Group at a glance

Wolseley is the world’s largest specialist trade distributor of plumbing and heating products to professional contractors and a leading supplier of building materials to the professional market. Primarily we purchase pre-assembled products such as plumbing supplies, heating and ventilation equipment, building materials, industrial pipes, valves and fittings. These products are then delivered to our branches or our regional distribution centres for onward sale to customers against orders or over the counter. Goods are either collected by our customers or delivered to their site.

Wolseley supplies a wide range of customers operating in different industry sectors that range from the individual plumber or builder through to national contractor chains and house builders, including large industrial and commercial organisations. Our primary customer focus is on professional contractors who work with households, governments, property developers and industrial buildings or in the repair and maintenance of existing premises.

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Our business is divided into two geographical divisions: Europe, which covers business segments in the UK and Ireland, France, the Nordic region and Central and Eastern Europe; and North America, which consists of the North America plumbing and heating businesses namely Ferguson and Wolseley Canada. As at 31 July 2009 the Group had approximately 51,000 employees and operated in 27 countries.

North America plumbing and heating

Ferguson is the leading distributor of plumbing and heating supplies to professional contractors and the second largest distributor of pipes, valves and fittings in the US. As at 31 July 2009 the business had 1,228 branches and 17,402 employees. Wolseley Canada is a significant player in wholesale distribution of plumbing, heating and ventilation products. As at 31 July 2009 the business had 225 branches and 2,487 employees.

UK and Ireland

Wolseley UK and Ireland is one of the leading distributors of heating and plumbing products to the professional market and a major supplier of building materials. As at 31 July 2009 the business had 1,643 branches and 11,673 employees in the UK and Ireland.

Nordic region

DT Group is a leading distributor and retailer of building materials in the Nordic markets. Stark and Beijer are market leaders in Denmark and Sweden respectively, while Starkki is the second largest brand in Finland. As at 31 July 2009 the Nordic region had 296 branches and 6,749 employees.

France

Wolseley France is made up of Brossette, which is the second largest distributor of plumbing and heating equipment in France, and Réseau Pro, which is an integrated distributor of heavyside building materials in France. The business also has an active presence in the French timber and timber-derived products market. As at 31 July 2009 the business had 776 branches and 9,053 employees.

Central and Eastern Europe

Central and Eastern Europe is made up of the plumbing and heating businesses located in Switzerland, Austria, the Netherlands, Italy, Luxembourg and Denmark. At 31 July 2009 the region had 226 branches and 2,936 employees.

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The following strengths and key competitive advantages are common to our businesses:

Fundamentally attractive business sector

Whilst the construction industry operates in a cyclical manner correlating directly with economic output, we believe that the long-term drivers for house building and construction are positive in all of the regions in which Wolseley operates. Ageing populations, as well as an ageing housing stock, in Europe and North America indicate that demand for new housing and remodelling should remain strong over the long term.

Scale advantages

We believe that scale advantages such as the Group’s distribution network utilisation and sourcing activities are key competitive advantages and differentiators in the marketplace. Historically the Group has achieved higher returns where it has consolidated its position, built strong local brands and a critical mass which delivers significant cost and scale advantages.

Strong local brands and knowledge

We have a track record of building strong trading brands in local markets. We believe that the skills and commitment of our employees are a significant competitive advantage. We believe that local knowledge of market dynamics and customer needs is essential, as is retaining and motivating strong and successful leadership teams who can drive the future growth of the business.

Strong business model

Over several years we have invested in large distribution centres, particularly in the US, which enable us to purchase in bulk from suppliers, to better serve customers by reducing delivery times, improving fill rates and increasing the availability of products, and to manage inventory more efficiently. The distribution network also facilitates cost reduction in the supply chain, more efficient establishment of new branches and quicker integration of acquired companies.

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Continuing to drive performance

In the year ended 31 July 2009, we have announced restructuring actions which are expected to deliver annualised benefits of £431 million. We will continue to lower the cost base but without losing sight of the need to position Wolseley strongly for the upturn. Alongside profitability, the delivery of strong cash flow is also important. Despite the significant reduction in trading profit this year due to market conditions operating cash flow was down only 5 per cent at £1,200 million (2008: £1,262 million). In the year ended 31 July 2009 challenging targets for working capital have been exceeded and across both continents actions have been taken to reduce capital expenditure and dispose of non-core assets and businesses.

Financial restructuring complete

In addition to the actions outlined above, in April 2009 we successfully completed a £1 billion capital raising in the form of a share placing and rights issue. We also arranged a €1 billion multicurrency committed two-year forward start debt facility. This significantly extends our debt maturity profile and reduces any refinancing risk in the period to 1 August 2011, when the facility commences. Both the above actions have strengthened our capital base to create a more stable position from which we can take advantage of any recovery in our markets.

Future focus on our core businesses

We believe that significant shareholder value can be generated through an even greater level of focus on the Group’s core businesses. During the year we have identified a future focus on North America plumbing and heating, UK and Ireland, France, Nordic and certain Central and Eastern Europe regions which present the best opportunities for return on investment in the longer term.

Exit of Stock Building Supply and strategic review of Central and Eastern Europe

In May 2009 we announced the exit from Stock Building Supply (“Stock”), our US building materials business. This business has been severely affected by the US housing downturn. The Group now owns a minority shareholding in Stock through a joint arrangement, with the majority holding owned by Gores Group LLC, an American private equity investor. This transaction gives our shareholders an opportunity to participate in the long-term value potential of the Stock business whilst ensuring deconsolidation of Stock’s operating losses and conserving cash.

Following a strategic review during the financial year of Central and Eastern Europe, Wolseley has determined to focus on those constituent countries where it has built sufficient scale, established leading market positions and can deliver an appropriate financial return. Accordingly, the Group has decided to retain a presence in Switzerland, Austria, Luxembourg, Denmark, Holland and Italy.

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