Group Income Statement (unaudited) Year to Half year to Half year
to July 31 January 31 January 31 2005 2006 2005 mil. pounds mil.
pounds mil. pounds 11,256.3 Revenue 6,734.5 5,331.9 (5.8) Operating
costs: amortization of acquired intangibles (13.8) (0.7) (10,548.5)
Operating costs: other (6,349.6) (5,016.3) (10,554.3) Operating
costs: total (6,363.4) (5,017.0) 702.0 Operating profit 371.1 314.9
26.7 Finance revenue (note 3) 19.8 12.0 (63.5) Finance costs (note
3) (44.9) (30.1) 665.2 Profit before tax 346.0 296.8 (186.0) Tax
expense (note 4) (100.5) (84.3) 479.2 Profit for the period
attributable to equity shareholders 245.5 212.5 Earnings per share
(note 6) 81.61p Basic earnings per share 41.58p 36.32p 80.75p
Diluted earnings per share 41.13p 35.87p 26.40p Dividends per share
9.85p 8.80p Non-GAAP measures of performance (note 10) 707.8
Trading profit 384.9 315.6 671.0 Profit before tax and the
amortization of acquired intangibles 359.8 297.5 Translation rates
1.8514 US dollars 1.7604 1.8548 1.4587 Euro 1.4619 1.4546 Group
Statement of Recognized Income and Expense (unaudited) Year to Half
year to Half year to July 31 January 31 January 31 2005 2006 2005
mil. pounds mil. pounds mil. pounds 479.2 Profit for the period
245.5 212.5 56.9 Currency translation differences (16.9) (25.7)
(4.1) Actuarial losses (4.1) (15.4) (10.9) Cash flow hedges 12.6
(0.7) 30.2 Tax on gains/(losses) not recognized in the income
statement (11.3) 5.6 72.1 Net (losses)/gains not recognized in the
income statement (19.7) (36.2) 551.3 Total recognized income and
expense 225.8 176.3 Group Balance Sheet (unaudited) As at As at As
at July 31 January 31 January 31 2005 2006 2005 mil. pounds mil.
pounds mil. pounds ASSETS Non-current assets 815.6 Intangible fixed
assets - goodwill 1,004.2 729.0 132.8 Intangible fixed assets -
other 230.1 56.1 882.9 Property, plant and equipment ("PPE") 990.0
771.3 54.8 Deferred income tax assets 34.4 117.2 5.7 Available for
sale financial assets 4.3 2.9 1,891.8 2,263.0 1,676.5 Current
assets 1,706.1 Inventories 1,886.6 1,589.5 2,241.4 Trade and other
receivables 2,312.6 1,839.2 262.0 Financial receivables -
construction loans (secured) 293.7 209.3 3.3 Derivative financial
instruments 14.5 1.1 4.8 Trading investments 4.5 6.8 381.1 Cash and
cash equivalents 438.8 246.3 4,598.7 4,950.7 3,892.2 8.1 Assets
held for resale 5.9 4.4 6,498.6 Total assets 7,219.6 5,573.1 EQUITY
Capital and reserves attributable to equity shareholders 389.3
Share capital and share premium 419.2 363.0 81.5 Foreign currency
translation reserve 56.1 (25.7) 1,829.9 Retained earnings 1,979.7
1,615.1 2,300.7 2,455.0 1,952.4 LIABILITIES Non-current liabilities
18.0 Trade and other payables 18.0 - 1,044.6 Bank loans 1,351.9
879.8 57.9 Obligations under finance leases 49.2 42.6 61.5 Deferred
income tax liabilities 79.3 32.4 181.1 Retirement benefit
obligations 190.6 194.1 63.5 Provisions 78.1 83.1 1,426.6 1,767.1
1,232.0 Current liabilities 1,943.4 Trade and other payables
1,867.7 1,553.5 70.3 Corporation tax payable 61.1 124.9 262.0
Borrowings - construction loans (unsecured) 293.7 209.3 439.0 Bank
loans and overdrafts 699.0 458.3 4.0 Obligations under finance
leases 15.7 15.0 14.2 Derivative financial instruments 12.7 2.5
16.5 Retirement benefit obligations 17.1 15.8 21.9 Provisions 30.5
9.4 2,771.3 2,997.5 2,388.7 4,197.9 Total liabilities 4,764.6
3,620.7 6,498.6 Total equity and liabilities 7,219.6 5,573.1
Translation rates 1.7564 US dollars 1.7787 1.8833 1.4479 Euro
1.4631 1.4449 Group Cash Flow Statement (unaudited) Year to Half
year to Half year to July 31 January 31 January 31 2005 2006 2005
mil. pounds mil. pounds mil. pounds Cash flows from operating
activities: 765.1 Cash generated from operations 258.1 303.1 26.1
Interest received 14.2 11.5 (57.4) Interest paid (32.0) (23.9)
(150.7) Income tax paid (95.2) (97.1) 583.1 Net cash generated from
operating activities 145.1 193.6 Cash flows from investing
activities: (405.5) Acquisitions of businesses, net of cash
acquired (420.5) (206.5) 4.5 Disposals of businesses, net of cash
disposed of - - (217.5) Purchases of property, plant and equipment
(138.7) (97.3) 73.9 Proceeds from sale of property, plant and
equipment 11.2 57.1 (21.4) Purchases of intangible assets (4.8)
(12.4) - Purchases of trading investments - (0.6) 1.6 Proceeds from
disposal of trading investments 0.5 - (564.4) Net cash used in
investing activities (552.3) (259.7) Cash flows from financing
activities: 32.7 Proceeds from the issue of shares to shareholders
13.1 16.8 (18.6) Purchases of shares by Employee Benefit Trusts
(10.7) (18.6) 409.9 New borrowings 854.4 182.4 (233.9) Repayments
of borrowings and derivatives (149.8) (65.7) (5.2) Finance lease
capital payments (4.3) (4.3) (145.4) Dividends paid to shareholders
(104.0) (93.6) 39.5 Net cash generated from financing activities
598.7 17.0 58.2 Net increase/(decrease) in cash and bank overdrafts
191.5 (49.1) (87.7) Cash and bank overdrafts at the beginning of
the period (56.0) (87.7) (26.5) Exchange (losses)/gains on cash and
bank overdrafts (17.4) 9.8 (56.0) Cash and bank overdrafts at the
end of the period 118.1 (127.0) Reconciliation of Profit to Net
Cash Flow from Operating Activities (unaudited) Year to Half year
to Half year to July 31 January 31 January 31 2005 2006 2005 mil.
