Wolseley plc

Annual Report and Accounts 2007

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• Group income statement
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• Group cash flow 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
• Shareholder information

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Notes to the consolidated financial statements

Year ended 31 July 2007

29. Share-based payments

The Group operates seven share option plans: the 1984 Executive Share Option Scheme, the 1989 Executive Share Option Scheme and the Wolseley Share Option Plan 2003 (collectively, the ‘Executive Option Schemes’); the Wolseley Employees Savings Related Share Option Scheme 1981, the Wolseley Irish Sharesave Scheme 2000 and the Wolseley European Sharesave Plan 2001 (collectively, the Employees Savings Option Schemes’); and the Wolseley Employee Share Purchase Plan 2001 (the ‘ESPP’). The Wolseley Employees ‘ International Stock Appreciation Plan (the ‘SAP’) expired during the year ended 31 July 2006.

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 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. Awards granted under the Employee Share Purchase Plan vest over a one year period. Awards granted under the SAP vested over a period of five years.

The Group also operates a Long Term Incentive Scheme (‘LTIS’) and the Wolseley Restricted Share Plan (‘RSP’) for senior executives. Under the LTIS, executives will be 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 scheme 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.

Share options outstanding during the year

The weighted average share price at the date of exercise for share options exercised during the period was £12.81 (2006: £12.67). The total intrinsic value of options exercised during the period was £23 million (2006: £22 million). The aggregate intrinsic value of options outstanding and exercisable at 31 July 2007 was £28 million and £15 million respectively (2006: £48 million and £21 million).

Maximum number of shares that can be issued under the LTIS and RSP

Details of options exercisable Options outstanding and exercisable at 31 July 2007 under the Executive Option Schemes, the Employees Saving Option Schemes and ESPP can be analysed as follows:

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 LTIS, for which a Monte Carlo simulation was used. The fair value of shares granted under the RSP 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:

* The initial assumption was for 2007 interim and final dividends of 10.84 pence and 21.51 pence respectively (2006: 9.68 pence and 19.36 pence respectively).

Expected volatility has been estimated on the basis of historic volatility over the expected term. Expected life has been estimated on the basis of historical data on the exercise pattern.