesses in Sweden, Denmark. More than 200 Stark employees have received Finland and Norway all generated good like-for-like revenue training in order to better understand the private customer’s growth, with Finland performing strongest. Overall, we held needs. A dedicated area has been introduced in the market share in Denmark and Sweden and improved market branch for the self build customer with product displays, marketing and product literature. A special membership share in Finland and Norway. scheme has also been created for these customers with Trading profit in the year of £113 million was £12 million benefits including member offers and discounts, home visits and access to project advice and prices. Since this higher than last year benefiting from revenue growth and an concept was introduced in 2010, a total of 71,000 people improvement in gross margin, offset by a 6 per cent increase have become members in Denmark. in operating costs at constant currency. The underlying performance was better as last year’s results included a one-off credit of £4 million. During the year we completed two small bolt-on acquisitions in Denmark. The trading margin was higher at 5.3 per cent (2010: 5.0 per cent). 30 Wolseley plc Annual Report and Accounts 2011

Regional performance continued

France Regional KPIs Revenue £1,943m (14% of Group) 2011 2010 +/- Trading proﬁt £53m Like-for-like revenue growth 4% (8)% +12% Trading margin 2.7% Trading margin 2.7% 1.5% +1.2%

Ongoing business units* 4 Five year performance £m Revenue Ongoing branches* 322 Trading proﬁt 1,872 2,1162,144 1,937 1,943 Ongoing employees* 5,421

* Excludes Brossette: 368 branches, 2,651 employees (in disposal).

• A leading distributor of building materials and wood products. 101 10332 30 53 • Disposal of plumbing and heating distributor Brossette agreed.** 2007 2008 2009 2010 2011

• Improved market conditions and recovery in ﬁnancial Quarterly like-for-like revenue growth performance in the year.

** Subject to competition clearance. 10%

Business unit portfolio and proﬁle 0% Wolseley France operates three divisions; building materials, import and wood solutions, and plumbing and heating. –10% During the year the Group announced that it had entered into exclusive negotiations to dispose of the plumbing and Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 heating business, Brossette, which contributed 32 per cent 2010 2011 of revenue for France in 2011.

The building materials division comprises Réseau Pro, Business unit contribution the number two integrated distributor in France, selling % of total 2010/11 revenue building materials, roofing, insulation, timber and flooring, Import and and Panofrance, focused on timber, panels and interior wood solutions design. The businesses have efficiencies in both sourcing 13% and shared services.

The Import and Wood Solutions division includes Softwood, the market leader in specialist sawn and processed woods Plumbing and the structural wood business which manufactures and Building trusses and other carpentry systems. heating materials 32% 55%

Revenue by market driver % of total 2010/11 revenue Civil infrastructure Non- 2% residential Residential RMI 16% new construction 31% Non- residential new construction 13%

Residential RMI 38% Strategic overview Business and performance Corporate governance Financial statements Other information 31 Wolseley plc Annual Report and Accounts 2011

Market position and competitive environment The market positions of the two core divisions in France are estimated as follows:

Market position Import and wood solutions 1 Building materials 2

In addition to the two large corporates (including Wolseley France) there are also two buying groups that operate in France, accounting for a large proportion of the market. Launch of e-learning in Wolseley France With the introduction of a new enterprise resource planning system in 217 branches of the wood and building materials Operating performance division of Wolseley France, approximately 1,700 managers and sales staff needed to be trained rapidly on the new Revenue in France was 4 per cent ahead on a like-for-like system in order to maintain and improve the quality of basis principally due to commodity price inflation. New customer service. Training time was reduced by a third as residential construction markets continued to recover. Gross colleagues worked together and used a new e-learning platform, which was tailored to the business. The training margins were higher as the business was successful in programme also proved to be stimulating, resulting in mitigating continued pricing pressure through improvements greater employee engagement, less time away from the in supplier mix. Trading profit of £53 million was £23 million customer and immediately improved service standards. ahead of last year, of which £15 million relates to Brossette The programme will continue over the next year. and other disposed businesses and £8 million arose from ongoing operations through good conversion of increased revenue to trading profit. There was a net £2 million one-off credit in the period. Reseau Pro, our building materials business, performed in line with the market and improved its trading performance. Import and Wood Solutions generated good profit growth, improved its productivity and continued to protect market share. The trading margin was higher at 2.7 per cent (2010: 1.5 per cent).

“Eco Chantiers” renewables model Following a successful pilot study last year, Wolseley France is extending its “Eco Chantiers” renewables model to more branches across France. The model provides a turnkey management tool for craftsmen, offering a range of sustainable products (such as timber, organic insulation and photovoltaic cells). After completion of a specialist training programme, over 250 employees are now able to provide expert advice on energy efﬁciency and global renovation solutions to allow customers to meet new regulatory standards, and assistance with ﬁnancial assessments including renovation costs, savings forecasts and advice on tax incentives. 32 Wolseley plc Annual Report and Accounts 2011

Regional performance continued

Central Europe Regional KPIs Revenue £772m (6% of Group) 2011 2010 +/- Trading proﬁt £30m Like-for-like revenue growth (2)% (4)% +2% Trading margin 3.9% Trading margin 3.9% 1.0% +2.9%

Business units 4 Five year performance £m Revenue Branches 144 Trading proﬁt Employees 1,965 838 899954 849 772

• Plumbing and heating businesses with good market positions and strong local brands. • Disposal of Italy (plumbing and heating). 31 (1)(1) 9 30

• Signiﬁcantly improved ﬁnancial performance. 2007 2008 2009 2010 2011

Quarterly like-for-like revenue growth Business unit portfolio and proﬁle

Wolseley now operates in four countries in the region; 5% Switzerland, Austria, Netherlands, and Luxembourg. In Switzerland, Tobler is a distributor of heating and plumbing 0% products. It operates a national distribution centre and has invested signiﬁcantly in e-commerce, generating a signiﬁcant –5% proportion of its sales online.

The main brand in Austria is ÖAG, which distributes plumbing Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 and heating products. There are also specialist divisions distributing industrial pipes, bathroom ﬁttings, parts and tools. 2010 2011 The main brand in the Netherlands is Wasco, a distributor of Business unit contribution heating, plumbing and ventilation equipment. Boilers and % of total 2010/11 revenue spares account for about half of its revenue, and the Disposals customer base is weighted towards large regional and 7% national contractors. Luxembourg 4% Austria In Luxembourg, CFM is a distributor of sanitary ware, heating 32% and appliances. Netherlands During the year the underperforming plumbing and heating 24% business in Italy was sold.

Switzerland 33%

Revenue by market driver % of total 2010/11 revenue Civil Non- infrastructure residential 6% Residential RMI new construction 9% 30%

Non- residential new construction 27%

Residential RMI 28% Strategic overview Business and performance Corporate governance Financial statements Other information 33 Wolseley plc Annual Report and Accounts 2011

Market position and competitive environment The market positions of the main business units are estimated as follows:

Market position Switzerland 1 Austria 2 Netherlands 3

Operating performance In Central Europe revenue was 2 per cent lower than last year on a like-for-like basis, the decline arising from the exit of Wasco introduces e-commerce site In April 2010, Wasco, Wolseley’s plumbing and heating unprofitable business in Holland. The gross margin in the business in the Netherlands, introduced a new and updated period was well ahead of last year and operating costs in the e-commerce website (Wasco.nl). The site has enhanced ongoing businesses were 2 per cent lower in constant functionality which allows customers to browse products but currency. also suggests alternative or complementary products to help the customer make the right choice for their needs. The site Results also benefited from the disposal of the Group’s complements Wasco’s existing business and online sales increased by 25 per cent in financial year 2010/11. Wasco is unprofitable Italian business earlier in the year. Consequently also launching a new version of Wasco mobile, a website the business generated strong flow through and trading profit and “APP” for mobile phones, which will include a bar code improved to £30 million (2010: £9 million). scanning facility and application. Tobler, our plumbing and heating business in Switzerland, performed strongly. Gross margins were well ahead and the business benefited from the strengthening of the Swiss franc which added £3 million to trading profit. In addition, lower distribution costs were incurred as a result of the rationalisation of distribution centres completed last year. The plumbing and heating businesses in Austria and the Netherlands also improved their performance, generating higher gross margins and productivity improvements. The trading margin was higher at 3.9 per cent (2010: 1.0 per cent).

ÖAG heating competence centers ÖAG, our Austrian plumbing and heating business, has nine heating competence centres across Austria. Customers can visit these centres to get help in choosing the right products, and to draw up complete plans of heating and cooling systems based on traditional or renewable systems. Additionally, ÖAG can advise customers on government funding available for renewable products depending on which area of Austria they live. Since introducing these centres, ÖAG has increased sales of renewable products by almost 10 per cent and due to their involvement within this sector has become one of the opinion leaders for renewable energy in Austria. 34 Wolseley plc Annual Report and Accounts 2011 Financial review

Income statement 2011 2010 £m £m Revenue 13,558 13,203 Cost of sales (9,776) (9,548) Gross profit 3,782 3,655 Operating costs (3,160) (3,205) Trading profit 622 450 Exceptional items (51) (332) John Martin Amortisation and impairment of Chief Financial Officer acquired intangible assets (114) (315) Net finance costs (66) (77) In summary Associate – share of loss and Like-for-like revenue growth of 5 per cent. impairment of investment – (54) Improved gross margin by 20 basis points Profit/(loss) before tax 391 (328) to 27.9 per cent. Tax expense (110) (38) Reduction in adjusted net debt of (Loss)/gain from discontinued £490 million. operations (10) 26 Resumed dividend payments in 2011. Profit/(loss) attributable to equity shareholders 271 (340) Dividend paid (42) – Quarterly like-for-like revenue growth % Retained profit/(loss) 229 (340)

10% Headline earnings per share 142.9p 74.1p Basic earnings/(loss) per share 99.4p (129.8)p 0% Gross margin 27.9% 27.7% Trading margin 4.6% 3.4% –10%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue and operating proﬁt

2010 2011 Group revenue of £13,558 million (2010: £13,203 million) was 3 per cent ahead of last year. Like-for-like revenue was ahead by 5 per cent. Despite continued pricing pressure, our focus on improving customer and product mix led to a higher gross margin of 27.9 per cent, 20 basis points ahead of last year. While operating costs before exceptional items were £45 million below the previous year, the underlying cost base adjusted for business disposals was 3 per cent higher. Trading proﬁt of £622 million (2010: £450 million) was 38 per cent ahead. This represents a trading margin of 4.6 per cent (2010: 3.4 per cent). Strategic overview Business and performance Corporate governance Financial statements Other information 35 Wolseley plc Annual Report and Accounts 2011

Disposals Tax Revenue of £1,335 million and trading profit of £24 million The Group incurred a tax charge on profit before discontinued arose from businesses which have been disposed of or operations of £110 million. Tax in relation to impairment and are held for sale at 31 July 2011 (2010: £1,529 million of exceptional items amounted to £22 million. Non-recurring revenue and £10 million of trading loss). The Group received tax items of £20 million arose, principally from the release £115 million for the disposal of five businesses during the of provisions following settlement of historical exposures year and expects to receive a further £310 million in respect in the year. After adjusting for these the underlying tax rate of the disposal of Build Center in the UK and Brossette in was 27.3 per cent (2010: 34.6 per cent). The reduction in France, which will be reinvested in the Group’s growth the effective rate is principally due to the redomiciliation engine and synergy driver businesses. An additional to Switzerland. £67 million was received for other asset disposals. 2011 2010 Exceptional items Tax charge 110 38 Tax credits relating to exceptional items, Exceptional charges of £51 million were incurred during the amortisation and impairment of acquired year (2010: £332 million). Gains on disposal of businesses of intangibles 22 102 £5 million principally related to Electric Center and Italy. Build Center and Encon were classified as disposal groups held for Provision movements 20 (11) sale at 31 July 2011, and the revaluation of their net assets to Underlying tax charge 152 129 estimated disposal proceeds less costs to sell resulted in a charge of £64 million. A credit of £11 million arose in respect Effective tax rate 27.3% 34.6% of adjustments to restructuring provisions made in previous years, the largest part of which related to the exit from certain onerous leases on better terms than previously expected. Discontinued operations The loss of £10 million from discontinued operations (2010: Amortisation and impairment of gain of £26 million) results from movements in tax, provisions and other items arising from the disposal of Stock Building acquired intangibles Supply in 2009. Amortisation of £75 million (2010: £92 million) represents the normal charge relating to the Group’s intangible assets. Earnings per share In addition, in accordance with accounting standards, the Group has reviewed the carrying value of goodwill and other Headline earnings per share, which is earnings per share intangible assets and concluded that an impairment charge before exceptional items, the amortisation and impairment of of £39 million in respect of businesses in the UK segment is acquired intangibles and non-recurring tax credits, amounted appropriate. £27 million of this charge relates to Bathstore to 142.9 pence (2010: 74.1 pence). The increase reflects the and £12 million to BCG, reflecting the continued difficult increase in trading profit, the reduction in finance charges, trading conditions in the UK retail sector. the elimination of losses of associate and the lower tax rate. Basic earnings per share from continuing operations was Finance costs 99.4 pence (2010: loss per share of 129.8 pence). Net finance charges in the year amounted to £66 million Dividends (2010: £77 million), which includes £6 million (2010: £nil) to write off unamortised arrangement fees on the early The Group resumed dividend payments in the year, paying termination of banking facilities. £18 million of the charge an interim dividend of 15 pence per share, amounting to relates to the unwind of discounts on pensions and provisions £42 million, in May 2011. A final dividend of 30 pence per (2010: £16 million), and the reduction in the remaining charge share, equivalent to £85 million, is proposed. The total from £61 million to £42 million reflects the implementation of dividend for the year of 45 pence is covered 3.2 times by cash pooling and lower average levels of debt. headline earnings per share. The Board expects to grow the dividend over time taking into account the significant opportunities for investment in profitable organic growth and selected bolt-on acquisitions. 36 Wolseley plc Annual Report and Accounts 2011

Financial review continued

Liquidity Cash flow The Group maintains sufficient borrowing headroom to 2011 2010 finance all investment and capital expenditure included in its £m £m strategic plan, with an additional margin for contingencies. Trading profit 622 450 During the year the Group replaced £2.8 billion of borrowing facilities with revolving credit facilities amounting to Depreciation and amortisation 153 185 £822 million which expire on 31 October 2016. The maturity EBITDA 775 635 profile of the Group’s borrowings and committed undrawn Working capital – unwind of facilities at 31 July 2011 is as follows: year-end measures (381) 95 Drawn on Undrawn all facilities committed Capacity Working capital – reduction in factoring (206) 106 Maturity date £m £m £m Working capital – other movements (52) 44 Less than one year 197 50 247 Provisions and other movements (120) (175) 1–2 years 52 – 52 Cash flow from operations 16 705 2–3 years 9 – 9 Interest (50) (51) 3–4 years 36 – 36 Tax (162) 90 4–5 years 216 – 216 Acquisitions and disposals, After 5 years 426 822 1,248 net of debt acquired 110 (19) 936 872 1,808 Capital investment (93) (84) Drawn on uncommitted facilities (200) Asset disposals 67 96 Committed facilities at 31 July 2011 1,608 Dividends (42) – Foreign exchange and other items (23) (124) Net debt Movement in debt (177) 613 Adjusted net debt is the Group’s all-inclusive measure of Net debt brought forward (346) (959) indebtedness. This definition includes the estimated impact Net debt carried forward (523) (346) of year-end working capital measures of £114 million (2010: £495 million) and receivables factoring of £68 million (2010: The Group continues to place a strong emphasis on £274 million). There was no separate construction loan generating cash. Capital investment has continued to be financing at the end of the year (2010: £80 million). tightly controlled, net interest paid has reduced reflecting During the year the Group terminated all receivables factoring lower average levels of debt, and the Group has resumed facilities except that utilised by Brossette which amounted to paying dividends. £68 million at 31 July 2011. The cash outflow for taxation in the year includes a £60 million Adjusted net debt at 31 July 2011 has reduced by payment to settle a number of historical tax exposures in £490 million year-on-year: respect of earlier years. 2011 2010 £m £m Pensions Reported net debt (523) (346) The Group’s net pension obligations under IAS 19 at 31 July Estimated year-end working 2011 reduced to £360 million (2010: £432 million), principally capital adjustment* (114) (495) due to additional cash contributions of £48 million. The Group intends to make a one-off contribution of £60 million into Receivables factoring facilities (68) (274) the pension scheme following completion of the disposal Construction loan financing – (80) of Build Center. Adjusted net debt (705) (1,195)

* Based on comparison with June and August. Strategic overview Business and performance Corporate governance Financial statements Other information 37 Wolseley plc Annual Report and Accounts 2011

Operating lease commitments Interest rates As at 31 July 2011 the Group had total operating leases The Group manages its exposure to changes in interest commitments of £1,126 million (2010: £1,292 million). There is rates by ensuring that between 0 per cent and 50 per cent of substantial capacity for revenue growth utilising the existing borrowings required during the next two years are at fixed infrastructure and management will remain cautious when rates. This percentage is regularly reviewed and may be considering new lease commitments in the foreseeable future. overridden by the Board. It is the Group’s current intention to fix a greater percentage of its borrowings. The Group generally borrows at floating rates of interest, and then Other financial matters uses interest rate swaps to get the desired rate profile. Financial risk management Other financial risks The Group is exposed to risks arising from the international The nature of the Group’s business exposes it to risks which nature of its operations and the financial instruments which are partly financial in nature. Counterparty risk is the risk that fund them. These instruments include cash, liquid investments banks and other financial institutions which are contractually and borrowings, and also items such as trade receivables committed to make payments to the Group may fail to do and trade payables which arise directly from operations. so. Credit risk is the risk that customers who have made The Group also enters into selective derivative transactions purchases on credit may fail to pay in full. Commodity risk is – principally interest rate swaps and forward foreign currency the risk that, in order to satisfy its contractual commitments contracts – to reduce uncertainty about the amount of future to customers, the Group may have to purchase commodities committed or forecast cash flows. The policies to manage which subsequently fall in value. The Group manages these risks have been applied consistently throughout the counterparty risk by setting credit and settlement limits year. It is Group policy not to undertake trading in financial for a panel of approved counterparties, which are approved instruments or speculative transactions. by the Treasury Committee and monitored regularly. Capital structure The management of credit and commodity risk is considered to be the responsibility of operational management, and in The Group’s sources of funding currently comprise cash respect of these risks the Group does not prescribe a flows generated by operations, equity contributed by uniform approach across the Group. shareholders, and borrowings from banks and other financial institutions. To assess whether the capital structure is Further information on risk management and internal control appropriate for current and forecast trading, the Group’s can be found on pages 38 to 43. principal measure is the ratio of net debt, including factoring, Financial reporting to EBITDA. The Group aims to operate within the range 1x to 2x, consistent with an investment grade credit rating. These financial statements have been prepared under IFRS. The Group’s accounting policies are set out on pages Foreign currency 127 to 135. There have been no changes to the Group’s The Group has significant overseas businesses whose accounting policies during the year ended 31 July 2011. revenue is mainly denominated in the currencies of the Going concern countries in which the operations are located. The Group does not normally hedge profit translation exposure since The Directors are confident, on the basis of current financial such hedges have only temporary effect. projections and facilities available, and after considering sensitivities, that the Company and the Group has sufficient The Group’s policy is to adjust the currencies in which its resources for its operational needs and will enable the Group debt is denominated to materially match the currencies in to remain in compliance with the financial covenants in its which its trading profits are generated. bank facilities for at least the next 12 months. Accordingly the Directors continue to adopt the going concern basis in preparing the financial statements.

John Martin Chief Financial Ofﬁcer 38 Wolseley plc Annual Report and Accounts 2011 Risk management and internal control

Robust risk management and internal 3. Independent assurance Independent assurance teams check that corporate control provides competitive advantage policies and procedures to manage risk have been and enhances productivity. defined and implemented. Group Internal audit – independent assurance on financial Overview and non-financial activities In Wolseley, risk management and internal control are defined The internal audit function is fully independent of the in four main areas: day-to-day operations of the Group. It is involved in the assessment of the quality of risk management and 1. Business Operations – implementation of sound risk internal control and helps to promote and further develop management practices every day effective risk management within the businesses. The management team of each Group company is responsible for risk management and internal control External audit – assurance over financial statements within its own business and for ensuring compliance PwC are the Company’s external auditors and give with the Group’s policies and procedures. Each of the assurance that the financial statements are free from Company’s main regions has also appointed a risk material misstatement. director whose primary role in such capacity is to ensure Other assurance providers compliance by local management with the Group’s risk From time to time the Company commissions external management policies and programme. organisations to provide assurance over aspects of the 2. Oversight functions Company’s operations. Oversight functions define policies and procedures and 4. The Board and its Committees – strategic direction monitor their implementation by business operations. and control of the Company Group Risk Management – providing the structure, tools The Board manages risk through its strategic planning and techniques and performance monitoring processes. The Board The Company continues to maintain and improve its receives regular reports from the Audit Committee on the comprehensive risk management programme, which status of risk management and internal control. is designed to ensure that significant and emerging The Board reviews its strategic plans and objectives risks are identified, assessed and managed effectively. annually and approves Group company budgets and Key features of this programme are described on strategies in light of these. Control is exercised at Group page 40. and business unit level through monthly monitoring of The Advanced Control Environment (“ACE”) team performance by comparison to budgets, forecasts and – strengthening financial reporting cash targets, and by regular visits to Group companies The ACE compliance programme is Wolseley’s internal by the Group Chief Executive, Chief Financial Officer and financial control testing process. Its objective is to avoid a Managing Directors of our main geographical regions. material misstatement in the Group’s financial accounts The Board has formal procedures in place for the arising from inadequate financial control. ACE defines approval of investment, acquisition and disposal projects, financial processes and their associated control with designated levels of authority, supported by post- objectives, which operating companies address with investment review processes for major acquisitions or controls. In doing so, it aims to establish an efficient and disposals and capital expenditure. The Board takes effective control environment over financial reporting. account of social, environmental and ethical matters in relation to the Group’s businesses when reviewing Other Corporate Functions – monitoring specific the risks faced by the Group. The Board is conscious key risks of the effect that such matters may have on the short- In order to deliver its business strategy, Wolseley and long-term value of the Company. maintains corporate oversight functions such as Health & Safety, HR, IT, Legal, Tax, Treasury and Finance. The policies, procedures and other activities established by these functions serve to mitigate a wide range of risks, including employee retention, credit, counterparty, interest rate, exchange rate, bribery and corruption and business continuity risks. Strategic overview Business and performance Corporate governance Financial statements Other information 39 Wolseley plc Annual Report and Accounts 2011

Risk management and internal control structure Ownership of risk and control First level The first level of the control environment is the business operations which perform day-to- day risk management activity. Front line business operations eg branches, distribution centres. Fourth level: Board, Executive Committee and Audit Committee Audit and Committee Executive level: Board, Fourth • Business operations have most Group Risk Management Conference – February 2011 ownership of risks and controls Significant value is gained by sharing knowledge on risk – through implementation of across the Group. To this end, the Company gathers sound working practices. together its risk specialists at its annual Risk Management Conference. Over 60 delegates and speakers attended the event in February from a range of Wolseley businesses in North America and Europe. As well as briefings from the Group CEO, CIO, General Counsel and other Executives, Second level the forum provides an opportunity for “deep dives” into risk areas such as product sourcing, health and safety, IT, Oversight functions in the Company, physical security, treasury, insurance, finance, HR and fleet such as Finance, HR and Risk management. External speakers provide added challenge, but most important is the ability to share ideas and Management set direction, ensure experiences across different geographies, markets compliance with policy and monitor and risk disciplines. performance. Oversight functions eg Group Risk Management, the “ACE” internal controls team, Finance, Health & Safety, HR, IT, Legal, Tax and Treasury. • Management and financial control; • Policy and procedure setting; • Acting at Group and Operating Company level.

Third level Internal and external audit are the third level of control, offering independent challenge to the levels of assurance provided by business operations and oversight functions. Independent assurance Internal audit, external audit and other independent assurance providers. • Provide independent challenge and assurance. 40 Wolseley plc Annual Report and Accounts 2011

Risk management and internal control continued

Key features of the Group’s risk management Significant risks to the Company’s performance programme The nature of the industry in which we operate and our chosen strategy expose the Company to a number of risks. The Group’s risk management programme forms a core part of the Company’s overall framework for managing risks and Listed on pages 41 to 43 are risks which senior management maintaining internal control. It includes: have identified as the most significant, which have action plans for their mitigation and which are subject to regular • Ownership of the programme by the Board, supported by review. The colouring (red, amber, green) shows the the Group Company Secretary and General Counsel with Company’s estimate of the inherent risk level before any sponsorship from the Group Chief Financial Officer; mitigation. It should be noted that these risks are difficult • An appointed Group Head of Risk to lead and continually to estimate with accuracy. The materialisation of these risks improve risk management; could have an adverse effect on the Group’s results or financial condition. Various mitigation strategies are • A network of Risk Directors across the Group to develop employed to reduce these inherent risks to an acceptable risk management in their businesses; level. The Company also faces many other risks which, • A Group Risk Management policy, applicable throughout although important and subject to regular review, have the Group and reviewed annually; been assessed as less significant and are not listed here. This includes some risks (such as the impact of restructuring • A standard set of risk categories and risk definitions; activity or product price volatility), which were reported in last • A standardised and automated risk assessment and year’s Annual Report and which through changes in external reporting tool, including standard risk assessment criteria, factors and careful management are no longer material to the evaluation of “gross” and “net” risks and the determination Group as a whole. of risk appetite by setting a “target” score for each major risk; However, many risk factors remain beyond the direct control • Consolidation of risk assessments for each business at of the Company and the risk management programme can Group level to identify organisation-wide impacts and trends; only provide reasonable but not absolute assurance that key risks are managed to an acceptable level. • A six-monthly risk assessment, action planning and reporting cycle, including the review by senior management, the Audit Committee and the Board of key risks and their mitigation; • Reporting by the chairman of the Audit Committee to the Board on any matters which have arisen from the Committee’s review of the way in which the risk management and internal control processes have been applied and on any breakdowns in, or exceptions to, these processes; and • Periodic reviews of business units’ risk mitigation by the Group Head of Risk and by Group Internal Audit. During the year, this programme was further strengthened through a number of initiatives, including: • Risk appetite definition updated and cascaded by means of revised risk assessment and escalation scales; • A global Wolseley risk management conference, bringing together risk specialists from across the Group to share ideas and best practices; Find out more about Wolseley’s risk management and • Launch of an updated and improved risk assessment tool, internal control activities in this section and elsewhere reflecting improvements requested by business units; in the Annual Report: The Board and its Committees – see the “Corporate • Updated risk management policy; governance” section on pages 56 to 70, including the • The development of a more integrated approach to Report from the Audit Committee: see pages 69 and 70. Governance, Risk Management and Control within the Key risks (see pages 41 to 43). IT function; and Financial risk management: see page 37 in the • The ongoing development of key risk indicators to support Financial review and pages 114 and 115 in the notes qualitative assessments of the top risks affecting the Group. to the consolidated financial statements – Provisions: (see notes to the consolidated financial statements page 116). – Contingent liabilities: (see notes to the consolidated financial statements page 127 and page 150 in the Company financial statements). – Provisions for self insured risks (see page 93). – Derivative financial instruments (see page 110). Strategic overview Business and performance Corporate governance Financial statements Other information 41 Wolseley plc Annual Report and Accounts 2011

Inherent risk and trend Definition Mitigation Market conditions The Group’s results depend on the levels of activity in the The majority of underperforming businesses have been new construction and property repair and remodelling identified through the resource allocation process and markets. In light of the debt levels in Europe and concerns have been turned around or are being exited. This has Inherent risk about economic recovery in the US, there continues to be made the Company intrinsically better placed to withstand level: high a risk that markets may fluctuate rapidly or experience a a second downturn. second downturn. Factors influencing this risk include: A more conservative approach has been taken to the Increased risk • the general rate of GDP growth; balance sheet. Adjusted net debt has been reduced, new • consumer confidence; financing facilities have been arranged and there are tighter controls on capital expenditure. • the availability of credit to finance customer investment; Market conditions are considered in detail during the • mortgage and other interest rates; Strategic Planning process, which includes forecasting • the level of government initiatives to stimulate and budgeting relating to the current economic climate. economic activity; Performance is constantly monitored through reviews • inflation; and with each business. Internal visibility of monthly business performance is being enhanced. Most businesses have • unemployment. now completed organisational structure changes, which These factors are out of the Group’s control and are have created defined business groups with clear cost difficult to forecast. accountability. Cost reduction and pricing initiatives continue to be developed where possible, and there is greater knowledge sharing on these topics across the businesses. Competitive pressures and margin erosion Current market conditions have further increased Gross margin improvement initiatives are a strategic priority competition during the period under review which, if not for all Wolseley businesses. All businesses are focused on mitigated, could lead to downward pressure on sales prices continuous improvement in customer service, product Inherent risk and profit margins. availability and product mix. Examples of recent initiatives level: high There is a risk that such competitive pressures will continue include: and could be exacerbated by factors such as levels of • Improvements in the visibility of gross margin across the Increased risk economic activity, customer or vendor consolidation, Group through the use of Hyperion HFM software, which manufacturers shipping directly to customers, other went live in October 2010; changes in the route to market, and changes in technology. • Knowledge sharing webcasts on pricing for the Company’s senior staff, sponsored by the CEO. For example, webcasts on the use of dynamic pricing and pricing matrices by Wolseley UK and DT Group; • In the US, there is greater emphasis on the development of counters, showrooms, E-commerce and private label sales. Matrix pricing efforts are contributing to greater consistency; • In Canada, a major training programme for branch managers and counter/showroom staff was launched; • Wolseley France continues to focus on the optimisation of product mix and customer mix and undertakes regular reviews of its pricing and discount matrix systems. It has also implemented pricing projects and negotiated improved purchasing terms and conditions; and • In Central Europe, terms have been renegotiated with unprofitable or low margin customers. Litigation The international nature of Wolseley’s operations exposes Levels of litigation are monitored by individual operating it to the potential for litigation from third parties, and such companies and by Group functions. A comprehensive exposure is considered to be greater in the US than in liability insurance programme is maintained and insurance Europe. Litigation can arise in such areas as workers’ policy terms, conditions and limits were reviewed at the start Inherent risk compensation, general employer liability, product liability of the last financial year. level: medium and environmental and asbestos litigation. The Company is closely monitoring ongoing product Increased risk There is a risk that the number of claims made against litigation relating to historical operations in the US and the Company may increase as a result of the changes in has recently resolved a number of employment practice economic conditions, changes in purchasing practices or complaints in that country. HR and product quality other factors. For example, an increase in the number of assurance procedures will be kept under regular review own label products offered by the Group may result in a as the Company works through current turbulent market greater risk of product warranty claims. conditions and expands its private label range of products. Although the number of claims made against the Company In the case of claims related to exposure to asbestos, has increased during the year as an expected consequence Wolseley employs independent professional advisers to of the environment in which it has operated, there has been actuarially determine its potential gross liability. Wolseley has no material change in the level of litigation in which the insurance which significantly exceeds the current estimated Group is involved. For more information on specific litigation liability relating to asbestos claims. For more information to which the Company is exposed, see pages 93 and 116. on the Company’s exposure to asbestos-related litigation, see pages 93, 109 and 116. 42 Wolseley plc Annual Report and Accounts 2011

Risk management and internal control continued

Inherent risk and trend Definition Mitigation People Wolseley’s ability to provide leadership and products and The Company will continue to closely monitor staff turnover services to customers depends on retaining sufficiently across all grades in all businesses. Retention data relating qualified, experienced and motivated personnel. to the top 100–150 staff receives particular attention. In order to increase productivity, and be able to take Reward packages are being comprehensively reviewed Inherent risk and updated where necessary. A set of core values for the level: medium growth opportunities when markets improve, Wolseley must maintain the skills and experience of its existing Group has been defined and communicated, and a new No change management and continue to develop the managers programme of employee engagement surveys has been of the future. launched. Quarterly talent reviews across all businesses seek to identify high performing staff with potential. Clear The current difficult conditions experienced in certain succession plans have been developed and are reviewed markets, and the Group’s response to them, have resulted every six months by the Executive Committee and the in somewhat increased staff turnover and may demotivate Board. There is greater career planning for counter and remaining staff. other front line staff and a greater focus on effective performance management and appraisals at half year and year end. Specific examples of counter-measures applied by business units include a greater use of market salary benchmarks in Canada, a review of the pay and benefits structure in the UK, enhanced communications on career development in France, reinstatement of 401k pension contributions in the US and improved succession planning in the Nordic region. Operational resilience The Group can only carry on business as long as it has Core IT systems and data centres for DT Group, Ferguson, the people, the information technology and the physical Wolseley France, and Wolseley UK have documented plans infrastructure to do so. The safe and continued operation which are tested regularly. An annual testing schedule of of these resources is threatened by natural and man-made these plans is agreed by Group IT. Some businesses, such Inherent risk perils and is affected by the level of investment available as Wolseley UK, have disaster recovery contracts with a level: medium to improve them. For example, third party to relocate to a back up facility. Options are being No change • some of the Company’s physical assets are located reviewed to further improve levels of resilience in Europe. in areas exposed to natural catastrophe risks; In North America, proposals are being considered to accelerate the relocation of existing systems to a higher • the Group remains reliant on a variety of different security facility in Cincinnati. technology systems across the Group, some of which have been operating for many years; The Company operates an IT governance framework including dedicated IT security policies. Specific operational • to optimise costs and supply chain efficiency, some controls for IT security include intrusion detection, companies within the Group have also centralised their penetration testing, wireless remediation of issues, log and distribution network and are therefore reliant on a smaller configuration management and in-flight projects to reduce number of larger distribution centres; and the likelihood of an incident. Future plans include an • the level and sophistication of IT security threats is intrusion prevention project and improvements in the constantly evolving. monitoring of compliance with existing IT policies. A review of “e-data” risks and opportunities, focusing on data protection issues, is planned. The loss of a physical site is naturally hedged by the diversified nature of our locations, customers and suppliers. The Company has formally documented and tested plans for those distribution centres, head office buildings and data centres where the risk exposure is deemed to be greatest. Some of these were successfully put into action following natural catastrophe incidents in the US (see case study on page 23). A comprehensive insurance programme is purchased, including coverage for property damage, business interruption and “cyber” risks. A reassessment of the Company’s business interruption risks has led to a reduction in the level of coverage purchased. Strategic overview Business and performance Corporate governance Financial statements Other information 43 Wolseley plc Annual Report and Accounts 2011

Inherent risk and trend Definition Mitigation Capital expenditure and return on investment A core element of the Company’s strategy is a focus on The Company’s resource allocation process targets future organic growth with “bolt-on” acquisitions only where capital allocation to those businesses capable of generating significant benefits and synergies are available. the highest return on investment. Capital expenditure Inherent risk In light of this strategy, the ability of the Company’s approval limits were lowered in 2009 and all acquisitions level: medium/ management to control organic capital expenditure and irrespective of size require approval from the Group CEO and CFO. Both have been actively involved in reviewing low to identify, value and integrate any such acquisitions can have a significant impact on the return on investment recent acquisitions. Since the last year end report in August Increased risk obtained by investors in the Company. 2010, the Company’s capital expenditure and disposals policy has been updated (October 2010) and going forward this will include guidance on expected M&A practices, a standard financial model and narrative requirements.

Governmental regulations, including anti-trust and bribery laws The Group’s operations are affected by various statutes, The Group monitors regulations across its markets to regulations and laws in the countries and markets in which it ensure that the effects of changes are minimised and that operates. The amount of such regulation and the penalties compliance with all applicable regulation is continually sought. can change. Inherent risk During the course of the year, a number of initiatives have level: medium/ While the Group is not engaged in a highly regulated been undertaken to respond to new or updated laws industry, it is subject to the laws governing businesses and regulations. These include, for instance, the launch low generally, including laws relating to competition, international in August 2010 of an updated compliance programme No change trade, corruption and fraud, land usage, zoning, the for the prevention of fraud, bribery and corruption. environment, health and safety, transportation, labour and The Company reviewed its policies against the guidance employment practices (including pensions), data protection, raised by the UK Ministry of Justice regarding compliance payment terms and other matters. In addition, building with the UK Bribery Act, which came into force in July 2011. codes or particular tax treatments may affect the products The Company continued to deploy online competition law Wolseley’s customers are allowed to use and, consequently, training throughout Wolseley’s European operations. changes in these may affect the saleability of some Wolseley products. Liquidity and funding risks Wolseley’s current bank facilities include a covenant that The Company’s liquidity position has strengthened through its net debt should not exceed 3.5 times its annualised the successful syndication of two five-and-a-quarter-year earnings before interest, taxes, depreciation and revolving credit facilities totalling £822 million. Reduction of amortisation (“EBITDA”). A breach of this covenant could the Group’s adjusted net debt from £1,195 million (31 July Inherent risk result in a significant proportion of the Group’s borrowings 2010) to £705 million (31 July 2010) provides greater level: medium/ becoming payable immediately. financial flexibility. The Group’s committed facilities currently low There is a risk that the Group might have to take actions to provide significant headroom. The Group purchases insurance to protect itself against trade credit risks and Decreased risk reduce costs or preserve cash that it would not otherwise have chosen to do, or that it might not have the resources seeks to ensure no special payment terms are agreed. to exploit opportunities it would otherwise have pursued. The Company is monitoring plans for the implementation of the EU Late Payment Directive into the domestic laws of There are also risks relating to the Company’s ability to EU member states, but has no specific mitigation in place maintain sufficient working capital, for example, increases at present given the uncertainty regarding implementation. in bad debt. Due to the low risk levels, further mitigation is not planned beyond the continued monthly monitoring and re- forecasting activity. Further information can be found in the Financial review section on pages 34 to 37. 44 Wolseley plc Annual Report and Accounts 2011 Corporate responsibility

We are making good progress and have The things that are important to us a clear direction for the future We want our values and corporate responsibility programmes to be at the heart of what we do – how we run During the year, we gave priority to those parts of our the business day-to-day and how we can improve it in the corporate responsibility programme that would best support future. They will help to drive operational improvement. our business objectives. Some examples are given in the In practice this means that our Group values and corporate Business review and more information is available on the responsibility framework – which we have used for the past Wolseley plc website: www.wolseley.com. The rest of this few years – will continue to provide a guide for how we will section provides more detail on how we have further continue to improve our business. As we are a decentralised integrated the corporate responsibility programme into Group, the priorities are determined by what is important our operations and on our plans for the years ahead. for each business in each country, and targets are set and We have achieved our objectives for the year: progress is measured during the operational performance reviews. The projects, activities and targets are business- • We have introduced a comprehensive ethics programme, driven. Some examples are given in this report. with every employee now familiar with our new Code of Conduct introduced in 2010. The five key themes of our corporate responsibility framework are summarised in the table opposite, together • Our new anti-corruption training programme will reach with an explanation of what they mean to us and the benefits all of our participating employees by the end of this to the business. financial year. With the assistance of a specialist consultancy, we are • A thorough review of our health and safety programmes reviewing our policies and the practices in each of our has resulted in tougher and more ambitious targets for businesses in respect of each of the five elements of our our businesses. corporate responsibility programme; particular attention is • We have reviewed our environmental impact and the way being given to our environmental impact. During the 2011/12 we set environmental targets, and how we report on them financial year, the Board and the Executive Committee will will be revised during financial year 2011/12. discuss the findings of that review in order to assess the scope for setting targets and KPIs aimed at improving • The training and development programmes for our environmental performance and reducing our carbon impact. employees, from sales staff to senior executives, continue This review will take into account the existing good practices to be maintained and improved, with positive results. and identify actions which have the greatest opportunity to improve operational productivity. It will also assess the Our values scope and potential for our sustainable product offering. Last year we identified and communicated our Group The considerations of our external stakeholders will also be core values, which are inherent in all of our businesses. taken into account when developing our policy. We will aim Local businesses may have slightly different interpretations to have the necessary systems in place for the start of the but the core values are consistent across the Company. following financial year. This will not detract from our existing The principles have been discussed with employees commitments. throughout the Group and are reinforced through regular communications from the Chief Executive and senior management. They are also embedded in the way we conduct our performance reviews – both of our operations and of our people (see the People section on page 48). These are our values, together with some examples of what is expected of us:

We act with integrity We conduct all our activities with fairness, honesty and integrity.