pounds mil. pounds mil. pounds 479.2 Profit for the period 245.5
212.5 36.8 Finance costs - net 25.1 18.1 186.0 Income tax expense
100.5 84.3 116.5 Depreciation of PPE and amortization of
non-acquired intangibles 61.5 55.9 5.8 Amortization of acquired
intangibles 13.8 0.7 (11.1) Profit on disposal of PPE (2.5) (4.3)
(55.3) Increase in inventories (119.8) (47.5) (180.2)
Decrease/(increase) in trade and other receivables 70.7 95.5 168.1
(Decrease)/increase in trade and other payables (169.6) (124.8)
(0.3) Increase/(decrease) in provisions and other liabilities 20.3
(0.8) 19.6 Share based payments and other non cash items 12.6 13.5
765.1 Net cash generated from operations 258.1 303.1 Notes to the
interim financial information for the six months ended January 31,
2006 1. Basis of preparation The next annual financial statements
of the Group will be prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European
Union, and to those parts of the Companies Act 1985 applicable to
companies reporting under IFRS. The financial information contained
in these interim financial statements has been prepared on the
basis of IFRS that the directors expect to be applicable as at July
31, 2006. IFRS is subject to amendment and interpretation by the
IASB and there is an ongoing process of review and endorsement by
the European Commission. For these reasons, it is possible that the
information presented here may be subject to change before its
inclusion in the 2006 Report and Accounts, which will be the
Group's first complete financial statements prepared in accordance
with IFRS. The accounting policies followed in the interim
financial statements are set out in Appendix 1. The results for the
first half of the financial year have not been audited and were
approved by the Board of Directors on March 20, 2006. The summary
of results for the year ended July 31, 2005 does not constitute the
full financial statements within the meaning of s240 of the
Companies Act 1985. The full financial statements for that year,
prepared under UK GAAP, have been reported on by the Group's
auditors and delivered to the Registrar of Companies. The audit
report was unqualified and did not contain a statement under
s237(2) or s237(3) of the Companies Act 1985. 2. Segmental analysis
of results The Group has a single business segment, the
distribution and supply of construction materials. The Group's
geographical segments are Europe, consisting of UK and Ireland,
France and Central Europe, and North America. The Group has
determined that its geographical segments are its primary segments
for IFRS reporting purposes. The revenue, operating profit and
trading profit of the Group's geographical segments are detailed in
the following three tables. Revenue by geographical segment Year to
Half year to Half year to July 31 January 31 January 31 2005 2006
2005 mil. pounds mil. pounds mil. pounds 2,353.9 UK and Ireland
1,262.1 1,155.0 1,644.4 France 800.6 783.9 638.7 Central Europe
362.5 316.1 4,637.0 Europe 2,425.2 2,255.0 6,619.3 North America
4,309.3 3,076.9 11,256.3 Total 6,734.5 5,331.9 Operating profit by
geographical segment Year to Half year to Half year to July 31
January 31 January 31 2005 2006 2005 mil. pounds mil. pounds mil.
pounds 181.2 UK and Ireland 86.6 84.2 97.4 France 35.6 40.7 29.8
Central Europe 13.7 15.7 (3.0) European central costs (4.5) (1.8)
305.4 Europe 131.4 138.8 422.8 North America 260.0 194.0 (26.2)
Group central costs (20.3) (17.9) 702.0 Total 371.1 314.9 Trading
profit by geographical segment Year to Half year to Half year to
July 31 January 31 January 31 2005 2006 2005 mil. pounds mil.
pounds mil. pounds 182.9 UK and Ireland 89.6 84.7 97.8 France 35.8
40.7 30.2 Central Europe 14.3 15.7 (3.0) European central costs
(4.5) (1.8) 307.9 Europe 135.2 139.3 426.1 North America 270.0
194.2 (26.2) Group central costs (20.3) (17.9) 707.8 Total trading
profit (note 10) 384.9 315.6 (5.8) Amortization of acquired
intangibles (13.8) (0.7) 702.0 Total operating profit 371.1 314.9
The amortization of acquired intangibles for the six months ended
January 31, 2006 attributable to the above segments is UK and
Ireland 3.0 million pounds (January 31, 2005: 0.5 million pounds);
France 0.2 million pounds (January 31, 2005: nil pounds); Central
Europe 0.6 million pounds (January 31, 2005: nil pounds); North
America 10.0 million pounds (January 31, 2005: 0.2 million pounds).
