Wolseley Interim Results

Wolseley, the world's largest specialist trade distributor of plumbing and heating products to professional contractors and a leading supplier of building materials and services, has announced its interim figures.

Chip Hornsby, Wolseley plc Group Chief Executive said:

'The first half results reflect creditable performances in most of our major markets against the background of increasingly challenging conditions. In the short-term, we remain very focused on maximising cash flow, reducing costs and growing market share. We are confident in the long term fundamentals of our markets and will emerge from this current downturn as a stronger organisation with an excellent platform for future growth.'These results reflect the deteriorating US housing market and reducing consumer confidence arising from global credit restrictions. Whilst the liquidity squeeze has particularly affected the US consumer, uncertainty is also having some impact on European markets.

'Against this background, good performances were achieved in the US plumbing and heating business (Ferguson), Wolseley UK, the Nordic region, the Netherlands and Switzerland. Stock Building Supply ('Stock') was adversely affected by the continuing slowdown in US new residential construction, but produced better results than the market generally.

'A variety of management actions have been taken to adjust the Group's cost base in response to the deteriorating market conditions. In the USA, significant headcount reductions in Stock and in Ferguson have been achieved. In Europe, headcount and overhead cost reductions have been implemented with further rationalisation and restructuring of businesses being undertaken. In both continents, decisions have been taken to reduce discretionary revenue and capital spend. Significant further cost reduction is expected in the second half.'

Group Results
After taking account of currency translation, Group revenue for the six months ended 31st January 2008 increased by 2.0% to £8,029 million (2007: £7,870 million). Trading profit was 23.1% lower at £300 million (2007: £390 million). The Group's trading margin fell from 5.0% to 3.7% primarily due to the loss recorded by Stock. Lower profitability in France, Ireland and Central and Eastern Europe also impacted the group margin, but to a lesser extent. After deducting amortisation and impairment of acquired intangibles of £154 million (2007: £45 million) including an impairment of £89 million in Stock, operating profit declined by 57.7% to £146 million (2007: £345 million).

Currency translation reduced Group revenue by £81 million (1.0%) and Group trading profit by £6 million (1.5%) in the six month period. On a constant currency basis, Group revenue increased by 3.1% and trading profit declined by 22.1% for the first six months, compared with the prior year.

Reported profit before tax and amortisation and impairment of acquired intangibles reduced by 29.4% to £233 million (2007: £330 million). Reported profit before tax, after amortisation and impairment of acquired intangibles, declined by 72.5% to £79 million (2007: £285 million). Net finance costs of £6 million (2007: £60 million) reflect the increase in acquisition spend and higher interest rates. Interest cover was 4.3 times (2007: 6.6 times).

The decrease in earnings per share before amortisation and impairment of acquired intangibles was 31.1%, to 26.69 pence (2007: 38.72 pence), reflecting the lower level of profitability. Basic earnings per share were down 70.1%, to
9.87 pence (2007: 32.97 pence).

The business continues to be strongly cash generative. Cash conversion improved from 115% to 122% due to the ongoing focus on improving working capital and cash flow management throughout the Group. Operating cash flow was lower at £367 million (2006: £447 million) due to the Group's lower trading profit.

During the first half, the Group continued with its programme of actions to maximise profit and cash flow. These are outlined below:

Operating Review
Further details of market conditions and financial performance in each of the Group's businesses are set out below.

Europe
Reported revenue, in sterling, for Europe increased by 15.8% to £4,056 million (2007: £3,503 million), of which 0.5% was from organic growth. Recent acquisitions accounted for £432 million (12.3%) of revenue growth, including DT Group in the Nordic region which was acquired in September 2006. Trading profit increased 1.4% from £180 million to £182 million.
Excluding DT Group, trading profit was 21.6% lower due to a disappointing performance in France and some initial disruption, now diminishing, caused by the IT systems implementation in Austria and the new distribution centre (DC) in Italy. Currency translation increased divisional revenue by £101 million (2.9%) and trading profit by £4
million (2.2%).