We drive for results and improvement We listen and respond to the needs of our customers, then exceed their expectations; we are not happy with the status quo, and constantly strive to improve.

We value our people We understand, respect and value personal and cultural differences; we are open and honest in all our dealings with our people. Strategic overview Business and performance Corporate governance Financial statements Other information 45 Wolseley plc Annual Report and Accounts 2011

Key themes

Health Principle Business beneﬁts We will provide a safe and healthy working Protecting the health and safety of our people and safety environment and we will not compromise the helps us to gain and maintain their trust and (see pages 47 and 48) health and safety of any individual. loyalty. It also ensures that we protect the skills and experience that are used to serve our customers. Maintaining our physical assets minimises the risk of injury, helps us to preserve the integrity of our operations, improves efﬁciency, lowers our costs and improves the quality of our customer service.

People Principle Business beneﬁts We value our people. We understand, respect The development and retention of our people will (see pages 48 and 49) and value personal and cultural differences. lead to increased motivation and improvement in the quality of operations and the service we provide our customers, and will lower our cost base.

Responsible Principle Business beneﬁts We are committed to observing both the spirit Conducting business responsibly and with business and the letter of the laws of all jurisdictions in integrity minimises risks related to fraud and (see pages 49 and 50) which we operate, and to complying with our corruption and strengthens our reputation. It Code of Conduct. We expect our vendors, also makes our business more efﬁcient because contractors and agents to adhere to our Code we avoid costly disruptions. Compliance of Conduct and to adopt similar standards. programmes strengthen our internal controls.

Environment Principle Business benefits We will run efficient operations that minimise Measuring our environmental performance in (see pages 50, 51 and 52) waste and reduce any negative effect of our chosen areas will enable us to become more business activities on the environment. We will efficient, reduce operational costs and reduce promote sustainable development. our impact on the environment.

Community Principle Business beneﬁts We will be a responsible member of the Building closer relationships with the engagement communities in which we work. communities in which we operate helps us to (see page 53) promote our business, attract high quality recruits and gain a greater understanding of our customers, vendors and employees. It helps us run a better, more efﬁcient business. 46 Wolseley plc Annual Report and Accounts 2011

Corporate responsibility continued

Corporate responsibility – governance or results. These will include examples of improvements in and risk management health and safety and environmental management systems. To ensure that the integrity of the business is maintained Overall policy and direction is set by the Board, which and strengthened, the Company’s internal audit programme reviews the Group’s corporate responsibility-related activity includes detailed reviews of compliance with Group policies annually. Each business unit identifies its objectives for the on health and safety and the implementation of its ethics year, which include non-financial targets for the improvement programme. This is complemented by the maintenance of of health and safety performance and, in most cases, the internal controls programme which ensures that there customer satisfaction, employee engagement and reducing is rigorous testing of and adherence to our procedures. environmental impact. The targets set, and the KPIs used to The Group’s Company Secretary and General Counsel is measure progress, may differ as they are orientated towards responsible for the overall framework and direction of the what is most appropriate for the improvement of the corporate responsibility programme, and regularly discusses particular business. These targets form part of the annual progress with business unit representatives. process of budget preparation and the monthly review of performance conducted by the Group Chief Executive, the As part of the Group’s wider risk management and internal Chief Financial Officer and business unit management. controls system, each business, and each corporate function, The Executive Committee regularly reviews these objectives assesses non-financial as well as financial risks and sets and also ensures that they are aligned with and take into action plans for management of those risks. Included in that account Wolseley’s strategic objectives and the interests assessment process are risks relating to health and safety, of its stakeholders. The Group’s system of sharing best environmental and other compliance requirements, employees, practice includes webinars which discuss examples of fraud, corruption and product quality. An explanation of the management actions which have improved productivity Group’s risk management programme is set out on pages 38 to 43. Progress against goals Goals Progress/Status Targets set in 2010/11 All employees to be Complete. The new Code of Conduct was communicated to all employees through one or more trained on the Code of means: online training; presentations from management; distribution of hard copies of the Code Conduct. of Conduct; and posting of the key principles on message boards. Training of relevant Substantially complete. A detailed online training programme was developed and has been employees. deployed in some parts of the Group. This will be completed, on target, by the end of 2011. Risk assessments for Substantially complete. Our businesses are identifying their higher value, higher risk business fraud and corruption. relationships and activities. Where necessary, contract terms and procedures have been or are being improved. Due diligence is being or will be conducted on higher-risk business partners. The process is expected to be completed by the end of 2012. Improvement of health All businesses have set targets and most businesses have achieved or exceeded their goals and safety performance. for the financial year. Improvement of Ongoing. The integrity of our systems for recording environmental data steadily improves: more environment data quality. businesses are able to provide accurate data, and a lower proportion is derived from estimates.

Targets and priorities for 2012 Activity Deadline Thorough review of environmental efﬁciency programmes for the improvement of fuel use, energy consumption and reduction of waste. Existing best practices in business units will be shared across the Group. Where they End 2012 do not already exist, and if appropriate, suitable targets will be set at business unit and at Group level. Improvement of health and safety performance throughout the Group. Appropriate targets are set at business unit level and Group level, and reviewed regularly. Where relevant, an element of management July 2012 bonuses will be dependent on improvement of health and safety performance. Ensure performance reviews are conducted for all employees at all levels. End 2012 Ensure every business conducts employee engagement surveys on a regular basis and sets improvement Ongoing targets based on the output from those surveys. Robust talent review and succession plans in place across the Group. July 2012 Ensure due diligence procedures are improved and contract terms with existing and new key business July 2012 partners meet the standards of our ethics programme.

More information on these activities can be found online at http://www.wolseley.com/corporate-responsibility.aspx Strategic overview Business and performance Corporate governance Financial statements Other information 47 Wolseley plc Annual Report and Accounts 2011

Health and safety Efforts to provide a healthy and safe environment for our employees, customers and others whom we come into contact with have continued throughout the year. Overall our results have not improved as much as we would like. In part, this is because we are capturing more and better quality data for improved reporting. However, we plan to do better next year. Our medical injury rate has improved across the Group and in every business unit over the year although the number of lost workdays has, overall, remained static. The number of third party collisions has increased; investigations are under way to better understand this phenomenon and improvements are being made. Despite our efforts, and the Ferguson: Safety Leadership During the year, every manager in Ferguson was involved overall reduction in medical injury rates, two of our employees in a new, customised “Safety Leadership” training were involved in fatal accidents and some of our employees programme, aimed at improving workplace and driver suffered serious injuries while at work. We cannot tolerate safety. This equipped them to deliver training to every this and have set further improvement actions. employee as part of a “Safety Fundamentals” curriculum. The target benefits were not only improvement in This year we conducted a thorough review of our policies workplace safety, but better customer service: the Ferguson slogan “Nobody expects more of us than we do” and procedures for the management of health and safety applies to all aspects of the way they operate. throughout the Group. This included an assessment of the quality and integrity of our management, reporting and training systems and the benchmarking of our performance against other companies in our sector as well as those companies regarded as leaders in health and safety management. We found that, as a Group and in most of our main geographical regions, our safety performance leaves room for further improvement. With the assistance of a specialist consultancy, we assessed ourselves in several categories and compared our scores with publicly available information for our nearest competitors. The categories were: culture and values; policies and standards; governance and director competence; organisational structures, roles and responsibilities; management systems; performance management; and monitoring and audit. This allowed us Improving the safety culture in the Nordic region to better understand the current status of our operations Stark has pioneered a safety management review process which has already improved standards in its branches. and to clarify our ambition and the standards we wish to The process involves a detailed analysis and discussion reach over time. Although in some categories we were with branch management of four areas: internal traffic; assessed as demonstrating good practice, we are still ergonomics (for example, manual handling); accident improving our performance in other areas. Our aim is to hazards (for example, with the use of technical equipment); and formal risk assessments based on external and internal demonstrate good practice in all categories and in all parts standards. of the Group. Businesses are given a score on a scale of 1 to 5 Our review also showed that our businesses have well- (basic compliance with laws earns a score of 5, while full compliance with all external and internal standards of best established frameworks for the management of health and practice produces a score of 1). This provides an incentive safety risks. Training and communications programmes are for branches to accelerate their safety improvements to well developed and new themes and techniques are used achieve a higher rating. So far, 77 per cent of the branches to maintain awareness. For example, during the year, the in the programme have a score of 3 or better and 42 per in-house magazine at DT Group featured accounts by cent of the branches have a score of 2 or better. employees describing their own accidents and injuries and saying what they would do differently, which proved very powerful with colleagues. Ferguson emphasised driver safety by requiring all new fleet vehicles to be equipped with bright orange safety belts as a simple but effective visual reminder. Wolseley UK continues its monthly programme of “essential safety themes”, an email and poster campaign which includes practical steps to reduce risks. Local health and safety initiatives are shared across the Group so that best practices can be identified and adopted. 48 Wolseley plc Annual Report and Accounts 2011

Corporate responsibility continued

Last year, we obtained a sufficiently reliable set of data against which we could measure our performance year-on-year. The table below therefore shows our performance this year and explains the variances from the financial year 2009/10. The three key performance indicators are the only ones used throughout the Group; additional metrics are used in our businesses in order to encourage specific improvements. During the course of 2011/12, we shall further review which are the appropriate Group-wide KPIs to use. KPIs are reviewed regularly within each business and by the Executive in order to identify new trends and to ensure that the appropriate management actions are being taken. per cent Wolseley UK apprenticeship scheme change from The UK business participates in an accredited, FY 2011 FY 2010 previous year government-funded apprenticeship programme which puts recruits through a nine-month course focusing on Medical injury rate branch operations and customer service in particular. Number of at-work injuries Successful completion of that course results in a national requiring medical treatment vocational qualification (NVQ level 2) and participants then proceed to an advanced course in customer service, which per 100 employees 2.97 3.43 –13.51% can be completed in a further 9-12 months. All of the Lost workday rate training is provided in-house, with external mentoring and regular assessment through the government scheme. Number of workdays lost The aim is for all these participants to become branch per 100 employees 62.51 62.32 +0.03% managers of the future. Fleet collision rate Number of third-party vehicle collisions per 100 vehicles 19.33 17.27 +11.92%

People Throughout the year, our businesses have focused on maintaining and improving upon high standards of customer service. We aim to differentiate ourselves from our competitors by demonstrating superior knowledge of our product range, providing tailored advice to our professional and retail customers, and offering sustainable products to meet stakeholder and customer expectations. Superior Ferguson district trainer programme customer service is delivered by engaged, well-trained and Trainers are being introduced in Ferguson districts whose objective is to identify, develop, implement and evaluate knowledgeable sales staff. Our broad-ranging programme training programmes in sales, leadership, customer of sales training is now well established and continues to service, product knowledge and systems for Ferguson produce good results. Furthermore, this year an additional branch associates which support the businesses’ fund was allocated to the training and development of branch strategies and goals. Emphasis is on local delivery of training across all job functions: drivers, warehouse, inside managers and front line sales staff. sales, counters, showrooms, outside sales, branch managers, operations and new hires. The training delivery Despite the economic downturn and consequent reductions will include on the job coaching and mentoring, as well as in the levels of recruitment, we are pleased to see that after group-led classroom and web-based programmes. several years there is still a very high retention rate overall. Performance measures will include: the number of distinct In particular, we have a high retention rate for our employees district and branch associates trained; the number of recruited through our graduate development programmes, training events conducted; hours of instruction per course; and are now seeing participants from that programme take learning achieved as a percentage of those who pass milestone exams; productivity improvements by role, management positions in various countries around the based on observed performance and supervisor and Group. Our Leadership Development Programmes are aimed associate feedback; employee engagement scores based at developing mid-to-senior level managers so that they on survey results; branch employee retention; and branch acquire the broader skills required to operate at higher operational performance. management levels. For example, Wolseley’s European Senior Leadership Development Programme, operated in collaboration with IMD business school in Lausanne, Switzerland, provides an intensive learning and development forum for our high-potential senior managers who are, or who aspire to become, part of the senior leadership in our businesses and in corporate functions. Strategic overview Business and performance Corporate governance Financial statements Other information 49 Wolseley plc Annual Report and Accounts 2011

High-potential employees are also beginning to go through an assessment as part of the longer term succession planning process. At least twice in each year, the Executive Committee and the Board review the succession plans both for their own positions and, in the case of the Executive Committee, for the senior managers who report to them. Thus, we aim to ensure that there is an effective training and development programme for employees at all levels of our organisation. During the recession, we recognised the difficulty in maintaining morale and commitment. We are privileged to have loyal employees who have continued to work hard for the Company despite the pressure on wages and on Diversity in the business profitability. Their dedication is something that we recognise For a number of years, Ferguson in the US has promoted diversity through a programme of recruitment, training and appreciate. This year, we required every business to and awareness, and leadership development. The effort conduct an employee engagement survey, so that we consists of engagement surveys and exit interviews; could better understand the concerns of our employees leadership development and mentoring programmes; and identify the action needed to address those concerns. diversity training (through workshops and web-based training); and offering alternative work schedules. We were pleased to see engagement scores that were The programme also features an internal newsletter generally higher than the industry average and in most cases that encourages all employees to build skills that promote higher than the scores achieved in 2008. Nevertheless, we communication, teamwork, performance and productivity. realise that there is much more that we can do for our loyal The programme extends outside the company and includes vendor diversity, which promotes links with employees, and the findings of those engagement surveys companies owned by minorities, women and service- are being acted upon. We will conduct employee disabled veterans. engagement surveys annually. As part of our efforts to improve the quality of management and the development of our people, we require that all employees go through a detailed performance appraisal at the end of each financial year. At that point, objectives are set for the next financial year and a personal development plan is discussed. All employees are expected to discuss progress against their objectives and their development plans regularly with their managers, and at least at the half year. In parts of our business, the personal performance evaluation process was upgraded during the year so that each competency that is assessed is aligned with our Group values.

Wolseley UK: modular engineering Responsible business Pipe Center’s new modular engineering facility provides Our new Code of Conduct was successfully introduced in all the customer with a design and manufacture service for pre-fabricated, multi-service modules, which feature parts of the Group this year, reaching all 45,000 employees. various components such as pre-insulated pipe work, It sets out in clear terms the standards and behaviour that is electrical containment and duct work delivered to site expected of our employees and, in some cases, our business on time and on budget. partners. Training on the Code of Conduct was provided When compared against more traditional methods of through an online presentation, using case studies relevant to construction, this facility has numerous environmental the business and an interactive question and answer module. advantages, including reduction in vehicle use and carbon emissions; less waste, as the modules are delivered on For those employees who do not have access to a computer temporary re-usable trolleys with no waste packaging at work, materials were also provided for use in presentations to dispose of; improved health and safety through more by management, and copies of the Code of Conduct, efficient manufacturing and less congested work areas; leaflets and posters have been distributed to all locations. less wasted energy due to improvements to installation efficiency; and as the products are ISO 9001 quality The Code of Conduct sets out the high ethical standards approved they consistently meet customer requirements. which Wolseley expects from its employees and others carrying out its business, focusing on compliance with the law, in particular avoiding bribery, corruption and fraud, maintenance of gifts and hospitality registers, preservation of confidential information, managing conflicts of interest, treating customers and vendors fairly, engaging in fair competition, maintaining high standards of corporate governance, transparency and responsibility, providing More information on The Wolseley Code of Conduct can be found on our website at http://www. a safe and healthy working environment, running efficient wolseley.com/investor-centre/our-governance- operations, minimising waste and limiting our environmental and-ethics/code-of-conduct.aspx. 50 Wolseley plc Annual Report and Accounts 2011

Corporate responsibility continued

impact, and developing our employees and valuing diversity. In Wolseley UK, the pilot programme for the development Wolseley’s new Group-wide confidential reporting system, of a comprehensive ethical product sourcing programme “Speak Up!”, is available in all the languages in which the has made steady progress. An assessment process has Company operates and has worked effectively over the last been introduced which enables vendors to provide details year. The confidential reports are investigated and, where of how they comply with the requirements of Wolseley’s necessary, actions are taken to rectify any weakness in policy, including the provision of documentary evidence our systems that may have been identified. These actions, of compliance. It is intended to include a greater number and the overall integrity of the reporting system, are subject of vendors in this programme, in each case assessing the to regular scrutiny by the Audit Committee. risks associated with the product, country of origin and complexity of the supply chain. In anticipation of the UK Bribery Act 2010 coming into force during the financial year, the Company developed a Our efforts to improve our commitment to product quality comprehensive anti-fraud and anti-corruption manual, which and integrity are continuous. There is now closer collaboration includes case studies and training materials with examples amongst our sourcing and quality assurance and quality relevant to our business activities. The employees in our control specialists within the Group to ensure that best Group who are perceived to be most at risk of exposure to practices are shared and are more consistent in our fraud, bribery and corruption have been identified for more businesses. An improved procedure for response to product detailed training. The programme includes an interactive safety concerns has also been introduced in every business. online module with test questions which every participant must pass. An action plan is in place for the identification and Environment review of higher-risk and higher-value business relationships. If necessary following this additional due diligence, we will A desire to improve and integrate environmental amend our contract terms and our procedures for the management into our operations. negotiation of contracts and the retention of agents or service The impact of our operations on the environment is providers. In March 2011 the UK Department of Justice summarised in the tables in this section. It is based on issued its “Guidance about procedures which relevant improved data quality, providing a more reliable assessment commercial organisations can put into place to prevent of our efficiency. We have not been satisfied with the nature persons associated with them from bribing”. We reviewed of the data we gather or the way in which we set targets and this guidance document with the aim of ensuring that our measure performance, as a Group and at business unit level. policies and systems that we have in place could be We have been able to provide more detailed information for regarded as “adequate procedures” within the meaning inclusion in the Carbon Disclosure Project – we were pleased of the Bribery Act. to see our score improve on the previous year – but in doing Timber and ethical product sourcing so we recognised that there was more that we could do to integrate carbon reduction actions into our everyday In October 2010, the European Union and the Council of business life. the European Union adopted a Regulation laying down the obligations of operators who place timber and timber Some of our businesses already have established, high- products on the market. Its substantive terms apply from quality programmes to improve their environmental impact. March 2013. This Regulation will require companies such These include fuel efficiency plans as well as programmes for as Wolseley to meet certain standards, including having a the reduction of energy consumption and waste. Examples due diligence system in place, when bringing timber onto of our achievements are included in this report. Our current the European market and, where the timber or timber practice is that guidelines are set by the Board and the products are already on the European market, to be able to Executive Committee but targets are set at business unit identify those who have supplied timber or timber products. level, taking into account their specific business objectives, The Company already has a well-established system in place and this is consistent with our model of ensuring that to allow it to track timber from its origin throughout the chain accountability for performance improvement remains with of custody, and continues to work with vendors to ensure business unit management. In some cases, our existing that all timber is identifiable as originating from certified practices have boosted our credentials when bidding for sources. Our ethical timber policy already sets high major construction contracts and we think this has given standards for the procurement of timber and the existing us a competitive advantage. At present we do not have a compliance framework should therefore be readily adaptable comprehensive Group-wide programme, nor do we set or to new requirements. Sourcing managers and environmental disclose targets at a Group level. This has been driven by the specialists in the Group have already begun to work more decentralised nature of our business and by the difficulty of closely to ensure that the systems in place will meet those identifying adequate targets and KPIs that are meaningful future legislative requirements well in advance of their coming and equally applicable to all of our operations. However, into force. We believe that this will provide other benefits we continue to measure and report on greenhouse gas to the organisation: more efficient and robust purchasing emissions, water consumption and waste management, processes, giving our customers greater confidence that and these figures are shown later in this section. they can rely on us for high quality products and materials. Strategic overview Business and performance Corporate governance Financial statements Other information 51 Wolseley plc Annual Report and Accounts 2011

The Group further reduced its environmental footprint this Specific programmes aimed at reducing fuel consumption, year. Greenhouse gas emissions were reduced by 9 per including the backhaul and route optimisation programmes cent, non-hazardous waste was reduced by 6 per cent and in Ferguson, have also contributed to the decreases in hazardous waste by 26 per cent. These figures take into emissions. Emissions from air and rail travel have increased account a change in the number of Group entities within the as the overall level of business activity has improved. scope of environmental reporting as compared to the The Group has also taken steps to improve the accuracy financial year 2009/10, in particular the exclusion of data and completeness of its emissions data, including the use relating to our Italian business for 2010/11 following its of actual third-party information, for example relating to fuel disposal during the year. consumption in company vehicles, rather than estimating such consumption as in previous years. Greenhouse gas emissions (“tCO2e emissions”) FY2011 FY2010 FY2009 The majority of the Group’s greenhouse gas emissions derive emissions emissions emissions from electricity use at our locations (47 per cent) and the Source (tCO2e)1 (tCO2e)1 (tCO2e)1 transportation of our products (27 per cent). Fuel use in Electricity use 346,280 360,069 393,930 operations and the transportation of people account for 14 per cent and 12 per cent respectively. Fuel use: operations2 101,190 104,623 118,270

As in previous years, tCO2e emissions have been reported in Fuel use: transportation accordance with the principles of the World Business Council of goods 197,802 245,468 246,518 for Sustainable Development and the World Resources Business travel: vehicles 81,543 96,567 87,647 Institute’s Greenhouse Gas Protocol (“GHG Protocol”). The GHG Protocol categorises emissions as follows: Business travel: air and rail 7,532 5,215 8,189 • Scope 1 – Direct emissions. Refrigerant leakage 2,550 3,303 1,594 These are emissions for which businesses are directly Total 3 736,897 815,245 856,148 responsible. Emissions per £m • Scope 2 – Electricity indirect emissions. of revenue 54.2 61.7 59.3 These are emissions from the electricity which a company buys to use in its equipment or operations. 1 Greenhouse gas emissions are reported as tonnes of CO2 equivalent (abbreviated as tCO2e), based on the Global Warming Potential (“GWP”) • Scope 3 – Other indirect emissions. of each of the “basket of six” greenhouse gases, as defined by the Kyoto These are emissions from activities that are relevant to a Protocol. The GWP of CO2 is 1 (1 tonne CO2 = 1 tonne CO2e). For other greenhouse gases in the “basket of six”, including refrigerants, the GWP is company but are not within its direct control – for example, relative to the CO2 over a 100-year time horizon (eg one tonne of the refrigerant transport in vehicles not owned by the company. R407C is equivalent to 1,526 tonnes of CO2 in terms of its potential impact on climate change). Wolseley reports on its Scope 1 and Scope 2 emissions, as defined by the GHG Protocol, and aims to report on its 2 Includes supplied heat (district heating). Scope 3 emissions wherever possible. The table opposite 3 Based on a combination of actual and estimated data. therefore includes selected Scope 3 emissions (those arising from business travel), although it should be noted that a proportion of the data is derived from estimates. Each year we aim to reduce our reliance on estimates so that we can provide data based on accurate measurements. This year, approximately 60 per cent of our data is derived, or partly derived, from estimates. This compares to 65 per cent last year. A number of factors influence the amount of electricity used, fuel consumed and business travel undertaken across the Group, and hence the corresponding greenhouse gas emissions. These factors include the fuel used in operations, the size of vehicle fleets for the transportation of both goods and people, and the overall level of business activity. Changes in each of these during financial year 2010/11 have resulted in decreases in emissions in several of the categories noted in the table opposite when compared to 2009/10 figures. 52 Wolseley plc Annual Report and Accounts 2011

Corporate responsibility continued

Waste management The Group’s businesses generate non-hazardous waste and smaller quantities of hazardous waste. Definitions vary from country to country: hazardous waste may include items such as batteries and electronic equipment; non-hazardous waste typically includes materials such as paper, plastic and metal. In the financial year 2010/11, 7 per cent of hazardous waste and 27 per cent of non-hazardous waste was recycled. This compares with 7 per cent and 29 per cent respectively for the previous year. The remaining waste was sent to landfill or incinerated. Our companies strive to increase the amount of waste that is recycled, and the programmes that are in place continue to show gradual improvement. Of the total Wolseley UK’s “Go Green” campaign waste generated by the Group’s activities in 2011, As part of the Health, Safety and Environment (HSE) audit programme in the UK business, the “Go Green” campaign approximately 26 per cent is based on actual data. was initiated to further improve upon Wolseley UK’s existing The remaining 74 per cent was partly or entirely estimated HSE compliance initiatives. These compliance-based audits – this is an improvement on last year. focus on key HSE matters affecting the business with the aim being for all sites to achieve compliance standards Hazardous waste Non-hazardous waste (measured consistently in all UK sites) and, ultimately, an internal target of “green” status. A site achieves this status Final waste FY2011 FY2010 FY2009 FY2011 FY2010 FY2009 when it is 100 per cent compliant in 10 auditable destinations (tonnes) (tonnes) (tonnes) (tonnes) (tonnes) (tonnes) categories, supported by documentary evidence. Incinerated 793 1,098 1,283 14,601 10,120 6,599 The campaign was a joint initiative between the Internal Audit and HSE teams of Wolseley UK, with support given Landfill 168 190 250 39,725 45,623 85,003 by each of the business unit management teams as Recycled 68 96 77 19,855 23,266 22,617 required. Any outstanding items identified following an audit taking place were tracked through to completion and Total1 1,029 1,384 1,610 74,181 79,010 114,617 performance was measured weekly using a reporting dashboard. Given the success of the programme since its Waste per introduction during 2011, Wolseley will maintain it as part of £m of its continuing improvement of compliance and of branch revenue 0.08 0.1 0.1 5.5 6.0 7.9 manager training on health, safety and environment matters. 1 Based on a combination of actual and estimated data.

Water use The majority of the Group’s water consumption is related to normal operational and sanitary use. Although water consumption is not as material a factor in our operations as it would be for a manufacturer, we have continued to measure water consumption throughout the Group in an effort to improve our water efﬁciency. The Group’s water is almost exclusively supplied by local utility providers. This year, our overall water use decreased by 17 per cent. This reﬂects a number of factors, including a reduction in the number of properties across the Group to which water is supplied and restructuring of individual businesses within the scope of our reporting, which have led to lower volumes of water being consumed. FY2011 FY2010 FY2009 (cubic (cubic (cubic metres) metres) metres) Total water consumption1 831,038 1,001,515 984,102 Average water consumption per employee 18.5 21.2 19.4

1 83 per cent of the 2011 ﬁgure is based on estimated, or partly estimated, data. This compares to 89 per cent for 2010. Strategic overview Business and performance Corporate governance Financial statements Other information 53 Wolseley plc Annual Report and Accounts 2011

Community engagement In all of our businesses, our employees are encouraged to develop their skills by contributing to charitable or other activities outside the workplace which benefit the communities in which they work or live. In addition, each business unit has the discretion to select the charitable or community projects that most resonate with its employees or that provide a link to its operations. Many of our companies recognise the importance of their presence in a particular community and the value it can bring both to the business and the area in which its employees live. A notable example this year of how this has worked in practice is given opposite. Ripon, UK – fully engaged in the community Our principal areas for charitable support continue to be Wolseley’s shared service centre in the UK is based the alleviation of homelessness, the provision of training for in Ripon, North Yorkshire. It supports all of the UK’s operations and is the city’s largest employer; it has been the homeless or marginalised in order to allow them to return in the area for 40 years. Wolseley UK and its employees to work, and the improvement of the quality of the built have supported the community in numerous ways. environment. Our businesses have also supported numerous These are only a few examples: fundraising activities for other charitable causes, including the relief of suffering a variety of local charities; hosting work experience for following natural disasters, support for the aged, and the students and offering careers advice; supplying more than development of the arts. 50 staff to the police and emergency services “Crucial Crew” which teaches primary school children how to Wolseley continues to contribute to the construction sector deal with various threats and emergencies; numerous support for the Great Ormond Street children’s hospital contributions in-kind, such as provision of temporary warehouse space for the Salvation Army; and drastically “Raising the Roof” campaign, whose purpose is to fund reducing its environmental impact by recycling 90 per cent the development of a new centre for neurosciences. We are of office waste and recycling all office paper (achieved in the second year of our partnership with Impetus Trust simply and effectively by removing all waste bins in offices (www.impetustrust.org.uk), an organisation which works and providing only recycling containers). Wolseley UK’s community activities in Ripon led to its being awarded the to break the cycle of poverty by accelerating the growth of Harrogate Borough Council 2011 Award for Community charities and social enterprises that fight economic Involvement. disadvantage, helping them to multiply their social impact. Through its venture philanthropy model providing strategic funding, management support and specialist expertise, Impetus has helped its portfolio of organisations to grow their income by an average of 31 per cent a year and to increase the number of people they help by an average of 40 per cent a year. Included in the Impetus portfolio is Blue Sky Supporting the Impetus portfolio of charities – Blue Sky Development & Regeneration – see opposite for more details. Blue Sky is a charity which gives paid work to people coming out of prison, to enable them to move successfully Recognising our commitment to the maintenance and into long-term employment. As part of its scale-up plan, which Impetus and Wolseley are backing, this social development of the integrity of the built environment, this year business has significantly increased the number of Wolseley became a supporter of The Prince’s Foundation employment contracts offered to ex-offenders, hiring more for the Built Environment (www.princes-foundation.org). than 500 to date – enough to close a small prison. One of The Prince of Wales’ charities, it promotes the understanding of sustainable building and encourages community engagement in the improvement of public health and affordable and safer streets and communities. Its mission is to transform lives by making great places. Its work includes master planning new cities and promoting sustainable building through its showcase “Natural House” (to which Wolseley contributed materials supplied through its Sustainable Building Center). The Foundation also undertakes education initiatives to train individuals committed to maintaining and building better communities; Wolseley also contributed to The Prince of Wales’s Building Craft Apprentices programme, which among other things aims to increase the numbers of skilled building craftspeople in the UK. Training at The Prince of Wales’s Building Craft Apprentices programme run by The Prince’s Foundation for the Built Environment, which Wolseley supported this year. More information on our Corporate responsibility programme, including further case studies, statistics and examples of our practices, our Photo credit: Richard Ivey employee training programmes, awards and community engagement can be found on the Wolseley plc website at http://www.wolseley.com/ corporate-responsibility.aspx. Further business unit information is also available on the websites of our subsidiary companies. 54 Wolseley plc Annual Report and Accounts 2011 Board of Directors (Directors in office as at 31 July 2011)

Gareth Davis Ian Meakins John Martin Chairman Group Chief Executive Chief Financial Officer Appointment Appointment Appointment Appointed to the Board on 1 July 2003 and became Appointed to the Board on 13 July 2009. Appointed to the Board on 1 April 2010. Chairman on 21 January 2011. Key strengths Key strengths Key strengths Broad international board and general management Extensive operational and financial management Extensive international board and general experience in brand, retail and wholesale distribution experience. Mr Martin has significant experience management experience, having served on various management; strategic vision and extensive at cost control, driving productivity, and leading company boards for many years. operational leadership. business expansion projects, acquisitions, disposals, capital efficiency, tax, treasury and Experience Experience compliance activities. Mr Davis spent 38 years in the tobacco industry and Mr Meakins was, until April 2009, Chief Executive was Chief Executive of Imperial Tobacco Group plc of Travelex Holdings Ltd, the international foreign Experience from its incorporation in 1996 until May 2010. exchange and payments business. Previously he was Mr Martin, a chartered accountant, joined the Age 61. Chief Executive Officer of Alliance UniChem plc until Company in February 2010. He was previously a its merger with Boots in July 2006 and prior to that, partner at the private equity group Alchemy Partners Committee membership between 2000 and 2004, was President, European and prior to that was Chief Financial Officer of Chairman of the Nominations Committee and Major Markets and Global Supply for Diageo plc, Travelex Holdings Ltd and Hays plc, the business member of the Major Announcements Committee. spending over 12 years with the company in a variety services group. Mr Martin started his career at Arthur External appointments of international management positions. Age 55. Andersen before joining The Stationery Office Chairman of William Hill PLC and a Non Executive Group, on its privatisation, where he was Group Committee membership Director of DS Smith Plc, the international packaging Controller. Age 45. Chairman of the Executive Committee. Member of manufacturer and office products wholesaler. the Major Announcements, Treasury and Disclosure Committee membership Committees. Chairman of the Major Announcements, Disclosure and Treasury Committees and a member of the External appointments Executive Committee. Director of the Impetus Trust and Non Executive Director of Centrica plc. External appointments None.

Michael Clarke Tessa Bamford Richard Shoylekov Non Executive Director Non Executive Director Group Company Secretary Appointment Appointment and General Counsel Appointed to the Board on 22 March 2011. Appointed to the Board on 22 March 2011. Appointment Key strengths Key strengths Appointed on 9 November 2007. Considerable board and executive management Extensive City experience having held senior Responsibilities experience within global businesses with strong advisory roles in both the UK and US across a range Mr Shoylekov, a solicitor, has responsibility marketing and distribution capabilities. of sectors. for the Group’s legal affairs, risk management Experience Experience and corporate responsibility. Age 46. Mr Clarke, a qualified accountant, spent his early career Ms Bamford was, until July 2011, a Director of Cantos Committee membership in South Africa and Hong Kong working for Deloitte. Communications, the online communications service Secretary to the Board and all Committees He joined Reebok International in 1991 and serving as provider. Previously she was a Director of J Henry of the Board. Member of the Major Vice President of South Asia/Pacific. Between 1996 Schroder & Co where she worked for 12 years in a Announcements, Disclosure and and 2008 he held various roles at The Coca-Cola number of roles between 1986 and 1998. Prior to Executive Committees. Company including President of South Pacific and that, Ms Bamford worked in corporate finance for Korea, and President of North West Europe and Barclays de Zoete Wedd. Age 52. External appointments Nordics. Until August 2011, he was President of Kraft None. Committee membership Foods Europe, headquartered in Zurich. Age 47. Member of the Audit, Remuneration and Committee membership Nominations Committees. Member of the Audit, Remuneration and External appointments Nominations Committees. Consultant at Spencer Stuart. Non Executive External appointments Director of Barratt Developments plc and a Became Chief Executive Officer of Premier Governor of the British Institute of Florence. Foods Plc in September 2011. Strategic overview Business and performance Corporate governance Financial statements Other information 55 Wolseley plc Annual Report and Accounts 2011

Frank Roach Andrew Duff Michael Wareing CMG Chief Executive Officer, North America Non Executive Director Non Executive Director Appointment Appointment Appointment Appointed to the Board on 16 December 2005. Appointed to the Board on 1 July 2004. Appointed to the Board on 1 October 2009. Key strengths Key strengths Key strengths Strong business and operational leadership; Broad knowledge of international business; Comprehensive board and financial management Management of subsidiaries and joint ventures. Strategic management and strong customer experience; Significant commercial and international Business development and wide ranging service experience. experience having served in various advisory roles. sales experience. Experience Experience Experience Mr Duff spent 16 years at BP plc working in Europe, Mr Wareing was International Chief Executive of Mr Roach is responsible for all the North American the USA, Far East and Africa in marketing, strategy KPMG from 2005 until he retired in September businesses. He first joined Ferguson Enterprises Inc. and oil trading. He joined National Power in 1998, 2009, having previously been Chief Executive of in 1976 and has held a number of business roles. joining the board of its daughter company Innogy KPMG’s Europe, Middle East and Africa region. In 2005, Mr Roach was appointed as Senior plc (a FTSE 100 company) upon its demerger from Throughout his career Mr Wareing has been closely Vice President of the Wolseley North America National Power in 2000 and its listing on the LSE. involved with a number of charities and public management team, playing a key part in further Restructured Innogy plc, prepared a technology bodies, including his appointment in 2007 as the developing and expanding the Group’s North spin-out for IPO, secure shareholder approval for Prime Minister’s Special Envoy for the reconstruction American businesses. Age 60. several Class 1 transactions including the sale of of Southern Iraq and Chairman of the Basra Innogy to RWE in 2003. Mr Duff then became CEO Development Commission. Age 57. Committee membership of the successor company, npower and a member Member of the Executive Committee. Committee membership of the RWE Group Executive Committee. He was Chairman of the Audit Committee and member of External appointments appointed Non Executive Chairman of RWE npower the Remuneration and Nominations Committees. None. until his retirement in December 2010. Age 52. External appointments Committee membership Became Non Executive Director of Cobham plc Senior Independent Director. Chairman of the in December 2010 and of Intertek Group plc in Remuneration Committee and a member of April 2011. Chairman of the Iraq Advisory Board the Audit and Nominations Committees. of G4S Risk Management. Board member External appointments of Business in the Community. Economic Chairman of Severn Trent Plc and Severn Trent Development Adviser to the Government Water Ltd. Member of the CBI President’s of Afghanistan. committee. A fellow of the Energy Institute. Member of the board of trustees of MacMillan Cancer Support. Member of the board of trustees of the Earth Trust. 56 Wolseley plc Annual Report and Accounts 2011 Corporate governance report

We refreshed the composition of the Board over the last 12 months making two new appointments in the 2010/11 financial year and one since the year end. Four of our Non Executive Directors have been appointed to the Board in the last two years. The Board and I believe these new appointments bring additional depth and diversity of experience to the Board, while ensuring the composition and size remains well suited to our business. As I referred to in my Chairman’s statement, we welcome the findings and recommendations of the Davies Report “Women on Boards”. There will soon be two women on the Board and I expect the Foreword from the Chairman diversity of our Board to meet the recommendations of the Davies Report by 2015. We also continue to put significant Governance within Wolseley effort into succession planning for Directors (both Executive As mentioned in my Chairman’s statement, the Board and Non Executive) and all senior management. is committed to the highest standards of corporate Recent developments governance. At Wolseley, we believe that good governance comes from an effective Board which I ensure that I am kept fully aware of the recent developments provides strong leadership to the Company and engages in the field of corporate governance. The Board as a whole well with both management and stakeholders. This year has been proactive in addressing many of the recent we are moving forward, building on the high standards developments, including the annual re-election of directors set by my predecessor. of FTSE 350 companies (adopted last year ahead of the implementation of the provision in the UK Corporate Leadership, effectiveness and diversity Governance Code), externally facilitated performance Although the change in our tax residence to Switzerland evaluations every three years (our last external evaluation was has resulted in some practical changes to the Company’s in 2009 and our next is scheduled to be conducted in 2012) governance structure, fundamentally we have not changed and Lord Davies’ recommendations on gender diversity. our governance standards. From the beginning of my As Chairman, I will take responsibility for providing the Board Chairmanship, I have fostered an environment for the Board with the opportunity to consider all developments in this field whereby constructive challenge and open debate is actively and, where appropriate for Wolseley, for ensuring that encouraged at all meetings. I am mindful that it is my Directors receive appropriate training and education on responsibility as Chairman of the Board to provide strong governance issues as required so that we maintain our high leadership to ensure the Board is effective and to oversee standards of corporate governance. the implementation of the Group’s strategy. As we do each year, the Board reviewed its effectiveness and the overall strength of the Company’s governance and controls framework. We will undertake a full external evaluation in financial year 2011/12.