The Group will prepare segmental disclosures in accordance with US
GAAP and include them in its Form 20-F for the full year ending
July 31, 2006. The disclosure requirements under US GAAP differ
from those under IFRS, such that revenue and operating profit for
North America will be further analyzed by operating segment in the
Form 20-F. In order to ensure consistency of information disclosed
to all investors, the following table is included in these interim
financial statements. Year to Half year to Half year to July 31
January 31 January 31 2005 2006 2005 mil. pounds mil. pounds mil.
pounds Revenue 3,858.6 US Plumbing and Heating 2,573.6 1,772.2
2,248.9 US Building Materials 1,418.5 1,058.3 511.8 Canada 317.2
246.4 6,619.3 North America 4,309.3 3,076.9 Operating profit
(before amortization of acquired intangibles) 260.0 US Plumbing and
Heating 166.9 122.4 131.6 US Building Materials 89.4 56.0 35.6
Canada 19.2 16.4 (1.1) North American central costs (5.5) (0.6)
426.1 North America 270.0 194.2 The amortization of acquired
intangibles for the six months ended January 31, 2006 attributable
to the above segments is US Plumbing and Heating 2.8 million pounds
(January 31, 2005: 0.2 million pounds); US Building Materials 7.1
million pounds (January 31, 2005: nil pounds); Canada 0.1 million
pounds (January 31, 2005: nil pounds). Analysis of movement in
revenue New Acqui- Acqui- sitions sitions Increment Organic Change
2005 Exchange 2006 2005 2006 mil. mil. mil. mil. mil. % mil. pounds
pounds pounds pounds pounds pounds UK and Ireland 1,155.0 - 75.8
13.9 17.4 1.5 1,262.1 France 783.9 (3.9) 0.9 10.8 8.9 1.1 800.6
Central Europe 316.1 (1.8) 11.1 17.3 19.8 6.3 362.5 Europe 2,255.0
(5.7) 87.8 42.0 46.1 2.0 2,425.2 US Plumbing and Heating 1,772.2
95.0 72.9 129.4 504.1 27.0 2,573.6 US Building Materials 1,058.3
56.8 45.3 169.5 88.6 7.9 1,418.5 Canada 246.4 29.7 1.2 8.0 31.9
11.6 317.2 North America 3,076.9 181.5 119.4 306.9 624.6 19.2
4,309.3 TOTAL 5,331.9 175.8 207.2 348.9 670.7 12.2 6,734.5 Analysis
of movement in operating profit (before amortization of acquired
intangibles) New Acqui- Acqui- sitions sitions Increment Organic
Change 2005 Exchange 2006 2005 2006 mil. mil. mil. mil. mil. % mil.
pounds pounds pounds pounds pounds pounds UK and Ireland 84.7 - 2.6
0.7 1.6 2.0 89.6 France 40.7 (0.2) - 0.2 (4.9) (12.0) 35.8 Central
Europe 15.7 (0.1) 0.8 0.7 (2.8) (18.0) 14.3 European central costs
(1.8) - - - (2.7) (4.5) Europe 139.3 (0.3) 3.4 1.6 (8.8) (6.2)
135.2 US Plumbing and Heating 122.4 6.6 4.4 7.8 25.7 20.0 166.9 US
Building Materials 56.0 3.0 2.3 17.0 11.1 18.7 89.4 Canada 16.4 2.0
- 0.4 0.4 2.1 19.2 North American central costs (0.6) - - - (4.9)
(5.5) North America 194.2 11.6 6.7 25.2 32.3 15.7 270.0 Group
central costs (17.9) - - - (2.4) (20.3) TOTAL 315.6 11.3 10.1 26.8
21.1 6.5 384.9 3 Net finance costs Year to Half year to Half year
to July 31 January 31 January 31 2005 2006 2005 mil. pounds mil.