The overall divisional trading margin, after the allocation of central costs, declined from 5.1% to 4.5% of revenue. The run rate of profitability has been improving and a better performance is expected in the second half.

In the first six months, a further net 92 branches were added to the European network, giving a total of 3,403 locations (31 July 2007: 3,311), including 34 added through acquisitions.

UK and Ireland (20% of Group revenue)
In the UK, the new residential market is declining and the rate of growth in the RMI market has been weakening in response to deteriorating consumer sentiment and tighter credit conditions. Government expenditure on social housing, health and education remains positive. In Ireland the business faced much tougher trading conditions as a result of housing starts which have fallen around 50%.

Against this background, Wolseley UK, which includes Ireland, recorded a 3.1% increase in revenue to £1,602 million (2007: £1,554 million), including 2.1% organic growth. The overall gross margin improved due to price management and continued growth in private label sales.

The UK business showed organic profit growth although, overall, the trading profit reduced by 8.2% compared to the prior year, from £92 million to £85 million, due to the lower profitability in Ireland and lower property profits which were £2 million compared to £8 million last year. As a result the UK and Ireland trading margin fell from 6.0% to 5.3%. There were particularly good trading margin performances achieved in Plumb Center and Bathstore.

Wolseley UK was successful at winning substantial new business from British Gas to supply domestic heating products. These products are being delivered to consumers directly from the DCs which improves efficiency and service levels.

During the first six months, 10 net new locations were added in the UK and Ireland taking the total number of branches for Wolseley UK to 1,927 (31 July 2007: 1,917). The new regional DC in Chorley was handed over to Wolseley UK in February.

OAG business in Austria was completed. The knowledge gained from this implementation process will assist in the further roll out of the technology to those regions where the need for replacement systems are the greatest. Further pilots are planned for the latter part of this financial year.

Interim Dividend
After careful consideration, the Board has decided to pay an interim dividend of 11.25 pence per share (2007: 10.85 pence per share) to be paid on 30 May 2008 to shareholders on the register on 28 March 2008, which will absorb £74 million of cash. This represents an increase of 3.7% over last year's interim dividend and the Board believes that this strikes an appropriate balance between its undiminished confidence in the longer term fundamental strength of the Group and the short term market uncertainties. It is expected that the interim dividend will be approximately one third of the total dividend for the year. The dividend reinvestment plan will continue to be available to eligible shareholders.

Financial Review
Net finance costs of £67 million (2007: £60 million) reflect an increase in Group debt as a result of the higher level of acquisition spend and higher interest rates. Net interest receivable on construction loans amounted to £5 million (2007: £6 million). Group interest cover for the six months was 4.3 times (2007: 6.6 times).

The tax rate, on profit before tax and amortisation and impairment of acquired intangibles, decreased marginally from 25.6% to 25.0% due to the reduction in US profit in the period. This tax rate is consistent with the rate expected for the year ending 31 July 2008.

Before the amortisation and impairment of acquired intangibles, earnings per share decreased by 31.1% to 26.69 pence (2007: 38.72 pence), reflecting the lower level of profitability. Basic earnings per share were 70.1% lower at 9.87 pence (2007: 32.97 pence). The average number of shares in issue during the first half was 655 million (2007: 635 million).

Cash flow conversion improved from 115% to 122% due to the increased focus on improving working capital and cash flow management throughout the Group. Operating cash flow was lower at £367 million (2007: £447 million) due to the Group's lower trading profit.

Capital expenditure in the first half was £155 million (2007: £206 million) and is expected to be slightly higher in the second half. Total capital expenditure for the year, therefore, will be well below the £400 million previously announced.
The Group's branch network has been extended through acquisitions and branch openings by a net 103 locations, bringing the total to 5,399 (31 July 2007: 5,296).

Investment in bolt-on acquisitions completed during the period, including deferred consideration and net debt, amounted to £173 million (2007: £325 million). These 11 acquisitions are expected to add around £221 million per
annum of incremental revenues in a full year. Goodwill and intangible assets related to these acquisitions was £119 million. Since 31 January 2008, the Group has made a further four bolt-on acquisitions for a consideration of £32 million.