Gareth Davis Chairman Strategic overview Business and performance Corporate governance Financial statements Other information 57 Wolseley plc Annual Report and Accounts 2011

Compliance with the Code Compliance statement Following the move of our corporate headquarters to Throughout the accounting period to which this report Switzerland, Wolseley plc (a public company limited by relates, the Company applied all of the principles set out in shares, incorporated in Jersey with registered number sections A to E of the Code for the period under review 106605) and tax resident in Switzerland became the new and has, throughout the year, complied with the detailed parent company of the Wolseley Group, pursuant to a provisions set out therein. The Company’s auditors, scheme of arrangement under Part 26 of the UK Companies PricewaterhouseCoopers LLP, are required to review Act 2006 (the “UK Companies Act”). Wolseley plc is listed on whether the above statement reflects the Company’s the London Stock Exchange, and is therefore subject to the compliance with the nine provisions of the Code specified Listing Rules of the Financial Services Authority. It complies for their review by the Listing Rules of the UK Listing Authority with the provisions of the UK Corporate Governance Code and to report if it does not reflect such compliance. No such (the “Code”) and relevant institutional shareholder guidelines. report has been made. Although (as a Jersey incorporated company) the Company is not subject to the UK Companies Act, the Board retains its Corporate and governance structure strong commitment to high standards of governance and Wolseley plc, a Jersey registered company, became the new corporate responsibility. Therefore, the Board considers it parent company of the Wolseley Group on 23 November appropriate to provide shareholder safeguards which are 2010. The diagram below sets out the governance structure similar to those that apply to a UK registered company. of the new company, including where meetings are held. At the date of this report, for financial years beginning on or To maintain Wolseley’s tax residence in Switzerland, the after 29 June 2010, the principal governance rules applying majority of meetings of the Board must be held there, and to UK companies listed on the London Stock Exchange are to maintain the benefits of that tax residence, no meeting contained in the Code. A copy of the Code is available from requiring decisions of a strategic or substantive nature must the Financial Reporting Council’s website at www.frc.org. be held in the United Kingdom. All meetings of the Board uk/corporate/ukcgcode. This report, including the report and all Committees of the Board are held outside the from the Audit Committee and the Remuneration report, United Kingdom. describes how the Board has complied with the Code’s main principles of good governance, as contained in sections The Committees of the Board are the Audit Committee, the A to E of the Code, and seeks to demonstrate how those Remuneration Committee, the Nominations Committee and principles have been applied during the year under review. the Major Announcements Committee. Other committees which implement those strategic decisions or whose remit does not extend to strategic or substantive decisions include the Executive Committee, Treasury Committee, Disclosure Committee and other ad hoc committees. Those committees may meet in the United Kingdom.

Board and Committee structure

Wolseley plc

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

Major Audit Remuneration Nominations Announcements

Other committees Meetings may be held in the UK. These implement strategic Executive Treasury Disclosure Ad hoc decisions and executive or administrative matters. 58 Wolseley plc Annual Report and Accounts 2011

Corporate governance report continued

Our Board The Board meets regularly during the year, as well as on an ad hoc basis as required by time-critical business needs. The Board’s primary role is to provide effective and There were nine scheduled meetings during the year and entrepreneurial leadership necessary to enable the Group’s Director attendance is shown in the table opposite. The table business objectives to be met and to review the overall shows those meetings which each Director attended and strategic development of the Group as a whole. The Board was eligible to attend as a member of the Board rather than is collectively responsible for the long-term success of the as an invitee. In addition to the scheduled meetings, two Company. It has a formal schedule of matters reserved to it unscheduled meetings were convened at short notice to deal for its decision, while day-to-day operational decisions are with transactions, which some Directors were unable to managed by the Executive Committee, led by the Group attend because of prior commitments which could not be Chief Executive. The Board reviewed and updated the re-scheduled. In each case, the matters discussed at matters reserved for its consideration in March 2011. those unscheduled meetings had already been considered The categories of matters that are reserved for the in detail by the full Board at previous meetings. Of those two Board are: unscheduled meetings, the first was attended by Messrs • strategy and management; Clarke, Martin and Roach and the second by Ms Bamford and Messrs Davis, Clarke, Martin, Meakins and Roach. • corporate structure; Details of changes to the composition of the Board during • financial reporting and controls; the year are shown on page 59. • tax and treasury matters; All Directors are required to attend all meetings of the Board or Committees of which they are a member, so that they • major commitments; keep fully up to date with the business. They are expected • communication; to constructively challenge all the proposals brought to the meetings. In accordance with the Code, papers and other • board and senior management appointments; information are delivered at times that allow Directors to • remuneration; be properly briefed in advance of meetings to ensure that they are provided with sufficient resources to undertake • delegation of authority; their duties. To further improve efficiency and to provide ease • corporate governance; of access to information, Board and Committee papers are published in advance via a secure web portal, allowing • policies; and access using an iPad at each meeting. • other miscellaneous matters. Meetings led by the Senior Independent Director between Meeting attendance/eligibility at Board Meetings held the Non Executive Directors, both with and without the during the year ended 31 July 20111 presence of the Chairman and the Group Chief Executive, are scheduled in the Board’s annual timetable. Both Board Name Position Scheduled meetings and Committee meetings are conducted within an G Davis Chairman2 8/8 environment fostered by the Chairman which allows for challenge and debate. All Directors are fully aware of the J Whybrow Chairman 4/4 role that the Non Executive Directors play in providing T Bamford Non Executive Director 3/3 constructive challenge on all matters. M Clarke Non Executive Director 3/3 A Duff Non Executive Director 8/8 A Le Goff Non Executive Director 2/2 J Martin Chief Financial Officer 9/9 I Meakins Group Chief Executive 9/9 J Murray Non Executive Director 1/1 F Roach Chief Executive, North America 8/8 N Stein3 Non Executive Director 4/5 M Wareing Non Executive Director 8/8

1 The details of meeting attendance and eligibility noted above include two meetings of Wolseley plc (now known as Wolseley Limited), one meeting of Wolseley plc as the new holding company of the Group relating to the redomiciliation, and all subsequent scheduled Board meetings of Wolseley plc. 2 Prior to his appointment as Chairman on 20 January 2011, Mr Davis attended Board meetings in his capacity as a Non Executive Director. 3 Due to a prior scheduled commitment, Mr Stein was unable to attend one Board meeting. Strategic overview Business and performance Corporate governance Financial statements Other information 59 Wolseley plc Annual Report and Accounts 2011

The Board ensures that it stays in touch with the management of the business units so that it understands the changing dynamics of their markets. In addition to visits by the Board at operating locations, management make frequent presentations to the Board on their current and planned activities. This provides opportunities for more in depth and informal discussions. The table below summarises some of the matters discussed by the Board during the year:

Redomiciliation (change in corporate headquarters).

Debt reﬁnancing. Sweden Board meeting The Board visited Stockholm in Sweden on 21 October Board and executive succession planning. 2010. The programme included presentations from local management within the Beijer and other DT businesses, Corporate values. visits to a Beijer showroom and meetings with showroom employees. Strategy and Resource allocation process. Customer service. Employee engagement.

Our Directors Board composition As at 31 July 2011, the Board of Directors was made up of eight members consisting of the Chairman, three Executive Directors and four Non Executive Directors. During the ﬁnancial year, two new Non Executive Directors were appointed to the Board. Since the year end, the Company announced the appointment of another Non Executive Director, Karen Witts. After that appointment, 22 per cent of the Board will be women. The table below summarises the changes to the Board effected during the year: Date Name Position Change 30 September 2010 James Murray Non Executive Director Stepped down 23 November 2010 Alain Le Goff Non Executive Director Stepped down 20 January 2011 John Whybrow Chairman Stepped down 20 January 2011 Gareth Davis Chairman Appointed (and stepped down as Senior Independent Director) 20 January 2011 Andrew Duff Senior Independent Director Appointed 22 March 2011 Nigel Stein Non Executive Director Stepped down 22 March 2011 Tessa Bamford Non Executive Director New appointment 22 March 2011 Michael Clarke Non Executive Director New appointment

Biographical details of each of the Directors in ofﬁce as at 31 July 2011 are shown on pages 54 and 55.

Executive/Non Executive split as at 31 July 2011 Chairman (1) Non Executive Directors (4)

Executive Directors (3) 60 Wolseley plc Annual Report and Accounts 2011

Corporate governance report continued

The Chairman and the Non Executive Directors are each Andrew Duff, as Senior Independent Director, makes sure considered by the Board to be independent of management that he is available for approach by or representations from and free of any relationship which could materially interfere investors and shareholders, where communication through with the exercise of their independent judgement. External the Chairman or the Executive Directors may not seem directorships held by such Directors are not considered to appropriate. He is also a sounding board for the Chairman impact on their independence where such directorships are and an intermediary for the other Directors when necessary. of companies which have historically had and continue to do Induction and development of the Directors business with Wolseley as there are robust processes in place in relation to conflicts of interests. The Company’s The Chairman, assisted by the Group Company Secretary policy relating to the terms of appointment and the and General Counsel, is responsible for the induction and remuneration of both the Executive and Non Executive continuing development of all Directors. Following their Directors is detailed in the Remuneration report. appointment, a formal comprehensive and tailored induction is provided. This includes provision of relevant current and Board balance and succession planning historical information about the Company and the Group, The Nominations Committee, as well as the Board as a briefings on corporate governance and on remuneration and whole, considers succession planning and the appropriate audit issues. The Directors are also made aware that there composition of the Board to ensure that the Board has the is an established procedure for all Directors, if deemed correct balance of individuals to discharge its duties effectively. necessary, to take independent professional advice at the The new appointment of three Non Executive Directors Company’s expense in the furtherance of their duties. in the last 12 months, recommended to the Board by the This is in addition to the direct access that every Director Nominations Committee, has brought additional depth has to the Company Secretary, who is charged with ensuring and diversity of experience, while ensuring the composition that Board procedures are followed and that good corporate and size remains well suited to Wolseley’s business. governance and compliance is implemented throughout the Group. The material provided to the Directors is Our current Board contains a wealth of experience and supplemented by meetings, as required, with major skills covering a broad range of businesses, industries and shareholders, visits to operations across the Group and advisory roles. In addition, some members of the Board have one-to-one meetings with members of the Executive extensive financial experience. Collectively, this provides Committee and other senior executives at the Group services Wolseley with a strong, varied and insightful Board. Further office and overseas. When considered appropriate, meetings details of each Director’s skills and experience are shown in with external advisers may also be arranged. Tessa Bamford’s the biographical details of the Directors on pages 54 and 55. and Michael Clarke’s induction to their roles as Non Executive Succession planning at both Board level and throughout Directors followed the process described above. senior management level is on the Board’s agenda and Each of the Non Executive Directors brings his or her own timetable. During the year, the Board also undertook its senior level of experience and expertise to the Board. As part formal annual review of the senior leadership team. of their continuing development, the Executive Directors are Roles of the Chairman, Group Chief Executive and encouraged to take on not more than one external non Senior Independent Director executive directorship on the board of a non-competitor company, for which they may retain payments received in The distinct roles of, and division of responsibility between, respect of such appointment, as the Board believes there are the Chairman and Group Chief Executive are acknowledged, significant benefits to be achieved for both the Company and set out in writing and agreed by the Board. the individual. In order to avoid any potential conflict of Gareth Davis, as Chairman, is responsible for the overall interest, all appointments are subject to the Board’s approval. leadership and governance of the Board (including induction, All Non Executive Directors are aware, at appointment, of the development and performance evaluation) and for ensuring time commitment expected of them; although there is no that the Directors have an understanding of the views of requirement as to the number of other directorships they the Company’s major shareholders. He is responsible for may hold, they are required to discuss with the Chairman ensuring a healthy culture of challenge and debate at Board any additional directorships prior to acceptance. The Board and Committee meetings. As permitted under the Code, monitors the extent of Directors’ other interests to ensure the Chairman chairs one other board of directors in the that the effectiveness of the Board is not compromised. FTSE 100, as noted in his biographical details on page 54. The external appointments for all Directors are shown in the biographical details of the Directors on pages 54 and 55. Ian Meakins, as Group Chief Executive, is responsible for the effective leadership of the Company, strong and focused management and development of the Group, delivery of the Company’s objectives and strategy agreed by the Board, good relationships and communications with investors and prudent financial controls. A number of duties which derive from these responsibilities include developing and implementing policies relating to health and safety and corporate responsibility. Strategic overview Business and performance Corporate governance Financial statements Other information 61 Wolseley plc Annual Report and Accounts 2011

Re-election of Directors Board effectiveness: Board evaluation It has been Board policy that Non Executive Directors are Each of the Directors continues to be considered by the normally appointed for an initial term of three years, which is Board to be effective and to demonstrate commitment to then reviewed and extended for up to a further two three- his or her respective role. The Board is required, under year periods. It is also Board policy that Non Executive the Code, to complete an externally facilitated Board Directors should not generally serve on the Board for more performance evaluation every three years. The last external than nine years and that, in cases where it is proposed to evaluation of the Board’s own performance and that of the exceed this period, the Director concerned will retire annually individual Directors was completed during 2009. Due to the and seek re-election. The Company’s Articles of Association recent changes to the Board, the Board carried out an also provide that one-third of the Directors should retire by effectiveness review internally during the year and agreed rotation each year and that each Director will seek re-election to conduct a comprehensive, externally facilitated review by the shareholders at the Annual General Meeting (“AGM”) in the financial year 2011/12. at least once every three years. In addition, new Directors are The internal review used a set of questions adapted to subject to election by shareholders at the first opportunity address the activities and concerns of the Board, the Audit after their appointment. Committee and the Remuneration Committee. The questions Nevertheless, all Directors will, in accordance with the Code, were in the form of online surveys which encouraged seek election or re-election at the Company’s AGM each year. comment and qualitative evaluation of the Board’s and of Ms Bamford, Mr Clarke and Ms Witts will seek election each Committee’s effectiveness, the individual members and having been appointed to the Board since the last AGM. Full the contributions received from advisers. The results of the biographical details of the Directors seeking election can be surveys formed the basis of discussion of areas for further found in the Notice of Annual General Meeting. As required improvement by the Board and the Committees. by the Code, and to allow transparency, the terms and Risk management conditions of appointment of all Directors are available for inspection by any person at its registered office in Jersey, at The Board is ultimately responsible for determining the its corporate headquarters in Switzerland and at its Group nature and extent of the significant risks it is willing to take services office in the United Kingdom, and will be available in achieving its strategic objectives and for maintaining for inspection at the AGM in Switzerland prior to the meeting. sound risk management and internal control systems. Additional details regarding service agreements and letters The Board requires the Audit Committee to conduct more of engagement are contained in the Remuneration report detailed oversight of risk. Further details on the role of the on pages 73 and 77. Audit Committee can be found on page 64. For details of the process of risk management within the business, Board effectiveness: Board procedures and further information can be found in the section entitled responsibilities “Risk management and internal control” on page 38. A 12-month rolling programme of items for discussion by the Indemnities Board is prepared to ensure that all matters reserved to the Board and other strategic issues are considered at The Company indemnifies its Directors in respect of liabilities appropriate times. Together with the Group Chief Executive incurred as a result of their office in accordance with the and the Group Company Secretary and General Counsel, Articles of Association and to the maximum extent permitted the Chairman ensures that the Board is kept properly by Jersey law. Qualifying third-party indemnity provisions informed and is consulted on all matters reserved to it and (to the maximum extent permitted by English law) were that papers and other information are delivered in a timely granted to all Directors then in office and to the Group fashion. Company Secretary by Wolseley plc (now known as Wolseley Limited) and these remain in force as at the date of this The Board has processes and procedures in place which report. When Wolseley plc (a Jersey registered company) require a Director to identify and declare actual or potential became the new holding company, additional third-party conflicts of interest, whether matter-specific or situational. indemnity provisions were granted by the Company. The Such notifications can be made by a Director at a Board Company has also arranged appropriate insurance coverage meeting or in writing. All Directors have a continuing duty to in respect of legal action against its Directors and officers. update any changes. In accordance with the Company’s Neither the Company’s indemnity nor insurance would Articles of Association, the Board may authorise potential provide any coverage to the extent that a Director is proved conflicts which can be limited in scope. Such authorisations to have acted fraudulently or dishonestly. are regularly reviewed. During the year under review, the conflict management procedures were adhered to and operated effectively. 62 Wolseley plc Annual Report and Accounts 2011

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Relations with shareholders The Annual Report and Accounts are available to all shareholders either in paper form or electronically and Communication with shareholders can be accessed via the Wolseley plc website at The Company places considerable importance on www.wolseley.com or via Shareview, an internet service communication with its shareholders, including its employee offered by the Company’s Registrars, as detailed in shareholders. Our investor relations policy reflects our Shareholder information on page 158. The Group’s Full Year commitment to our shareholders. It includes: and Half Year Results, as well as all announcements issued to the London Stock Exchange, are published on the • regular dialogue with institutional shareholders and financial Wolseley plc website. During the year the Company issued analysts with the close involvement of the Group Chief regular updates to the market and these, together with Executive and Chief Financial Officer; copies of presentations to analysts and interviews with the • an up to date record of financial analysts’ forecasts, which Group Chief Executive and Chief Financial Officer, are also is kept and published on the Wolseley plc website at posted on the Wolseley plc website. www.wolseley.com; • an announcement each quarter incorporating sales, Percentage of holders split between institutional profitability by region, net debt and appropriate and other private investors and individuals commentary; as at 31 July 2011 Institutional • promotion of communication with shareholders, ensuring Individual and other that the views of our major shareholders are reported to the investors private investors Board by the Chief Financial Officer and by the Chairman 0.7% 99.3% and are discussed at its meetings; • the maintenance of contact, when appropriate, with shareholders to discuss overall remuneration plans and policies; and • a report each quarter incorporating revenue and profitability by region, net debt and appropriate commentary. Investor communication is governed by written guidelines to ensure the appropriate and prompt disclosure of sensitive information which could affect the Company’s share price. Concentration of investors as at 31 July 2011 % The Chairman meets with the larger institutional shareholders 36.3 35.117.9 10.7 at least once a year. He ensures that the Board as a whole 100% maintains an appropriate dialogue with shareholders. The Non Executive Directors are encouraged to attend 80% presentations of the Full Year and Half Year Results. 60% A senior executive, reporting to the Chief Financial Officer, has day-to-day responsibility for all investor relations matters 40% and for contact with institutional shareholders, as well as with financial analysts, brokers and the media. 20% The Group Chief Executive and Chief Financial Officer see Top 5 Rest of Rest of Others the major institutional shareholders face to face at least twice investors top 30 top 100 a year following the full year and half year financial results. investors investors The Board receives institutional shareholder feedback following these meetings and receives an annual formal presentation outlining the investor relations programme Geographical breakdown of shareholder base for the year. (Institutional investors only) as at 31 July 2011 During the year ended 31 July 2011 the Group Chief Executive Rest of World 3.9% and Chief Financial Officer spent 33 days respectively Europe engaged in investor relations activities attending 88 meetings 16.6% collectively. The investor relations function additionally United Kingdom spent 15 days meeting with institutions comprising a further 76 meetings. There were a total of 164 investor meetings 47.8% in the year.

North America 31.7% Strategic overview Business and performance Corporate governance Financial statements Other information 63 Wolseley plc Annual Report and Accounts 2011

Substantial share interests AGM resolutions As at the date of this report, the Company had received The resolutions to be proposed at the AGM to be held on notiﬁcation of the following material shareholdings pursuant 29 November 2011, together with explanatory notes, appear to the Disclosure and Transparency Rules of the UK Listing in the Notice of AGM which is posted to each shareholder in Authority: advance of the meeting. This document is available on the Wolseley plc website. Number Percentage of shares held of issued voting Name (millions) share capital Switzerland Blackrock, Inc 39,073,305 13.714% Venue: Parkhotel, Industriestrasse 14, CH-6304, Capital Research and Zug Switzerland Management Company 14,731,312 5.178% Time: 3pm (CET) Cevian Capital II GP Limited 14,690,088 5.165% Fidelity 14,070,947 4.957% Gubelstrasse AXA S.A. 13,065,225 4.603% Metallstrasse Legal and General Group plc 11,234,843 3.958%

Dammstrasse Zug Bahnhof Bärenplatz Annual General Meeting (“AGM”) Rail station Albisstrasse The AGM will take place on 29 November 2011 at Parkhotel, Industriestrasse 14, Zug, Switzerland with an audio-visual link Zug Bahnhofplatz to The Lincoln Centre, London, UK. The link will allow active Parkhotel two-way participation by persons physically present Baarerstrasse in Switzerland and the UK. Kino Full details of the AGM are contained in the Notice of Annual Gotthard General Meeting. Industriestrasse AGM procedure Metalliplatz The Notice of the AGM is circulated to all shareholders at least 20 working days before such meeting and it is Company policy not to combine resolutions to be proposed London at general meetings. All shareholders are invited to the Venue: The Lincoln Centre, 18 Lincoln’s Inn Fields Company’s AGM, at which they have the opportunity to put London WC2A 3ED, United Kingdom questions to the Board. It is standard practice to have the Senior Independent Director and the chairmen of the Audit, Time: 2pm (GMT) Nominations and Remuneration Committees available in person to answer questions. Some questions may not be Chancery Lane answered at the meeting, should they not be in the interests of the Company, involve the disclosure of conﬁdential High Holborn information or if it would not be to the good order of the Holborn The Lincoln Centre meeting. The Chairman may also nominate a Company Chancery Lane representative to answer a speciﬁc question after the AGM or may refer to a response on the Wolseley plc website. Lincoln’s Inn

Serle Street The proxy votes received for and against each resolution, Kingsway Fields as well as abstentions which may be recorded on the proxy Parker Street form accompanying the Notice of Meeting, are counted Portugal Street Carey Street before the AGM and the results of all votes are made Great Queen Street available shortly after the meeting. The results are also announced to the London Stock Exchange via Regulatory Fleet Street

News Service and are published on the Wolseley plc website. Aldwych

Using your smartphone, scan this code to download details about Wolseley’s AGM. Alternatively, please visit the Wolseley plc website at www.wolseley.com 64 Wolseley plc Annual Report and Accounts 2011

Corporate governance report continued

Our Committees Role and responsibilities Details of the Wolseley plc Board and Committee governance The Audit Committee has wide-ranging oversight of structure can be found on page 57. The formal terms of responsibilities assigned to it by the Board. These are to: reference for the Committees of the Board, which have • assist the Board to fulfil its responsibilities relating to been approved by the Board and comply with the Code, external financial reporting and associated announcements are available from the Group Company Secretary and including: General Counsel and can also be found on the Wolseley plc website at www.wolseley.com. Membership and activities – the Half Year and Full Year financial statements, including of the various Committees are summarised on pages 64 to the requirements for financial reporting; and 68. The Group Company Secretary and General Counsel, – the Half Year and Annual Full Year results announcements whose appointment and removal is a matter for the Board made to the London Stock Exchange; as a whole, acts as Secretary to all Committees. • review key accounting and auditing issues; Committees of the Board • review the effectiveness of the Company’s internal control and risk management procedures; Audit Committee • report regularly to the Board on compliance in relation to the business activities for which it has responsibility within its terms of reference; • ensure that it has an agenda which is linked to events in the Company’s financial calendar; • review the Company’s policies and procedures relating to governance, risk and control and, in addition to the regular items, each member of the Committee may request reports Michael Wareing, Chairman on matters of interest; • develop, implement and monitor the Company’s policy on Members and attendance (eligibility) at meetings held external audit; 1 during the year ended 31 July 2011 : • monitor independence, objectivity and compliance with Meetings during the year: 4 ethical and regulatory requirements in relation to external audit; Current members • review the effectiveness of the external auditor; M Wareing (Chairman) 4(4) T Bamford 0(0) • recommend the appointment and reappointment of the Company’s external auditors; M Clarke 1(1) • review annually a formal letter provided by the external A Duff 2(2) auditors confirming their independence and objectivity Members who stepped down during the year: within the context of applicable regulatory requirements and professional standards; G Davis 2(2) • review the effectiveness of the internal audit function; J Murray 1(1) • review of litigation, contingent liabilities and tax matters, N Stein 3(3) including compliance with statutory tax obligations; and 1 The Committee is made up of four Non Executive Directors and the Board • monitor fraud reports and the operation of the Company’s considers that the chairman and each member of the Committee is whistleblowing policy. independent within the definition set out in the Code and that each of them has relevant financial experience. Strategic overview Business and performance Corporate governance Financial statements Other information 65 Wolseley plc Annual Report and Accounts 2011

Governance Activities The Committee’s membership is reviewed by the Details of the activities of the Committee during the financial Nominations Committee and by the chairman of the Audit year ended 31 July 2011 and a full discussion of how the Committee at regular intervals. Members of the Committee Audit Committee discharges it responsibilities are set out in are appointed by the Board following recommendations by the Report from the Audit Committee on pages 69 and 70. the Nominations Committee. All members of the Committee Remuneration Committee receive appropriate induction, which is in addition to the induction which all new Directors receive and includes an overview of the business, its financial dynamics and risks. Members of the Committee may undertake ongoing training as required. Audit Committee members are expected to have an understanding of the following areas: • the principles of, contents of and developments in financial reporting, including the applicable accounting standards and statements of recommended practice and, in particular, the appropriateness of the Company’s Andrew Duff, Chairman accounting policies and integrity of the financial statements; • the Company’s wider corporate policies and its financing; Members and attendance (eligibility) at meetings held and during the year ended 31 July 2011: • the Company’s systems of internal control and matters that Meetings during the year: 6 require the use of judgement in the presentation of Current members: accounts and key figures as well as the role of internal and external auditors. A Duff (Chairman) 6(6) Each member of the Committee brings relevant experience T Bamford 2(2) at a senior executive level. In addition to the existing M Clarke 1(1) members of the Audit Committee, Mr Wareing, who was International Chief Executive of KPMG until his retirement in M Wareing 3(3) September 2009, continues to provide the Board with further Members who stepped down during the year: assurance that the Audit Committee has the appropriate skills and experience and that it meets the Code A Le Goff 2(2) requirements that at least one member of the Committee has N Stein 3(4) significant, recent and relevant financial experience. The expertise and experience of each member of the Committee G Davis 3(3) are summarised on pages 54 and 55. The table above sets out the members of the Committee The Committee invites the Chairman, Group Chief Executive, and their attendance during the year. Full details of the Chief Financial Officer, Group Financial Controller and the Committee’s responsibilities, governance and activities Head of Internal Audit, together with senior representatives of during the year are detailed in the Remuneration report the Company’s external auditors, to attend each meeting and on pages 72 to 82. receive its papers, although it reserves part of each meeting for discussions without those invitees present. Other senior executives are also invited to certain meetings to present such reports as are required for the Committee to discharge its duties. The Committee members periodically meet the Head of Internal Audit and the external auditors without the presence of executive management. The chairman of the Committee reports to the subsequent meeting of the Board on the key issues covered by the Committee, and the Board also receives copies of the minutes of each meeting. During the year, the Committee critically reviewed its own performance and considered where improvements could be made. In addition, the Committee’s terms of reference were reviewed during the year. The chairman of the Committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the Committee’s activities. 66 Wolseley plc Annual Report and Accounts 2011

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Nominations Committee Governance Mr Davis succeeded Mr Whybrow as chairman of the Nominations Committee on 20 January 2011. Mr Le Goff, Mr Murray and Mr Stein all ceased to be members of the Committee on the dates they stepped down from the Board. Ms Bamford and Mr Clarke were appointed to the Committee on 22 March 2011. There is a formal procedure in place for selecting and recruiting Directors as detailed in the role and responsibilities Gareth Davis, Chairman section opposite. During the year, the Committee retained an external search agency to assist in the process of identifying potential candidates for nomination to the Board. Members and attendance (eligibility) at meetings held during the year ended 31 July 2011: The chairman of the Committee attends the Annual General Meeting to respond to any questions shareholders may raise Meetings during the year: 3 on the Committee’s activities. Current members: Activities G Davis (Chairman) 2(2) The matters discussed by the Committee during the financial T Bamford 2(2) year ended 31 July 2011 included: M Clarke 2(2) • the appointment of a successor Chairman; A Duff1 2(3) • the appointment of a new Senior Independent Director; M Wareing 3(3) • the appointment of new Non Executive Directors to the Members who left during the year: Board; and A Le Goff 1(1) • a review of the Committee’s terms of reference. J Murray 1(1) During the year, the Committee (in recognising the impact of the Davies Report) ensured that skills, experience, potential N Stein 1(1) and overall balance of the Board – as well as diversity J Whybrow 0(0) including gender – were fully considered in relation to the appointments mentioned above. When the Committee 1 Owing to scheduling conflicts, Mr Duff was unable to attend one Nominations considered the appointment of a successor Chairman, Committee meeting. Mr Whybrow and Mr Davis absented themselves from Role and responsibilities the meeting. The Nominations Committee responsibilities are to: The proposed activities for the Committee in financial year • review the structure, size and composition of the Board and 2011/12 will be to continue to monitor and assess the Board’s its Committees; composition and diversity, longer term succession planning and potential further recruitment of Non Executive Directors. • make recommendations with regard to any changes that are considered necessary, both in the identification and nomination of new Directors and the continuation of existing Directors in office; • evaluate the balance of skills, knowledge and experience on the Board and, in light of that evaluation, prepare the description of the relevant role and capabilities required of prospective candidates; Gareth Davis Chairman of the Nominations Committee • make its recommendations to the Board, after a rigorous interview process for shortlisted candidates; • retain external search consultants for appointments to the Board; and • advise the Board on succession planning for Board appointments, although the Board itself has overall responsibility for succession generally. Strategic overview Business and performance Corporate governance Financial statements Other information 67 Wolseley plc Annual Report and Accounts 2011

Other Committees Major Announcements Committee Executive Committee

John Martin, Chairman Ian Meakins, Chairman

Members during the year ended 31 July 2011: Members during the year ended 31 July 2011: Current members: Current members: J Martin Chief Financial Officer (Chairman) I Meakins Group Chief Executive (Chairman) G Davis Chairman of the Board S Ashmore Managing Director, UK M Fearon Group Communications T England Group Chief Information Officer and Investor Relations Director P Gardies Managing Director, France I Meakins Group Chief Executive J Martin Chief Financial Officer R Shoylekov Group Company Secretary and General Counsel C Morrison Group HR Director Members who stepped down during the year: F Roach Chief Executive Officer, North America J Whybrow Chairman of the Board R Shoylekov Group Company Secretary and General Counsel Role and responsibilities S Weirsøe Managing Director, Nordic region

The Committee meets as required to consider the Role and responsibilities Company’s disclosure obligations in relation to material information in circumstances where the matter (i) is outside The Executive Committee meets at least 10 times each year the scope of the authority of the Disclosure Committee or and these meetings usually take place prior to Board (ii) has been referred to it by the Disclosure Committee as meetings. The Committee addresses operational business being a matter that may involve an announcement relating issues and is responsible for implementing Group strategy to a decision of a strategic nature or (iii) is otherwise of such and policies, day-to-day management and monitoring signiﬁcance or sensitivity that it ought properly be considered business performance Management matters are addressed by the Committee. The Committee’s terms of reference by the Executive Committee and other committees to whom anticipate that it would meet usually only in exceptional speciﬁc authority has been delegated to implement Board circumstances where information has come to light which strategy or policy. is of an unexpected, non-routine, and material nature. The Committee therefore has no meetings scheduled, and it was not required to meet during the year. 68 Wolseley plc Annual Report and Accounts 2011

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Treasury Committee Disclosure Committee

Members during the year ended 31 July 2011: Members during the year ended 31 July 2011: Current members: Current members: J Martin Chief Financial Ofﬁcer (Chairman) J Martin Chief Financial Ofﬁcer (Chairman) I Meakins Group Chief Executive M Fearon Group Communications R Shoylekov Group Company Secretary and General Counsel and Investor Relations Director M Verrier Group Treasurer I Meakins Group Chief Executive M Webb Group Financial Controller R Shoylekov Group Company Secretary and General Counsel

Role and responsibilities Role and responsibilities The Treasury Committee’s role is to consider treasury policy, The Disclosure Committee meets as required to deal with all including ﬁnancial structures and investments, tax and matters relating to public announcements of the Company treasury strategy, policies and certain transactions on behalf and, in particular, the Company’s obligations under the of the Group, and to review the performance and compliance Listing and Disclosure and Transparency Rules of the UK of the tax and treasury function, within a framework Listing Authority. The Committee also assists in the design, delegated by the Board. It makes recommendations to the implementation and periodic evaluation of the Company’s Board in matters such as overall ﬁnancing structure and disclosure controls and procedures. Announcements relating strategy and currency exposure. to any matters which the Board has designated as reserved matters, or matters of a substantive or strategic nature, are As part of the review of corporate governance during the dealt with by the Board or by the Major Announcements creation of the new holding company, the Board revised the Committee. scope and terms of reference of the Treasury Committee.