pounds mil. pounds 26.7 Interest receivable 19.2 12.0 - Net pension
finance income 0.6 - 26.7 Finance revenue 19.8 12.0 (55.2) Interest
payable on loans and overdrafts (42.9) (25.8) (2.3) Interest
payable on finance leases (1.2) (1.0) 0.6 Fair value (losses)/gains
on derivatives (0.8) (0.1) (6.6) Net pension finance cost - (3.2)
(63.5) Finance costs (44.9) (30.1) (36.8) Net finance costs (25.1)
(18.1) 4 Taxation The tax charge on ordinary activities for the
half year has been calculated at the rate which it is expected will
apply for the year ending July 31, 2006 and comprises the following
elements: Year to Half year to Half year to July 31 January 31
January 31 2005 2006 2005 mil. pounds mil. pounds mil. pounds Tax
on profit for the period 38.0 - UK 11.1 21.7 103.8 - Overseas 67.8
65.5 141.8 78.9 87.2 44.2 Deferred tax 21.6 (2.9) 186.0 100.5 84.3
5 Dividends Year to Half year to Half year to July 31 January 31
January 31 2005 2006 2005 mil. pounds mil. pounds mil. pounds 51.7
Interim paid - - 93.6 Final paid 104.0 93.6 145.3 Dividends charge
for the period 104.0 93.6 6 Earnings per share Earnings per share,
calculated on an average of 590.4 million (2005: 585.5 million)
ordinary shares in issue, are as follows: Year to Half year to Half
year to July 31 January 31 January 31 2005 2006 2005 mil. pounds
mil. pounds mil. pounds Pence per Pence per Pence per share share
share 82.60p Before amortization of acquired intangibles 43.91p
36.44p (0.99)p Amortization of acquired intangibles (2.33)p (0.12)p
81.61p Basic earnings per share 41.58p 36.32p 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 596.9
million and to reduce basic earnings per share to 41.13p. Diluted
earnings per share before amortization of acquired intangibles is
43.44p. 7 Reconciliation of movements in capital and reserves Year
to Half year to Half year to July 31 January 31 January 31 2005
2006 2005 mil. pounds mil. pounds mil. pounds 479.2 Profit for the
period 245.5 212.5 72.1 Other recognized income and expense (19.7)
(36.2) (145.3) Dividends paid (104.0) (93.6) 22.7 Credit to equity
for share based payments 26.0 15.9 3.5 Deferred tax on share based
payments 4.1 1.2 32.7 New share capital subscribed 13.1 16.8 (18.6)
Purchase of own shares (10.7) (18.6) 446.3 Net addition to
shareholders' funds 154.3 98.0 1,854.4 Opening shareholders' funds
2,300.7 1,854.4 2,300.7 Closing shareholders' funds 2,455.0 1,952.4
8 Analysis of change in net debt Non At cash At July 31 Cash Acqui-
move- Exchange January 31 2005 flow sitions ments movement 2006
mil. mil. mil. mil. mil. mil. pounds pounds pounds pounds pounds
pounds Cash and cash equivalents 381.1 77.2 - - (19.5) 438.8 Bank
overdrafts (437.1) 114.3 - - 2.1 (320.7) (56.0) 191.5 - - (17.4)
118.1 Trading investments 4.8 (0.5) 0.2 - - 4.5 Derivative
financial instruments (10.9) 5.6 - 5.9 1.2 1.8 Bank loans (1,046.5)
(710.2) (9.0) (0.9) 36.4 (1,730.2) Obligations under finance leases
(61.9) 4.3 (0.1) (7.6) 0.4 (64.9) Total net debt (1,170.5) (509.3)
(8.9) (2.6) 20.6 (1,670.7) 9 Acquisitions The following table
summarizes the investment in acquisitions made during the half
year. In certain cases the consideration is deferred or subject to
adjustment and includes net borrowings acquired. Acquisitions
Expected contribution Estimated to group consideration revenue in a
including debt full year mil. pounds mil. pounds UK and Ireland 225
280 France 5 9 Central Europe 21 34 Europe 251 323 US Plumbing and
Heating 110 214 US Building Materials 74 162 Canada 1 2 North
America 185 378 Total Group 436 701 Ten additional acquisitions,
for a combined consideration of 162 million pounds, have been
completed since January 31, 2006 with three in US Plumbing and
Heating, two in US Building Materials and one in Canada in North
America and four in France. They are expected to contribute 224
million pounds to Group turnover in a full year. Acquisition cash
expenditure during the period, including any deferred consideration
in respect of prior period acquisitions and net cash balances
acquired, amounted to 420.5 million pounds (2005: 206.5 million
pounds). 10 Non-GAAP measures of performance Trading profit is
defined as operating profit before the amortization of acquired
intangibles and is a non-GAAP measure. The current businesses
within Wolseley have arisen through internal organic growth and
through acquisition. Operating profit includes the amortization of
acquired intangibles arising on those businesses that have been
acquired subsequent to July 31, 2004 and as such does not reflect
equally the performance of businesses acquired prior to July 31,
2004 (where no amortization of acquired intangibles was
recognized), businesses that have developed organically where no
intangibles are attributed and those businesses more recently
acquired. Wolseley believes that trading profit provides valuable
additional information for users of the interim financial statement
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
businesses. Year to Half year to Half year to July 31 January 31
January 31 2005 2006 2005 mil. pounds mil. pounds mil. pounds 702.0
Operating profit 371.1 314.9 Add back: amortization of acquired 5.8
intangibles 13.8 0.7 707.8 Trading profit 384.9 315.6 665.2 Profit
before tax 346.0 296.8 Add back: amortization of acquired 5.8
intangibles 13.8 0.7 Profit before tax and the 671.0 amortization
of acquired intangibles 359.8 297.5 11 Exchange rates The results
of overseas subsidiaries have been translated into sterling using
average rates of exchange. The period end rates of exchange have
been used to convert balance sheet amounts. The average profit and
loss account translation rate for the first six months was $1.7604
to the 1 pound compared to $1.8548 for the comparable period last
year, an increase of 5.4%, and euro 1.4619 to the 1 pound compared
to euro 1.4546, a decrease of 0.5%. Should the exchange rates
