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Wolseley plc

Annual Report and Accounts 2007


Corporate governance Turn Page Corporate governance (contd)

Corporate governance

Nominations committee The Nominations Committee meets on an as needed basis and was not required to meet during the year ending 31 July 2007. At the date of this report, it comprises Messrs Whybrow (Chairman), Davis, Duff, Hornsby and Walker. Mr Walker will be stepping down on 31 October 2007 and Messrs Murray and Stein will be appointed to the committee with effect from that date. Mr Whybrow would not chair the committee when it considers the appointment of a successor chairman. The committee reviews the structure, size and composition of the Board and its committees and makes 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. The committee retains external search consultants as appropriate. The committee also advises the Board on succession planning for board appointments although the Board itself has overall responsibility for succession generally.

Audit committee The Audit Committee comprises Messrs Davis, Stein and Murray, who chairs the committee. The committee’s membership is reviewed by the Nominations Committee and by Mr Murray at regular intervals. Members of the committee are appointed by the Board following recommendations by the Nominations Committee. The committee is normally comprised of three independent Non Executive Directors. Two members constitute a quorum.

Each member of the committee brings relevant financial experience at a senior executive level and the expertise and experience of the members of the committee are summarised in Our Board. The Board considers that each member of the committee is independent within the definition set out in the Code. Mr Stein is considered by the Board to have significant, recent and relevant financial experience, having been, until September 2007, Finance Director of GKN plc.

All members of the 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 undertake ongoing training as required. Audit Committee members are expected to have an understanding of the following areas:

The committee meets regularly throughout the year and its agenda is linked to events in the Company’s financial calendar. The agenda is mostly cyclical although each member of the committee may require reports on matters of interest in addition to the regular items. Members’ attendance at the meetings held during the year is set out in the table in Corporate governance.

The committee invites the Chairman, the Group Chief Executive, the Chief Financial Officer, the Director of Financial Reporting and Strategic Planning and the Head of Internal Audit together with senior representatives of the external auditors to attend each meeting and receive its papers, although it reserves part of each meeting for discussions without the invitees being present. Other senior executives are invited to present such reports as are required for the committee to discharge its duties. The Audit Committee members regularly meet the Head of Internal Audit and the external auditors without the presence of executive management. The Chairman of the Audit Committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the committee’s activities.

The committee is required to assist the Board to fulfil its responsibilities related to external financial reporting and associated announcements. During the year, the committee reviewed, either as a committee or as part of the Board:

The committee is also responsible for the development, implementation and monitoring of the Company’s policy on external audit and the committee reserves oversight responsibility for monitoring independence, objectivity and compliance with ethical and regulatory requirements. The committee recommends the appointment and reappointment of the Company’s external auditors and annually reviews a formal letter provided by the external auditors confirming their independence and objectivity within the context of applicable regulatory requirements and professional standards. The committee also reviews the terms, areas of responsibility and scope of the audit (including schedules of unadjusted errors and representation letters) as set out in the external auditors’ engagement letter; the overall work plan for the forthcoming year, together with the cost-effectiveness of the audit as well as the auditors’ remuneration and performance; any major issues which arose during the course of the audit and their resolution; key accounting and audit judgements; the level of errors identified during the audit; and the recommendations made to management by the auditors and management’s response.

During the year, a review was carried out to provide assurance that the Group was receiving value for money for the service provided by the external auditors. The committee monitors the rotation of key partners within the external auditors from time to time in accordance with UK and US rules. The committee also monitors the extent of non-audit work which the external auditors can perform, to ensure that the provision of those non-audit services that can be undertaken by the external auditors falls within the agreed policy and does not impair their objectivity or independence. Under the policy, the external auditors cannot be engaged to perform any of the following services:

The policy requires pre-confirmation by the committee of any non-audit work subject to de minimis levels. The external auditors provide audit related services such as regulatory and statutory reporting as well as formalities relating to shareholder or other circulars. The external auditors report any material departures from Group accounting policies and procedures that they identify during the course of their audit work to the committee. Within the constraints of applicable UK and US rules, the external auditors undertake due diligence reviews and provide assistance on tax matters given their in-depth knowledge of the Group’s business. The provision of non-audit services within such constraints and the agreed policy is assessed on a case-by-case basis so that the best-placed adviser is retained. During the year, the committee carried out an extensive review of the effectiveness of the external auditors, which included receiving responses from each of the Group’s operating companies and considered whether the agreed audit plan had been fulfilled and the reasons for any variation from the plan. The committee also considered the external auditors’ robustness and the degree to which the external auditors were able to assess key accounting and audit judgements and the context of the management letter.

The total fees paid to PricewaterhouseCoopers in the year ended 31 July 2007 were £10.5 million (2006: £9.6 million), of which £4.2 million (2006: £4.2 million) related to non-audit work. Further disclosure of the non-audit fees paid during the year ended 31 July 2007 can be found in note 3 to the accounts.

The committee also reviews the effectiveness of the Group’s internal audit function, including its terms of reference, audit plans, general performance and its relationship with the external auditors. Throughout the year, the committee reviewed the internal audit function’s plans and its achievements against such plans. The committee considered the results of the audits undertaken by the internal audit function and considered the adequacy of management’s response to matters raised, including the time taken to resolve any such matters. The committee carried out its annual review to consider the effectiveness of the internal audit function using guidance issued by the Institute of Chartered Accountants in England & Wales and the Institute of Internal Auditors – UK. During the year, two continental audit committees were established by the continental CEOs for Europe and North America, at the suggestion of the committee. The minutes of the continental audit committee meetings will be provided to the Audit Committee.

The committee monitors and reviews the effectiveness of the Group’s internal control systems, accounting policies and practices, standards of risk management and risk management procedures and compliance controls as well as the Company’s statements on internal controls before they are agreed by the Board for each year’s annual report. The committee has also monitored the Company’s response to the requirements of the US Sarbanes-Oxley Act as they apply to foreign private issuers with particular focus on the progress made in evaluating internal controls as required by Section 404 of that Act and the disclosures to be made by the Group Chief Executive and Chief Financial Officer as part of the Form 20-F certification process. The Board retains overall responsibility for internal control and for the identification and management of business risk. During the year, the committee also reviewed the processes which have been embedded throughout the Group in compliance with IFRS reporting requirements.

The Company’s whistleblowing policy, which is an extension of the Groupwide Code of Ethics, gives details of the international whistleblowing hotline operated on behalf of the Company by an independent third party and sets out the arrangements for the Company Secretary to receive, in confidence, disclosures on accounting, risk issues, internal controls, auditing issues and related matters which would, as appropriate, be reported to the committee. A copy of the Group’s Code of Ethics is available on the Company’s website at www.wolseley.com.

Each year the committee critically reviews its own performance and considers where improvements can be made. The committee’s terms of reference were reviewed and updated during the year and copies are available from the Company Secretary or on the Company’s website at www.wolseley.com.