The Board retains responsibility for treasury and tax strategy Other ad hoc committees and has clarified the Treasury Committee’s responsibilities as orientated principally towards the implementation of treasury As required by the demands of business, the Board may and tax strategy and policies. appoint ad hoc committees to facilitate the implementation of its decisions or to consider specific matters in further detail between scheduled meetings. The Board may delegate matters of a substantive nature to a special purpose Committee. If it does so it will generally have already considered the matter in depth at a full Board meeting but may require further review prior to final approval. Strategic overview Business and performance Corporate governance Financial statements Other information 69 Wolseley plc Annual Report and Accounts 2011

Report from the Audit Committee Within the constraints of the APB Ethical Standards on Auditing, PwC undertake certain due diligence reviews and The composition, attendance, matters of governance and provide assistance on tax matters each year. The provision of responsibilities of the Audit Committee are set out on pages non-audit services within such constraints of the agreed 64 and 65. Full details of how the business implements its policy is assessed on a case by case basis so that the risk management and controls on a Group-wide basis are set best-placed adviser is retained. Under the policy, the external out in Risk management and internal control section at pages auditors cannot be engaged to perform any of the following 38 to 43. The activities of the Committee include reviews of services: external and internal audits, internal controls, financial reporting, and risk management systems. • book-keeping services related to accounting records or financial statements; Audit Committee activities in relation to External audit and external auditors • design and implementation of financial information systems; During the year, PricewaterhouseCoopers LLP (“PwC”) • appraisal or valuation services, fairness opinions and undertook both external audit and certain non-audit work. contributions in kind reports; Representatives from PwC are invited to attend Audit • actuarial services; Committee meetings. They provide the Committee with relevant reports, reviews, information and advice. • internal audit outsourcing services; The Committee reviewed and approved the terms, areas of • management functions including human resources; responsibility and scope of the audit (including schedules of • broker or dealer, investment adviser or investment banking unadjusted errors and representation letters) as set out in the services; or external auditors’ engagement letter. During the year, PwC provided audit related services such as regulatory and • legal and other services unrelated to audit work. statutory reporting, and reviewing shareholder and other The Committee considers at each meeting all requests for, circulars relating to the redomiciliation. PwC report to the and engagements of, non-audit work to be performed by Committee any material departures from Group accounting PwC for the Company, to ensure that the provision of those policies and procedures that they identify during the course non-audit services falls within the agreed policy regarding of their audit work. None were found in the last year. such services and does not impair the objectivity or independence of the external auditors. The policy requires pre-approval by the chairman of the Committee where a level (set by the Committee) is exceeded, for any non-audit work (subject to maximum budget levels). The total fees paid to PwC in the year ended 31 July 2011 (together with a comparison of fees paid in the year ended 31 July 2010) are set out in the table below. Further disclosure of the non-audit fees paid during the year ended 31 July 2011 can be found in note 3 to the consolidated financial statements on page 99. Fees paid Of which fees related Year (total) to non-audit work 2011 £7.6 million £3.9 million1 2010 £10.4 million £6.7 million2

1 £1.2 million of the non-audit fees were pursuant to work required in relation to the Group’s change in corporate structure and domicile. 2 £1 million of the non-audit fees were pursuant to work required in relation to the Group’s proposed change in corporate structure and domicile. 70 Wolseley plc Annual Report and Accounts 2011

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Although PwC have been the Company’s auditors for a The Board retains overall responsibility for internal control, number of years, the Committee is satisfied with their for establishing the systems of internal control and reviewing effectiveness and independence having conducted a review their effectiveness and for the identification and management of PwC’s effectiveness during the year. The Committee did of business risk. On behalf of the Board, the Committee not consider it necessary this year to conduct a tender monitors and reviews the effectiveness of the Group’s process for the appointment of its auditors. In accordance internal control systems, accounting policies and practices, with UK regulations, PwC adhere to a rotation policy standards of risk management and risk management based on best practice and accounting standards which procedures and compliance controls, as well as the the Committee monitors. Accordingly, a new lead audit Company’s statements on internal controls, before they partner was appointed in September 2010. are agreed by the Board for each year’s Annual Report. Management is responsible for establishing and maintaining Audit Committee activities relating to internal audit adequate internal control over financial reporting for the The Head of Internal Audit attends all Audit Committee Group including the consolidation process. The Committee meetings in addition to having regular meetings with the monitors the work undertaken by the Advanced Control chairman of the Committee. At each Committee meeting, Environment (“ACE”) team whose focus is on the accuracy an internal audit report is presented and discussed. of financial reporting. In a decentralised Group, where local management has considerable autonomy to run and develop Throughout the year, the Committee reviewed the internal their businesses, Wolseley has a well-designed system of audit function’s plans and its achievements against those internal control. This is necessary to safeguard shareholders’ plans. The Committee considered the results of the audits investment and the Company’s assets and depends on undertaken by the internal audit function and considered the regular evaluation on the extent of the risks to which the adequacy of management’s response to matters raised, Company is exposed. including the time taken to resolve any such matters. The Committee reviewed the effectiveness of the Group’s internal The Company’s systems comply with the guidance set out in audit function, including its terms of reference, its audit plans, the Turnbull Report “Internal Control: Guidance for Directors its general performance and its relationship with the external on the Combined Code”. An ongoing process is in place for auditors. This annual review was undertaken using guidance identifying, managing and evaluating the risks faced by the issued by the Institute of Chartered Accountants in England Group, and the effective internal controls required to maintain and Wales and the Institute of Internal Auditors – UK. such effectiveness. The Group’s internal control systems are The Committee reviews key performance indicators relating designed to manage rather than eliminate business risk. to the activity of the department. These reviews occur either These systems and their effectiveness have been in place for at each Committee meeting, or annually when KPIs are the full financial year and up to the date on which the financial reviewed against the audit plan. statements were approved, and are reviewed by the Board regularly to deal with any changing circumstances. Audit Committee activities in relation to risk management and internal control The Company’s whistleblowing policy, which supports the Group-wide Code of Conduct, is monitored by the The Committee receives and reviews a risk management Committee. All matters reported are investigated and, where report on a six monthly basis prepared by the Group Head appropriate, reported to the Committee, together with details of Risk. Such reports are presented to the Committee by of any corrective action taken. A report which includes the Chief Financial Officer and summarise submissions statistics on the volume and general nature of all disclosures from across all areas of the business which the Executive made is submitted to the Committee quarterly. During the Committee and senior management have reviewed. year, the Committee reviewed the report at each meeting. The chairman of the Committee then reports to the Board on The Group has international confidential telephone reporting any matters which have arisen from the Committee’s review lines and a secure website reporting facility, which are of the way in which the risk management and internal control operated on its behalf by an independent third party. processes have been applied and on any breakdowns in, or The reporting channels are a confidential means for exceptions to, these processes. These processes have been employees to notify any concerns about actual or potential in place throughout the year ended 31 July 2011 and have breaches of law or Company policy, including in relation continued to the date of this report. to accounting, risk issues, internal controls, auditing issues and related matters. A copy of the Group’s Code of Further information on the Group’s approach and how Conduct is available on the Wolseley plc website at the risk management process works is set out in Risk www. wolseley.com. management and internal control on pages 38 to 43.

Michael Wareing CMG, on behalf of the Audit Committee Strategic overview Business and performance Corporate governance Financial statements Other information 71 Wolseley plc Annual Report and Accounts 2011

Directors’ responsibility statement The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the The Directors are responsible for preparing the Annual Report Company’s transactions and disclose with reasonable and the financial statements in accordance with applicable accuracy at any time the financial position of the Company law and regulations. The Directors have prepared the and the Group and enable them to ensure that the financial Directors’ Remuneration Report as if the Company were statements comply with the Companies (Jersey) Law 1991 required to do so in accordance with the UK Companies and, as regards the Group financial statements, Article 4 Act 2006. of the IAS Regulation. They are also responsible for Companies (Jersey) Law 1991 requires the Directors to safeguarding the assets of the Company and the Group prepare financial statements for each financial year, which and hence for taking reasonable steps for the prevention give a true and fair view of the state of affairs of the Company and detection of fraud and other irregularities. and the profit and loss for that year. Under that law the The Directors are responsible for the maintenance and Directors have prepared the Group financial statements in integrity of the Company’s website. Jersey legislation accordance with International Financial Reporting Standards and United Kingdom regulation, governing the preparation (“IFRSs”) as adopted by the European Union, and the parent and dissemination of financial statements, may differ from company financial statements in accordance with United requirements in other jurisdictions. Kingdom Generally Accepted Accounting Practice (“UK GAAP”) (United Kingdom Accounting Standards Each of the Directors, whose names and functions are and applicable law). listed on pages 54 and 55 confirm that, to the best of their knowledge: In preparing these financial statements, the Directors are required to: • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true • select suitable accounting policies and then apply them and fair view of the assets, liabilities, financial position and consistently; profit of the Group; and • make judgements and accounting estimates that are • the Performance review contained in the report of the reasonable and prudent; Directors includes a fair review of the development and • state whether IFRSs as adopted by the European Union performance of the business and the position of the Group, and applicable UK Accounting Standards have been together with a description of the principal risks and followed, subject to any material departures disclosed uncertainties that it faces. and explained in the Group and parent company financial statements respectively; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 72 Wolseley plc Annual Report and Accounts 2011 Remuneration report For the year ended 31 July 2011

Introduction This Report, approved by the Board, has been prepared in accordance with the requirements of the Listing Rules of the Financial Services Authority. Although it is not a requirement of Jersey company law to have the Directors’ remuneration report approved by shareholders, the Board believes that as a Company whose shares are listed on the London Stock Exchange, it is good corporate governance for it to do so. Accordingly, a resolution to approve this report will be Dear Shareholder proposed at the forthcoming Annual General Meeting. I am pleased to present the Directors’ Remuneration Report Furthermore, the Board has also applied the principles for Wolseley plc. Financial year 2010/11 continued to be of good governance relating to Directors’ remuneration demanding for the sector. However, the Company continued contained within the UK Corporate Governance Code to make significant progress despite the challenging (the “Code”) which came into effect in June 2010. business conditions within the global economy. As a result Those parts of the report which have been subject to audit the Company has been able to deliver against stretching are clearly marked. financial objectives and this is reflected in the bonus awards throughout the Company for this year. Remuneration Committee As the Company performance continues to improve, it is The Board sets the Company’s remuneration policy. hoped that this will be rewarded in the coming years with The Committee makes recommendations to the Board, within appropriate awards under long-term incentive schemes its agreed terms of reference (available on the Wolseley plc and the Committee will therefore continue to monitor the website, www.wolseley.com), on the Company’s framework performance of these schemes over the coming year. of executive remuneration and its cost. It determines, with the The 10 year life of these schemes, as approved by agreement of the Board, specific remuneration packages for shareholders, will expire during 2012/13 and we will consult each of the Executive Directors, the Chairman and the Group with shareholders during the course of this financial year Company Secretary. It also determines the remuneration, before recommending their extension or replacement. based on proposals from the Group Chief Executive, for the members of the Executive Committee. The Chairman and There are very few changes to the compensation of senior the Executive Directors determine the remuneration of the executives within the Company during 2010/11. The senior Non Executive Directors. The Committee is also responsible team has chosen to accept only modest inflation related for the Company’s share incentive schemes for all employees salary increases this year in order to show solidarity with pay and further carries out reviews of overall remuneration policy discipline throughout the Company. for employees below executive level. The Committee would wish to see higher levels of share The current members of the Committee, as detailed on ownership amongst the leadership of the Company following page 65, consist of four Non Executive Directors, all of whom the economic slow-down and several years in which share are independent within the definition set out in the Code. schemes have failed to vest. The Committee will be reviewing The Group Chief Executive, Mr Meakins, the Chairman, alternatives during 2011/12 to encourage greater ownership. Mr Davis and the Group HR Director, Mr Morrison, are We believe that this Remuneration Report provides helpful usually invited to attend the meetings to respond to specific context and explanation of our policies and practical questions raised by members of the Committee. considerations that influence our decisions. We hope This specifically excludes matters concerning the details of, to receive your support at our AGM to be held on and any discussions relating to, their own remuneration. 29 November 2011. To reach informed decisions on executive remuneration, the Committee obtains detailed external research on market data and trends from experienced independent consultants. Since 2003, the Committee has sought external advice from Hewitt New Bridge Street, now part of the Aon group. Whilst the Aon group itself provides other services to the Company (pensions advice and insurance services) these other services are not provided by Hewitt New Bridge Street, which only provides services to the Company in relation to Andrew Duff Chairman of the Remuneration Committee remuneration activities. The Committee met six times during the year, at which all eligible Committee members were in attendance, with the exception of the meeting in March 2011 which Mr Stein was unable to attend due to a prior scheduled commitment. Mr Le Goff attended two meetings prior to stepping down as a Non Executive Director in November 2010; Messrs Wareing and Clarke and Ms Bamford attended all meetings following their respective appointments to the Committee. Strategic overview Business and performance Corporate governance Financial statements Other information 73 Wolseley plc Annual Report and Accounts 2011

The Committee has scheduled meetings throughout the year, Proportion of total remuneration % as well as ad hoc meetings to consider additional items as Base salary LTIS they arise. For example, an ad hoc meeting was called in Bonus Options January 2011 to review, clarify and approve the treatment of certain share plan rules. Maximum 19% 23% 24% 34%

At the scheduled meetings, among other matters, the Target 40% 37% 10% 13% Committee considered recommendations as to base salaries for 2010/11; the bonus objectives review for the Details of each of the Executive Directors can be found on same period; the Chairman’s fees and Senior Executives’ pages 54 and 55. remuneration. It also approved awards made under the Company’s discretionary share plans, commenced a Non Executive Directors review of the Company’s long term incentive schemes and The remuneration of Non Executive Directors is made up its all employee share plans, considered the structure of the of a basic fee plus an additional fee where a Non Executive bonus plan for 2011/12 and set the shareholding targets for Director acts as chairman of either the Audit Committee or Directors and Executive Committee members. The advisers Remuneration Committee or acts as Senior Independent to the Committee were also reviewed and the Committee Director; details of these fees are listed below. These fees decided to continue to retain the services of Hewitt New are reviewed from time to time by the Chairman and the Bridge Street. A review of the effectiveness of the Committee Executive Directors of the Board and were reviewed and was also carried out. increased in July 2011. 2011 2010 Policy on Directors’ remuneration Fees Additional fees Additional fees Executive Directors Senior Independent Director £11,000 £10,000 The Company’s remuneration policy continues to be to provide Remuneration Committee remuneration packages that fairly reward Executive Directors chairman £12,500 £12,000 for the contribution they make to the business, taking into Audit Committee chairman £16,500 £16,000 account the size and complexity of the Group’s operations and the need to attract, retain and motivate executives of the The Non Executive Directors have letters of engagement rather highest quality. than service agreements. As a result of the redomiciliation of Historically, remuneration packages have comprised salary, Wolseley plc in November 2010, new letters were entered into performance bonuses, share options, long term incentive by each Non Executive Director containing identical terms to awards, benefits in kind and retirement benefit provisions. the original letters. The Non Executive Directors do not Over the past financial year the Committee started to participate in any incentive plan, nor is any pension payable in review how it structures its executive options and long term respect of their services as Non Executive Directors. It remains incentive awards for its senior management, which are the Board’s policy that Non Executive Directors are appointed due to reach the end of their 10-year life shortly. for an initial term of three years, which is then reviewed and, if appropriate, extended for a further three-year period. The Company’s policy still ensures that each of the Appointments may be terminated upon six months’ notice by packages incorporates components linking individual and either party. There are no provisions for compensation in the Company performance, short- and long-term returns, as well event of termination. The terms and conditions of appointment as absolute and relative financial performance. It also remains of the Non Executive Directors are available for inspection at the case that none of the variable elements of remuneration the Company’s registered office during normal business hours, are pensionable. the corporate head office and at the Annual General Meeting. The Committee considers that the targets set for the Details of each of the Non Executive Directors can be found different elements of performance related remuneration on pages 54 and 55. are appropriate and demanding in the context of the Company’s trading environment. It further believes that these External appointments targets align the interest of its executives with those of the Company’s shareholders. The contribution of financial bonus Mr Meakins is a non executive director of Centrica plc targets based on trading profit and cash flow, personal and receives a fee of £65,000 per annum for his services. targets linked to customer service, health and safety and The Company allowed Mr Meakins to retain this fee for other strategic objectives, and longer term incentives provide such external appointment. strong alignment with the Group’s strategy. The following chart shows total remuneration (base salary, Salaries target and maximum amounts relating to bonus and the The Committee intends that base salary reflects the level of value of long term incentive awards and executive share responsibility of the Director, the relevant market in which options granted during the financial year) for the Executive he or she operates and individual performance. Independent Directors in office during financial year 2010/11: external advice is taken to benchmark salaries with market data, derived from a group of companies selected on the basis of comparable size, geographic spread and business focus. It is the Committee’s objective to set base salaries at or around the market median, with the opportunity to go above this level in the event of sustained individual high performance. 74 Wolseley plc Annual Report and Accounts 2011

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In accordance with the core principles of the Code, The annual bonus awards are based on a mix of demanding consideration has also been given to general pay and financial targets, derived from the Company’s annual employment conditions across the Group. The Committee long-term strategic business plan and annual budget, as well continues to assess these and other matters, such as as market expectations. For the financial year 2010/11, 80 per prevailing market conditions, when determining levels of cent of potential bonus was driven by financial performance. remuneration for Executive Directors and the Executive The balance depended on specific strategic personal Committee and when reviewing schemes that are appropriate objectives which were set for each Executive Director to a broader group of senior employees. For new appointments, and member of the Executive Committee. As part of the in particular internal promotions, the policy is for base salary to continued drive to improve the business, the performance progress towards the median once expertise and performance measures at Group level were weighted as follows, giving have been proven and sustained. The payment of salaries at an increased emphasis on trading profit: this level is considered appropriate for motivation and retention of the calibre of executive required to ensure the successful Performance bonus management of the Company in the challenging international Personal objectives business environment in which it operates. 20% The Committee reviews the fees of the Chairman and the salaries of the Executive Directors annually, having sought Trading the views of both the Chairman and the Group Chief profits Executive (other than in the case of their own remuneration). 50% In recognition of the Company’s improved performance during financial year 2009/10, the Committee agreed that Cash-to- cash days base salaries for each Executive Director for the financial 30% year commencing 1 August 2010 be increased by 2.5 per cent for UK executives, and 3 per cent for the US executive. Challenging trading profit and cash stretch targets are set The Chairman’s fee was unchanged from the previous year. for each geographical region and at the overall Group level. As part of the overall review of the structure of executive Depending on their particular responsibilities and their packages carried out during the year, which considered performance, Executive Directors were eligible to receive up to basic benchmarking data, the base salaries for the financial 100 per cent of salary for UK based Directors, and up to 110 per year 2011/12 payable to Executive Directors and the cent of salary for US based Directors, for on-target performance. members of the Executive Committee who are not on the In relation to the financial components, at the Group level the Board have been set generally in line with market median. significant improvement in trading profit of 38 per cent in the year Only very modest inflationary adjustments to salary were meant that the stretch (maximum) trading profit target was made for senior executives, in line with pay restraint exceeded. Strong Group cash management delivered throughout the Company. performance that exceeded the cash-to-cash days stretch (maximum) target. The North American profit performance The Board also reviewed the fees payable to the Non exceeded the target set at the start of the year but did not reach Executive Directors and benchmarked them against the stretch (maximum) level, whereas the cash-to-cash comparable FTSE companies. It concluded that fees should performance exceeded threshold (minimum) performance be increased for the financial year 2010/11 to bring them but fell short of target. No Director fully achieved the stretch in line with the median. This resulted in an increase of just levels for their personal objectives in the year. Bonuses under 2 per cent. As part of this review, it was agreed that payable for each Director are set out in the table on page 76. the Chairman’s fee again remain unchanged. For the forthcoming financial year, the financial components The fees payable to the Chairman and Non Executive have been adjusted such that they will now account for Directors and base salaries in respect of the Executive 85 per cent of the total potential bonus, with a greater Directors for the financial year commencing 1 August 2011 weighting on trading profit. The remaining 15 per cent are therefore as follows: G Davis £360,500; I Meakins will target specific strategic personal objectives for each £814,234; J Martin £504,300; F Roach $1,016,236; and, Executive Director. The Committee believes that setting for each of the Non Executive Directors, £63,000 (exclusive such stretching targets remains appropriate. of Committee or Senior Independent Director fees). In the case of the Executive Directors, this represents an increase The Committee has determined that the following of 2.5 per cent for UK based Executive Directors and an percentages of base salary will be payable as bonus, increase of 3 per cent for Mr Roach who is US-based. subject to the achievement of the minimum, on-target The majority of the Executive Committee were awarded and maximum levels of performance for each element increases of 2.5 per cent. (with the percentages increasing on a linear basis for achievement between each level): Performance bonuses Percentage of base salary Minimum Maximum payable on achievement of: target On-target target Performance bonus arrangements for the Executive Directors are designed to encourage individual performance and J Martin 40 70 100 generate operating efficiencies and profitable growth. I Meakins 80 100 120 Stretching targets, determined by the Committee, are set for each element of the bonus. The Committee also F Roach* 80 110 140 considers the levels of performance targets to be achieved *US based. for bonus payments to be made in the succeeding year. Strategic overview Business and performance Corporate governance Financial statements Other information 75 Wolseley plc Annual Report and Accounts 2011

Beneﬁts in kind Beneﬁts in kind consist of the provision of a car at the Company’s expense, or a car allowance, and healthcare insurance. In addition, to ensure that executives are not disadvantaged as a result of paying personal tax in more than one jurisdiction arising from the discharge of their duties, the Company meets the cost of any additional tax that they would be obliged to pay through the operation of a tax equalisation mechanism. Messrs Meakins and Martin are taxed on their income in the United Kingdom and Switzerland, and in addition Mr Roach is taxed on his income in the United States.

Key elements of Executive Directors’ remuneration in 2011/12 Performance Element Objective period Description Policy Base salary To provide competitive Annual Reviewed annually with Base salary is set at mid-market, base salary compensation effect from 1 August. with the opportunity to go above this to executives allowing the Base salaries are reviewed level if there is sustained individual Company to attract and against suitable comparator high performance. Compensation retain talented leaders. companies based on size provided should be commensurate and sector and take into with the executive’s contribution to account business and the Company. The Committee personal performance and intends to pay appropriately, based local market conditions. on skill, experience and performance achieved by the executive. Annual To ensure a market Annual The maximum target To reward achievement of budgeted bonus competitive package ranges from 100% to and stretching financial and and link total cash 140% of base salary operational goals within the year, reward to achievement (varying by individual and and applying profitability metrics of the Company’s geographical location). and personal goals which are financial and strategic linked to overall strategic aims business objectives. and shareholder expectations. Pension To aid retention and Ongoing Up to 32% of salary is For executives in the UK the aim reward long service. contributed for Defined is to provide a market-competitive Contribution arrangements benefit for retirement. For executives (varying by individual and in the US, the vesting criteria for the geographical location). Senior Executive Retirement Plan are related to age and service. Long Term To incentivise executives to Three A maximum grant of Awards under the LTIS have been Incentive deliver superior long-term years 200% of salary per annum made annually to senior executives Scheme performance in absolute may be made under the and other high-performing key and terms and also relative LTIS. A maximum grant of leaders. Vesting is conditional on Executive to peer group companies. 500% of salary per annum Group TSR meeting certain targets Share To align executives’ may be made under the over a three-year performance Option Plan interests with those ESOP. (A maximum grant period, relative to a comparator of shareholders and to would be awarded only in group of principally FTSE 100 retain key individuals. exceptional circumstances.) companies, excluding banks, telecommunications, IT and utility companies but including CRH plc and Travis Perkins plc. For future grants, the comparator group encompasses the full FTSE 100 with no additions or exclusions. Awards under the ESOP have been made annually to senior management. Vesting is conditional on certain earnings per share (“EPS”) growth targets being achieved over a three-year performance period. 76 Wolseley plc Annual Report and Accounts 2011

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Emoluments (audited) The emoluments for ﬁnancial year 2010/11 payable from 1 August 2010 for the Directors who served during the year are set out below. The total received by Mr Roach was paid in US dollars and this has been translated into sterling at the exchange rate $1.6426:£1 (2010: $1.5699:£1): 2011 2010 Salary and fees Additional fees Bonuses Beneﬁts Total Total Directors £000 £000 £000 £000 £000 £000 Chairman G Davis1 219.3 4.6 – – 224.0 71.8 Executive Directors J Martin2 492.0 – 487.1 141.4 1,120.5 531.1 I Meakins3 794.4 – 934.2 282.3 2,010.9 1,943.4 F Roach4 600.7 – 748.2 41.0 1,389.9 1,406.9 Non Executive Directors T Bamford5 22.5–––22.5 – M Clarke5 22.5–––22.5 – A Duff6 61.8 17.4 – – 79.1 73.8 M Wareing 61.8 16.0 – – 77.8 60.8 Former Directors A Le Goff7 19.5–––19.5 56.6 J Murray8 10.3–––10.3 68.8 N Stein9 41.2–––41.2 61.8 J Whybrow10 169.6–––169.6 360.5 Total 2,515.6 38.0 2,169.5 464.7 5,187.8 4,635.5 Pensions to former Directors ––––204 193 Pension contributions to money purchase plans––––138 140 Aggregate gains on exercise of share options––––– 17 Total ––––342 350

1 Appointed as Chairman with effect from 21 January 2011. Additional fees received as Senior Independent Director up until 20 January 2011. 2 £123,000 of the figure for benefits relates to a cash supplement in lieu of payments to the Company’s pension scheme. 3 £254,200 of the figure for benefits relates to a cash supplement in lieu of payments to the Company’s pension scheme. 4 The actual salary paid during the year in US dollars increased by 3 per cent from the figure reported in the 2009/10 Annual Report but is subject to exchange rate variances. 5 Appointed to the Board with effect from 22 March 2011. 6 Additional fees increased due to appointment as Senior Independent Director from 21 January 2011. 7 Stepped down from the Board as a Non Executive Director with effect from 23 November 2010. 8 Stepped down from the Board as a Non Executive Director with effect from 30 September 2010. 9 Stepped down from the Board as a Non Executive Director with effect from 22 March 2011. 10 Stepped down as Chairman of the Board and as a Non Executive Director with effect from 20 January 2011. Strategic overview Business and performance Corporate governance Financial statements Other information 77 Wolseley plc Annual Report and Accounts 2011

Board changes Other senior executives Following the appointment of Mr Davis as Chairman, the The members of the Executive Committee, who are not on Committee agreed that he would receive the same level the Board, are senior executives whose roles are considered of fees as that paid to Mr Whybrow throughout the course able to significantly influence the ability of the Group to meet of 2009 and 2010 of £360,500. During the year the Company its strategic objectives. The Committee determines the level appointed two new Non Executive Directors, as detailed on of remuneration for this group, based on proposals from the page 59 and on 30 September 2011 announced the Group Chief Executive. Their total remuneration including appointment of an additional Non Executive Director. salary and benefits, actual bonus, and the fair value of long term incentives granted or awarded during the year ended Service agreements 31 July 2011 is summarised below: Following the introduction of a new holding company in Total remuneration 2010/11 Number in band (£000) (2009/10 in brackets) November 2010, Wolseley plc was renamed Wolseley Limited and it is this company with which the Executive Directors 401–500 1 (0) have their service agreements. The terms of appointment 501–600 0 (1) remain unchanged. Under each service agreement, the notice period is 12 months if given by the Company and 601–700 1 (2) six months if given by the Executive. This reflects current 701–800 1 (2) market practice and the balance that should be struck between providing contractual protection to the Directors 801–900 1 (1) that is fair and promoting the interests of shareholders. 901–1,000 1 (0) Typically, upon termination by the Company, a payment 1,201–1,300 0 (1) would be made equal to the aggregate of base salary, any pension contributions made and the cost to the Company 1,301–1,400 1 (0) of providing other benefits to the Executive. The Company would also seek to ensure that any termination payment is mitigated in the event that the Executive finds alternative Director share ownership employment during the notice period. As a result of A share ownership programme was introduced with effect the redomiciliation of Wolseley plc in November 2010, from 1 August 2004 and is designed to encourage all appointment letters were entered into by each Executive Directors and Executive Committee members to build up Director, supplementing their service agreements, to address a shareholding in value equivalent to the following levels: service and taxation matters arising from the discharge of their duties in Switzerland. No additional remuneration has Group Chief Executive 1.5 times basic salary become payable to them as a consequence of the change Other Executive Directors 1 times basic salary in the Company’s tax residency in Switzerland. Chairman and Non Executive Directors 1 times annual fees Director Date of service agreement Date of appointment letter Executive Committee members 0.5 times basic salary J Martin 25 January 2010 23 November 2010 I Meakins 13 July 2009 23 November 2010 For Executive Directors and Executive Committee members, share ownership may be achieved by retaining shares F Roach 27 February 2006 23 November 2010 received as a result of participating in a Company share plan, after taking into account any shares sold to finance option exercises or to pay a National Insurance or income tax liability or overseas equivalent. The programme specifically excludes the need for executives to make a personal investment should awards not vest. Normally these levels of shareholding should be expected to be achieved within three to five years from the time the individual is included in the programme. The Committee has reviewed and noted the progress which has been made towards meeting these targets during the year. Directors’ current interests in shares are set out on page 78. 78 Wolseley plc Annual Report and Accounts 2011

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Directors’ interests in shares (audited) Long term incentives (audited) The interests of the Directors in office at 31 July 2011, and The Company currently operates long term incentive plans of their connected persons, in the ordinary shares of the under the Wolseley plc 2002 Long Term Incentive Scheme Company at the following dates were: and the Wolseley Group Long Term Incentive Scheme 2010, which was approved in identical form by shareholders in Ordinary shares of Ordinary shares 10 pence each held at of 10 pence November 2010 as part of the Company’s redomiciliation 31 July 2011 and at each held at (together the “LTIS”). The purpose of the LTIS is to incentivise the date of this report 1 August 2010 executives to deliver superior long-term performance and T Bamford 1,000 – reward them for relative outperformance of the Company against a defined list of comparator companies. The LTIS M Clarke 1,000 – provides for awards of ordinary shares in the capital of the G Davis* 13,038 3,679 Company, subject to the Company meeting TSR targets over separate three-year periods. All awards are made subject A Duff* 5,023 3,508 to the achievement of stretching performance conditions. J Martin 21,071 – The measure of TSR has been selected as the appropriate performance measure to ensure that the interests of the I Meakins 63,490 34,533 Executive Directors and senior executives are more closely F Roach* 17,927 15,824 aligned with those of the Company’s shareholders over the M Wareing 5,288 3,199 long term (as further detailed on page 73). Calculations of TSR are independently carried out and verified before being * As a result of the capital reorganisation which was completed on 2 April 2009, approved by the Committee. Awards may not exceed an each of the Directors noted above held a number of deferred shares of amount equal to two times salary for executives. 24 pence each. These deferred shares held no value or voting rights and were cancelled on 23 November 2010 as part of the Company’s redomiciliation. The following performance conditions apply for historical awards made under the LTIS: Pensions (audited) Percentage of award Mr Roach, who is a US citizen, participated in the defined Wolseley’s TSR position in the comparator group which will vest contribution pension arrangements of Ferguson Enterprises, Top decile 100% Inc., receiving contributions at the level of 23 per cent of his Between median and top decile 25–100% base salary. Bonus is not included in the calculation of Company pension contributions. The following table shows At median 25% the cost of the Group’s contributions during the financial year Below median 0% for Mr Roach: Defined contributions 2011 2011 2010 2010 The lists of comparator companies for awards made to pensions (US) £000 $000* £000 $000* date under the LTIS have been based upon the constituent F Roach 138.1 226.9 140.4 220.3 members of the FTSE 100 as at the respective dates of grant, excluding banks, telecommunications, IT and utility *Exchange rate used to convert the $ to £ over the year to 31 July 2011 is companies but including CRH plc and Travis Perkins plc, $1.6426 : £1 (2010: $1.5699 : £1). which compete in the same sector as the Company. For Brossette, a French subsidiary undertaking, has a the purposes of simplification, the comparator companies commitment to a former director, who is a French citizen, to for future awards made under the LTIS will be based upon pay an annual pension of €233,536 (2010: €232,701), with the full constituent members of the FTSE 100 at the a widow’s entitlement of 60 per cent, subject to an annual respective date of grant. The LTIS is discretionary and it is increase based on the agreed French pension index. The full the Committee’s current policy to make annual awards actuarial cost of this arrangement was provided in previous to the Group Chief Executive, Executive Directors and other years as part of Brossette’s ongoing pension obligations. members of the Executive Committee. Awards are made The Company is guarantor of this future pension commitment in shares, save where there may be material securities or which at 31 July 2011 was estimated at approximately tax law constraints in overseas jurisdictions where the £2.7 million (2010: £2.7 million). scheme would be operated, in which case conditional awards in cash would be considered. A total of 436,150 shares were conditionally granted under the LTIS in December 2010 to 88 employees (2009: 87). Strategic overview Business and performance Corporate governance Financial statements Other information 79 Wolseley plc Annual Report and Accounts 2011

The maximum amount that can be granted under the Executive share options (audited) LTIS for each award is 200 per cent of base salary per annum. Each year the Committee assesses the relevant The Wolseley Share Option Plan 2003 (“2003 Option Plan”) proportion of awards arising from both share options and received shareholder approval at the Annual General long term incentive awards. Extant awards remain subject Meeting held in November 2003. As part of the Company’s to the achievement of performance conditions following redomiciliation to Switzerland, a replacement executive a participant’s agreed retirement and vesting is only share option plan in identical form, the Wolseley Group Share determined at the end of the performance period. Option Plan 2010 (“the 2010 Option Plan”), was presented In 2010/11, the highest award under the LTIS was to and approved by shareholders of the new Wolseley plc 125 per cent, and only in exceptional circumstances at a General Meeting in November 2010. As a consequence, would the maximum be awarded. no further options will be granted under the 2003 Option Plan. The grant made to executives in December 2010 The following table sets out the percentage of each award was made under the rules of the 2010 Option Plan. which has vested and the percentage of each extant award, had it vested on 31 July 2011: The purpose of the executive share option plans is to reward executives for absolute EPS growth of the Company above UK inflation. All employees and Executive Directors of the Year of Year of Percentage vested on maturity or indicative vesting Company and its subsidiaries are eligible to participate in award vesting percentage based on performance as at 31 July 2011 the 2010 Option Plan. Participants are selected by the 2007 2010 0% (vested at 31 July 2010) Committee at its discretion and upon the recommendation of the Group Chief Executive. The Committee considers 2008 2011 0% (at 31 July 2011) annually the levels of grant, which are phased over time. 2009 2012 46.4% (performance after 24 months) It also determines the size of each award at the time of grant based on individual performance, the ability of 2010 2013 71.6% (performance after 12 months) each individual to contribute to the achievement of the performance conditions, and market levels of remuneration. Details of the awards conditionally made under the LTIS Awards may not exceed an amount equal to five times to the Executive Directors and the number of awards salary for US-based executives and three times salary for outstanding at 31 July 2011 are shown in the table below: European-based executives, although the Committee may, if it so determines, also use the five times salary limit in exceptional circumstances. No options under either the 2003 Interests Interests in awarded Interests Interests in Option Plan or the 2010 Option Plan may be granted more Name of shares held at during the lapsed during shares held at than 10 years after the date on which the 2003 Option Plan Director August 2010 year1 the year2 31 July 20113 was first approved by the Company’s shareholders. J Martin 27,135 25,448 – 52,583 In 2010/11, no award to any executive under the 2010 Option Plan exceeded 230 per cent of salary and awards I Meakins 67,555 57,067 – 124,622 significantly higher than this percentage are expected to F Roach 96,968 32,696 13,806 115,858 be made only in exceptional circumstances. The Committee has decided to increase the face value of the option awards 1 The market value of awards made on 2 December 2010 was 1740 pence per to be made to the Chief Financial Officer in 2011 to 225 per share. cent of salary to reflect his performance since appointment. 2 Awards granted in 2007 did not pass their TSR performance conditions and all such awards lapsed in October 2010. Satisfaction of options 3 The outstanding three-year performance periods are as follows: 2009 grant – The Company continually monitors the effect that awards 1 August 2009 to 31 July 2012; and 2010 grant – 1 August 2010 to 31 July 2013. made under the various employee and discretionary share plans may have on dilution limits. Options are either satisfied by the issue of new shares or shares purchased in the market. In accordance with the recommendations of the Association of British Insurers (“ABI”), the number of new shares that may be issued to satisfy options granted under the 2010 Option Plan and any other employee share scheme is restricted to 10 per cent of the issued ordinary share capital of the Company over any rolling 10-year period. Further, as set out in the ABI principles and guidelines, the number of new shares that may be issued to satisfy executive options granted under the Company’s discretionary share schemes is restricted to 5 per cent of the issued ordinary share capital of the Company over any rolling 10-year period. 80 Wolseley plc Annual Report and Accounts 2011

Remuneration report continued

The Company adheres to these requirements. At 31 July The performance conditions are currently as follows: 2011, awards had been granted resulting in shares being Options Options Options issued or capable of being issued during the preceding granted granted granted 10 years under all of the Company’s employee share plans under the under the under the representing 7.76 per cent of the issued ordinary share 2003 2003 2010 capital at that date and 4.07 per cent of the issued ordinary Option Plan Option Plan Option Plan in 2003–2008 in 2009/10 in 2010/11 share capital under the Company’s executive share plans. Multiple of salary worth Total margin of growth over UK inflation These percentages remain disproportionately high, as the of shares under option after three years (RPI) adjustment factors used during the capital reorganisation First 100% of salary 9% 9% 9% and share issue in 2009 cannot be applied to shares which have already been issued under the Company’s share Second 100% of salary 12% 15% 15% option schemes in the last 10 years, the period used for this Next 50% of salary 15% 21% 21% calculation. It is expected that as historical awards lapse, these percentages will reduce significantly. Greater than 250% of salary 15% to 21% 21% 21% Performance conditions The extent to which options will be capable of exercise The Committee intends to apply the same growth targets to depends on the satisfaction of a performance condition, grants to be made in 2011. based on achieving growth above UK inflation in the The Committee can also vary the terms of existing options Company’s EPS. The performance of the Company is to take account of any technical changes, for example, measured over three financial years, starting with the changes in accounting standards. Any amended target will financial year in which the option grant takes place. For be materially no less challenging as a result of any such all grants under the 2003 Option Plan made on or after change. The Committee continues to believe that the EPS 5 November 2004 there is a single three-year performance condition is appropriate for share options, as it requires period and, in the event that the performance conditions substantial improvement in the Company’s underlying are not fully met on the third anniversary of the date of grant, financial performance and complements the inherent the unvested options will lapse. Provided the performance requirement for share price growth for an option to have value. condition has been satisfied, an option may be exercised at any time until it lapses, 10 years from the date of grant. In December 2010, 2,690,478 options were granted under No amount is payable on the grant of an option. The same the 2010 Option Plan to 934 employees (2009: 1,121) at an conditions apply to the 2010 Option Plan. option price of 1855 pence. The table on page 81 shows the number of share options awarded to the Executive Directors The Committee may set different EPS targets, provided and the number of awards outstanding as at 31 July 2011. that the new targets are no less challenging at the time of resetting than when the initial targets were agreed. For awards made in 2009 and 2010, the Committee revised the EPS targets as detailed below. Further, for the 2010 option grant, the Committee decided to set the base EPS at the 2008/09 level, which was higher than that achieved in 2009/10 and therefore provided a more challenging base from which to achieve the target performance levels for the 2010 awards. The Committee is currently of the opinion that awards made in 2011 would be sufficiently challenging based on the 2011 EPS and on the continuing stretching performance conditions (summarised opposite). Strategic overview Business and performance Corporate governance Financial statements Other information 81 Wolseley plc Annual Report and Accounts 2011

Directors’ interests in share options (audited) Options Options held at Options Options Options held at Date of 31 July granted lapsed exercised 31 July Option price Earliest date Expiry Name of Director/scheme grant 2010 during year during year during year 2011 (p) of exercise date J Martin Executive options 01.04.10 37,688 37,688 1592 01.04.13 31.03.20 09.12.10 – 35,805 35,805 1855 09.12.13 08.12.20 UK Sharesave 28.04.11 – 957 957 1692 01.06.18 30.11.18 I Meakins Executive options 06.11.09 152,679 152,679 1269 06.11.12 05.11.19 09.12.10 – 98,493 98,493 1855 09.12.13 08.12.20 UK Sharesave 22.04.10 1,277 1,277 1276 01.06.17 30.11.17 F Roach Executive options 04.11.02 3,156 3,156 2264 04.11.05 03.11.12 27.11.03 7,191 7,191 3098 27.11.06 26.11.13 04.11.04 4,162 4,162 3957 04.11.07 03.11.14 01.11.07 27,171 27,1711 – 3359 01.11.10 01.11.10 31.10.08 87,357 87,357 1334 31.10.11 30.10.18 06.11.09 72,800 72,800 1269 06.11.12 05.11.19 09.12.10 – 54,523 54,523 1855 09.12.13 08.12.20 ESPP 22.03.10 236 232 213 – 1355 01.05.11 21.05.11 30.03.11 – 166 166 1798 01.05.12 29.05.12

1 Options lapsed on 1 November 2010 as the 2007 grant did not pass the relevant EPS performance conditions. 2 Under the ESPP, a total of 236 options were granted in April 2010. However, the exchange rate increased between the date of grant and the date of maturity in May 2011, which led to a lower number of options equating to total contributions being exercised. Accordingly the balance of options lapsed. The Company’s share price on the date of exercise was 2118 pence. The highest mid-market price of the Company’s ordinary 10 pence shares during the year was 2261 pence and the lowest was 1223 pence. The price of the Company’s ordinary 10 pence shares on 31 July 2011 was 1815 pence.