between the US$ and pound, and the euro and the pound, remain at
the January 31, 2006 spot rates used to translate the January 31,
2006 balance sheet ($1.7787 and euro 1.4631) then the averages for
the year as a whole would be $1.7688 and euro 1.4624 and this would
have the effect of decreasing sales and trading profit for the
first half by 19.4 million pounds and 0.8 million pounds,
respectively. 12 Adoption of International Financial Reporting
Standards As at As at As at July 31 January 31 August 1 2005 2005
2004 mil. pounds mil. pounds mil. pounds Net assets under UK GAAP
2,306.9 2,026.3 1,901.9 Adjustments (before taxation) Intangible
assets (i) 50.9 27.8 0.7 Post employment benefits (ii) (152.1)
(162.1) (147.6) Share based payments (iii) (12.5) (11.2) (14.3)
Leases (iv) (7.8) (7.1) (6.5) Derivatives (v) (10.9) (1.4) (0.5)
Post balance sheet events (vi) 104.0 51.7 93.6 Other (16.0) (10.8)
(13.6) (44.4) (113.1) (88.2) Taxation (vii) 38.2 39.2 40.7 Net
assets under IFRS 2,300.7 1,952.4 1,854.4 Year to Half year to July
31 January 31 2005 2005 mil. pounds mil. pounds Net income under UK
GAAP 461.2 204.0 Adjustments (before taxation) Intangible assets
(i) 37.3 20.2 Post employment benefits (ii) 0.6 0.7 Share based
payments (iii) (21.6) (12.8) Leases (iv) (1.3) (0.6) Foreign
exchange gains and losses (viii) 3.9 (0.7) Other (1.5) 2.8 17.4 9.6
Taxation (vii) 0.6 (1.1) Net income under IFRS 479.2 212.5 The
adjustments made in converting UK GAAP financial information into
IFRS financial information are summarized below. A more
comprehensive review of the adjustments made in respect of the year
ended July 31, 2005 can be found in the Group's IFRS Statement
dated November 22, 2005 on its website http://www.wolseley.com/ in
the "Investor Centre" section. The net assets of the Group under
IFRS contained in that statement have been reduced by 13 million
pounds in order to reflect the Group's most recent interpretation
of its IFRS deferred tax position. (i) Intangible assets Under UK
GAAP, goodwill was amortized over its useful economic life, tested
for impairment and provided against as necessary. Under IFRS,
goodwill is no longer amortized but must be tested for impairment
as at August 1, 2004 (the transition date) and at least annually
thereafter. Goodwill amortization charged under UK GAAP during the
year ended July 31, 2005 has been credited back to the income
statement under IFRS. In addition IFRS requires identifiable
intangible assets to be recognized separately on the balance sheet
and consequently certain intangible assets, such as contractual
customer relationships and trade names, which were previously
recorded as part of goodwill under UK GAAP, have been separately
recognized as intangible assets under IFRS and amortized over their
expected useful lives. (ii) Post-employment benefits Under UK GAAP,
the Group accounted for post-employment benefits under SSAP 24,
"Accounting for pension costs," whereby the cost of providing
defined benefit pensions and post-retirement healthcare benefits
was charged against operating profit on a systematic basis with
surpluses and deficits arising recognized over the expected average
remaining service lives of participating employees. Actuarial gains
and losses are charged to equity and the net deficit on the Group's
defined benefit pension schemes is carried in full in the Group's
IFRS balance sheet. (iii) Share-based payments Under UK GAAP, the
cost of awards made under the Group's employee share schemes was
based on the intrinsic value of the awards, with the exception of
SAYE schemes for which no cost was recognized. Under IFRS 2,
"Share-based Payment," the cost of employee share schemes,
including SAYE schemes, is based on the fair value of the awards
that must be assessed using an option-pricing model. The Group has
principally used a binomial model for this purpose. Generally, for
an equity-settled award, the fair value of the award at the grant
date is expensed on a straight-line basis over the vesting period,
with adjustments being made to reflect expected and actual
forfeitures during the vesting period due to failure to satisfy
service conditions or achieve non-market performance conditions,
such as EPS growth targets. For a cash-settled award, the fair
value of the award at each balance sheet date is used to calculate
the probable liability of the Group; changes in this liability from
the opening to closing balance sheet are charged or credited to the
income statement. (iv) Leases IAS 17, "Leases" requires that the
land and buildings elements of property leases are considered
separately for the purposes of determining whether the lease is a
finance or operating lease. The majority of the Group's leased
buildings are on short-term leases and, consistent with UK GAAP,
are classified as operating leases under IFRS. There are, however,
a small number of leases where the building element of the lease
has been reclassified as a finance lease based on the criteria set
out in IAS 17. Under UK GAAP, committed rental increases, which
could be considered in the same way as inflationary increases and
increases due to market comparables, were generally recognized as
they arose and property lease incentives were generally recognized
over the period to the first market rent review. Under IFRS,
committed rental increases and lease incentives are required to be
spread over the entire lease term. (v) Derivatives and hedge
accounting The Group uses derivative contracts to manage economic
exposure to movements in interest rates and currency exchange
rates. Under UK GAAP, such derivative contracts were not recognized
as assets and liabilities on the balance sheet and gains or losses
arising on them were not recognized until the hedged item had
itself been recognized in the financial statements. Under IFRS all
derivative financial instruments are accounted for at fair market