These four acquisitions are expected to add around £42 million per annum of incremental revenues in a full year.

Net borrowings, excluding construction loan borrowings, at 31 January 2008 amounted to £2,894 million compared with £2,467 million at 31 July 2007, giving gearing of 83.9% compared to 71.5% at 31 July 2007 and 89.6% at 31 January 2007.

The increase since 31 July 2007 reflects acquisition spend, the strengthening of the Euro, in which £1.8 billion of the Group's borrowings were denominated on 31 January 2008, and seasonality.

The Group is fully in compliance with its borrowing covenants at 31 January 2008 and is confident that this will remain the case. It had committed and undrawn banking facilities of around £1 billion at 31 January 2008. The majority of the
Group's covenants are for net debt to be less than 3.5 times annualised EBITDA, although there are two facilities, totalling £270 million, requiring net debt to be less than 3 times EBITDA. These two facilities can be repaid from existing committed facilities, when appropriate. At 31 January 2008 the ratio of net debt to annualised EBITDA was 2.85 times. The Group has a number of plans in place to ensure continued compliance with its covenants should markets deteriorate by more than anticipated.

In the USA, construction loan receivables, financed by an equivalent amount of construction loan borrowings, were £272 million (2007: £293 million). The decrease primarily reflects a more cautious approach to lending following the decline in the US new housing market.

Return on gross capital employed (ROGCE) was 11.4% (2007: 15.9%) primarily as a result of the reduced profitability of the Group. The ROGCE remains above the Group's pre-tax weighted average cost of capital, which is currently estimated to be 9.4%.

Provisions in the balance sheet include the estimated liability for asbestos claims on a discounted basis. This liability has been actuarially determined as at 31 January 2008 based on advice from independent professional advisors. Asbestos related litigation is fully covered by insurance and accordingly an equivalent insurance receivable has been included in receivables. The level of insurance cover available significantly exceeds the expected level of future claims and no profit or cash flow impact is therefore expected to arise in the foreseeable future. There were 320 claims outstanding at 31 July 2007 (31 July 2006: 246). An update on the estimated liability and number of claims outstanding will be provided with the Group's Preliminary Results announcement in September 2008.

Outlook
The Board expects business conditions in a number of the Group's markets to become more challenging over the next few months.

In the USA, the housing market is likely to deteriorate further and put additional pressure on the RMI market. The commercial and industrial market is likely to remain stable for the next few months, but soften thereafter.

In Canada, the domestic economy should remain positive although the new residential housing market is likely to continue to slow from recent high levels.

Growth rates in European markets are likely to slow, but the RMI and commercial and industrial segments, that drive the majority of the Group's business, are expected to remain marginally positive.

Management's immediate focus will remain on achieving a cost base appropriate to market conditions, with further significant cost reductions in the second half, and on maximising cash flow. The Group will apply a highly selective approach to further capital and acquisition expenditure.

The Board remains confident that the Group's fundamental strategy for exploiting market fragmentation through acquisition and organic growth will continue to provide significant opportunities in the future.

Principal risks and uncertainties
The principal risks and uncertainties which could affect the Group for the remainder of the financial year remain those detailed on pages 34 to 37 and 40 to 41 of the Annual Report and Accounts 2007, a copy of which is available at
http://www.wolseley.com. In addition, the Outlook section of this interim statement provides a commentary concerning the remainder of the financial year.

Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:

*The condensed set of financial statements has been prepared in accordance with IAS 34;
*The interim management report includes a fair review of the information required by DTR 4.2.7 R (indication of important events during the first 6 months and description of principal risks and uncertainties for the remaining 6 months of the year); and
*The interim management report includes a fair review of the information required by DTR 4.2.8 R (disclosure of material related party transactions and changes therein).

At the date of this statement, the directors are those listed in the Group's Annual Report and Accounts 2007 with the exception of Robert M Walker who stepped down from the Board on 31st October 2007.