Employee Benefit Trusts The Wolseley plc 2004 Overseas Employee Benefit Trust, the Wolseley plc 2004 Employee Benefit Trust and the Wolseley plc 2004 Directors’ Benefit Trust were established in October 2004 in connection with the Wolseley Share Option Plan 2003 and the Wolseley plc 2002 Long Term Incentive Scheme. Upon its redomiciliation, the Company changed the trustees to Bedell Trust Company Limited, also registered in Jersey. These new trustee arrangements would also cover awards made under the Wolseley Group Long Term Incentive Scheme 2010 and the Wolseley Group Share Option Plan 2010. The trustees of each of the Trusts have waived their rights to receive dividends on any shares held by them. At the date of this report, the Trust holds 1,947,259 ordinary shares of 10 pence each. 82 Wolseley plc Annual Report and Accounts 2011

Remuneration report continued

Savings related share option schemes The first graph is for information and includes the performance of Wolseley for the five years from 31 July 2006 (audited) to 31 July 2010. The second graph is that required by The UK-based Executive Directors may participate in the Schedule 8 of the Large and Medium-sized Companies and UK Savings Related Share Option Scheme (“UK Sharesave”) Groups (Accounts and Reports) Regulations 2008. It relates and the US-based Executive Director may participate in the only to the performance of the new Wolseley plc holding Employee Share Purchase Plan (“ESPP”). Under the UK company from November 2010 to 31 July 2011. Sharesave, participants can enter into a savings contract for three, five or seven years, up to a maximum level of Total return indices – Wolseley and FTSE 100 £250 per month (over all contracts) and are granted options Wolseley return index to subscribe for shares in the Company. Under the ESPP, FTSE 100 return index a US Code 423 Plan, US participants may enter into a one-year savings contract to a maximum level of no more 125 than $400 per month. A similar scheme is also offered to employees across Europe under the Wolseley European 100 Savings Plan (“WESP”). Participants in the WESP are also subject to a maximum savings level of the equivalent of 75 £250 per month in their local currency. The local currency equivalent is calculated by reference to the rate of exchange 50 determined at the deemed date of grant. The Board may determine that the options granted under these three 25 schemes may be awarded at a discount. The maximum discount, which was applied to the 2011 awards, was 0 20 per cent for the UK Sharesave, and 15 per cent for the 31/7/06 31/7/07 31/7/08 31/7/09 31/7/10 31/7/11 ESPP and WESP. A total of 280,308 options were granted in April 2011 to 3,640 employees in the United States and Total return indices – Wolseley and FTSE 100 Canada under the ESPP; 76,270 options were granted to Wolseley return index 324 employees across Europe under the WESP, all at an FTSE 100 return index option price of 1798 pence per share. In the UK, a total of 193,702 options were granted at an option price of 1692 105 pence per share to 1,319 employees. The table on page 81 sets out the number of share options granted to Executive 104 Directors during the year under the UK sharesave and ESPP and the number of options outstanding as at 31 July 2011. 103 As the current UK Sharesave and ESPP share plan rules expire at the end of 2011, the Company intends 102 to renew these rules and present them to shareholders for approval at the Annual General Meeting to be held 101 on 29 November 2011. It is proposed that the new UK Sharesave plan be incorporated into a new international 100 sharesave plan which combines the HMRC approved 31/10/10 31/1/11 30/4/11 31/7/11 rules for UK employees together with terms appropriate to European employees. Summaries of the new plans The Remuneration Report has been received and adopted can be found in the Notice of the AGM. by shareholders at each of the Annual General Meetings held since 2003. Shareholders will again be invited to receive and adopt this report at the forthcoming AGM Performance graph on 29 November 2011. The following graphs show Wolseley’s TSR performance This report has been approved by the Board and is against the performance of the FTSE 100 Index over the signed on its behalf by the chairman of the Committee. five-year period to 31 July 2011. The FTSE 100 Index has been chosen as being a broad equity market index On behalf of the Board consisting of companies comparable in size and complexity to Wolseley.

Andrew Duff Chairman of the Remuneration Committee 4 October 2011 Strategic overview Business and performance Corporate governance Financial statements Other information 83 Wolseley plc Annual Report and Accounts 2011 Other statutory information

Share capital and voting rights Subject to the terms of the authority noted above, the Directors will also recommend that they be empowered to Details of the authorised and issued share capital, together allot equity securities for cash other than pro rata to existing with any movements in the issued share capital during the shareholders, until the Annual General Meeting to be held year, are shown at note 29 of the consolidated financial in November 2012. This authority shall be limited to the statements. As at 31 July 2011 there were 284,910,959 fully allotment of equity securities for cash up to an aggregate paid ordinary shares of 10 pence each in issue and listed nominal amount of £1,424,622, being 5 per cent of the on the London Stock Exchange. The rights and obligations ordinary share capital issued at the date of this report. attaching to the Company’s ordinary shares, as well as The Directors currently have no intention to issue ordinary the powers of the Company’s Directors, are set out in the shares, other than pursuant to the Company’s employee Company’s Articles of Association, copies of which can be share schemes and any share dividend alternatives. obtained from Companies Registry, Jersey or by writing to the Group Company Secretary. Authority to purchase shares The Company also has a Level 1 American Depositary Receipt (“ADR”) programme in the US for which Deutsche In certain circumstances, it may be advantageous for the Bank Trust Company Americas acts as Depositary. The Company to purchase its own ordinary shares and a special American Depositary Shares (“ADS”) which are evidenced by resolution will be proposed at the Annual General Meeting ADRs are traded on the US over-the-counter market, where in November 2011 to renew the Directors’ limited authority, each ADS represents one-tenth of a Wolseley plc ordinary last granted in January 2011, to purchase the Company’s share. ordinary shares in the market. The authority will be limited to a maximum of 28,492,450 ordinary shares (being approximately 10 per cent of the Company’s issued share CREST capital at the date of this report) and sets the minimum The Company’s ordinary shares are in CREST, the settlement and maximum prices which may be paid. The Directors system for stocks and shares. will use this authority to purchase shares only after careful consideration, taking into account market conditions, other investment opportunities, appropriate gearing levels and Restrictions on transfer of shares the overall financial position of the Company. The authority There are no restrictions on the voting rights attached to the will enable the Directors to continue to be able to respond Company’s ordinary shares or on the transfer of securities in promptly should circumstances arise in which they consider the Company. No person holds securities in the Company that such a purchase would result in an increase in earnings carrying special rights with regard to control of the Company. per share and would be in the best interests of the Company. The Company is not aware of any agreements between In accordance with the Company’s Articles the Company is holders of securities that may result in restrictions on the allowed to hold shares purchased by it to be held as treasury transfer of securities or on voting rights. The Company’s shares that may be cancelled, sold for cash or used for the Articles of Association may be amended by a special purpose of employee share schemes. As at the date of this resolution of the Company’s shareholders. report, the Company holds no shares in treasury but the Directors currently intend that any shares which are purchased Authority to allot shares will be held in treasury. The authorities to be sought by each of the resolutions noted above are intended to apply equally At the Annual General Meeting held in January 2011, to shares to be held by the Company as treasury shares authority was given to the Directors to allot new 10 pence and to the sale of treasury shares. The Directors consider ordinary shares up to a nominal value of £18,967,966. it desirable for these general authorities to be available to The Directors intend to propose at the Annual General provide flexibility in the management of the Company’s Meeting in November 2011 to seek authority to allot and capital resources. grant rights to subscribe for or to convert securities into shares up to an aggregate nominal amount of £18,994,968, representing approximately two-thirds of the Company’s issued share capital as at the date of this report, but of that amount, £9,497,484 may only be allotted pursuant to a fully pre-emptive rights issue. If approved, this authority will expire at the conclusion of the Annual General Meeting to be held in November 2012. 84 Wolseley plc Annual Report and Accounts 2011

Other statutory information continued

Share options Local management is responsible for maintaining high standards of health and safety and for ensuring that there During the financial year ended 31 July 2011, options were is appropriate employee involvement in decision-making. exercised pursuant to the Company’s share option schemes A European Works Council (“EWC”) has been operating resulting in the allotment of 476,390 ordinary 10 pence since 1996 to provide a forum for informing and consulting shares. A further 13,569 ordinary 10 pence shares have been employees in Europe on such matters as significant allotted under these schemes since the end of the financial developments in the Group’s operations, management’s year to the date of this report. Details of shares issued during plans and expectations, organisational changes within the the year are set out in note 29 to the financial statements. Group and also for employee representatives to consult Group management about concerns over any aspect of Auditors and audit information the Group’s operations. At the date of this report, there were 23 EWC representatives of which 17 were employee PricewaterhouseCoopers LLP (“PwC”) are willing to continue representatives and six were management representatives. as auditors of the Company and resolutions concerning their Employee representatives are appointed from each European reappointment and the determination of their remuneration country in which Wolseley operates, with more than one will be proposed at the next Annual General Meeting. employee representative appointed from the UK, France The Directors in office at the date of this report confirm that, and Denmark. All employees are offered a range of benefits so far as they are each aware, in respect of the consolidated depending on their local environment. Where possible, they financial statements for the financial year ended 31 July 2011, are also encouraged to build a stake in the Company through there is no relevant audit information of which PwC are the ownership of shares through participation in the unaware and each Director has taken all the steps that ought Company’s employee share schemes. to have been taken as a Director to be aware, in respect of the consolidated financial statements for the financial year Employment policies ended 31 July 2011, of any relevant audit information and to establish that PwC are aware of that information. Our employment policies aim to attract the very best people and we believe that a diverse and inclusive culture is a key factor in being a successful business. The Group remains Change of control committed to equality of opportunity in all of its employment The Company is not party to any significant agreements practices. It is the Group’s policy that the selection of that take effect, alter or terminate upon a change of control employees for appointment, career development and following a takeover except for the €750,000,000 multi- promotion be determined solely on the skills and attributes currency revolving credit facility agreement dated 18 July which are relevant to the job and which are in accordance 2011 and US$270,000,000 revolving credit facility agreement with the laws of the country concerned, without having dated 21 July 2011, which could become repayable following regard to an employee’s gender, race, religion, age or a relevant change of control. disability. Ongoing training of employees and the continued development of their skills is of prime importance to the There are no agreements between the Company and any Group. These policies also cover the continuation of Director that would provide compensation for loss of office employment and appropriate retraining for employees or employment resulting from a change of control following who become disabled during their employment. a takeover bid, except that provisions of the Company’s share schemes may cause options and awards granted under such schemes to vest in those circumstances. All of UK pension schemes the Company’s share schemes contain provisions relating to Wolseley currently has two pension schemes in respect of a change of control. Outstanding options and awards would UK employees: normally vest and become exercisable for a limited period of time upon a change of control following a takeover, (1) Defined Benefit Scheme – the Wolseley Group Retirement reconstruction or winding up of the Company (not being Benefits Plan and the William Wilson Group Pension an internal reorganisation), subject at that time to rules Scheme merged on 1 January 2010. Both have been concerning the satisfaction of any performance conditions. closed to new entrants since 31 May 2009. The merged plan is known as the Wolseley Group Retirement Benefits Plan, retains a separate section in relation to the former Employees William Wilson Group Pension Scheme and has three We believe that our employees are central to our future trustees consisting of an independent trustee, a member success. The Group actively encourages employee nominated trustee and a corporate trustee. The corporate involvement and places particular importance on keeping trustee consists of nine trustee directors and, save for employees regularly informed on the Company’s activities Mr David Tucker, chairman of the trustees, David Illingworth and financial performance and on matters affecting them and Ian Percy, CBE, all of the other trustee directors are individually and the business generally. This can be through employees or former employees of the Group. informal bulletins, in-house publications and briefings, as well as via the Company’s intranet sites. The Group operates on a largely decentralised basis with a rigorous control framework exercised by a small team at the Group Services Office. This allows for greater autonomy and accountability at a local level and provides encouragement for the development of entrepreneurial flair. Strategic overview Business and performance Corporate governance Financial statements Other information 85 Wolseley plc Annual Report and Accounts 2011

(2) Defined Contribution Scheme – the Wolseley Group Creditor payment policy Defined Contribution Plan is a trust-based defined contribution pension scheme with three Company- All Group companies are responsible for establishing nominated trustees, one of whom is an independent terms and conditions of trading with their vendors. It is the trustee and two who are UK-based employees of the Company’s policy that payments to vendors are made Group. In addition, up to three member-nominated within agreed terms and are, where applicable, consistent trustees may be appointed. Following an election process with The Prompt Payment Code, which is sponsored by the in July 2010 one member was appointed. The chairman UK Department for Business Innovation & Skills (“BIS”). of the trustees is Wayne Phelan of PS Independent Copies of this Code can be obtained from BIS. At 31 July Trustees Limited. 2011, the Company had no trade creditors (2010: nil). The amount of trade creditors for the Group as at 31 July 2011 Charitable donations was equivalent to 64 days (2010: 67 days) of trade purchases. On behalf of the Board The Group’s Charitable donations in 2011 totalled £1,457,000 (2010: £1,521,000). Donations to charitable organisations from the businesses across the Group range from small to substantial amounts. The charitable organisations which received donations of more than £10,000 per annum from Wolseley are referred to in the Corporate responsibility report. General details of charitable donations made in the year are contained in the Corporate responsibility section. Richard Shoylekov Group Company Secretary and General Counsel Political donations 4 October 2011 At each of the Annual General Meetings held since 2002, shareholders have passed a resolution, as a precaution, to approve donations to political organisations and to incur political expenditure (as such terms are now defined in sections 362 to 379 of the Companies Act 2006). Each year, the Board has confirmed that it operates a policy of not giving any cash contribution to any political party in the ordinary meaning of those words and that it has no intention of changing that policy. In previous years this resolution related to the provisions of the Companies Act 2006. The Company has ensured that, although Jersey registered, it will continue to apply the same standards and has such provisions incorporated into its Articles of Association. The Directors propose to seek, once more, authority for the Group to make political donations and/or incur political expenditure for amounts not exceeding £125,000 in a total aggregate, which they might otherwise be prohibited from making or incurring under the provisions of Article 12 of the Company’s Articles of Association and which would not amount to “donations” in the ordinary sense of the word. This authority would last until the Company’s next Annual General Meeting. 86 Wolseley plc Annual Report and Accounts 2011 Strategic overview Business and performance Corporate governance Financial statements Other information 87 Wolseley plc Annual Report and Accounts 2011 Index to financial statements

Consolidated financial statements Company financial statements 88 Group income statement 146 Company profit and loss account 89 Group statement of comprehensive income 146 Company balance sheet 89 Group statement of changes in equity 147 Notes to the Company financial statements 90 Group balance sheet 147 1. Corporate information 91 Group cash flow statement 147 2. Company accounting policies 92 Notes to the consolidated financial statements 149 3. Fixed asset investments 92 1. Accounting policies and critical estimates and judgements 149 4. Creditors: amounts falling due within one year 95 2. Segmental analysis 149 5. Share capital 99 3. Operating costs 150 6. Share premium account 100 4. Exceptional items 150 7. Profit and loss account 100 5. Finance revenue 150 8. Reconciliation of movements in equity shareholders’ funds 100 6. Finance costs 150 9. Share-based payments 101 7. Taxation 150 10. Contingent liabilities 102 8. Discontinued operations 151 11. Employees, employee costs and auditors’ remuneration 102 9. Dividends 151 12. Dividends 102 10. Non-GAAP performance measures 151 13. Related party transactions 103 11. Earnings/(loss) per share 152 Independent auditors’ report to the members 103 12. Employee information and Directors’ remuneration of Wolseley plc 104 13. Intangible assets – goodwill 105 14. Intangible assets – other 106 15. Property, plant and equipment 107 16. Investment in associate 108 17. Deferred tax assets and liabilities 109 18. Trade and other receivables 110 19. Derivative financial instruments 110 20. Construction loans 111 21. Cash and cash equivalents 112 22. Assets and liabilities held for sale 113 23. Trade and other payables 113 24. Bank loans and overdrafts 114 25. Financial instruments and financial risk management 115 26. Obligations under finance leases 116 27. Provisions 117 28. Retirement benefit obligations 120 29. Share capital 121 30. Share-based payments 122 31. Shareholders’ funds and statement of changes in shareholders’ equity 124 32. Reconciliation of profit/(loss) to cash generated from operations 125 33. Analysis of the net outflow of cash in respect of the purchase of businesses 125 34. Acquisitions 125 35. Disposals 126 36. Reconciliation of opening to closing net debt 126 37. Related party transactions 127 38. Operating lease commitments 127 39. Contingent liabilities 127 40. Additional information 145 Independent auditors’ report to the members of Wolseley plc 88 Wolseley plc Annual Report and Accounts 2011 Group income statement Year ended 31 July 2011

2011 2011 2010 2010 Before Exceptional Before Exceptional exceptional items 2011 exceptional items 2010 items (note 4) Total items (note 4) Total Notes £m £m £m £m £m £m Revenue 2 13,558 – 13,558 13,203 – 13,203 Cost of sales (9,776) – (9,776) (9,548) (8) (9,556) Gross profit 3,782 – 3,782 3,655 (8) 3,647 Operating costs: amortisation of acquired intangibles (75) – (75) (92) – (92) impairment of acquired intangibles (39) – (39) (223) – (223) other (3,160) (51) (3,211) (3,205) (324) (3,529) Operating costs 3 (3,274) (51) (3,325) (3,520) (324) (3,844) Operating profit/(loss) 2, 3 508 (51) 457 135 (332) (197) Finance revenue 5 7–714 – 14 Finance costs 6 (73) – (73) (91) – (91) Associate – share of after tax loss –––(24) 11 (13) Associate – impairment –––– (41) (41) Profit/(loss) before tax 442 (51) 391 34 (362) (328) Tax (expense)/income 7 (117) 7 (110) (112) 74 (38) Profit/(loss) from continuing operations 325 (44) 281 (78) (288) (366) (Loss)/profit from discontinued operations 8 – (10) (10) – 26 26 Profit/(loss) for the year attributable to equity shareholders 325 (54) 271 (78) (262) (340) Earnings/(loss) per share 11 Continuing operations and discontinued operations Basic earnings/(loss) per share 95.9p (120.6)p Diluted earnings/(loss) per share 95.1p (120.6)p Continuing operations only Basic earnings/(loss) per share 99.4p (129.8)p Diluted earnings/(loss) per share 98.6p (129.8)p

Non-GAAP performance measures 10,11 Trading profit 622 450 EBITDA before exceptional items 775 635 Profit before tax, exceptional items and the amortisation and impairment of acquired intangibles 556 349 Headline earnings per share 142.9p 74.1p Headline diluted earnings per share 141.8p 73.9p

The accompanying notes are an integral part of these consolidated financial statements. Strategic overview Business and performance Corporate governance Financial statements Other information 89 Wolseley plc Annual Report and Accounts 2011 Group statement of comprehensive income Year ended 31 July 2011

2011 2010 £m £m Profit/(loss) for the year 271 (340) Other comprehensive income: Exchange gain on translation of overseas operations 67 156 Exchange gain/(loss) on translation of borrowings and derivatives designated as hedges of overseas operations 12 (71) Cumulative currency translation differences on disposals recycled to income statement 1 (13) Actuarial gain/(loss) on retirement benefit plans 5 (93) Valuation gains on interest rate swaps – 5 Valuation losses on cash flow hedges reclassified to income statement 3 4 Tax on gains and losses not recognised in the income statement (9) 23 Other comprehensive income for the year 79 11 Total comprehensive income for the year attributable to shareholders 350 (329)

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

On 23 November 2010 a new Jersey incorporated, Swiss headquartered, company became the holding company of the Wolseley Group. Shareholders received one 10p ordinary share in this new company in place of each 10p ordinary share they held in the old Wolseley holding company (note 29). On 6 December 2010 the new holding company undertook a reduction of capital under which the entire amount of the share premium account as at 6 December 2010 was cancelled and transferred to retained earnings. Retained earnings Share Share Translation Hedging Own Profit and loss Total capital premium reserve reserve shares account equity Year ended 31 July 2010 £m £m £m £m £m £m £m Total comprehensive income – – 72 6 – (407) (329) New share capital subscribed – 4 – – – – 4 Credit to equity for share-based payments – – – – – 8 8 Net addition to/(reduction in) shareholders’ funds – 4 72 6 – (399) (317) Opening shareholders’ funds 241 1,152 228 (11) (78) 1,844 3,376 Closing shareholders’ funds 241 1,156 300 (5) (78) 1,445 3,059

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

90 Wolseley plc Annual Report and Accounts 2011 Group balance sheet As at 31 July 2011

2011 2010 Notes £m £m Assets Non-current assets Intangible assets: goodwill 13 1,236 1,347 Intangible assets: other 14 392 465 Property, plant and equipment 15 1,249 1,409 Financial assets: available-for-sale investments 3 3 Deferred tax assets 17 241 284 Trade and other receivables 18 131 182 Derivative financial assets 19 59 66 3,311 3,756 Current assets Inventories 1,596 1,611 Trade and other receivables 18 1,928 1,850 Current tax receivable 7 1 Derivative financial assets 19 5 10 Financial receivables: construction loans (secured) 20 33 80 Cash and cash equivalents 21 403 665 3,972 4,217 Assets held for sale 22 595 111 Total assets 7,878 8,084 Liabilities Current liabilities Trade and other payables 23 2,292 2,673 Current tax payable 82 177 Borrowings: construction loans (unsecured) 20 – 80 Bank loans and overdrafts 24 197 226 Obligations under finance leases 26 10 14 Derivative financial liabilities 19 2 5 Provisions 27 98 123 Retirement benefit obligations 28 26 23 2,707 3,321 Non-current liabilities Trade and other payables 23 74 83 Bank loans 24 739 778 Obligations under finance leases 26 42 61 Derivative financial liabilities 19 – 3 Deferred tax liabilities 17 166 136 Provisions 27 186 223 Retirement benefit obligations 28 334 409 1,541 1,693 Liabilities of disposal groups held for sale 22 254 11 Total liabilities 4,502 5,025 Net assets 3,376 3,059 Shareholders’ equity Called up share capital 29 28 241 Share premium account 31 6 1,156 Foreign currency translation reserve 31 380 300 Retained earnings 31 2,962 1,362 Equity shareholders’ funds 3,376 3,059 The consolidated financial statements on pages 88 to 144 were approved by the Board of Directors on 4 October 2011 and were signed on its behalf by

Ian Meakins John Martin Group Chief Executive Chief Financial Officer The accompanying notes are an integral part of these consolidated financial statements. Strategic overview Business and performance Corporate governance Financial statements Other information 91 Wolseley plc Annual Report and Accounts 2011 Group cash ﬂow statement Year ended 31 July 2011

2011 2010 Notes £m £m Cash flows from operating activities Cash generated from operations 32 16 705 Interest received 7 18 Interest paid (57) (69) Tax (paid)/received (162) 90 Net cash (used by)/generated from operating activities (196) 744 Cash flows from investing activities Acquisition of businesses (net of cash acquired) 33 (12) (11) Disposals of businesses (net of cash disposed of) 35 115 (10) Purchases of property, plant and equipment (74) (54) Proceeds from sale of property, plant and equipment and assets held for sale 67 96 Purchases of intangible assets (19) (30) Disposals of investments – 159 Net cash generated from investing activities 77 150 Cash flows from financing activities Proceeds from the issue of shares to shareholders 31 6 4 Proceeds from new borrowings 136 – Repayments of borrowings and derivatives (208) (992) Finance lease capital payments (20) (17) Dividends paid to shareholders (42) – Net cash used by financing activities (128) (1,005) Net cash used (247) (111) Cash and bank overdrafts of disposal groups transferred to held for sale (11) – Effects of exchange rate changes 15 88 Net decrease in cash, cash equivalents and bank overdrafts (243) (23) Cash, cash equivalents and bank overdrafts at the beginning of the year 36 575 598 Cash, cash equivalents and bank overdrafts at the end of the year 36 332 575

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

92 Wolseley plc Annual Report and Accounts 2011 Notes to the consolidated ﬁnancial statements Year ended 31 July 2011

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. On 23 November 2010, pursuant to a Scheme of Arrangement under Part 26 of the Companies Act 2006, a new parent company was introduced which is now called Wolseley plc (the “Company”). The previous parent company has been renamed as Wolseley Limited (“Old Wolseley”). Immediately after the Scheme of Arrangement became effective the Company had the same management and corporate governance arrangements as Old Wolseley had immediately before. The consolidated assets and liabilities of the Company immediately after the effective date of the Scheme of Arrangement were the same as the consolidated assets and liabilities of Old Wolseley immediately before. The introduction of a new holding company constitutes a group reconstruction and has been accounted for using merger accounting principles. Therefore, although the group reconstruction did not become effective until 23 November 2010, the consolidated financial statements of the Group are presented as if the Company and Old Wolseley had always been part of the same Group. Accordingly, the results of the Group for the entire year ended 31 July 2011 are shown in the Group income statement, and the comparative figures for the year ended 31 July 2010 are also prepared on this basis. Earnings per share are unaffected by the reorganisation. The Company is incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland. Accounting developments and changes There have been no changes to Group accounting policies during the year ended 31 July 2011. A summary of the principal accounting policies applied by the Group in the preparation of the consolidated financial statements is set out in note 40 on pages 127 to 135. Certain new standards, amendments to and interpretations of existing standards have been published that will be mandatory for the Group with effect from 1 August 2013 or later. The following new and amended standards are expected to be relevant to the Group: • IAS19 Employee benefits • IFRS 9 Financial Instruments • IFRS10 Consolidated financial statements • IFRS12 Disclosure of interests in other entities • IFRS13 Fair value measurement The Group is assessing the likely effect of these new and amended standards on its future financial statements. Choices permitted by IFRS The Group has elected to apply hedge accounting to some of its financial instruments, and to recognise its liability for retirement benefit obligations in full. Critical accounting estimates and judgements Many of the Group’s accounting policies require management to make estimates and assumptions that affect reported amounts. The following areas are most sensitive to the accuracy of such estimates. Impairment of trade receivables A provision for impairment of trade receivables is made when management estimates that the present value of future cash flows recoverable in respect of these receivables is less than the carrying amount. Determining the amount of such provision requires estimating the amount and timing of such future cash flows, giving consideration to the financial condition of the debtor and the probability that the debtor will enter bankruptcy or financial reorganisation. The actual amounts of cash recovered may differ materially from the estimated amounts on which the provision is based. The amount relating to continuing operations charged to the income statement in 2011 in respect of impaired receivables represented 0.35 per cent of revenue (2010: 0.32 per cent). Wolseley held a provision for impairment of receivables at 31 July 2011 amounting to £47 million (2010: £60 million).

Strategic overview Business and performance Corporate governance Financial statements Other information 93 Wolseley plc Annual Report and Accounts 2011

1. Accounting policies and critical estimates and judgements continued Valuation of inventories Provisions are made against slow-moving, obsolete and damaged inventories for which the net realisable value is estimated to be less than the cost. Inventories which are damaged or obsolete are written down as identified. The risk of obsolescence of slow-moving inventory is assessed by comparing the level of inventory held to future sales projected on the basis of historical experience. The actual realisable value of inventory may differ materially from the estimated value on which the provision is based. The Group held allowances in respect of inventory balances at 31 July 2011 amounting to £126 million (2010: £140 million). Impairment of assets The Group reviews assets that have an indefinite useful life at least annually to assess whether their recoverable amount exceeds their carrying value. The recoverable amount is defined as the higher of fair value less costs to sell, or value in use, which in turn is the present value of the future cashflows expected to be derived from the asset. The recoverable amount of goodwill and acquired intangibles is assessed on the basis of the value in use of the cash generating unit or group of cash generating units (“CGU”) to which they are attributed. The estimate of value in use, and hence the outcome of the impairment test, is sensitive to the assumptions made about the revenue growth, trading margin and the level of working capital required to support trading over the next five years, the long-term growth rate of their market, and the discount rate considered appropriate to reflect the time value of money and any risks specific to the CGU that are not reflected in the cash flows. As disclosed in notes 13 and 14, the Group has charged £42 million in respect of the impairment of long-lived assets during the year ended 31 July 2011 (2010: £402 million) of which £39 million relates to goodwill and acquired intangible assets, after preparing value in use calculations on the basis of assumptions set out on page 130. The Group acquired Stark and Silvan, two Danish businesses, when it purchased DT Group in 2006. Goodwill and acquired intangibles for these businesses have a carrying value at 31 July 2011 of £362 million and £86 million respectively, after impairment charges of £152 million and £121 million in 2009. The value in use estimated for each of these businesses at 31 July 2011 exceeds their carrying value by 3 per cent and 5 per cent respectively. If the long-term prospects for the Danish market or the competitive positions of these businesses deteriorate, then further impairment charges may be required against the carrying value of these assets. The estimated value in use of these businesses is most sensitive to the trading profit assumed in the final year of the cash flow forecast which reflects the mid point in the business cycle. A reduction in trading profit of approximately 5 per cent would result in carrying value equalling value in use. Rebates receivable from vendors The Group enters into agreements with many of its vendors that provide for rebates of the cost of inventory purchased. Many of these agreements apply to purchases in a calendar rather than financial year, and under certain agreements the rebate rises as a proportion of purchases as higher quantities or values of purchases are made. The Group adjusts the cost of inventory purchased to reflect estimated rebates receivable, which can depend on the projected volume, value and mix of purchases from a vendor through to the end of the qualifying period. Actual rebates receivable from vendors may differ materially from the estimates on which the cost of inventory is based. Provisions for self-insured risks The Group retains layers of certain of its insurable risks, principally US casualty and global property damage, which are managed by a captive insurance company, Wolseley Insurance Limited. Certain of the retained risks are subject to an annual actuarial assessment. The provision for self-insured risks represents an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported. The actual cost of settling these liabilities may differ materially from the estimated amounts on which the provision is based. At 31 July 2011, the provision for claims arising from this insurance was £57 million (2010: £55 million). Provisions for legal, environmental and related exposures The Group makes provisions for known and potential legal claims and environmental and other matters, including asbestos related litigation and product liability claims, where an outflow of resources is considered probable and a reliable estimate may be made of the likely outcome of the dispute or matter. In establishing such provisions the Group takes into account the relevant facts and circumstances of each matter and considers the advice of its legal and other professional advisers. The ultimate liability for potential legal claims and other matters may be dependent upon the discovery of facts that are currently uncertain, the outcome of litigation proceedings and possible settlement negotiations, and the actual cost of settlement may differ materially from the estimated amounts on which the provisions are based. At 31 July 2011 legal, environmental and other provisions amounted to £164 million (2010: £152 million). Where the Group has insurance cover that it is virtually certain will settle a provision then it recognises an equivalent asset in trade and other receivables. 94 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

1. Accounting policies and critical estimates and judgements continued Provisions for onerous leases When the present value of the future cash flows receivable from the operation of leased assets is less than the present value of the rental payments to which the Group is committed, the Group applies the shortfall firstly against the carrying amount of the assets (in the case of finance leases) and then provides for any further onerous element of the contract (for all leases). Determining the amount of such provision requires estimating the future net cash flows receivable in respect of these assets, and in the particular case where the leased properties are vacant this requires assessing the likely period for which the property will remain vacant, the cost of any works required to enhance its marketability and the rental income receivable when the property is sublet. Actual cash flows paid and received may differ materially from the estimated amounts on which the provisions are based. At 31 July 2011, the provision for onerous leases was £54 million (2010: £88 million). Impairment of construction loan receivables and foreclosed properties held for sale A provision for impairment of construction loan receivables is made when management estimates that the present value of future cash flows recoverable in respect of these receivables is less than the carrying amount. Determining the amount of such provision requires estimating the amount and timing of such future cash flows, including an assessment of: • the financial condition of the debtor; • the ability of the debtor to meet contractual payments; and • in the event that the Group forecloses on the property on which the receivable is secured, the likely cost of enhancing the marketability of the property, the likely disposal proceeds, and the likely period for which the property will be held before a sale can be achieved. The actual amounts recovered may differ materially from the estimated amounts on which the provision is based. At 31 July 2011, the provision for impairment of construction loans receivables was £19 million (2010: £36 million) and the provision against foreclosed properties held for sale was £25 million (2010: £24 million). Taxation Accruals for current tax are based on management's interpretation of country-specific tax law, and require judgements about the likelihood that tax positions taken will be sustained. Where management considers it probable that the tax position will be sustained, each material tax benefit is reviewed to assess whether it should be recognised in full, or whether provision should be made for a potential settlement through negotiation. All such provisions are included in creditors due within one year. Any estimated exposure to interest on tax liabilities is provided for in the tax charge. Pensions and other post-retirement benefits The Group operates defined benefit pension schemes in the United Kingdom and in a number of overseas locations that are accounted for using methods that rely on actuarial assumptions to estimate costs and liabilities for inclusion in the financial statements. These actuarial assumptions include discount rates, assumed rates of return, salary increases and mortality rates, and are disclosed in note 28. While management believes that the actuarial assumptions are appropriate, any significant changes to those used would affect the balance sheet and income statement. The Group considers that the most sensitive assumptions are the discount rate and life expectancy. The Group has estimated that a decrease of 0.5% in the discount rate would increase the liability by £132 million, an increase of 0.5% would decrease the liability by £117 million, and increasing the estimate of life expectancy by one year would increase the liability by £34 million. Strategic overview Business and performance Corporate governance Financial statements Other information 95 Wolseley plc Annual Report and Accounts 2011

2. Segmental analysis Wolseley’s reportable segments are the operating businesses overseen by distinct divisional management teams responsible for their performance. All reportable segments derive their revenue from a single business activity, the distribution of plumbing and heating products and building materials. During the year the Electro-Oil business in Denmark has been reclassified from the Central Europe segment to the Nordic segment. The comparative figures for 2010 have been restated to reflect the transfer of £11 million of revenue, £1 million of trading profit and operating profit, £4 million of assets and £1 million of liabilities from Central Europe to Nordic. The Central Europe segment was formerly named “Central and Eastern Europe”. Central and other costs include Corporate and Construction loans which were disclosed separately last year. The Group’s business is not highly seasonal half on half. The Group’s customer base is highly diversified, with no individually significant customer. Revenue by reportable segment for continuing operations is as follows: 2010 2011 (restated) £m £m USA 5,500 5,174 Canada 811 765 UK 2,404 2,466 Nordic 2,128 2,012 France 1,943 1,937 Central Europe 772 849 Group 13,558 13,203

Trading profit (note 10) and operating profit/(loss) by reportable segment for continuing operations for the year ended 31 July 2011 are as follows: Amortisation and impairment of Trading Exceptional acquired Operating profit/(loss) items intangibles profit/(loss) £m £m £m £m USA 314 2 (22) 294 Canada 39 – – 39 UK 109 (50) (46) 13 Nordic 113 (1) (43) 69 France 53 3 (2) 54 Central Europe 30 (2) (1) 27 Central and other costs (36) (3) – (39) Group 622 (51) (114) 457 Finance revenue 7 Finance costs (73) Profit before tax 391

96 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

2. Segmental analysis continued Trading profit (note 10) and operating profit/(loss) by reportable segment for continuing operations for the year ended 31 July 2010 are as follows: Amortisation and Trading impairment of Operating profit/(loss) Exceptional acquired profit/(loss) (restated) items intangibles (restated) £m £m £m £m USA 239 (16) (27) 196 Canada 41 (3) – 38 UK 91 (87) (105) (101) Nordic 101 (8) (69) 24 France 30 (3) (114) (87) Central Europe 9 (20) – (11) Central and other costs (61) (195) – (256) Group 450 (332) (315) (197) Finance revenue 14 Finance costs (91) Associate – share of after tax loss (13) Associate – impairment (41) Loss before tax (328)

The change in revenue and trading profit between the years ended 31 July 2010 and 31 July 2011 are analysed in the following tables into the effects of changes in exchange rates, disposals and acquisitions with the remainder being organic change. When entities are disposed in the year, the difference between the revenue/trading profit in the current year up to the date of disposal and the revenue/trading profit in the equivalent portion of the prior year is included in organic change.