value whilst other financial instruments are accounted for either
at amortized cost or at fair value depending on their
classification. Subject to stringent criteria, derivative financial
instruments, financial assets and financial liabilities may be
designated as forming hedge relationships as a result of which fair
value changes are offset in the income statement or
charged/credited to equity depending on the nature of the hedge
relationship. Hedge accounting has been applied to the Group's
interest rate swaps (which are hedging floating rate debt) and
foreign currency financial instruments (which are hedging the net
assets of the Group's foreign operations). (vi) Post balance sheet
events Under UK GAAP dividends were recognized in the period to
which they related. IAS 10, "Events after the Balance Sheet Date"
requires that dividends declared or approved after the balance
sheet date should not be recognized as a liability at that balance
sheet date as the liability does not represent a present obligation
as defined by IAS 37, "Provisions, Contingent Liabilities and
Contingent Assets." (vii) Taxation Under UK GAAP, deferred tax was
provided on timing differences between the accounting and taxable
profit (an income statement approach). Under IFRS, deferred tax is
provided on temporary differences between the book carrying value
and tax base of assets and liabilities (a balance sheet approach).
As a result, the Group's IFRS balance sheet includes an additional
deferred tax liability in respect of fair value property
revaluations on acquisitions and property roll-over gains. In
addition, deferred tax has been recognized on the adjustments
between UK GAAP and IFRS with the majority of the net deferred tax
asset relating to the adjustments for share options and post-
employment benefits (reflecting the substantially increased defined
benefit liability under IFRS). (viii) Foreign exchange gains and
losses A small number of the Group's subsidiary companies have
changed their functional currency in order to comply with the more
stringent functional currency requirements of IAS 21, "The Effects
of Changes in Foreign Exchange Rates" which requires companies that
are acting on behalf of the parent company to have the same
functional currency as the parent company. As a result, some
foreign exchange differences arising in these companies have been
recorded in the Group's income statement under IFRS rather than in
equity, under UK GAAP. Independent review report to Wolseley plc
Introduction We have been instructed by the company to review the
financial information for the six months ended January 31, 2006
which comprises the consolidated interim balance sheet as at
January 31, 2006 and the related consolidated interim income
statement, cash flow statement, statement of recognized income and
expense for the six months then ended and related notes. We have
read the other information contained in the interim report and
considered whether it contains any apparent misstatements or
material inconsistencies with the financial information. Directors'
responsibilities The interim report, including the financial
information contained therein, is the responsibility of, and has
been approved by the directors. The directors are responsible for
preparing the interim report in accordance with the Listing Rules
of the Financial Services Authority. As disclosed in note 1, the
next annual financial statements of the group will be prepared in
accordance with International Financial Reporting Standards adopted
by the European Union. This interim report has been prepared in
accordance with the basis set out in note 1. The accounting
policies are consistent with those that the directors intend to use
in the next annual financial statements. As explained in note 1,
there is, however, a possibility that the directors may determine
that some changes are necessary when preparing the full annual
financial statements for the first time in accordance with
International Financial Reporting Standards adopted by the European
Union. The IFRS standards and IFRIC interpretations that will be
applicable and adopted for use in the European Union at July 31,
2006 are not known with certainty at the time of preparing this
interim financial information. Review work performed We conducted
our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United
Kingdom. A review consists principally of making enquiries of Group
management and applying analytical procedures to the financial
information and underlying financial data and, based thereon,
assessing whether the disclosed accounting policies have been
applied. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions.
It is substantially less in scope than an audit and therefore
provides a lower level of assurance. Accordingly we do not express
an audit opinion on the financial information. This report,
including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial
Services Authority and for no other purpose. We do not, in
producing this report, 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. Review conclusion On the basis of our
review we are not aware of any material modifications that should
be made to the financial information as presented for the six
months ended January 31, 2006. PricewaterhouseCoopers LLP Chartered
Accountants London March 21, 2006 Notes: (a) The maintenance and
integrity of the Wolseley plc web site is the responsibility of the
directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the interim report since it was initially presented on the web
site. (b) Legislation in the United Kingdom governing the
preparation and dissemination of financial information may differ
from legislation in other jurisdictions. Appendix 1 - Accounting
Policies The consolidated interim 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 and with those parts of the
Companies Act 1985 applicable to companies reporting under IFRS.
