Wolseley plc

Annual Report and Accounts 2007

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• Group income statement
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• Notes to the consolidated financial statements
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• Independent auditors report to the members of Wolseley plc
• Company balance sheet
• Notes to the Company financial statements
• Independent auditors report to the members of Wolseley plc
• Principal subsidiary undertakings and their directors
• Five year summary
• Pro forma information in United States dollars
• Acquisitions completed during the year
• Group information
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Notes to the consolidated financial statements

Year ended 31 July 2007

20. Derivative financial instruments

Interest rate swaps The Group uses interest rate swaps to manage its exposure to interest rate movements on its borrowings. The fair value of interest rate swaps is estimated on the basis of the market values of equivalent instruments at the balance sheet date.

The Group’s bank borrowings generally attract variable interest rates based on six-month LIBOR. Certain interest rate swaps are designated and effective as cash flow hedges, with the valuation gains being deferred in equity until realised.

The Group’s private placement borrowings are at fixed rates. Certain interest rate swaps 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. The ineffective portion was less than £1 million.

Outstanding interest rate swap contracts at 31 July 2007 comprised fixed interest payable on notional principal of US$650 million and EUR 1,280 million (2006: US$650 million, €770 million and £7 million) and fixed interest receivable on notional principal of US$1,079 million (2006: US$1,079 million). The contracts expire between September 2007 and November 2020 (2006: September 2006 and November 2020), and the gains deferred in equity will reverse in the income statement over that period. The fixed interest rates vary between 2.313 and 5.415 per cent (2006: 2.313 and 5.415 per cent).

Currency swapsThe Group uses currency swaps either to obtain the optimum return on its surplus funds or to hedge cash flows in respect of committed transactions. 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.

There were no currency swaps held at fair value through the income statement at 31 July 2007. At 31 July 2006 the Group had entered into certain short-term currency swaps amounting to assets of US$3 million and liabilities of £2 million which were held at fair value through the income statement.

At the balance sheet date the Group had entered into certain short-term currency swaps amounting to assets of £98 million, US$150 million, DKK640 million and SEK16 million (2006: US$627 million, €222 million and CHF22 million) and liabilities of €172 million, CAD136 million and CHF127 million (2006: £419 million and CAD169 million) which were designated and effective as hedges of net investments in overseas operations. Valuation gains have been deferred in equity.