2010 Organic (restated) Exchange Disposals Acquisitions change 2011 Analysis of change in revenue £m £m £m £m £m £m USA 5,174 (89) – 12 403 5,500 Canada 765 27 – – 19 811 UK 2,466 – (132) – 70 2,404 Nordic 2,012 12 – 5 99 2,128 France 1,937 (35) (18) – 59 1,943 Central Europe 849 15 (82) – (10) 772 Group 13,203 (70) (232) 17 640 13,558

2010 Organic (restated) Exchange Disposals Acquisitions change 2011 Analysis of change in trading profit (note 10) £m £m £m £m £m £m USA 239 (4) – 1 78 314 Canada 41 2 – – (4) 39 UK 91 – 1 – 17 109 Nordic 101 1 – – 11 113 France 30 (1) 2 – 22 53 Central Europe 9 1 5 – 15 30 Central and other costs (61) – – – 25 (36) Group 450 (1) 8 1 164 622

Strategic overview Business and performance Corporate governance Financial statements Other information 97 Wolseley plc Annual Report and Accounts 2011

2. Segmental analysis continued A number of Group entities have been disposed of or classified as disposal groups held for sale in 2011 and 2010. The revenue and trading profit of the Group’s segments excluding those entities (“ongoing segments”) is analysed in the following table. This is non-GAAP information. Revenue Trading Profit 2011 2010 2011 2010 £m £m £m £m Ongoing segments USA 5,500 5,174 314 239 Canada 811 765 39 41 UK 1,749 1,712 91 84 Nordic 2,128 2,012 113 101 France 1,317 1,294 46 38 Central Europe 718 717 31 18 Central and other costs – – (36) (61) 12,223 11,674 598 460 Entities disposed of or classified as held for sale 1,335 1,529 24 (10) Group 13,558 13,203 622 450

Other information on assets and liabilities by segment is set out in the tables below. 2011 2010 Segment Segment Segment Segment Segment Segment assets liabilities net assets assets liabilities net assets Segment assets and liabilities £m £m £m £m £m £m USA 2,288 (804) 1,484 2,304 (929) 1,375 Canada 382 (133) 249 357 (136) 221 UK 1,082 (853) 229 1,166 (1,042) 124 Nordic 1,878 (669) 1,209 1,757 (609) 1,148 France 1,095 (495) 600 902 (458) 444 Central Europe 345 (178) 167 391 (213) 178 Central and other costs 93 (132) (39) 181 (238) (57) Total 7,163 (3,264) 3,899 7,058 (3,625) 3,433 Taxation assets and liabilities 248 (248) – 285 (313) (28) Financing assets and liabilities 467 (990) (523) 741 (1,087) (346) Group assets/(liabilities) 7,878 (4,502) 3,376 8,084 (5,025) 3,059 98 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

2. Segmental analysis continued

2011 2010 Additions Additions to non- Additions to Additions to non- Additions to acquired property to acquired acquired property Additions intangible plant and Additions intangible intangible plant and to goodwill assets equipment to goodwill assets assets equipment £m £m £m £m £m £m £m USA 4 4 12 42 2 8 Canada – – 3 –– – 2 UK – 6 17 –– – 12 Nordic 1 – 15 –– – 11 France – 2 21 –– – 23 Central Europe – 1 6 – – 1 26 Central and other costs – 2 – – – 12 – Group 5 15 74 4 2 15 82

Depreciation Amortisation Impairment of property of non- of non- Amortisation Impairment plant and acquired acquired of acquired of acquired equipment intangibles intangibles intangibles intangibles Year ended 31 July 2011 £m £m £m £m £m USA 54 2 – 22 – Canada 4 – – – – UK 21 – – 7 39 Nordic 21 – – 43 – France 30 – – 2 – Central Europe 92– 1 – Central and other costs –103 – – Group 139 14 3 75 39

Depreciation Amortisation Impairment of property of non- of non- Amortisation Impairment plant and acquired acquired of acquired of acquired equipment intangibles intangibles intangibles intangibles Year ended 31 July 2010 £m £m £m £m £m USA 682 – 27 – Canada 4 – – – – UK 33 – – 10 95 Nordic 23 1 – 52 17 France 33– – 3 111 Central Europe 11 2 – – – Central and other costs – 11 138 – – Group 172 16 138 92 223

Strategic overview Business and performance Corporate governance Financial statements Other information 99 Wolseley plc Annual Report and Accounts 2011

3. Operating costs Amounts charged in arriving at operating profit/(loss) include: 2011 2010 £m £m Depreciation of property, plant and equipment 139 172 Amortisation of non-acquired intangible assets 14 16 Impairment of non-acquired intangible assets 3 138 Loss on disposal of businesses and revaluations of disposal groups 59 57 (Profit)/loss on disposal of property, plant and equipment and assets held for sale (13) 7 Staff costs (note 12) 1,884 1,925 Amortisation of acquired intangible assets 75 92 Impairment of acquired intangible assets 39 223 Operating lease rentals: land and buildings 198 244 Operating lease rentals: plant and machinery 40 41 Amounts included in costs of goods sold with respect to inventory 9,643 9,126 Amounts charged to write inventory down to net realisable value 10 – Amounts credited to reverse write downs of inventory – (9) Trade receivables impairment 47 43 Construction loan receivables impairment – 20 During the year the Group obtained the following services from the Company’s auditor and its associates: Fees for the audit of parent company and consolidated financial statements 0.7 0.7 Other services – Fees for the audit of the Company’s subsidiaries pursuant to legislation 3.0 3.0 – Fees for other services pursuant to legislation – 1.2 – Taxation 3.9 4.5 – Other services – 1.0 Total fees payable to the auditors 7.6 10.4

Operating lease rentals: land and buildings shown above excludes exceptional credits of £3 million relating to future lease rentals on vacant properties (2010: charges of £25 million). 100 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

4. Exceptional items Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the income statement to enable a full understanding of the Group’s financial performance. If provisions have been made for exceptional items in previous years, then any write-back of those provisions is shown as exceptional. Exceptional items included in operating profit from continuing operations are analysed by purpose as follows: 2011 2010 £m £m Staff redundancy write-back/(costs) 5 (30) Asset write-downs, disposals and other property related restructuring credits/(costs) 6 (51) Restructuring credits/(costs) 11 (81) Write-down of construction loan portfolio – (24) Impairment of software assets under construction (3) (138) Other costs arising from revised approach to the Group’s Business Change Programme – (32) Gain/(loss) on disposal of businesses 5 (51) Loss on revaluations of disposal groups (64) (6) Total (51) (332)

Exceptional items relating to discontinued operations are detailed in note 8. 5. Finance revenue 2011 2010 £m £m Interest receivable 7 14

6. Finance costs 2011 2010 £m £m Interest payable – Bank loans and overdrafts 46 61 – Finance lease charges 3 5 Discount charge on receivables funding arrangements 7 6 Net pension finance cost (note 28) 15 13 Unwind of discount on provisions 3 3 Valuation (gains)/losses on financial instruments – Derivatives held at fair value through profit and loss 1 (30) – Loans in a fair value hedging relationship (5) 29 – Valuation losses on cash flow hedges reclassified from equity 3 4 Total finance costs 73 91

In 2011 the Group wrote off £6 million of unamortised loan arrangement fees following the early termination of banking facilities. This amount is included in interest payable on bank loans and overdrafts shown above. Strategic overview Business and performance Corporate governance Financial statements Other information 101 Wolseley plc Annual Report and Accounts 2011

7. Taxation 2011 2010 The tax charge for the year comprises: £m £m Current year tax charge 65 81 Adjustments to tax charge in respect of prior years (3) (32) Total current tax charge 62 49 Deferred tax charge/(credit): origination and reversal of temporary differences 48 (11) Tax charge 110 38

The current tax prior year credit is £3 million. The overall prior year tax credit on continuing operations taking into account prior year movements in deferred tax is £20 million. 2011 2010 Tax on items credited to the statement of other comprehensive income: £m £m Deferred tax (charge)/credit on actuarial gain/loss on retirement benefits (9) 26 Deferred tax charge on change in fair value of cash flow hedges – (3) Total tax on items credited to other comprehensive income (9) 23

2011 2010 Tax reconciliation: % % Weighted average tax rate 28 28 Prior year amounts (5) (5) Non-deductible amortisation and impairment of acquired intangibles 4 (18) Other non deductible and non-taxable items 1 (12) Share of loss of associate disclosed net of tax – (4) Tax rate on profit/loss before tax 28 (11)

102 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

8. Discontinued operations (a) The results from the discontinued operations, which have been included in the consolidated income statement, are as follows:

2011 2010 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Loss on disposal –(3)(3) – (19) (19) Tax (charge)/credit on loss on disposal –(7)(7) – 45 45 (Loss)/profit from discontinued operations – (10) (10) – 26 26

Amounts charged and credited to discontinued operations are generated from movements in tax, provisions and other items arising from the sale of Stock Building Supply Holdings LLC in 2009. (b) Cash flows from discontinued operations included in the cash flow statement are as follows: 2011 2010 £m £m Net cash generated from operating activities – 130 Net cash used in investing activities (4) (7) Net cash (used in)/generated from discontinued operations (4) 123

9. Dividends The Company paid an interim dividend of £42 million (15 pence per share) for the year ended 31 July 2011 and has proposed a final dividend of £85 million (30 pence per share). No dividends were paid in 2010. 10. Non-GAAP performance measures Trading profit is defined as operating profit before exceptional items and the amortisation and impairment of acquired intangibles. It is a non-GAAP measure. As explained on page 142, the Group considers that trading profit, and other performance measures based on it, including EBITDA before exceptional items, present valuable additional information to users of the financial statements. 2011 2010 £m £m Operating profit/(loss) 457 (197) Add back: amortisation and impairment of acquired intangibles 114 315 Add back: exceptional items 51 332 Trading profit 622 450 Depreciation, amortisation and impairment of property, plant and equipment and software excluding exceptional items 153 185 EBITDA before exceptional items 775 635 Profit/(loss) before tax 391 (328) Add back: amortisation and impairment of acquired intangibles 114 315 Add back: exceptional items 51 362 Profit before tax and exceptional items and the amortisation and impairment of acquired intangibles 556 349 Tax expense (110) (38) Add back: deferred tax credit on the amortisation and impairment of acquired intangibles (15) (28) Add back: tax credit on exceptional items (7) (74) Add back: non-recurring tax credit relating to prior years (20) – Adjusted tax expense (152) (140)

The non-recurring tax credit relating to prior years principally arises from the release of provisions following the settlement of a number of historical exposures during the year. Strategic overview Business and performance Corporate governance Financial statements Other information 103 Wolseley plc Annual Report and Accounts 2011

11. Earnings/(loss) per share 2011 2010 Basic Diluted Diluted earnings/ earnings/ (Loss)/ (loss)/ Earnings/ (loss) (loss) (Loss)/ earnings earnings (loss) per share per share earnings per share per share £m Pence Pence £m Pence Pence Headline profit after tax from continuing operations 404 142.9 141.8 209 74.1 73.9 Exceptional items (net of tax) (44) (15.6) (15.5) (288) (102.1) (102.0) Amortisation and impairment of acquired intangibles (net of deferred tax) (99) (35.0) (34.7) (287) (101.8) (101.7) Non-recurring tax credit relating to prior years 20 7.1 7.0 – – – Profit/(loss) from continuing operations 281 99.4 98.6 (366) (129.8) (129.8) Discontinued operations (10) (3.5) (3.5) 26 9.2 9.2 Profit/(loss) from continuing and discontinued operations 271 95.9 95.1 (340) (120.6) (120.6) The weighted average number of ordinary shares in issue during the year, excluding those held by Employee Benefit Trusts, was 282.6 million (2010: 282.0 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 285.0 million (2010: 282.9 million). 12. Employee information and Directors’ remuneration 2010 2011 (restated) Employee benefit costs £m £m Wages and salaries 1,631 1,663 Social security costs 193 192 Pension costs – Defined contribution schemes 38 35 Pension costs – Defined benefit schemes (note 28) 19 27 Share-based payments (note 30) 3 8 Total employee benefit costs 1,884 1,925

Amounts for 2010 have been restated to reflect an improved allocation of insurance costs between wages and salaries and social security. Details of Directors’ remuneration and share options are set out in the Remuneration report on pages 72 to 82, which form part of these financial statements. The aggregate emoluments for all key management are set out in note 37.

2010 Average number of employees 2011 (restated) USA 17,175 17,108 Canada 2,645 2,503 UK 9,352 10,544 Nordic 6,535 6,468 France 8,184 8,831 Central Europe 2,190 2,591 Central and other 165 181 Group 46,246 48,226

The average number of employees are shown above by segment rather than geographic location and the comparative numbers for 2010 have been restated accordingly. 104 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

13. Intangible assets – goodwill 2011 2010 £m £m Cost At 1 August 1,969 2,049 Exchange rate adjustment 59 32 Acquisitions 5 4 Disposal of businesses (51) (62) Reclassification as held for sale (250) (54) At 31 July 1,732 1,969 Accumulated impairment losses At 1 August 622 535 Exchange rate adjustment 26 (6) Impairment charge for the year 39 205 Disposal of businesses (51) (58) Reclassification as held for sale (140) (54) At 31 July 496 622 Net book amount at 31 July 1,236 1,347

The carrying value of goodwill by segment is as follows: 2011 2010 £m £m USA 377 392 Canada 98 95 UK 70 219 Nordic 493 461 France 141 134 Central Europe 57 46 Group 1,236 1,347

As explained on page 93, impairment tests were performed for all of the Group’s cash generating units or groups of cash generating units (CGUs) during the year ended 31 July 2011. These impairment reviews have resulted in the recording of the following impairment charges.

Goodwill Pre-tax Long-term impairment discount growth charge rate used rate used CGU £m Bathstore 27 11% 2.5% BCG 12 11% 2.5% UK segment 39

The UK retail sector has continued to experience challenging market conditions and this has been reflected in reduced expectations of the value in use for certain businesses. Goodwill relating to the Bathstore and BCG businesses has been fully impaired.

Strategic overview Business and performance Corporate governance Financial statements Other information 105 Wolseley plc Annual Report and Accounts 2011

14. Intangible assets – other Trade names Customer Software and brands relationships Other Total £m £m £m £m £m Cost At 1 August 2010 295 314 508 45 1,162 Exchange rate adjustment 1178 – 26 Disposal of businesses (1) (1) (4) (2) (8) Additions 15 – – – 15 Disposals and transfers (211) – – – (211) Reclassified as held for sale – (15) (45) – (60) At 31 July 2011 99 315 467 43 924 Accumulated amortisation and impairment losses At 1 August 2010 262 97 308 30 697 Exchange rate adjustment 154 – 10 Amortisation charge for the year 14 23 48 4 89 Impairment charge for the year 3 – – – 3 Disposal of businesses (1) (1) (4) (2) (8) Disposals and transfers (210) – – – (210) Reclassified as held for sale – (9) (40) – (49) At 31 July 2011 69 115 316 32 532 Net book amount at 31 July 2011 30 200 151 11 392

Trade names Customer Software and brands relationships Other Total £m £m £m £m £m Cost At 1 August 2009 283 341 526 41 1,191 Exchange rate adjustment 1 – 11 2 14 Additions 15 – – 2 17 Disposal of businesses – (17) (18) – (35) Disposals and transfers (3) – – – (3) Reclassified as held for sale (1) (10) (11) – (22) At 31 July 2010 295 314 508 45 1,162 Accumulated amortisation and impairment losses At 1 August 2009 111 88 260 23 482 Exchange rate adjustment 1 – 5 – 6 Amortisation charge for the year 16 25 61 6 108 Impairment charge for the year 138 9 8 1 156 Disposal of businesses – (15) (15) – (30) Disposals and transfers (3) – – – (3) Reclassified as held for sale (1) (10) (11) – (22) At 31 July 2010 262 97 308 30 697 Net book amount at 31 July 2010 33 217 200 15 465

Included in the amounts above are £6 million (2010: £8 million) relating to assets under construction. 106 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

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

At 31 July 2011, the book value of property, plant and equipment that had been pledged as security for liabilities was £602 million. Strategic overview Business and performance Corporate governance Financial statements Other information 107 Wolseley plc Annual Report and Accounts 2011

15. Property, plant and equipment continued Land and buildings Operating Plant Finance leasehold machinery Freehold lease improvements equipment Total £m £m £m £m £m Cost At 1 August 2009 1,304 83 262 986 2,635 Exchange rate adjustment 17 – 9 25 51 Disposal of businesses (58) (1) (10) (26) (95) Additions 12 18 9 43 82 Disposals and transfers (19) (3) (10) (151) (183) Reclassified as held for sale (42) – (1) (8) (51) At 31 July 2010 1,214 97 259 869 2,439 Accumulated depreciation At 1 August 2009 228 26 147 641 1,042 Exchange rate adjustment 2 – 5 16 23 Disposal of businesses (18) – (6) (20) (44) Depreciation charge for the year 34 2 26 110 172 Disposals and transfers (7) (2) (9) (128) (146) Reclassified as held for sale (13) – – (4) (17) At 31 July 2010 226 26 163 615 1,030 Owned assets 988 – 96 227 1,311 Assets under finance leases – 71 – 27 98 Net book amount – 31 July 2010 988 71 96 254 1,409 Net book amount – 1 August 2009 1,076 57 115 345 1,593

At 31 July 2010, the book value of property, plant and equipment that had been pledged as security for liabilities was £600 million. 16. Investment in associate At 31 July 2011 the Group had a 44 per cent interest in common equity of Saturn Acquisition Holdings LLC (“Saturn”). This investment had a carrying value of nil following an impairment charge of £41 million in 2010. Saturn has a financial year ending 31 December. Summarised balance sheet information in respect of Saturn as at 31 July is set out below: 2011 2010 £m £m Total assets 170 207 Total liabilities (115) (113) Net assets 55 94 Group’s share of associate’s net assets 24 41

In the year ended 31 July 2011 Saturn recorded revenue of £477 million (2010: £605 million) and a loss after tax of £36 million (2010: £29 million). 108 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

17. Deferred tax assets and liabilities The deferred tax assets and liabilities shown in the balance sheet are analysed as follows: 2011 2010 Deferred tax £m £m Deferred tax assets 241 284 Deferred tax liabilities (166) (136) 75 148 Current 61 33 Non-current 14 115 75 148

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period: Goodwill Property, Retirement and Share-based plant and benefit Tax intangibles payment equipment obligations Inventory assets Other Total £m £m £m £m £m £m £m £m At 31 July 2009 (150) 2 (77) 111 (49) 151 80 68 Credit to income 75 4 8 1 (6) (46) 10 46 Credit to equity – – – 26 – – (3) 23 Disposal of businesses 1 – 4 – – – (1) 4 Transfers between categories – – – – – (8) 8 – Exchange rate adjustment (1) 1 – 3 (5) 7 2 7 At 31 July 2010 (75) 7 (65) 141 (60) 104 96 148 Charge to income 19 2 13 (16) (10) (23) (40) (55) Charge to equity – – – (9) – – – (9) Disposal of businesses – – 2 – – (2) – – Exchange rate adjustment (5) – (5) (5) 5 (3) 4 (9) At 31 July 2011 (61) 9 (55) 111 (65) 76 60 75

Tax losses in the USA and UK have been recognised on the basis that both territories are forecast to have sufficient taxable profits in the future to enable these to be utilised. There are other potential deferred tax assets in relation to tax losses totalling £15 million (2010: £48 million) that have not been recognised on the basis that their future economic benefit is uncertain. The tax losses are in the Czech Republic and expire after five years. No deferred tax liability has been recognised in respect of temporary differences associated with investment in subsidiaries. However, tax may arise on £379 million (2010: £503 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.

Strategic overview Business and performance Corporate governance Financial statements Other information 109 Wolseley plc Annual Report and Accounts 2011

18. Trade and other receivables 2011 2010 Current £m £m Trade receivables 1,691 1,572 Less: provision for impairment (47) (60) Net trade receivables 1,644 1,512 Other receivables 71 89 Prepayments and accrued income 213 249 1,928 1,850

Non-current Other receivables 131 182

Movements in the provision for impairment of trade receivables are as follows: 2011 2010 £m £m At 1 August 60 81 Disposals and transfers (17) (15) Net charge for the year 47 43 Utilised in the year (46) (49) Exchange 3 – At 31 July 47 60

Provisions for impairment of receivables are made locally, and have two components: • a provision for amounts that have been individually determined not to be collectible in full, because of known financial difficulties of the debtor or evidence of default or delinquency in payment, amounting to £39 million at 31 July 2011 (2010: £47 million); and • a provision based on historic experience of non-collectability of receivables, amounting to £8 million at 31 July 2011 (2010: £13 million). Trade receivables can be aged with respect to the payment terms specified in the terms and conditions established with customers as follows: 2011 2010 £m £m Amounts not yet due 778 704 Past due not more than one month 586 552 Past due more than one month and less than three months 260 228 Past due more than three months and less than six months 18 27 Past due more than six months 10 14 Amounts individually determined to be impaired 39 47 1,691 1,572

Other receivables includes an insurance receivable of £44 million (2010: £44 million) relating to asbestos claims (note 27) which has been discounted at a rate of 3.8 per cent (2010: 3.7 per cent) due to the long-term nature of the receivable. The fair value of the remaining balances in trade and other receivables approximates to book value. At 31 July 2010, £233 million of trade receivables had been discounted under receivables factoring facilities that were terminated during the year ended 31 July 2011. 110 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

19. Derivative financial instruments The Group uses interest rate swaps to manage its exposure to interest rate movements on its borrowings, and currency swaps either to obtain the optimum return on its surplus funds or 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:

2011 2010 Non-current assets £m £m Interest rate swaps: fair value hedges 59 66 Derivative financial assets 59 66

2011 2010 Current assets £m £m Interest rate swaps: fair value hedges 5 5 Currency swaps: at fair value through profit and loss – 3 Currency swaps: net investment hedges – 2 Derivative financial assets 5 10

2011 2010 Current liabilities £m £m Interest rate swaps: at fair value through profit and loss (2) (5) Derivative financial liabilities (2) (5)

2011 2010 Non-current liabilities £m £m Interest rate swaps: at fair value through profit and loss – (3) Derivative financial liabilities – (3)

The Group’s accounting and risk management policies, and further information about the derivative financial instruments that it uses, are set out on pages 133 to 141. 20. Construction loans 2011 2010 £m £m Construction loan receivables (secured) 52 116 Less: provision for impairment (19) (36) Net construction loan receivables 33 80 Borrowings to finance construction loan receivables (unsecured) – (80) 33 –

Construction loan receivables are secured principally against properties in the course of construction or completed properties awaiting sale and are all denominated in US dollars. These loans are generally settled when completed homes are sold, rather than at a fixed term. The average age since origination is 14 months (2010: 15 months). As at 31 July 2011, the effective rate of interest on construction loans was 8 per cent (2010: 7 per cent). The Group has ceased new lending and the construction loan portfolio is in run-off. At 31 July 2010 construction loan receivables were financed from bank facilities which had a purpose clause under which the Group could borrow to finance construction loan receivables but only to the extent that it had sufficient receivables to offset these borrowings. The borrowings were disclosed separately from the Group’s net debt. These facilities were terminated in 2011. Strategic overview Business and performance Corporate governance Financial statements Other information 111 Wolseley plc Annual Report and Accounts 2011

20. Construction loans continued Movements in the provision for impairment of construction loan receivables are as follows: 2011 2010 £m £m At 1 August 36 39 Charge for the year – exceptional – 20 Utilised in the year (16) (26) Exchange rate adjustment (1) 3 At 31 July 19 36

Construction loan receivables on which payments are delinquent are subject to foreclosure of the property on which the loan is secured, such that the disposal proceeds of the property can be applied in settlement of the outstanding liability. After foreclosure, the balance of receivables net of provisions for impairment is transferred to assets held for sale. Provisions for impairments of receivables comprise: • 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 £7 million at 31 July 2011 (2010: £12 million); and • a provision based on historic experience of the shortfall of disposal proceeds of foreclosed properties to the outstanding balance due, amounting to £12 million at 31 July 2011 (2010: £24 million). Construction loan receivables can be aged with respect to the payment terms specified in the terms and conditions established with customers as follows: 2011 2010 £m £m Amounts not yet due 32 65 Past due not more than one month 7 12 Past due more than one month and less than three months 4 5 Past due more than three months 2 22 Amounts individually determined to be impaired 7 12 52 116

Construction loan receivables at 31 July 2011 includes £15 million in respect of loans on which foreclosure proceedings have been started (2010: £27 million). The fair value of collateral held in respect of construction loans receivable is believed to be sufficient to cover the net amount of construction loans receivable. During the year ended 31 July 2011 disposal proceeds of £27 million (2010: £41 million) were realised from the sale of foreclosed properties, in respect of loans with a principal value of £41 million before provisions (2010: £70 million). Undrawn committed facilities at 31 July 2011 amounted to £3 million (2010: £25 million). 21. Cash and cash equivalents 2011 2010 £m £m Cash and cash equivalents 324 249 Short-term bank deposits 79 416 Total cash and cash equivalents 403 665 112 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

22. Assets and liabilities held for sale 2011 2010 £m £m Properties awaiting disposal 53 64 Assets of disposal groups held for sale 542 47 Assets held for sale 595 111

Liabilities of disposal groups held for sale 254 11

Properties awaiting disposal at 31 July 2011 includes £26 million relating to properties obtained after foreclosing on construction loans (2010: £37 million). At 31 July 2011 the Group was in the process of disposing of several businesses which it has therefore classified as disposal groups held for sale. These include: Build Center: The Group has signed an agreement to sell Build Center, its building materials distribution business in the UK, to Saint Gobain. An impairment charge of £19 million was recognised to write down the business to fair value less costs to sell. Net assets included in disposal groups held for sale amount to £180 million. The disposal will complete when the transaction has received clearance from the relevant competition authorities. Brossette: The Group has entered into exclusive negotiations with Saint Gobain to sell Brossette, its plumbing and heating distribution business in France. Net assets included in disposal groups held for sale amount to £71 million. Brossette’s net assets also include an inter-company receivable balance of £54 million which has been eliminated on consolidation and will be settled prior to disposal. Completion of the transaction is subject to clearance from the relevant competition authorities. Encon: The Group is pursuing options to dispose of Encon, a specialist distributor of insulation, ceilings, partitioning and fire protection products in the UK. An impairment charge of £45 million was recognised to write down the business to fair value less costs to sell. Net assets included in disposal groups held for sale amount to £33 million including £14 million of cash and cash equivalents. At 31 July 2010 the Brandon Hire business in the UK was classified as a disposal group held for sale. This business was sold on 22 September 2010. The assets and liabilities of disposal groups held for sale consist of:

£m Intangible assets 54 Property, plant and equipment 92 Inventories 164 Trade and other receivables 218 Cash and cash equivalents 14 Bank overdrafts (3) Finance leases (1) Payables and provisions (250) 288

Strategic overview Business and performance Corporate governance Financial statements Other information 113 Wolseley plc Annual Report and Accounts 2011

23. Trade and other payables 2011 2010 Current £m £m Amounts falling due within one year: Trade payables 1,691 1,962 Bills of exchange payable 74 109 Other tax and social security 88 100 Other payables 111 171 Accruals 318 322 Deferred income 10 9 Total trade and other payables 2,292 2,673

Non-current Other payables 74 83

24. Bank loans and overdrafts 2011 2010 Current £m £m Bank overdrafts 71 90 Bank loans 126 3 Senior unsecured loan notes – 133 Total bank loans and overdrafts 197 226

2011 2010 Non-current £m £m Bank loans 226 236 Senior unsecured loan notes 513 542 Total bank loans 739 778

£223 million of the bank loans are secured against the Group’s freehold property (2010: £206 million) and £123 million against trade receivables (2010: nil). The non-current loans are repayable as follows: 2011 2010 £m £m Due in one to two years 52 1 Due in two to three years 9 56 Due in three to four years 36 34 Due in four to five years 216 73 Due in over five years 426 614 Total 739 778

The senior unsecured loan notes have a par value of £453 million (2010: £607 million). Certain tranches of these loan notes have been hedged with interest rate swaps, and accordingly the loan notes are stated at an amount of £513 million (2010: £675 million). The increase in the recognised liability over the par value of £60 million (2010: £68 million) is offset by the carrying value on interest rate swaps designated as fair value hedges of £64 million (2010: £71 million).

114 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

25. Financial instruments and financial risk management There have been no significant changes during the year to the Group’s policies on accounting for, valuing and managing the risk of financial instruments. These policies are summarised on pages 127 to 141. Capital structure To assess the appropriateness of its capital structure to current and forecast trading, the Group’s principal measure of financial gearing is the ratio of net debt, including receivables factoring facilities, to EBITDA before exceptionals. The Group’s target is to keep this ratio within a range of 1 to 2, consistent with an investment grade credit rating. The Group’s main borrowing facilities contain a financial covenant limiting the ratio of net debt to EBITDA before exceptionals to 3.5:1. In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to reduce debt. Liquidity During the year the Group replaced bank facilities approximating £2,800 million with two revolving credit facilities amounting to £822 million which expire on 31 October 2016. As at 31 July 2011, the Group had undrawn facilities maturing as follows: 2011 2010 £m £m Less than one year 50 100 Between one and two years – 1,394 Between two and three years – 188 Between three and four years – 832 After five years 822 – Total 872 2,514

At 31 July 2011, the Group also had £68 million (2010: £274 million) drawn and £63 million (2010: £96 million) undrawn on receivables factoring facilities. Foreign currency Net debt at 31 July 2011 by currency was as follows: Cash, overdrafts Currency Interest Finance lease and bank bought/(sold) rate swaps obligations loans forward Total As at 31 July 2011 £m £m £m £m £m Sterling – (1) (7) – (8) US dollars 64 (3) (494) – (433) Euros, Danish kroner and Swedish kronor (2) (24) (13) – (39) Other – (24) (19) – (43) Total 62 (52) (533) – (523)

Net debt at 31 July 2010 by currency was as follows: Cash, overdrafts Currency Interest Finance lease and bank bought/(sold) rate swaps obligations loans forward Total As at 31 July 2010 £m £m £m £m £m Sterling – (2) 249 (104) 143 US dollars 71 (7) (416) (75) (427) Euros, Danish kroner and Swedish kronor (8) (41) (105) 141 (13) Other – (25) (67) 43 (49) Total 63 (75) (339) 5 (346)

Strategic overview Business and performance Corporate governance Financial statements Other information 115 Wolseley plc Annual Report and Accounts 2011

25. Financial instruments and financial risk management continued Interest rates The interest rate profile of the Group’s net debt after including the effect of interest rate swaps is set out in the following tables. As at 31 July 2011 – currency Floating Fixed Total Sterling (7) (1) (8) US dollars (430) (3) (433) Euros, Danish kroner and Swedish kronor 75 (114) (39) Other currencies (19) (24) (43) Total (381) (142) (523)

As at 31 July 2010 – currency Floating Fixed Total Sterling 145 (2) 143 US dollars (290) (137) (427) Euros, Danish kroner and Swedish kronor 286 (299) (13) Other currencies (24) (25) (49) Total 117 (463) (346)

Fixed rate borrowings at 31 July 2011 carried a weighted average interest rate of 4.7 per cent fixed for a weighted average duration of 2.0 years (31 July 2010: 4.6 per cent for 1.6 years). Floating rate borrowings at 31 July 2011 carried a weighted average interest rate of 1.3 per cent (31 July 2010: 1.5 per cent). 26. Obligations under finance leases Gross Gross Net Net 2011 2010 2011 2010 £m £m £m £m Due within one year 14 18 10 14 Due in one to five years 31 43 23 32 Due in over five years 24 41 19 29 69 102 52 75 Less: future finance charges (17) (27) Present value of finance lease obligations 52 75 Current 10 14 Non-current 42 61 Total obligations under finance leases 52 75

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.

116 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

27. Provisions Environmental Wolseley Other and legal Insurance Restructuring provisions Total £m £m £m £m £m At 31 July 2009 58 57 202 49 366 Utilised in the year (4) (31) (100) (7) (142) Amortisation of discount – – 3 – 3 Charge for the year 10 26 50 42 128 Disposal of businesses – – (22) (1) (23) Exchange differences 3 3 6 2 14 At 31 July 2010 67 55 139 85 346 Utilised in the year (8) (12) (66) (5) (91) Amortisation of discount ––3 – 3 Charge/(credit) for the year 21 16 (7) 4 34 Disposal of businesses and reclassified as held for sale (1) – (7) 4 (4) Exchange differences (3) (2) 1 – (4) At 31 July 2011 76 57 63 88 284

Provisions have been analysed between current and non-current as follows: Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2011 £m £m £m £m £m Current 32 18 20 28 98 Non-current 44 39 43 60 186 Total provisions 76 57 63 88 284

Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2010 £m £m £m £m £m Current 22 23 50 28 123 Non-current 45 32 89 57 223 Total provisions 67 55 139 85 346

Wolseley Insurance provisions represent an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported on certain risks retained by the Group (principally US casualty and global property damage). The environmental and legal provision includes £44 million (2010: £44 million) for the estimated liability for asbestos litigation on a discounted basis using a long-term discount rate of 3.8 per cent (2010: 3.7 per cent). This amount has been actuarially determined as at 31 July 2011 based on advice from independent professional advisers. The Group has insurance that it currently 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 available significantly exceeds the expected level of future claims and no material profit or cash flow impact is therefore expected to arise in the foreseeable future. There were 160 claims outstanding at 31 July 2011 (31 July 2010: 249). Restructuring provisions include provisions for staff redundancy costs and future lease rentals on closed branches. In determining the provision for onerous leases, the cash flows have been discounted on a pre-tax basis using appropriate government bond rates. The weighted average maturity of these obligations is approximately five years. Other provisions include the Group’s best estimate of the cost of potential product and service warranty claims arising in Stock Building Supply Holdings LLC (“Stock”) before its disposal on 6 May 2009, separation costs relating to the disposal of Stock and contractual and constructive obligations relating to the Business Change Programme. Other provisions also include rental commitments on vacant properties other than those arising from restructuring actions, dilapidations on leased properties and warranties. The weighted average maturity of these obligations is approximately four years.

Strategic overview Business and performance Corporate governance Financial statements Other information 117 Wolseley plc Annual Report and Accounts 2011

28. Retirement benefit obligations (i) Long-term benefit plans provided by the Group The Group has a final salary pension plan for certain of its UK employees. The Group operates a number of individually insignificant schemes in other jurisdictions, providing pensions or other long-term benefits such as long service or termination awards. More information about the schemes operated by the Group is set out on pages 142 and 143. There have been no significant changes during the financial period. The Group expects to contribute £106 million to the UK defined benefit schemes, including an intended one-off contribution of £60 million following the completion of the disposal of Build Center, and £10 million to the non-UK defined benefit schemes in the year ending 31 July 2012. (ii) Financial impact of plans 2011 2010 As disclosed in the balance sheet £m £m Current liability (26) (23) Non-current liability (334) (409) Total liability (360) (432)

2011 2011 2010 2010 Analysis of balance sheet liability £m £m £m £m Fair value of plan assets: UK 696 593 Non-UK 193 131 889 724 Present value of defined benefit obligation: UK (946) (897) Non-UK (303) (259) (1,249) (1,156) Net deficit recognised in balance sheet (360) (432)

2011 2010 Analysis of total expense recognised in income statement £m £m Current service cost 30 26 Past service cost – 1 Curtailment (11) – Charged to administrative expenses 19 27 Interest on pension liabilities 61 57 Expected return on plan assets (46) (44) Charged to finance costs 15 13 Total expense recognised in income statement 34 40

The curtailment gain arises as a result of the disposal of Brandon Hire and Electric Center and the anticipated disposal of Build Center. It is included in the exceptional gain on disposal of businesses and loss on revaluations of disposal groups. 2011 2010 Analysis of amount recognised in the statement of comprehensive income £m £m Actuarial gain/(loss) 5 (93) Deferred tax thereon (9) 26 Total amount recognised in the statement of comprehensive income (4) (67)

The cumulative amount of actuarial losses recognised in the statement of comprehensive income have been £265 million (2010: £270 million).

118 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

28. Retirement benefit obligations continued The assets in the UK schemes and the expected rates of return were: 2011 UK 2010 UK Long-term Long-term rate of rate of return Value at return Value at expected at 31 July expected at 31 July 31 July 2011 31 July 2010 2011 £m 2010 £m Equities 7.3% 483 7.3% 411 Bonds 4.4% 176 4.5% 158 Other 4.1% 37 4.3% 24 Total market value of assets 6.4% 696 6.4% 593

The assets in the non-UK schemes and the expected rates of return were: 2011 Non-UK 2010 Non-UK Long-term Long-term rate of rate of return Value at return Value at expected at 31 July expected at 31 July 31 July 2011 31 July 2010 2011 £m 2010 £m Equities 8.0% 75 7.7% 61 Bonds 4.2% 73 4.3% 49 Property 4.2% 15 4.8% 8 Other including insurance policies 3.1% 30 4.0% 13 Total market value of assets 5.7% 193 5.9% 131

UK Non-UK Total UK Non-UK Total 2011 2011 2011 2010 2010 2010 Fair value of plan assets £m £m £m £m £m £m At 1 August 593 131 724 511 129 640 Expected return on plan assets 38 8 46 36 8 44 Actuarial gain 38 1 39 40 4 44 Employer’s contributions 56 34 90 36 6 42 Participants’ contributions –331 2 3 Disposal of businesses –––– (23) (23) Reclassification –1515 – – – Benefits paid (29) (12) (41) (31) (6) (37) Currency translation –1313 – 11 11 At 31 July 696 193 889 593 131 724 Actual return on plan assets 76 9 85 76 12 88

Strategic overview Business and performance Corporate governance Financial statements Other information 119 Wolseley plc Annual Report and Accounts 2011

28. Retirement benefit obligations continued UK Non-UK Total UK Non-UK Total 2011 2011 2011 2010 2010 2010 Present value of defined benefit obligation £m £m £m £m £m £m At 1 August 897 259 1,156 737 244 981 Current service cost 24 6 30 20 6 26 Past service cost –––1 – 1 Curtailment and settlement (11) (1) (12) – – – Interest cost 48 13 61 44 13 57 Participants’ contributions –332 2 4 Disposal of businesses –(2)(2)– (24) (24) Reclassified as held for sale – (15) (15) – – – Benefits paid (27) (16) (43) (31) (11) (42) Reclassification –1515 – – – Actuarial loss 15 19 34 124 13 137 Currency translation –2222 – 16 16 At 31 July 946 303 1,249 897 259 1,156

2011 2010 Analysis of present value of defined benefit obligation £m £m Amounts arising from wholly unfunded plans 77 67 Amounts arising from plans that are wholly or partly funded 1,172 1,089 1,249 1,156

(iii) Valuation assumptions The financial assumptions used to estimate defined benefit obligations are: 2011 2010 UK Non-UK UK Non-UK Discount rate 5.4% 4.1% 5.4% 4.7% Inflation rate 3.7% 1.9% 3.4% 2.0% Increase to deferred benefits during deferment 2.7% 2.0% 3.4% 2.0% Increases to pensions in payment 3.6% 1.8% 3.3% 1.8% Salary increases 4.7% 2.6% 4.4% 2.7%

The life expectancy assumptions used to estimate defined benefit obligations are: 2011 2010 UK Non-UK UK Non-UK Current pensioners (at age 65) – male 22 20 22 20 Current pensioners (at age 65) – female 24 22 24 22 Future pensioners (at age 65) – male 25 21 24 21 Future pensioners (at age 65) – female 26 23 26 23

120 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

29. Share capital Authorised Allotted and issued 2011 2010 2011 2010 Number of deferred 24 pence shares in Old Wolseley (million) – – – 887 Number of ordinary 10 pence shares in Old Wolseley (million) – – – 284 Number of ordinary 10 pence shares in the Company (million) 500 – 285 – Total number of shares (million) 500 – 285 1,171 Nominal value of deferred 24 pence shares in Old Wolseley (£ million) – – – 213 Nominal value of ordinary 10 pence shares in Old Wolseley (£ million) – – – 28 Nominal value of ordinary 10 pence shares in the Company (£ million) 50 – 28 – Total nominal value of shares (£ million) 50 – 28 241

All the allotted and issued shares, including those held by Employee Benefit Trusts, are fully paid or credited as fully paid. On 23 November 2010 pursuant to the Scheme of Arrangement under Part 26 of the UK Companies Act 2006 between Old Wolseley (the former holding company of the Group) and the Old Wolseley shareholders, and as sanctioned by the High Court, all the issued 10 pence ordinary shares in Old Wolseley were cancelled and the same number of new shares were issued to the Company in consideration for the allotment to shareholders of one ordinary 10 pence share in the Company for each ordinary 10 pence share in Old Wolseley held at the scheme record date of 19 November 2010. The Old Wolseley deferred shares had no voting rights, no entitlement to a dividend and could not be traded. On 24 November 2010 the Old Wolseley deferred shares were transferred from their current holders to the Company for no consideration and were then repurchased and cancelled by Old Wolseley. From 1 August 2010 to 31 July 2011, shares were issued to satisfy options exercised under the Group’s share schemes. A summary of the movements in the year is detailed in the following table: 2011 2010 Number of 10 pence ordinary shares in Old Wolseley in issue at 1 August 284,399,824 283,839,366 Exercise of executive share options 2,877 11,990 Exercise of savings related share options 31,868 548,468 Group reconstruction (284,434,569) – Number of 10 pence ordinary shares in Old Wolseley in issue at 31 July – 284,399,824 Initial subscriber shares issued 28 September 2010 2 – Number of 10 pence ordinary shares in the Company in issue at 1 August – – Group reconstruction 284,434,569 – Redemption of initial subscriber shares (2) – Exercise of executive share options 292,122 – Exercise of savings related share options 184,268 – Number of 10 pence ordinary shares in the Company in issue at 31 July 284,910,959 –

Strategic overview Business and performance Corporate governance Financial statements Other information 121 Wolseley plc Annual Report and Accounts 2011

30. Share-based payments 2011 2010 Analysis of profit and loss charge/(credit) £m £m Executive Option Schemes (4) 1 Employees Savings Option Schemes 4 5 LTIS and RSP 3 2 3 8

During the year there have been no significant changes to the Group’s share-based payment plans, which are summarised on page 144. Awards granted under the Executive Option Schemes are subject to a condition such that they may not be exercised unless the growth in earnings per share over a period of three consecutive financial years exceeds the growth in the UK Retail Price Index over the same period by at least 9 per cent. When management expect that there is no realistic probability that this condition for a particular award to vest will be attained, amounts charged in previous periods in respect of that award are credited to the income statement. £13 million has been credited to the income statement in the year in respect of the 2008 award (2010: £9 million in respect of the 2007 award). The number of outstanding and number of exercisable share options and share awards are detailed below. 2011 2010 Number of Number of shares/options shares/options 000’s 000’s Outstanding at 1 August 16,474 14,801 Granted 3,685 5,275 Options exercised or shares vested (507) (591) Surrendered or expired (3,378) (3,011) Outstanding at 31 July 16,274 16,474 Exercisable at 31 July 770 926 £ £ Weighted average fair value per share/option granted during the year 7.18 4.96 At 31 July 2011, 12,849,000 of the shares and options outstanding had an exercise price which was below the market price.