The disclosures required by IFRS 1, "First Time Adoption of
International Financial Reporting Standards" concerning the
transition from UK GAAP to IFRS are given in note 12. The date of
transition to IFRS is August 1, 2004. A summary of the principal
accounting policies applied by the Group in the preparation of the
consolidated interim financial statements is set out below. Basis
of accounting The consolidated financial information has 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. First time adoption of
International Financial Reporting Standards IFRS 1, "First-time
Adoption of International Financial Reporting Standards" sets out
the procedures that the Group must follow when it adopts IFRS for
the first time as the basis for preparing its consolidated
financial statements. The Group is required to establish its IFRS
accounting policies as at July 31, 2006 and, in general, apply
these retrospectively to determine the IFRS opening balance sheet
at its date of transition, August 1, 2004. Certain optional
exemptions to this general principle are available under IFRS 1 and
the significant first-time adoption choices made by the Group are
as follows. - The Group has elected not to apply IFRS 3
retrospectively to business combinations that took place before
August 1, 2004. As a result, in the IFRS opening balance sheet,
goodwill arising from past business combinations of 665.9 million
pounds remains as stated under UK GAAP at that date. - The Group
has elected to recognize all cumulative actuarial gains and losses
in relation to post employment defined benefit schemes at the date
of transition. In addition, the Group has elected to recognize
actuarial gains and losses in full in the period in which they
occur in a statement of recognized income and expense. - The Group
has elected to apply IFRS 2, "Share Based Payment" only to
equity-settled awards that had not vested as at August 1, 2004 and
were granted on or after November 7, 2002 and cash-settled awards
that had not vested as at August 1, 2004. - The Group has elected
to reset the foreign currency translation reserve to zero at August
1, 2004. Going forward, IFRS requires amounts taken to reserves on
the retranslation of foreign subsidiaries to be recorded in a
separate foreign currency translation reserve and be included in
the future calculation of profit or loss on sale of the subsidiary.
- The Group has elected to implement IAS 39, "Financial
Instruments: Recognition and Measurement" and IAS 32, "Financial
Instruments: Disclosure and Presentation" at its date of
transition, August 1, 2004, and apply hedge accounting where the
requirements of IAS 39 are met. Consolidation The consolidated
financial information includes the results of the parent Company
and its subsidiary undertakings drawn up to January 31, 2006. The
trading results of businesses acquired, sold or discontinued during
the year are included in profit on ordinary activities from the
date of effective acquisition or up to the date of sale or
discontinuance. Intra-group transactions and balances and any
unrealized gains and losses arising from intra-group transactions
are eliminated on consolidation. Foreign currencies Items included
in the financial statements of each of the Group's subsidiary
undertakings are measured using the currency of the primary
economic environment in which the subsidiary undertaking operates
(the "functional currency"). The consolidated financial statements
are presented in sterling, which is the presentational currency of
the Group and the functional currency of the parent Company. The
trading results of overseas subsidiary undertakings are translated
into sterling using average rates of exchange ruling during the
relevant financial period. The balance sheets of overseas
subsidiary undertakings are translated into sterling at the rates
of exchange ruling at the period end. Exchange differences arising
between the translation into sterling of the net assets of these
subsidiary undertakings at rates ruling at the beginning and end of
the year are recognized 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 recognized 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 recognized in the income
statement is determined after taking into account the cumulative
currency translation differences that are attributable to the
subsidiary undertaking concerned. As permitted by IFRS 1, the Group
has elected to deem the cumulative currency translation differences
of the Group to be nil pounds as at August 1, 2004. As a result the
gain or loss on disposal of an overseas subsidiary undertaking does
not include currency translation differences arising before August
1, 2004. 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. 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 recognized when the risks and rewards of ownership of
goods have been transferred to the customer. The risks and rewards
of ownership of goods are deemed to have been transferred when the
goods are shipped to, or are picked up by, the customer. Revenue
from services, other than those that arise from construction
service contracts (see below), are recognized when the service
provided to the customer has been completed. Revenue in respect of
construction service contracts, where the Group is providing
framing lumber installation services to residential property
companies, is recognized using the percentage of completion method,
with the percentage complete being determined by comparing the
percentage of costs incurred to date with the estimated total costs
of the contract. Losses on these contracts, if any, are recognized
in the period when such losses become probable and can be
reasonably estimated. Revenue from the provision of goods and all
services is only recognized when the amounts to be recognized are
fixed or determinable and collectibility is reasonably assured.
Vendor rebates The Group enters into agreements 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. Business Combinations The Group
has applied the purchase method in its accounting for the
acquisition of subsidiaries. As permitted by IFRS 1, the Group has
elected not to apply IFRS 3 "Business Combinations" to acquisitions
of subsidiaries that were recognized before August 1, 2004 and as a
result the carrying amount of goodwill recognized as an asset under
UK GAAP has been brought forward unadjusted as the cost of goodwill
recognized under IFRS as at August 1, 2004. IFRS 3 has been applied
with effect from August 1, 2004 and goodwill amortization ceased
from that date. 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, plus costs
directly attributable to the acquisition. 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. 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 recognized directly in the income
statement. 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 amortized 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. Goodwill is
allocated to cash-generating units for the purpose of impairment
testing. Each of those cash-generating units represents the lowest
level within the Group at which the associated goodwill is
monitored for management purposes and is not larger than the
primary or secondary reporting segments determined in accordance
with IAS 14 "Segmental Reporting". Other intangible assets An
intangible asset, which is an identifiable non-monetary asset
without physical substance, is recognized 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
capitalized separately from goodwill and are carried at cost less
accumulated amortization and accumulated impairment losses.