122 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

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

Total retained earnings, which are the sum of the hedging reserve, own shares reserve and profit and loss account, were £2,962 million at 31 July 2011 (2010: £1,362 million).

Strategic overview Business and performance Corporate governance Financial statements Other information 123 Wolseley plc Annual Report and Accounts 2011

31. Shareholders’ funds and statement of changes in shareholders’ equity continued Retained earnings Share Share Translation Hedging Own Profit and Total capital premium reserve reserve shares loss account equity For the year ended 31 July 2010 £m £m £m £m £m £m £m Loss for the year attributable to equity shareholders – – – – – (340) (340) Exchange gain on translation of overseas operations – – 156 – – – 156 Exchange loss on translation of borrowings and derivatives designated as hedges of overseas operations – – (71) – – – (71) Cumulative currency translation differences on disposals recycled to income statement – – (13) – – – (13) Actuarial loss on retirement benefits – – – – – (93) (93) Valuation gain on interest rate swaps – – – 5 – – 5 Valuation losses on cash flow hedges reclassified to income statement – – – 4 – – 4 Tax on gains and losses not recognised in the income statement – – – (3) – 26 23 Total comprehensive income – – 72 6 – (407) (329) New share capital subscribed – 4 – – – – 4 Credit to equity for share-based payments – –– – – 8 8 Net additions to shareholders’ funds – 4 72 6 – (399) (317) Opening shareholders’ funds 241 1,152 228 (11) (78) 1,844 3,376 Closing shareholders’ funds 241 1,156 300 (5) (78) 1,445 3,059

124 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

32. Reconciliation of profit/(loss) to cash generated from operations Profit/(loss) for the year is reconciled to cash generated from operations as follows: 2011 2010 £m £m Profit/(loss) for the year 271 (340) Net finance costs 66 77 Share of after tax loss of associate – 13 Impairment of associate – 41 Tax expense 110 38 Loss on disposal of businesses and revaluation of disposal groups 69 31 Depreciation and impairment of property, plant and equipment 139 172 Amortisation and impairment of non-acquired intangibles 17 154 (Profit)/loss on disposal of property, plant and equipment and assets held for sale (13) 7 Amortisation and impairment of acquired intangibles 114 315 (Increase)/decrease in inventories (165) 13 (Increase)/decrease in trade and other receivables (300) 124 (Decrease)/increase in trade and other payables (174) 108 Decrease in provisions and other liabilities (121) (56) Share-based payments 3 8 Cash generated from operations 16 705

Trading profit is reconciled to cash generated from operations as follows: 2011 2010 £m £m Trading profit 622 450 Exceptional items in operating profit (51) (332) Loss on disposal of businesses and revaluation of disposal groups 59 57 Depreciation and impairment of property, plant and equipment 139 172 Amortisation and impairment of non-acquired intangibles 17 154 (Profit)/loss on disposal of property, plant and equipment and assets held for sale (13) 7 (Increase)/decrease in inventories (165) 13 (Increase)/decrease in trade and other receivables (300) 124 (Decrease)/increase in trade and other payables (174) 108 Decrease in provisions and other liabilities (121) (56) Share-based payments 3 8 Cash generated from operations 16 705

Strategic overview Business and performance Corporate governance Financial statements Other information 125 Wolseley plc Annual Report and Accounts 2011

33. Analysis of the net outflow of cash in respect of the purchase of businesses 2011 2010 £m £m Purchase consideration 8 7 Deferred and contingent consideration paid in the year 1 6 Cash consideration 9 13 Cash, cash equivalents and bank overdrafts acquired 3 (2) Net cash outflow in respect of the purchase of businesses 12 11

34. Acquisitions On 31 December 2010 the Group acquired the assets of Summit Pipe and Supply, Inc, a supplier of water and waste water products in the USA, for cash consideration of £6 million. The Group also acquired two builders’ merchants in Denmark. XL-BYG-Alfred Nielsen NS was acquired on 28 January 2011 for a cash consideration of £1 million and XL-BYG Ebeltoft Ny Tommerhandel was acquired on 1 March 2011 for a cash consideration of £1 million. The acquisition of these businesses has not had a material effect on the financial statements. 35. Disposals During the year the Group disposed of Brandon Hire, its UK tool and equipment hire business, Electric Center, a UK distributor of lighting and electrical accessories, its business in Italy, a small business in France and a small business in the USA. Details of assets and liabilities disposed of, transaction costs and consideration received in respect of these disposals are provided in the following table. 2011 Assets disposed of £m Intangible assets 1 Property, plant and equipment 22 Inventories 37 Receivables 71 Assets and liabilities held for sale 36 Cash, cash equivalents and bank overdrafts (21) Finance leases (9) Payables and provisions (62) Deferred tax – Total 75 Consideration (96) Disposal costs and provisions for separation costs 15 Cumulative currency translation loss recycled from reserves 1 Profit on disposal (5)

Analysis of the net inflow of cash in respect of the disposal of businesses: 2011 £m Sale consideration 96 Deferred consideration (2) Cash consideration received 94 Cash, cash equivalents and bank overdrafts disposed 21 Disposal costs paid (7) Amounts received in respect of prior year disposals 12 Payments made to settle liabilities regarding prior year disposals (5) Net cash inflow in respect of the disposal of businesses 115

126 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

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

Fair value and other adjustments include the transfer of £52 million of construction loans payable to bank loans. Acquisitions New Fair value and finance and other Exchange At 1 August Cash flows disposals leases adjustments movement At 31 July For the year ended 31 July 2010 £m £m £m £m £m £m £m Cash and cash equivalents 635 665 Bank overdrafts (37) (90) 598 (111) – – – 88 575 Financial assets: trading investments 155 (159) – – – 4 – Derivative financial instruments 21 8 – – 36 3 68 Bank loans (1,662) 984 – – (89) (147) (914) Obligations under finance leases (71) 17 2 (22) – (1) (75) (959) 739 2 (22) (53) (53) (346)

37. Related party transactions There are no related party transactions requiring disclosure under IAS 24, “Related Party Disclosures” other than the compensation of key management personnel which is set out in the following table. 2011 2010 Key management personal compensation (including Directors) £m £m Salaries, bonuses and other short-term employee benefits 9 10 Termination and post-employment benefits 1 3 Share-based payments 1 1 Total compensation 11 14

More detailed disclosures on the remuneration of the Directors are provided in the Remuneration report on pages 72 to 82.

Strategic overview Business and performance Corporate governance Financial statements Other information 127 Wolseley plc Annual Report and Accounts 2011

38. Operating lease commitments Future minimum lease payments under non-cancellable operating leases for the following periods are: 2011 2010 £m £m Within one year 245 253 Later than one year and less than five years 638 674 After five years 243 365 Total operating lease commitments 1,126 1,292

Operating lease payments mainly represent rent payable by the Group for certain of its properties. Some of these operating lease arrangements have renewal options and rental escalation clauses, though the effect of these is not material. No arrangements have been entered into for contingent rental payments. The total minimum sublease payments expected to be received under non-cancellable subleases at 31 July 2011 is £19 million (2010: £16 million). The commitments shown above include commitments for onerous leases which have already been provided for. At 31 July 2011 provisions include an amount of £54 million (2010: £88 million) in respect of minimum lease payments for such onerous leases net of sublease payments expected to be received (note 27). 39. Contingent liabilities The Group has exposure in the ordinary course of business to certain legal and product warranty claims. Whilst provision is made for any known and quantifiable items, it is possible that additional claims may arise in the future. 40. Additional information Group accounting policies A summary of the principal accounting policies applied by the Group in the preparation of the consolidated financial statements is set out below. Basis of preparation The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale investments and financial assets and liabilities held for trading. Exceptional items Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the income statement to enable a full understanding of the Group’s financial performance. These exclude impairments of acquired intangibles which are also presented separately in the income statement. Transactions which may give rise to exceptional items include restructurings of business activities and gains or losses on the disposal of businesses. Consolidation The consolidated financial information includes the results of the parent company and its subsidiary undertakings drawn up to 31 July 2011. The trading results of businesses other than discontinued operations acquired or sold during the year are included in profit on ordinary activities from continuing operations from the date of acquisition or up to the date of sale. Intra-group transactions and balances and any unrealised gains and losses arising from intra-group transactions are eliminated on consolidation. Discontinued operations When the Group has disposed of or intends to dispose of a business component that represents a separate major line of business or geographical area of operations it classifies such operations as discontinued. The post-tax profit or loss of the discontinued operations is shown as a single line on the face of the income statement, separate from the other results of the Group. Foreign currencies Items included in the financial statements of each of the Group’s subsidiary undertakings are measured using the currency of the primary economic environment in which the subsidiary undertaking operates (the “functional currency”). The consolidated financial statements are presented in sterling, which is the presentational currency of the Group and the functional currency of the parent company. The trading results of overseas subsidiary undertakings are translated into sterling using average rates of exchange ruling during the relevant financial period.

128 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Group accounting policies continued The balance sheets of overseas subsidiary undertakings are translated into sterling at the rates of exchange ruling at the period end. Exchange differences arising between the translation into sterling of the net assets of these subsidiary undertakings at rates ruling at the beginning and end of the year are recognised in the currency translation reserve as are exchange differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets. Changes in the fair value and the final settlement value of derivative financial instruments, entered into to hedge foreign currency net assets and that satisfy the hedging conditions of IAS 39, are recognised in the currency translation reserve (see the separate accounting policy on derivative financial instruments). In the event that an overseas subsidiary undertaking is sold, the gain or loss on disposal recognised in the income statement is determined after taking into account the cumulative currency translation differences that are attributable to the subsidiary undertaking concerned. Foreign currency transactions entered into during the year are translated into sterling at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the income statement with the exception of differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets as detailed above. Business combinations The introduction of a new holding company constitutes a group reconstruction and has been accounted for using merger accounting principles. In all other cases the Group has applied the purchase method in its accounting for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Acquisition related costs are expensed. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 per cent and 50 per cent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the 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. Revenue from the provision of goods is recognised when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are shipped to, or are picked up by, the customer. Revenue from services is recognised when the service provided to the customer has been completed. Customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the loyalty credits and deferred over the period that loyalty credits are redeemed. Revenue from the provision of goods and services is only recognised when the amounts to be recognised are fixed or determinable and collectability is reasonably assured. Cost of sales Cost of sales includes purchased goods, the cost of bringing inventory to its present location and condition, and labour and overheads attributable to assembly and construction services.

Strategic overview Business and performance Corporate governance Financial statements Other information 129 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Group accounting policies continued Vendor rebates The Group enters into arrangements with certain vendors providing for inventory purchase rebates. These purchase rebates are accrued as earned and are recorded initially as a reduction in inventory with a subsequent reduction in cost of sales when the related product is sold. Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary undertaking at the date of acquisition. Goodwill on acquisitions of subsidiary undertakings is included in intangible assets. Goodwill is not amortised but is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. All goodwill has arisen from business combinations. On transition to IFRS, the balance of goodwill as measured under UK GAAP was allocated to cash-generating units and groups of cash-generating units (“CGUs”). These are independent sources of income streams, and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes, which may be at country, divisional, brand or regional level. Goodwill arising on business combinations after 1 August 2004 has been allocated to the CGUs that are expected to benefit from that business combination. No CGUs are larger than the reporting segments determined in accordance with IFRS 8 “Operating Segments”. Other intangible assets An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights. Intangible assets, primarily brands, trade names and customer relationships, acquired as part of a business combination are capitalised separately from goodwill and are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the reducing balance method for customer relationships and the straight-line method for other intangible assets. The cost of the intangible assets is amortised over their estimated useful lives as follows: Customer relationships 4 – 25 years Trade names and brands 1 – 15 years Other 1 – 4 years

Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset and is carried at cost less accumulated amortisation and accumulated impairment losses. Costs include software licences, consulting costs attributable to the development, design and implementation of the computer software and internal costs directly attributable to the development, design and implementation of the computer software. Costs in respect of training and data conversion are expensed as incurred. Amortisation is calculated using the straight-line method so as to charge the cost of the computer software to the income statement over its estimated useful life as follows: Computer software 3 – 5 years Software assets are generally either purchases from third parties or internally generated. Other intangible assets arise on business combinations. Property, plant and equipment (“PPE”) PPE is carried at cost less accumulated depreciation and accumulated impairment losses, except for land and assets in the course of construction, which are not depreciated and are carried at cost less accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. In addition, subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred.

130 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Group accounting policies continued Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows: Freehold buildings and long leaseholds 35 – 50 years Short leaseholds over the period of the lease Plant and machinery 7 – 10 years Computer hardware 3 – 5 years Fixtures and fittings 5 – 7 years Motor vehicles 4 years

The residual values and useful lives of PPE are reviewed and adjusted if appropriate at each balance sheet date. Borrowing costs directly attributable to the long-term construction or production of an asset are capitalised as part of the cost of the asset. Leased assets Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have transferred to the Group, are capitalised in the balance sheet and depreciated over the shorter of the lease term or their useful lives. The asset is recorded at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease. The capital elements of future obligations under finance leases are included in liabilities in the balance sheet and analysed between current and non-current amounts. The interest elements of future obligations under finance leases are charged to the income statement over the periods of the leases and represent a constant proportion of the balance of capital repayments outstanding in accordance with the effective interest rate method. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. The cost of operating leases (net of any incentives received from the lessor) is charged to the income statement on a straight-line basis over the periods of the leases. Assets and disposal groups held for sale Assets are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. Where a group of assets and their directly associated liabilities are to be disposed of in a single transaction, such disposal groups are also classified as held for sale. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition, and management must be committed to and have initiated a plan to sell the asset or disposal group which, when initiated, was expected to result in a completed sale within 12 months. Assets that are classified as held for sale are not depreciated. Assets or disposal groups that are classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment of assets Assets that have an indefinite useful life, such as goodwill, are not subject to amortisation and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation and assets under construction are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The value in use is in most cases based on the discounted present value of the future cash flows expected to arise from the cash generating unit to which the goodwill relates, or from the individual asset or asset group. The value in use calculations in respect of CGUs use cash flow projections based on five year financial forecasts approved by management. The key assumptions for these forecasts are those regarding revenue growth, trading margin and the level of working capital required to support trading, which management estimates based on past experience, reflecting the cyclicality of earnings, and expectations of future changes in the market. To prepare value in use calculations, the cash flow forecasts are extrapolated after the five year period at an estimated average long-term nominal growth rate for each market (ranging from 1.9 per cent to 2.5 per cent), and discounted back to present value. The discount rate assumptions use an estimate of the Group’s post-tax weighted average cost of capital of 8.3 per cent, based on the five year historic volatility of Wolseley shares and on benchmark interest rates. The pre-tax discount rate which ranges from 10 per cent to 13 per cent has been applied to the risk adjusted cashflows of each CGU. The carrying amounts of goodwill and acquired intangibles for CGUs which have a significant proportion of the Group’s total are: Stark (Nordic) £362 million, Blended Branches (USA), £233 million, Beijer (Nordic) £160 million, PBM (France) £150 million and Starkki (Nordic) £115 million.

Strategic overview Business and performance Corporate governance Financial statements Other information 131 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Group accounting policies continued Inventories Inventories, which all comprise goods purchased for resale, are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (“FIFO”) method or the average cost method as appropriate to the nature of the transactions in those items of inventory. The cost of goods purchased for resale includes import and custom duties, transport and handling costs, freight and packing costs and other attributable costs less trade discounts, rebates and other subsidies. It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Trade receivables Trade receivables are recognised initially at fair value and measured subsequently at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Examples of such evidence include significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the loss is recognised in the income statement. Trade receivables are written off against the provision when recoverability is assessed as being remote. Subsequent recoveries of amounts previously written off are credited to the income statement. Construction loans Construction loan receivables are secured loans made to builders to finance the construction of properties or the purchase of land. As the contractual maturity of these loans, which did not exceed 12 months from the reporting date, was set at origination to correspond to the normal operating cycle of the construction business, and the Group normally expects to realise the loans within their contractual maturity, these loans have all been classified as current assets. Construction loan 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 construction loan receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Examples of such evidence include significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows collectible from the debtor or recoverable from the disposal of the asset on which the receivable is secured, discounted at the original effective interest rate. The amount of the loss is recognised in the income statement. Construction loan receivables are written off against the provision when recoverability is assessed as being remote. Subsequent recoveries of amounts previously written off are credited to the income statement. Provisions Provisions for environmental restoration, restructuring costs, product and service warranties and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Such provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money. Provisions are not recognised for future operating losses. Provisions for insurance represent an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported at the balance sheet date on certain risks retained by the Group.

132 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Group accounting policies continued Retirement benefit obligations Contributions to defined contribution pension plans and other post-retirement benefits are charged to the income statement as incurred. For defined benefit pension plans and other retirement benefits, the cost is calculated annually using the projected unit credit method and is recognised over the average expected remaining service lives of participating employees, in accordance with the recommendations of independent qualified actuaries. The current service cost of defined benefit plans is recorded within operating profit. The total expected return from pension scheme assets less the total interest on pension scheme liabilities is recorded within finance revenue if a gain and finance costs if an expense. Past service costs resulting from enhanced benefits are recorded within operating profit and recognised on a straight-line basis over the vesting period, or immediately if the benefits have vested. Actuarial gains and losses, which represent differences between the expected and actual returns on the plan assets and the effect of changes in actuarial assumptions, are recognised in full in the statement of comprehensive income in the period in which they occur. The defined benefit liability or asset recognised in the balance sheet comprises the net total for each plan of the present value of the benefit obligation at the balance sheet date, less any past service costs not yet recognised, less the fair value of the plan assets, if any, at the balance sheet date. Where a plan is in surplus, the asset recognised is limited to the amount of any unrecognised past service costs and the present value of any amount which the Group expects to recover by way of refunds or a reduction in future contributions. The expected long-term rates of return for equities are long-term assumptions and were set after taking actuarial advice. The expected equity returns can be considered as a risk free rate of return (determined by reference to government bond rates in the countries in which the plans are based) plus a risk premium to reflect the additional risks associated with equities. For the UK scheme the expected return implies a premium of 3.1 per cent per year as at 31 July 2011 (2010: 2.9 per cent) over the expected return from government bonds. For the principal overseas schemes in USA, Canada and Switzerland a similar approach has been adopted with returns set by reference to long-term bond rates after taking actuarial advice. Taxation Current tax represents the expected tax payable (or recoverable) on the taxable income for the year using tax rates enacted or substantively enacted at the balance sheet date and taking into account any adjustments arising from prior years. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Share capital Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax. Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company’s equity holders.

Strategic overview Business and performance Corporate governance Financial statements Other information 133 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Group accounting policies continued Share-based payments Share-based incentives are provided to employees under the Group’s executive share option, long-term incentive and employee share purchase schemes. The Group recognises a compensation cost in respect of these schemes that is based on the fair value of the awards, measured using Black-Scholes, Binomial and Monte Carlo valuation methodologies. For equity-settled schemes, the fair value is determined at the date of grant (including the impact of any non-vesting conditions such as a requirement for employees to save) and is not subsequently re-measured unless the conditions on which the award was granted are modified. For cash-settled schemes, the fair value is determined at the date of grant and is re-measured at each balance sheet date until the liability is settled. The fair value at the date of grant of options awarded during the year has been estimated by the binomial methodology for all schemes except the long term incentive scheme, for which a Monte Carlo simulation was used. The fair value of shares granted under the Wolseley Restricted Share Plan was calculated as the market price of the shares at the date of grant reduced by the present value of dividends expected to be paid over the vesting period. The principal assumptions required by these methodologies were: Long Term Incentive Executive Share Options Employee Share Options Schemes 2011 2010 2011 2010 2011 2010 Risk free interest rate 2.55% 3.23% 1.57% 1.55% 1.31% 2.11% Expected dividend yield 1.84% 1.70% 1.80% 1.43% 1.93% 1.36% Expected volatility 42.14% 39.19% 44.04% 48.56% 53.2% 51.97% Expected life 5.7 years 5.8 years 1-7 years 1-7 years 3 years 3 years Expected volatility has been estimated on the basis of historic volatility over the expected term, excluding the effect of extraordinary volatility due to the Group’s capital reorganisation and rights issue in 2009. Expected life has been estimated on the basis of historical data on the exercise pattern. Generally, the compensation cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to the failure to satisfy service conditions or non-market performance conditions. Dividends payable Dividends on ordinary shares are recognised in the Group’s financial statements in the period in which the dividends are approved by the shareholders of the Company (generally in the case of the final dividend) or paid (in the case of interim dividends). Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet to the extent that there is no right of offset and no practice of net settlement with cash balances. Derivative financial instruments Derivative financial instruments, in particular interest rate swaps and currency swaps, are used to manage the financial risks arising from the business activities of the Group and the financing of those activities. There is no trading activity in derivative financial instruments. At the inception of a hedging transaction entailing the use of derivative financial instruments, the Group documents the relationship between the hedged item and the hedging instrument together with its risk management objective and the strategy underlying the proposed transaction. The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedge in offsetting movements in the fair values or cash flows of the hedged items. Derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. Where derivative financial instruments do not fulfil the criteria for hedge accounting contained in IAS 39, changes in their fair values are recognised in the income statement.

134 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Group accounting policies continued When hedge accounting is used, the relevant hedging relationships are classified as fair value hedges, cash flow hedges or net investment hedges. Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability is adjusted by the increase or decrease in its fair value attributable to the hedged risk and the resulting gain or loss is recognised in the income statement where, to the extent that the hedge is effective, it will be offset by the change in the fair value of the hedging instrument. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognised directly in equity rather than in the income statement. When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in equity are either recycled to the income statement or, if the hedged item results in a non-financial asset, are recognised as adjustments to its initial carrying amount. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Financial assets The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. (a) Financial assets at fair value through profit or loss This category comprises financial assets held for trading which have been acquired principally for the purpose of selling in the short term. Derivatives also fall within this category unless they are designated as hedges and the hedge is effective for accounting purposes. Assets in this category are classified as current. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and with no intention of trading. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Construction loans are shown separately on the balance sheet. Other loans and receivables are included in trade and other receivables in the balance sheet. (c) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. They are included in non-current assets unless the investment is due to mature within 12 months of the balance sheet date. (d) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the financial asset within 12 months of the balance sheet date. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are subsequently carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the “Financial assets at fair value through profit or loss” category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current value, less any impairment loss on that financial asset previously recognised in profit or loss, is removed from equity and recognised in the income statement.

Strategic overview Business and performance Corporate governance Financial statements Other information 135 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Group accounting policies continued Borrowings Borrowings are recognised initially at the fair value of the consideration received net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Additional information about financial instruments Financial instruments by category The accounting policies for financial instruments have been applied to the following items: Cash Derivatives and cash Loans and used for Available- equivalents receivables hedging for-sale Total Assets at 31 July 2011 £m £m £m £m £m Financial assets: available-for-sale investments ––– 3 3 Trade and other receivables, excluding prepayments and accrued income – 1,846 – – 1,846 Derivative financial assets – – 64 – 64 Financial receivables: construction loans (secured) –33– – 33 Cash and cash equivalents 403 – – – 403 403 1,879 64 3 2,349 Impairment losses in the period –47– – 47

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

136 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Additional information about financial instruments continued Cash Derivatives Fair value and cash Loans and used for through Available- equivalents receivables hedging profit or loss for-sale Total Assets at 31 July 2010 £m £m £m £m £m £m Financial assets: available-for-sale investments – – – – 3 3 Trade and other receivables, excluding prepayments and accrued income – 1,783 – – – 1,783 Derivative financial assets – – 73 3 – 76 Financial assets: trading investments – – – – – – Financial receivables: construction loans (secured) – 80 – – – 80 Cash and cash equivalents 665 – – – – 665 665 1,863 73 3 3 2,607 Impairment losses in the period – 63 – – – 63

Fair value through Other financial profit or loss liabilities Total Liabilities as at 31 July 2010 £m £m £m Trade and other payables, excluding accruals, deferred income and other tax and social security – 2,325 2,325 Borrowings: construction loans (unsecured) – 80 80 Bank loans and overdrafts – 1,004 1,004 Obligations under finance leases – 75 75 Derivative financial liabilities 8 – 8 8 3,484 3,492

Financial instruments by measurement basis Financial instruments in the categories “derivatives used for hedging”, “fair value through profit or loss” and “available-for-sale” are all measured in the balance sheet at fair value. Fair value measurements can be classified in the following hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following tables present the Group’s assets and liabilities that are measured at fair value at 31 July 2011 and 31 July 2010: Level 1 Level 2 Level 3 Total Assets at 31 July 2011 £m £m £m £m Financial assets: available-for-sale investments 3– – 3 Derivatives used for hedging – 64 – 64 Total assets 3 64 – 67

Liabilities at 31 July 2011 Derivatives at fair value through profit and loss –2 – 2 Total liabilities –2 – 2

Strategic overview Business and performance Corporate governance Financial statements Other information 137 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Additional information about financial instruments continued Level 1 Level 2 Level 3 Total Assets at 31 July 2010 £m £m £m £m Financial assets: available-for-sale investments 3– – 3 Derivatives at fair value through profit and loss –3 – 3 Derivatives used for hedging – 73 – 73 Total assets 3 76 – 79

Liabilities at 31 July 2010 Derivatives at fair value through profit and loss – 8 – 8 Total liabilities –8 – 8 The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial instruments that are not traded in an active market (such as over-the-counter derivatives) is determined by using valuation techniques. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of currency swaps has been estimated as the cost of closing out the contracts using market prices at the balance sheet date. The Group’s other financial instruments are measured on bases other than fair value. Other receivables include an amount of £44 million (2010: £44 million) which has been discounted at a rate of 3.8 per cent (2010: 3.7 per cent) due to the long-term nature of the receivable. Because other current assets and liabilities are either of short maturity or bear floating rate interest, their fair values approximate to book values. The book values and fair values of categories including non-current assets and liabilities can be compared as follows: 2011 2011 2010 2010 Book value Fair value Book value Fair value £m £m £m £m Trade and other receivables, excluding prepayments and accrued income 1,846 1,846 1,783 1,782 Trade and other payables, excluding accruals, deferred income and other tax and social security 1,950 1,950 2,325 2,325 Bank loans 352 352 238 238 Senior unsecured notes 513 513 675 678 Finance lease obligations 52 52 75 75

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 periods ended 31 July 2010 and 31 July 2011. By the nature of its business the Group also has trade credit and commodity price exposures, the management of which is delegated to operating businesses. There has been no change since the year end in the major financial risks faced by the Group. Policies for managing each of these risks are regularly reviewed and are summarised below. When the Group enters into derivative transactions (principally interest rate swaps and forward foreign currency contracts), the purpose of such transactions is to hedge certain interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments or speculative transactions be undertaken.

138 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Additional information about financial instruments continued Capital risk management The Group’s sources of funding currently comprise cash flows generated by operations, equity contributed by shareholders and borrowings from banks and other financial institutions. In order to maintain or adjust the capital structure the Group may return capital to shareholders, issue new shares or sell assets to reduce debt. Liquidity risk The Group maintains a policy of ensuring sufficient borrowing headroom to finance all investment and capital expenditure included in its strategic plan, with an additional contingent safety margin. The Group has estimated its anticipated contractual cash outflows including interest payable in respect of its bank and construction loan 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: Interest rate Interest on and currency Debt debt swaps Total As at 31 July 2011 £m £m £m £m Due in less than one year 197 31 2 230 Due in one to two years 50 29 – 79 Due in two to three years 9 28 – 37 Due in three to four years 36 28 – 64 Due in four to five years 198 23 – 221 Due in over five years 386 68 – 454 Total 876 207 2 1,085

Construction Interest rate loan Interest on and currency borrowings Debt debt swaps Total As at 31 July 2010 £m £m £m £m £m Due in less than one year 80 136 41 5 262 Due in one to two years – 1 38 3 42 Due in two to three years – 53 36 – 89 Due in three to four years – 34 24 – 58 Due in four to five years – 73 24 – 97 Due in over five years – 549 79 – 628 Total 80 846 242 8 1,176

Strategic overview Business and performance Corporate governance Financial statements Other information 139 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Additional information about financial instruments continued Foreign currency risk The Group has significant overseas businesses whose revenues are mainly denominated in the currencies of the countries in which the operations are located. Approximately 40 per cent of the Group’s revenue is in US dollars and 22 per cent in euros. The Group does not have significant transactional foreign currency cash flow exposures. However, those that do arise may be hedged with either forward contracts or currency options. The Group does not normally hedge profit translation exposure since such hedges have only temporary effect. Most of the foreign currency earnings generated by the Group’s overseas operations are reinvested in the business to fund growth in those territories. The Group’s policy is to adjust the currencies in which its debt is denominated to materially match the currencies in which its trading profit is generated. Details of average exchange rates used in the translation of overseas earnings and of year-end exchange rates used in the translation of overseas balance sheets, for the principal currencies used by the Group, are shown in the Five year summary on page 154. The net effect of currency translation was to reduce revenue by £70 million (0.5 per cent) (2010: increase of £223 million, or 1.5 per cent) and to reduce trading profit by £1 million (0.2 per cent) (2010: increase of £5 million, or 1.1 per cent). These currency effects reflect a movement of the average sterling exchange rate against US dollars, E uros and Canadian dollars as follows: 2011 Strengthening/ 2010 (weakening) Weakening of sterling of sterling US dollars 1.7% (0.1%) Euros 1.8% (1.8%) Canadian dollars (3.6%) (12.3%)

The Group has financial instruments denominated in foreign currencies which have been designated as hedges of the net investment in its overseas subsidiaries. The principal value of these financial instruments at the balance sheet date was £852 million (2010: £1,401 million). The gain on translation of these financial instruments into sterling of £12 million (2010: loss of £71 million) has been taken to the translation reserve. At 31 July 2011 the Group had no open short-term currency swaps and forward contracts which were designated and effective as hedges of overseas operations. At 31 July 2010 they were as follows: 2010 Currency million £m Bought/(sold) forward EUR 138 115 DKK 260 29 GBP 104 (104) USD 118 (75) CAD 60 37 2

The changes in value of these currency swaps and forward contracts during the year can be analysed as follows: 2011 2010 Hedge of net investment in overseas operations £m £m At 1 August 2 1 Valuation (losses)/gains on effective hedges (charged)/credited to equity (2) 1 At 31 July – 2

140 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Additional information about financial instruments continued The Group also uses forward contracts and currency swaps to hedge cash flows in respect of committed transactions. At the balance sheet date the Group had entered into the following short-term forward contracts which were classified as fair value through profit or loss: 2011 2010 Currency Currency million £m million £m Bought/(sold) forward DKK 1,360 (160) DKK 1,418 (157) SEK 1,415 137 SEK 1,700 150 EUR 25 22 NOK 60 6 USD 1 1 EUR 5 4 – 3

The changes in value of these forward contracts during the year can be analysed as follows: 2011 2010 At fair value through profit and loss £m £m At 1 August 3 7 Valuation losses charged to income statement (3) (4) At 31 July – 3

Interest rate risk To manage the Group’s exposure to interest rate fluctuations, the Group’s policy is that between 0 per cent and 50 per cent of projected borrowings required during the next two years should be at fixed rates. However, this percentage is regularly reviewed and may be overridden by the Board. It is the Group’s current intention to fix a greater percentage of its borrowings. The Group borrows in the desired currencies principally at rates determined by reference to short-term benchmark rates applicable to the relevant currency or market, such as LIBOR. Rates which reset at least every 12 months are regarded as floating rates, and the Group then uses interest rate swaps to generate the desired interest rate profile. The Group reviews deposits and borrowings by currency at both Treasury Committee and Board meetings. The Treasury Committee gives prior approval to any variations from floating rate arrangements. Interest rate swap contracts comprising fixed interest payable on notional principal of €100 million (2010: €300 million) were held at fair value through profit and loss at 31 July 2011 and expired on 13 August 2011. These swap contracts were designated as cash flow hedges until 31 January 2010. As the cash flows which were the subject of the hedge relationship are still forecast to occur, valuation losses deferred in equity are being recycled over the duration of the previous hedge relationship. 2011 2010 At fair value through profit and loss £m £m At 1 August (8) – Transfer from hedge of interest rate cash flows – (12) Settled 3 – Valuation gains credited to income statement 3 4 At 31 July (2) (8)

Strategic overview Business and performance Corporate governance Financial statements Other information 141 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Additional information about financial instruments continued The Group’s private placement borrowings are at fixed rates. Interest rate swap contracts comprising fixed interest receivable on notional principal of $729 million (2010: $729 million) are designated as hedges of the fair values of these borrowings. The movement in fair value of these interest rate swaps has been analysed into a proportion that is effective as a hedge, and a proportion that is ineffective; both portions have been charged to the income statement with the effective portion offsetting the change in fair value of the hedged borrowings (see note 6). The contracts expire between November 2012 and November 2020 and the fixed interest rates range between 4.93 per cent and 5.32 per cent (2010: 4.93 per cent and 5.32 per cent). 2011 2010 Hedge of fair value of fixed interest borrowings £m £m At 1 August 71 38 Valuation (losses)/gains (charged)/credited to income statement (4) 30 Exchange (3) 3 At 31 July 64 71

Credit risk Wolseley provides sales on credit terms to many of its customers. There is an associated risk that customers may not be able to pay outstanding balances. The Group’s construction loan business also provides loans to finance the construction of properties. There is an associated risk that customers may not be able to pay outstanding loan balances. At 31 July 2011 the maximum exposure to credit risk was £1,872 million (2010: £1,863 million) of which £33 million (2010: £80 million) is secured against properties under construction or completed properties awaiting sale. Each of the businesses have established procedures in place to review and collect outstanding receivables. Significant outstanding and overdue balances are reviewed on a regular basis and resulting actions are put in place on a timely basis. In many cases, protection is provided through lien rights on projects, or through credit insurance arrangements. All of the major businesses use professional, dedicated credit teams, in some cases field-based. Appropriate provisions are made for debts that may be impaired on a timely basis. Concentration of credit risk in trade receivables is limited as the Group’s customer base is large and unrelated. Accordingly, management consider that there is no further credit risk provision required above the current provision for impairment. The Group’s construction loans are secured on the related properties and are managed by a dedicated lending team within that business. Policies are also applied to provide further protection and KPIs are monitored regularly by management outside the business. 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 £470 million (2010: £744 million). This risk is managed by setting credit and settlement limits for a panel of approved counterparties, all of which have credit ratings equivalent to Standard & Poor’s A or higher. In exceptional circumstances the Treasury Committee will allow deposits with relationship banks with other investment grade ratings, subject to close monitoring of the exposure. The limits are approved by the Treasury Committee and ratings are monitored regularly. Market price risk The Group monitors its interest rate and currency risk by reviewing the effect on financial instruments over various periods of a range of possible changes in interest rates and exchange rates. The Group does not consider it has a material exposure to changes in interest rates. The Group has estimated that a weakening of sterling by ten per cent against all the currencies in which the Group does business would result in a charge to equity of £66 million (2010: £62 million), arising from the translation of borrowings denominated in foreign currency, and would have no material effect on the income statement. The Group does not require operating businesses to adhere to a formalised risk management policy in respect of trade credit risk or commodity price risk, and does not consider that there is a useful way of quantifying the Group’s exposure to any of the macro-economic variables that might affect the collectability of receivables or the prices of commodities.