Amortization 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 amortized
over their estimated useful lives. Computer software that is not
integral to an item of property, plant and equipment is recognized
separately as an intangible asset and is carried at cost less
accumulated amortization 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. Amortization
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 (3-5 years). Property, plant and equipment
("PPE") PPE is carried at cost less accumulated depreciation and
accumulated impairment losses, except for land and assets in the
course of construction, which are not depreciated and are carried
at cost less accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the
items. In addition, subsequent costs are included in the asset's
carrying amount or recognized 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 repair and maintenance costs are
charged to the income statement during the financial period in
which they are incurred. Depreciation on assets is calculated using
the straight-line method to allocate the cost of each asset to its
residual value over its estimated useful life, as follows: Freehold
buildings and long leaseholds 35-50 years; Short leaseholds over
the period of the lease Plant and machinery 7-10 years Fixtures and
fittings 5-7 years Computers 3-5 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
attributable to assets under construction are charged to the income
statement in the period in which they are incurred. 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 capitalized 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
analyzed 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 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.
For this to be the case, the asset must be available for immediate
sale in its present condition, management must be committed to and
have initiated a plan to sell the asset which, when initiated, was
expected to result in a completed sale within twelve months. Assets
that are classified as held for sale are not depreciated and 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 amortization 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 amortization are tested for
impairment whenever events or changes in circumstance indicate that
the carrying amount may not be recoverable. An impairment loss is
recognized 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. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable
cash flows. Inventories Inventories are stated at the lower of cost
and net realizable 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 realizable value is the
estimated selling price in the ordinary course of business, less
applicable variable selling expenses. 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 realized or the deferred tax liability is
settled. Deferred tax assets are recognized to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilized. 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. 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 recognized as
assets and liabilities measured at their fair values at the balance
sheet date. Where derivative financial instruments do not fulfill
the criteria for hedge accounting contained in IAS 39, changes in
their fair values are recognized in the income statement. When
hedge accounting is used, the relevant hedging relationships are
classified as fair value hedges, cash flow hedges or net investment
hedges. Where the hedging relationship is classified as a fair
value hedge, the carrying amount of the hedged asset or liability
is adjusted by the increase or decrease in its fair value
attributable to the hedged risk and the resulting gain or loss is
recognized in the income statement where, to the extent that the
hedge is effective, it will be offset by the change in the fair
value of the hedging instrument. 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 recognized
directly in equity rather than in the income statement. When the
hedged item is recognized in the financial statements, the
accumulated gains and losses recognized in equity are either
recycled to the income statement or, if the hedged item results in
a non- financial asset, are recognized as adjustments to its
initial carrying amount. Pensions and other post retirement
benefits 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 recognized 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 expected return from pension scheme assets is recorded
within finance revenue and the interest on pension scheme
liabilities is recorded within finance costs. Past service costs
resulting from enhanced benefits are recorded within operating
profit and recognized 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 recognized in full in the statement of
recognized income and expense in the period in which they occur.
The defined benefit liability or asset recognized 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 recognized, less the fair value of the plan
assets, if any, at the balance sheet date. Where a plan is in
surplus, the asset recognized is limited to the amount of any
unrecognized 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. Trade receivables Trade receivables are
recognized initially at fair value and measured subsequently at
amortized 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. 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 practice of net settlement with cash balances. Share capital
The Company only 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 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. Borrowings Borrowings are recognized initially at cost
being the fair value of the consideration received net of
transaction costs incurred. Borrowings are subsequently stated at
amortized cost with any difference between the proceeds (net of
transaction costs) and the redemption value being recognized 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. Investments The Group classifies its
investments 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
investments were acquired. Management determines the classification
of its investments 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. 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 investment within 12 months of
the balance sheet date. Investments are initially recognized at
fair value plus transaction costs for all financial assets not
carried at fair value through profit or loss. Investments are
derecognized when the rights to receive cash flows from the
investments 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 amortized cost using the effective interest
method. Realized and unrealized 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. Unrealized gains and
losses arising from changes in the fair value of non-monetary
securities classified as available-for-sale are recognized 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. Provisions Provisions for environmental restoration,
restructuring costs and legal claims are recognized 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
recognized 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. Share based payments
Share-based incentives are provided to employees under the Group's
executive share option, long term incentive and share purchase
schemes. The Group recognizes 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
recognized 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. As
permitted by IFRS 1, the Group has applied IFRS 2 "Share-based
Payment" retrospectively only to equity-settled awards that had not
vested as at August 1, 2004 and were granted on or after November
7, 2002 and cash-settled awards that had not vested as at August 1,
2004. Dividends payable Dividends on ordinary shares are recognized
as a liability in the Group's financial statements in the period in
which the dividends are approved by the shareholders of the Company
or paid. DATASOURCE: Wolseley plc
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