142 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

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

Strategic overview Business and performance Corporate governance Financial statements Other information 143 Wolseley plc Annual Report and Accounts 2011

40. Additional information continued Additional information about pensions and other long-term employee benefits continued Investment policy The Group’s investment strategy for its funded post employment plans is decided locally and, if relevant, the trustees of the plan, and takes account of the relevant statutory requirements. The Group’s objective for the investment strategy is to achieve a target rate of return in excess of the increase in the liabilities, while taking an acceptable amount of investment risk relative to the liabilities. This objective is implemented by using specific allocations to a variety of asset classes that are expected over the long term to deliver the target rate of return. Most investment strategies have significant allocations to equities, with the intention that this will result in the ongoing cost to the Group of the post-employment plans being lower over the long term and within acceptable boundaries of risk. For the UK scheme, the policy is to invest approximately 75 per cent of the assets in equities and 25 per cent in other asset classes, principally bonds. The investment strategy is subject to regular review by the scheme trustees in consultation with the Group. For the overseas schemes the investment strategy involves the investment in defined levels of predominantly equities with the remainder of the assets being invested in cash and bonds. History of experience gains and losses 2011 2010 2009 2008 2007 History of experience gains and losses – UK schemes £m £m £m £m £m Fair value of plan assets 696 593 511 542 588 Present value of defined benefit obligation (946) (897) (737) (693) (630) Deficit in the plan (250) (304) (226) (151) (42)

Experience gain/(loss) to scheme assets Amount 38 40 (87) (103) 40 Percentage of scheme assets 5% 7% (17)% (19)% 7% Experience gain/(loss) on scheme liabilities Amount (5) –– – (8) Percentage of the present value of scheme liabilities (1)% –– – 1%

2011 2010 2009 2008 2007 History of experience gains and losses – non-UK schemes £m £m £m £m £m Fair value of plan assets 193 131 129 130 123 Present value of defined benefit obligation (303) (259) (244) (215) (188) Deficit in the plan (110) (128) (115) (85) (65)

Experience gain/(loss) to scheme assets Amount 1 4 (26) (14) 5 Percentage of scheme assets 1% 3% (20)% (11)% 4% Experience (gain)/loss on scheme liabilities Amount (3) (2) 1 6 3 Percentage of the present value of scheme liabilities (1)% (1)% 0% 3% 2%

144 Wolseley plc Annual Report and Accounts 2011

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2011

40. Additional information continued Additional information about share-based payment plans The Group operates ten share option plans of which four are discretionary plans (collectively, the “Executive Option Schemes”) and six are all employee sharesave plans (collectively the “Employee Saving Option Schemes”). Four plans were adopted as part of the Company’s redomiciliation after approval by shareholders in November 2010. Awards granted under the Executive Option Schemes are subject to a condition such that they may not be exercised unless the growth in earnings per share over a period of three consecutive financial years exceeds the growth in the UK Retail Price Index over the same period by at least 9 per cent and consequently vest over a period of three years. Awards granted under the Employee Savings Option Schemes vest over periods ranging from three to seven years, save for awards granted under the US sharesave plan, which vest over a one-year period. The Group also operates a Long Term Incentive Scheme (“LTIS”) and the Wolseley Restricted Share Plan (“RSP”) for senior executives. Under the LTIS, executives are awarded a variable number of shares depending on the level of total shareholder return over the next three years relative to that of a number of comparator companies. The vesting period is three years. The maximum award under the LTIS is determined at grant date and then adjusted at vesting date in accordance with the market performance condition. Under the RSP, executives are granted free shares. The vesting period is three years and there are no performance measures other than retained employment. Additional information about employee benefit trusts Three Employee Benefit Trusts were established in October 2004 in connection with the Company’s discretionary share option plans and long term incentive plans. Upon its redomiciliation, the company changed the trustees to Bedell Trust Company Limited (also registered in Jersey). No shares were purchased by the trusts during the year. The market value of the 1,947,259 shares held by the Employee Benefit Trusts at 31 July 2011, which have a nominal value of £0.2 million, was £35 million (2010: £28 million). Dividends due on shares held by the Employee Benefit Trusts are waived in accordance with the provisions of the trust deeds. Additional information about the parent company of the Group Until 22 November 2010, the parent company was Wolseley plc, a limited liability company incorporated in England and Wales and domiciled in the United Kingdom. On 23 November 2010, pursuant to a Scheme of Arrangement under Part 26 of the UK Companies Act 2006, a new parent company was introduced which is now called Wolseley plc (the “Company”). The previous parent company has been renamed as Wolseley Limited (“Old Wolseley”). The Company is incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland. It operates as the ultimate parent company of the Wolseley Group. Its registered office is 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands. The Group’s principal subsidiary undertakings are set on pages 156 and 157.

Strategic overview Business and performance Corporate governance Financial statements Other information 145 Wolseley plc Annual Report and Accounts 2011 Independent auditors’ report to the members of Wolseley plc

We have audited the Group Financial Statements of Wolseley plc for the year ended 31 July 2011 which comprise the Group Income Statement, the Group Balance Sheet, the Group Statement of Comprehensive Income, the Group Statement of Changes in Equity, the Group Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union. Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 71 the Directors are responsible for the preparation of the Group Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the Group Financial Statements: • give a true and fair view of the state of the Group’s affairs as at 31 July 2011 and of the Group’s profit and cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991 and Article 4 of the IAS Regulation. Opinion on other matters In our opinion: • the information given in the Directors’ report for the financial year for which the Group Financial Statements are prepared is consistent with the Group financial statements; and • the information given in the Corporate governance statement with respect to internal control and risk management systems and about share capital structures is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies (Jersey) Law 1991, we are required to report to you if, in our opinion we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement in relation to going concern as set out in the Directors’ report; • the part of the Corporate governance statement relating to the company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and • certain elements of the report to shareholders by the Board of directors’ remuneration. Other matter We have reported separately on the parent company financial statements of Wolseley plc for the year ended 31 July 2011.

Stuart Watson (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 4 October 2011 146 Wolseley plc Annual Report and Accounts 2011 Company proﬁt and loss account For the period from 28 September 2010 to 31 July 2011

2011 Notes £m Administrative expenses (7) Operating loss (7) Investment income 3 50 Profit before tax 43 Tax expense – Profit for the period 43

The Company has no recognised gains and losses other than those included in the profit and loss account and therefore no separate statement of total recognised gains and losses has been presented.

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

The accompanying notes are an integral part of these Company financial statements. The Company financial statements on pages 146 to 151 were approved by the Board of Directors on 4 October 2011 and were signed on its behalf by

Ian Meakins John Martin Group Chief Executive Chief Financial Officer

Strategic overview Business and performance Corporate governance Financial statements Other information 147 Wolseley plc Annual Report and Accounts 2011 Notes to the Company ﬁnancial statements Period ended 31 July 2011

1. Corporate information Wolseley plc (the ‘Company’) was incorporated and registered in Jersey on 28 September 2010 under the Jersey Companies Law as a public company limited by shares under the name Wolseley plc with registered number 106605. The principal legislation under which the Company operates is the Companies (Jersey) Law 1991, as amended, and regulations made thereunder. The address of its registered office is 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands. It is headquartered in Switzerland. On 23 November 2010 the Company became the ultimate holding company of the then Wolseley plc (the former holding company of the Wolseley Group of companies (‘Old Wolseley’)), a public limited company incorporated in England and Wales, pursuant to a Scheme of Arrangement under Part 26 of the UK Companies Act 2006 that was approved by the High Court of Justice in England and Wales and the shareholders of Old Wolseley (the ‘Scheme of Arrangement’). Pursuant to the Scheme of Arrangement, all of the ordinary shares of Old Wolseley were exchanged on a one-for-one basis for ordinary shares of the Company. The ordinary shares of the Company were then listed on the London Stock Exchange’s main market. Trading in these shares commenced on 24 November 2010. As a result of the scheme of arrangement Old Wolseley is now a wholly owned subsidiary of the Company and it has since re- registered as a private limited company. The Scheme of Arrangement did not involve any cash payment for ordinary shares. The principal activity of the Company is to act as the ultimate holding company of the Wolseley Group of companies. 2. Company accounting policies Basis of accounting The separate financial statements of the Company are presented in compliance with the requirements for companies whose shares are traded on the London Stock Exchange’s main market. They have been prepared on a going concern basis and under the historical cost convention, and in accordance with the Companies (Jersey) Law 1991 and United Kingdom Generally Accepted Accounting Practice (‘UK GAAP’). The financial statements of the Company cover the period from incorporation on 28 September 2010 to 31 July 2011 and hence, no comparative information is presented. They are presented in pounds sterling as that is the functional currency of the Company. Note 9 (Dividends) on page 102, note 29 (Share capital) on page 120 and note 30 (Share-based payments) on page 121 of the Wolseley plc consolidated financial statements form part of these financial statements. Cash Flow statement Under Financial Reporting Standard 1 (revised 1996) the Company is exempt from the requirement to prepare statements of cash flow as the consolidated statements have been published. Foreign currencies The cost of the Company’s investments in overseas subsidiary undertakings is translated into sterling at the rate ruling at the date of investment. Foreign currency transactions entered into during the year are translated into sterling at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the profit and loss account. Investments Fixed asset investments are recorded at cost less provision for impairment. The Company assesses at each balance sheet date whether there is objective evidence that an investment or a group of investments is impaired. Taxation Current tax represents the expected tax payable (or recoverable) on the taxable income for the year using tax rates enacted or substantively enacted at the balance sheet date and taking into account any adjustments arising from prior years. Provision is made for deferred taxation in so far as a liability or asset has arisen as a result of transactions that had occurred by the balance sheet date and have given rise to an obligation to pay more tax in the future, or the right to pay less tax in the future. An asset has not been recognised to the extent that the transfer of economic benefits in the future is uncertain. Deferred tax assets and liabilities recognised have not been discounted. 148 Wolseley plc Annual Report and Accounts 2011

Notes to the Company ﬁnancial statements continued Period ended 31 July 2011

2. Company accounting policies continued Financial instruments The Wolseley plc consolidated financial statements for the year ended 31 July 2011 contain financial instrument disclosures required by IFRS 7 (Financial Instruments: Disclosures and Presentation) and these would also comply with the disclosures required by FRS 29 (Financial Instruments: Disclosures and Presentation). Accordingly, the Company has taken advantage of the exemption in FRS 29 and has not presented separate financial instrument disclosures. Financial guarantees Financial guarantee contracts are recognised as assets and liabilities measured at fair value as at the reporting date. Fair value is estimated by discounting expected cash flows at a market rate. Changes in fair value are recognised in the profit and loss account. Cash at bank and in hand Cash at bank and in hand includes cash in hand and deposits held at call with banks. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet to the extent that there is no right of offset and practice of net settlement with cash balances. Share capital The Company has one class of shares, ordinary shares, which are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax. Where the Company or the Company’s trust purchases the Company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company’s equity holders. 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 profit and loss account over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Share-based payments Share-based incentives are provided to employees under the Company’s executive share option, long-term incentive and share purchase schemes. The Company recognises a compensation cost in respect of these schemes that is based on the fair value of the awards, measured using Black-Scholes, Binomial and Monte Carlo valuation methodologies. For equity-settled schemes, the fair value is determined at the date of grant and is not subsequently re-measured unless the conditions on which the award was granted are modified. For cash-settled schemes, the fair value is determined at the date of grant and is re-measured at each balance sheet date until the liability is settled. Generally, the compensation cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to the failure to satisfy service conditions or achieve non-market performance conditions. Dividends payable Dividends on ordinary shares are recognised in the Company’s financial statements in the period in which the dividends are approved by the shareholders of the Company (generally in the case of the final dividend) or paid (in the case of interim dividends). Strategic overview Business and performance Corporate governance Financial statements Other information 149 Wolseley plc Annual Report and Accounts 2011

3. Fixed asset investments Cost £m On incorporation – Scheme of arrangement 4,989 Additions 2,545 Dividends in specie from Group undertakings (2,544) At 31 July 2011 4,990

All of the above investments are in unlisted shares. The Directors believe that the carrying value of the investments is supported by their underlying assets. Following the Scheme of Arrangement on 23 November 2010 the Company recorded the cost of its investment in Old Wolseley, which changed its name to Wolseley Limited, at the fair value at that date of £4,989 million. Other significant transactions since the date of incorporation include: On 1 December 2010, 100 per cent of the ordinary shares of Wolseley Finance sp.z o.o were transferred from Wolseley Limited to Wolseley plc as a dividend in specie at a value of £178 million. On 15 December 2010, the Company received a dividend in specie from Wolseley Limited comprising loans and loan notes to other Group companies and immediately contributed the loans and loan notes to Wolseley Finance sp.z o.o in exchange for shares valued at £2,358 million. On 25 March 2011, 100 per cent of the ordinary shares of Wolseley Insurance Limited were transferred from Wolseley Limited to Wolseley plc as a dividend in specie at a value of £8 million. The dividends in specie received from Wolseley Limited in the period have been considered to be a return of capital and have been allocated against the Company’s cost of investment in Wolseley Limited. The Company’s direct holdings in subsidiary undertakings as at 31 July 2011 were as follows: Percentage of ordinary Company Country of registration and operation Principal activity shares held Wolseley Finance sp.z o.o Poland Finance 100% Wolseley Limited England and Wales Investment 100% Wolseley Insurance Limited Isle of Man Insurance 100%

Details of the principal subsidiary undertakings of the Company, including those that are held indirectly, are listed on pages 156 and 157 of the Annual Report. During the period the Company received a dividend of £50 million from Wolseley Limited. 4. Creditors: amounts falling due within one year 2011 £m Bank overdraft 1 Amounts due to Group companies 3 4

The fair value of amounts included in creditors approximates to book value. Amounts due to Group companies due within one year are not interest bearing and are payable on demand. 5. Share capital Details of the Company’s share capital are set out in note 29, on page 120, to the Wolseley plc consolidated financial statements. 150 Wolseley plc Annual Report and Accounts 2011

Notes to the Company ﬁnancial statements continued Period ended 31 July 2011

6. Share premium account 2011 £m On incorporation – Scheme of arrangement 4,961 Capital reduction (4,961) New share capital subscribed 6 At 31 July 2011 6

On 6 December 2010, the Royal Court of Jersey approved the capital reduction of the Company, whereby the share premium at that date was transferred to the profit and loss reserve. The effect of the capital reduction was to reduce share premium by £4,961 million and to increase the profit and loss reserve by £4,961 million. 7. Profit and loss account 2011 £m On incorporation – Capital reduction 4,961 Profit for the period 43 Dividends paid (42) Equity-settled employee share options 3 At 31 July 2011 4,965

8. Reconciliation of movements in equity shareholders’ funds 2011 £m On incorporation – Scheme of arrangement 4,989 New share capital subscribed – Share premium on new share capital subscribed 6 Profit for the period 43 Dividends paid (42) Equity-settled employee share options 3 Closing shareholders’ funds 4,999

9. Share-based payments Details of share options granted by Group companies to employees, and that remain outstanding, over the Company’s shares are set out in note 30 on page 121 to the Wolseley plc consolidated financial statements. The Company recognised an equity- settled share-based payment charge of £nil in the year. 10. Contingent liabilities Provision is made for the Directors’ best estimate of known legal claims and legal actions in progress. The Company takes legal advice as to the likelihood of success of claims and actions and no provision is made where the Directors consider, based on that advice that the action is unlikely to succeed or a sufficiently reliable estimate of the potential obligation cannot be made. In addition the Company has given certain banks authority to transfer at any time any sum outstanding to its credit against or towards satisfaction of its liability to those banks of certain subsidiary undertakings. The Company has given indemnities and warranties to the purchasers of businesses from the Company and certain Group companies in respect of which no material liabilities are expected to arise. Strategic overview Business and performance Corporate governance Financial statements Other information 151 Wolseley plc Annual Report and Accounts 2011

11. Employees, employee costs and auditors’ remuneration The average number of employees of the Company in the period ended 31 July 2011 was one. Other employees of Group companies were seconded or assigned to the Company in the period, in order to fulfil their duties or to carry out the work of the Company. Each of the Non-Executive Directors of the Company has an appointment letter with the Company, and the Executive Directors and certain other senior managers of the Group have assignment letters in place with the Company. Total employment costs of the Company for the period, including Non-Executive Directors and seconded employees, were £1 million. Fees payable to the auditors for the audit of the Company’s financial statements are set out in note 3, on page 99, to the Wolseley plc consolidated financial statements. 12. Dividends Details of the Company’s dividends are set out in note 9, on page 102, to the Wolseley plc consolidated financial statements. 13. Related party transactions The Company has taken advantage of the exemption available under FRS 8 “Related party disclosures” to dispense with the requirement to disclose transactions with fellow subsidiaries, all of whose voting rights are held within the Group, and which are included in the consolidated financial statements of Wolseley plc.

152 Wolseley plc Annual Report and Accounts 2011 Independent auditors’ report to the members of Wolseley plc

We have audited the parent company financial statements of Wolseley plc for the year ended 31 July 2011 which comprises the Company profit and loss account, the Company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 71 the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 July 2011; • have been properly prepared in accordance with United Kingdom Accounting Standards; and • have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991. Opinion on other matter In our opinion the information given in the Directors’ Report for the financial year for which the parent company’s financial statements are prepared is consistent with the parent company financial statements. At the request of the directors, we have also audited the part of the Directors’ Remuneration Report that is described as having been audited. In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion: • proper 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 parent company financial statements are not in agreement with the accounting records; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Group financial statements of Wolseley plc for the year ended 31 July 2011.

Stuart Watson (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 4 October 2011

Strategic overview Business and performance Corporate governance Financial statements Other information 153 Wolseley plc Annual Report and Accounts 2011 Five year summary

2008 2007 2011 2010 2009 (restated) (restated) £m £m £m £m £m Revenue USA 5,500 5,174 5,820 5,613 5,685 Canada 811 765 700 684 619 UK 2,404 2,466 2,699 3,203 3,171 Nordic 2,128 2,012 2,124 2,299 1,678 France 1,943 1,937 2,144 2,116 1,872 Central Europe 772 849 954 899 838 Group 13,558 13,203 14,441 14,814 13,863 Trading profit USA 314 239 309 389 401 Canada 39 41 32 39 42 UK 109 91 55 176 211 Nordic 113 101 97 160 103 France 53 30 32 103 101 Central Europe 30 9 (1) (1) 31 Central and other costs (36) (61) (77) (79) (61) Group 622 450 447 787 828 Amortisation of acquired intangibles (75) (92) (105) (105) (88) Impairment of acquired intangibles (39) (223) (490) (57) – Exceptional items (51) (332) (458) (70) – Operating profit/(loss) 457 (197) (606) 555 740 Net interest payable (66) (77) (145) (156) (119) Associate – share of after tax loss – (13) (15) – – Associate – impairment – (41) – – – Profit/(loss) before tax 391 (328) (766) 399 621 Tax (charge)/credit (110) (38) 34 (157) (159) Profit/(loss) on ordinary activities after tax from continuing operations 281 (366) (732) 242 462 (Loss)/profit from discontinued operations (10) 26 (441) (168) 12 Profit/(loss) attributable to equity shareholders 271 (340) (1,173) 74 474 Ordinary dividends (42) – – (74) (211) Net assets employed Intangible fixed assets 1,628 1,812 2,223 2,836 2,680 Property, plant and equipment 1,249 1,409 1,593 1,842 1,718 Other net assets, excluding liquid funds 1,022 184 519 1,150 1,520 3,899 3,405 4,335 5,828 5,918 Financed by Share capital 28 241 241 165 165 Share premium 6 1,156 1,152 949 945 Foreign currency translation reserve 380 300 228 (52) (181) Profit and loss account 2,962 1,362 1,755 2,297 2,522 Shareholders’ funds 3,376 3,059 3,376 3,359 3,451 Net debt 523 346 959 2,469 2,467 Net assets employed 3,899 3,405 4,335 5,828 5,918

154 Wolseley plc Annual Report and Accounts 2011

Five year summary continued

2008 2007 Continuing operations (unless stated) 2011 2010 2009 (restated) (restated) Like for like revenue growth 5.0% (6.0)% (13.9)% (2.3)% 5.1% Gross margin 27.9% 27.7% 27.7% 28.2% 28.3% Trading margin 4.6% 3.4% 3.1% 5.3% 6.0% Headline earnings per share (note 1) 142.9p 74.1p 95.6p 240.3p 309.8p Basic earnings/(loss) per share from continuing and discontinued operations (note 1) 95.9p (120.6)p (558.0)p 41.0p 266.7p Dividends per share (in respect of the financial year) (note 1) 45.0p – – 40.8p 117.5p Cover for ordinary dividends 3.2 – – 1.0 2.2 Net tangible assets per ordinary share (note 1) 613.3p 438.5p 406.2p 286.6p 423.2p Return on capital employed (note 2) 25.4% 16.4% 14.4% 24.3% 26.9% Return on gross capital employed (note 3) 10.6% 7.1% 6.9% 12.5% 15.6% Average number of employees 46,246 48,226 55,132 62,774 63,136 Number of shares in issue at year end (million) (note 1) 285 284 284 182 182 Number of branches at year end Continuing operations 3,837 4,118 4,394 5,025 4,988 Discontinued operations – – – 285 308 Total branches 3,837 4,118 4,394 5,310 5,296 US dollar translation rate Income statement/profit and loss 1.60 1.57 1.57 2.00 1.95 Balance sheet 1.64 1.57 1.67 1.98 2.03 Canadian dollar translation rate Income statement/profit and loss 1.59 1.64 1.85 2.01 2.19 Balance sheet 1.57 1.61 1.80 2.03 2.16 Euro translation rate Income statement/profit and loss 1.16 1.14 1.16 1.35 1.48 Balance sheet 1.14 1.20 1.17 1.27 1.48

Note 1. Shares in issue and amounts per share for 2007 and 2008 have been restated to reflect the Group’s capital reorganisation in 2009.

Note 2. Return on capital employed is the ratio of trading profit to the average year-end aggregate of shareholders’ funds and adjusted net debt excluding goodwill and other acquired intangible assets. Return on capital employed for 2011 has been calculated as follows:

Capital Capital Average employed employed capital Return on

2011 2010 employed Trading profit capital £m £m £m £m employed Net debt 523 346 Year-end working capital management 114 495 Receivables factoring facilities 68 274 Construction loan financing – 80 Adjusted net debt 705 1,195 Shareholders’ funds 3,376 3,059 Goodwill and other acquired intangibles (1,598) (1,779) Goodwill in assets held for sale (54) – 2,429 2,475 2,452 622 25.4%

Note 3. Return on gross capital employed is the ratio of trading profit to the average year-end aggregate of shareholders’ funds, adjusted net debt and cumulative goodwill and other acquired intangibles written off. The cumulative goodwill and other acquired intangibles written off balance at 31 July 2011 is £1,659 million (2010: £1,766 million) and average gross capital employed for 2011 is calculated as £5,879 million.

Strategic overview Business and performance Corporate governance Financial statements Other information 155 Wolseley plc Annual Report and Accounts 2011 Pro forma information in United States dollars

2008 2007 2011 2010 2009 (restated) (restated) $m $m $m $m $m Revenue USA 8,787 8,123 9,142 11,226 11,079 Canada 1,295 1,201 1,100 1,368 1,206 UK 3,840 3,871 4,240 6,406 6,179 Nordic 3,399 3,159 3,336 4,598 3,270 France 3,104 3,041 3,368 4,232 3,648 Central Europe 1,233 1,332 1,499 1,798 1,633 Group 21,658 20,727 22,685 29,628 27,015 Trading profit USA 501 375 485 778 781 Canada 62 64 50 78 82 UK 175 143 86 352 411 Nordic 181 159 152 320 201 France 85 47 50 206 197 Central Europe 48 14 (1) (2) 60 Central and other costs (57) (95) (121) (158) (119) Group 995 707 701 1,574 1,613 Amortisation of acquired intangibles (120) (144) (165) (210) (171) Impairment of acquired intangibles (63) (350) (770) (114) – Exceptional items (81) (521) (719) (140) – Operating profit/(loss) 731 (308) (953) 1,110 1,442 Net interest payable (106) (121) (228) (312) (232) Associate – share of after tax loss – (20) (24) – – Associate – impairment – (64) – – – Profit/(loss) before tax 625 (513) (1,205) 798 1,210 Tax (charge)/credit (175) (60) 53 (314) (310) Profit/(loss) on ordinary activities after tax from continuing operations 450 (573) (1,152) 484 900 (Loss)/profit from discontinued operations (17) 41 (693) (336) 23 Profit/(loss) attributable to equity shareholders 433 (532) (1,845) 148 923 Net assets employed Intangible fixed assets 2,673 2,842 3,716 5,625 5,437 Property, plant and equipment 2,051 2,210 2,663 3,654 3,485 Other net assets, excluding liquid funds 1,678 289 868 2,281 3,083 6,402 5,341 7,247 11,560 12,005 Financed by Share capital 47 378 403 327 335 Share premium 10 1,813 1,926 1,882 1,917 Foreign currency translation reserve 623 471 381 (103) (367) Profit and loss account 4,864 2,136 2,934 4,557 5,116 Shareholders’ funds 5,544 4,798 5,644 6,663 7,001 Net debt 858 543 1,603 4,897 5,004 Net assets employed 6,402 5,341 7,247 11,560 12,005

The above information has been extracted from the five year summary on pages 153 and 154. Income statement figures have been translated using the relevant year’s income statement/profit and loss US dollar translation rate as set out on page 154. Balance sheet figures have been translated at the relevant year’s balance sheet US dollar translation rate as set out on page 154.

156 Wolseley plc Annual Report and Accounts 2011 Principal subsidiary undertakings and their directors

Austria Luxembourg ÖAG AG, A-1110 Wien Comptoir des Fers et Métaux SA, L-1882 Luxembourg (Incorporated and operational in Austria) (Incorporated and operational in Luxembourg) Director: H-D Kus Directors: P Broecker, O M Jensen, E Walker, K Wingsted Supervisory Board: E Cihlar, O M Jensen, E Walker, Netherlands K Wingsted, T Zwettler Wasco Holding B.V., 7391 AL Twello Canada (Incorporated and operational in the Netherlands) Wolseley Canada Inc, Burlington, Ontario Directors: O M Jensen, H A T van den Belt, E Walker, (Incorporated and operational in Canada) K Wingsted Directors: G Petrin, F Roach, K VanderVennet Switzerland Czech Republic Tobler Haustechnik AG, 8902 Urdorf Wolseley Eastern Europe a.s., Prague 8 (Incorporated and operational in Switzerland) (Incorporated and operational in the Czech Republic) Directors: O M Jensen, A Ronchetti, E Walker, H Wiedmer, Directors: M Hlinecky, S Weirsøe K Wingsted Supervisory Board: T Brophy, O M Jensen, N Parry, United Kingdom R Shoylekov Wolseley UK Limited, Leamington Spa, Denmark Warwickshire CV31 3HH DT Group A/S, Gladsaxe Mollevej, 5 DK-2860 Soborg (Incorporated and operational in the United Kingdom) (Incorporated and operational in Denmark) Directors: S Ashmore, D Harding, M Neville Directors: K Borregaard, O M Jensen, C Jørgensen, USA B W Mortensen, R Shoylekov, S Villsen, S Weirsøe Ferguson Enterprises, Inc., Newport News, Virginia 23602 France (Incorporated and operational in the United States of America) Brossette SAS, 69007 Lyon Directors: L Byrd, J Cross, J Feltman, S Grosslight, (Incorporated and operational in France) T Hall, D Keltner, K Murphy, S Petock, J Posey, F Roach, Président-directeur général: P Gardies S Roznowski, W Russell, D Strup, K VanderVennet, J Wilcox PB & M SAS, 92400 Courbevoie (Incorporated and operational in France) Président-directeur général: P Gardies Strategic overview Business and performance Corporate governance Financial statements Other information 157 Wolseley plc Annual Report and Accounts 2011

Service Companies Wolseley Holdings Denmark A/S (Incorporated and operational in Denmark) Jule B1 Limited (Incorporated in Guernsey and operational in the Wolseley-Hughes Limited United Kingdom) (Incorporated and operational in the United Kingdom) Jule B4 Limited *Wolseley Insurance Limited (Incorporated in Guernsey and operational in the (Incorporated and operational in the Isle of Man) United Kingdom) Wolseley Investments, Inc. Ridgeﬂower Limited (Incorporated and operational in the United States of America) (Incorporated and operational in the United Kingdom) Wolseley Investments North America, Inc. Wolseley Capital, Inc. (Incorporated and operational in the United States of America) (Incorporated and operational in the United States of America) *Wolseley Limited Wolseley Capital Limited (Incorporated and operational in the United Kingdom) (Incorporated and operational in the United Kingdom) Wolseley Nordic Holdings AB Wolseley Capital (Parkview) Limited (Incorporated and operational in Sweden) (Incorporated and operational in the United Kingdom) Wolseley Overseas Limited Wolseley Central and Eastern Europe AG (Incorporated and operational in the United Kingdom) (Incorporated and operational in Switzerland) Wolseley Overseas Holdings Limited Wolseley Finance (Gibraltar) Limited (Incorporated and operational in the United Kingdom) (Incorporated in Gibraltar and operational in the Wolseley UK Finance Limited United Kingdom) (Incorporated in Guernsey and operational in the Wolseley Finance (Isis) Limited United Kingdom) (Incorporated in Guernsey and operational in the Wolseley UK Holdings Limited United Kingdom) (Incorporated and operational in the United Kingdom) Wolseley Finance (Isle of Man) Limited (Incorporated in the Isle of Man and operational in the Associates United Kingdom) Saturn Acquisition Holdings, LLC Wolseley Finance (Kennet) Limited Los Angeles, California 90024 (Incorporated in Guernsey and operational in the (Incorporated and operational in the United States of America) United Kingdom) All subsidiary undertakings have been included in Wolseley Finance (Loddon) Limited the consolidation. (Incorporated in Guernsey and operational in the United Kingdom) Shareholdings in companies marked * are held by Wolseley plc. All other shareholdings in the above mentioned *Wolseley Finance sp.z o.o companies are held by intermediate subsidiary undertakings. (Incorporated in Poland and operational in Switzerland) Details of directors and ofﬁcers are reported as at 4 October Wolseley Finance (Thames) Limited 2011. (Incorporated and operational in the United Kingdom) All shareholdings in the above subsidiary undertakings Wolseley Finance (Theale) Limited are of ordinary shares or equity capital, plus the following (Incorporated and operational in the United Kingdom) preference shares in the case of: Wolseley France SAS Wolseley Finance (Isle of Man) Limited 100% (Incorporated and operational in France) Wolseley Insurance Limited 100% Wolseley (Group Services) Limited Wolseley Investments Inc. 100% (Incorporated and operational in the United Kingdom) Wolseley Overseas Holdings Limited 100% Wolseley Group Holdings Limited (Incorporated and operational in the United Kingdom) Wolseley UK Finance Limited 100% Wolseley Holdings Canada Inc. Wolseley UK Holdings Limited 100% (Incorporated and operational in Canada) 158 Wolseley plc Annual Report and Accounts 2011 Shareholder information

New Holding Company Share dealing On 23 November 2010, pursuant to a scheme of UK-based shareholders are also offered a simple and arrangement (the “Scheme”) under Part 26 of the UK convenient telephone and internet share sale and Companies Act, Wolseley plc (“Wolseley”), a public company purchase service by our Registrars. Equiniti Shareview limited by shares, incorporated in Jersey with number dealing is available for telephone purchases and sales on 106605 and tax resident in Switzerland, became the new 0871 384 2020 (or if calling from outside the United Kingdom, parent holding company of the Wolseley Group. The Scheme dial +44 121 415 7560) between 8:30am and 4:30pm, was approved by the High Court of Justice of England and Monday to Friday and for internet purchases and sales Wales and by shareholders at a general meeting of the via www.shareview.co.uk/dealing. A postal dealing Company held on 2 November 2010. Wolseley was service is also available and a form together with terms incorporated as Wolseley plc under the Companies (Jersey) and conditions can be obtained from Equiniti by calling Law 1991 on 28 September 2010. 0871 384 2934 (or if calling from outside the United Kingdom, dial +44 121 415 7011). Calls to these numbers are charged Under the terms of the Scheme, shareholders in Wolseley at 8 pence per minute from a BT landline. Other telephony plc, incorporated in England and Wales with number providers’ costs may vary. 28496 (“Old Wolseley”), received one share in the newly incorporated Wolseley for every share already held. Upon the Scheme becoming effective, Old Wolseley changed its name Stock Exchange Listings to Wolseley Limited and became a wholly-owned subsidiary The ordinary shares of 10 pence each of the Company of Wolseley. Further information on the terms of the Scheme are listed on the London Stock Exchange. The Company is set out in the prospectus published by the Company on operates a Level I American Depositary Receipts (“ADR”) 22 October 2010, which can be viewed on the Wolseley plc programme. ADRs are listed on the premier tier of the website at www.wolseley.com over-the-counter market “OTCQX”. Further information can Further information on the Company’s share capitalisation be found at www.pinksheets.com or www.otcqx.com and the rights issue of Old Wolseley, which was completed in April 2009, can also be found on the Wolseley plc website. Published information Further copies of the Annual Report may be obtained Access to shareholder information from the Group Communications and Investor Relations All Wolseley plc shareholder information is available Department, Wolseley Group Services, Parkview 1220, electronically. Shareview, a service offered by our registrars, Arlington Business Park, Theale, Reading RG7 4GA, Equiniti, allows shareholders online access to a range of United Kingdom. Company information may also be shareholder information. It provides access to individual’s viewed on the Wolseley plc website at www.wolseley.com shareholding details in the Company and practical help If you would like to receive a copy of the Annual Report on transferring shares or updating personal details. in an appropriate alternative format, such as Braille or an It also allows shareholders to decide how to receive their audio version on CD, please contact +44 (0)118 929 8700. shareholder communications and to submit their votes for all shareholder meetings. Corporate timetable To register, shareholders simply need to log on to www.shareview.co.uk\myportfolio using their 29 November 2011 shareholder reference number and complete the simple Annual General Meeting. on-screen registration process. First-time users will need 30 November 2011 to enter certain information and to choose a personal Proposed final dividend of 30 pence per share to be paid identification number before they are able to access their to shareholders who are on the Register of Members on shareholding details. The Company can, at shareholders’ 14 October 2011. request, send an email notification each time a new shareholder report or other shareholder communication is 6 December 2011 put on the website. Shareholders will then be able to read Interim Management Statement released. and/or download the information at their leisure, but will still 27 March 2012* be able to request paper copies of the documents should Announcement of Half Year Results for the period ending they so wish. 31 January 2012. 29 May 2012* Interim Management Statement released. 31 July 2012 End of financial year 2011/12. 2 October 2012* Final results for the year ending 31 July 2012 announced. *Dates are based on current expectations. The Half Year and Annual Final Results announcements and the Interim Management Statements will be available on the Wolseley plc website at www.wolseley.com following their release. Strategic overview Business and performance Corporate governance Financial statements Other information 159 Wolseley plc Annual Report and Accounts 2011 Group information

Registered Office Auditors Wolseley plc PricewaterhouseCoopers LLP 26 New Street St Helier Corporate brokers Jersey JE2 3RA Deutsche Bank AG, London Branch Channel Islands Bank of America Merrill Lynch Website: www.wolseley.com Solicitors Wolseley Corporate Head Office Freshfields Bruckhaus Deringer LLP Wolseley plc Grafenauweg 10 Registrars CH-6301 Equiniti (Jersey) Limited Zug 26 New Street Switzerland St Helier Telephone: +41 (0)41 723 2230 Jersey Fax: +41 (0)41 723 2231 JE4 8PP Channel Islands Wolseley Group Services Office Telephone: within the UK: 0871 384 2934* Parkview 1220 outside the UK: +44 (0)121 415 7011 Arlington Business Park Theale Website: www.equiniti.com Reading RG7 4GA * Calls to this number are charged at 8 pence per minute from a BT landline. Other telephony providers’ costs may vary. Telephone: +44 (0) 118 929 8700 Fax: +44 (0) 118 929 8701 American Depositary Receipts Principal Committees of the Board Deutsche Bank Trust Company Americas C/o American Stock Transfer & Trust Company as at 4 October 2011 Peck Slip Station P.O. Box 2050 Audit Committee New York, NY 10272-2050 Michael Wareing – Chairman Email queries: [email protected] Tessa Bamford (with effect from 27 May 2011) Michael Clarke (with effect from 22 March 2011) Telephone: Andrew Duff (with effect from 20 January 2011) within the US toll free: +1-866-249-2593 International +1-718-921-8137 Remuneration Committee Website: www.adr.db.com Andrew Duff – Chairman Tessa Bamford (with effect from 22 March 2011) Michael Clarke (with effect from 27 May 2011) Michael Wareing (with effect from 20 January 2011) Nominations Committee Gareth Davis – Chairman Tessa Bamford (with effect from 22 March 2011) Michael Clarke (with effect from 22 March 2011) Andrew Duff Michael Wareing Major Announcements Committee John Martin – Chairman Gareth Davis Mark Fearon Ian Meakins Richard Shoylekov 160 Wolseley plc Annual Report and Accounts 2011 Forward-looking statements

Certain information included in this Annual Report and Accounts is forward-looking and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward- looking statements. Forward-looking statements cover all matters which are not historical facts and include, without limitation, projections relating to results of operations and financial conditions and the Company’s plans and objectives for future operations, including, without limitation, discussions of expected future revenues, financing plans, expected expenditures and divestments, risks associated with changes in economic conditions, the strength of the plumbing and heating and building materials market in North America and Europe, fluctuations in product prices and changes in exchange and interest rates. Forward-looking statements can be identified by the use of forward-looking terminology, including terms such as “believes”, “estimates”, “anticipates”, “expects”, “forecasts”, “intends”, “plans”, “projects”, “goal”, “target”, “aim”, “may”, “will”, “would”, “could” or “should” or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. All forward-looking statements in this Annual Report and Accounts are based upon information known to the Company on the date of this Annual Report and Accounts. Accordingly, no assurance can be given that any particular expectation will be met and readers are cautioned not to place undue reliance on forward-looking statements, which speak only at their respective dates. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Services Authority), the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Nothing in this Annual Report and Accounts shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws. Credits Designed and produced by Radley Yeldar www.ry.com Board photography by Andy Wilson and Marcus Ginns Location photography by Andy Wilson

Paper This report is printed on Amadeus 50 Silk paper and cover board, with Amadeus 100 offset used in the ﬁnancial section. Amadeus 50 Silk is made from 25% de-inked post-consumer waste, 25% unprinted pre-consumer waste and 50% virgin ﬁbre. Amadeus 100 offset is made from 100 per cent de-inked post consumer waste. Both products are fully biodegradable and recyclable and produced in mills which hold IS0 9001 and ISO 14001 accreditation.

Printing Printed by Pureprint Group. The printing inks are made with non hazardous vegetable oil from renewable sources. Over 90 per cent of solvents and developers are recycled for further use and recycling initiatives are in place for all other waste associated with this production. Pureprint Group is FSC® with strict procedures in place to safeguard the environment through all processes. The greenhouse gas emissions from the production and distribution of this Annual Report and Accounts have been neutralised through a reforestation project in Kenya. Wolseley plc Annual Report and Accounts 2011 www.wolseley.com Registration No. 106605 Jersey Corporate Headquarters Grafenauweg 10 CH-6301 Zug Switzerland +41 (0)41 723 2230 Telephone Fax +41 (0)41 723 2231 Wolseley plc Wolseley Ofﬁce Registered 26 New Street St Helier Jersey JE2 3RA Channel Islands