The Group's businesses closely monitor both market and geographic trends and understand lead and lag indicators in order to take timely actions to address issues affecting trading.

The diversity of the Group's operations, the nature of its customer base and its ability to react to market changes also provide a degree of protection. The Group actively manages both its acquisitions activity and new branch openings to ensure it is best placed to exploit market opportunities.

The Group's businesses actively review market prices for their supplies and take steps to protect themselves or, indeed, maximise opportunities arising from significant anticipated price rises. In many cases, the businesses are able to cooperate with their supplier base to manage the effects of such product price changes. Generally, the Group is able to pass on price increases from its suppliers to customers.

The Group sources products from a wide variety of manufacturers and suppliers with none of these accounting for more than 5% of its total material and supply purchases during the 2006 financial year. Increasing collaboration with suppliers including joint demand forecasting initiatives is also helping to better manage product shortage issues.

The Group actively works with its customers to find innovative ways to meet their changing needs in order to remain at the forefront of its chosen markets. Wolseley's value proposition centres around the service, expertise and the product breadth it offers rather than strictly competing on price.

The combination of Wolseley's international scale, allowing it to continually invest efficiently in people, technology and logistics, thus reducing the underlying cost base, together with local company autonomy for managing the customer base, is designed to enhance the Group's competitive position.

Wolseley is committed to investing to support its short, medium and long-term growth targets and ensure the appropriate infrastructure is in place. There are a variety of business improvement initiatives underway relating to supply chain, sourcing, human resources, the deployment of technology and customer service.

These initiatives are actively and carefully planned with defined governance procedures in place. An important component of this planning process is to ensure that the risks of disruption to the business are controlled and monitored.

The Group continually reviews acquisition targets through established processes and searches. The status of targeting and progress in making acquisitions is reported regularly to the Board and the Executive Committee.

The Group employs dedicated acquisition and integration teams whose processes have given the Group a successful track record of integrating acquisitions and achieving expected results. Recent changes have been made to the Group's management structure to increase the central resource focused on identifying and integrating acquisitions.

The Group typically targets high quality businesses for acquisition, which not only quickly contribute to cash flow and earnings, but also expand the depth of management knowledge and expertise and provide opportunities for best practice sharing with existing businesses.

The Group continues to expect to find sufficient, suitably priced acquisitions, to enable it to meet its growth targets. The Group also has the advantage of being able to expand and leverage its extensive existing network as an alternative means to achieving growth in certain areas.

The Group monitors regulations across its markets to ensure that the effects of changes are minimised.

Certain changes in regulations may also positively impact the businesses. For instance, changes in building regulations in the UK with regard to the level of heat insulation required in new buildings has presented a growth opportunity for Wolseley UK through the acquisition of Encon. Such changes may also provide demand for a broader and higher margin product range.

Wolseley has a culture and approach which is designed to resolve disputes directly with the party in question in a spirit of openness and cooperation. Litigation is regarded as a last resort.

In the case of asbestos litigation, Wolseley employs independent professional advisers to actuarially determine the potential gross liability, which necessitates the application of certain assumptions relating to claims development and the cost of settling such claims over the remaining lifetime of the potential litigants, which is approximately 50 years. There are a number of factors which could enable actual experience to differ from the assumptions made. Actual experience is reviewed against the assumptions each year and the liability adjusted in the financial statements.

Wolseley has insurance which significantly exceeds the current estimated liability relating to asbestos claims. Based on current estimates, no profit or cash flow impact is therefore expected to arise in the foreseeable future. Wolseley has recognised a discounted liability of £31 million in respect of asbestos litigation. An equal receivable amount of £31 million is shown in other receivables reflecting the discounted sum recoverable from insurers in respect of this liability.

One of Wolseley's key competitive advantages is the quality and experience of its people. Local companies have allocated specific responsibilities for reviewing the performance of senior managers and employees with high potential. Development and succession planning for these individuals is planned and strong performance is actively rewarded.

The Group continues to invest significant time and money in senior management, manager development and graduate trainee and graduate recruitment programmes.

Wolseley believes that the benefits of its geographical spread outweigh the associated risks. The portfolio effect of economic conditions, exchange rates and other associated factors of having operations in Europe and North America provide some protection in terms of the long-term performance of Wolseley.

The Group continually seeks opportunities to increase its business diversity and has programmes in place to share best practice. Increasingly, the Group's businesses are working together to meet customers' needs and to ensure the Group achieves more international leverage.

The Group seeks to manage its foreign currency risk and the steps it takes are described in the Financial Risk Management section. The Group actively works with its taxation advisors to minimise its tax exposure and risk.

Each of the businesses have established procedures in place to review and collect outstanding receivables. Significant outstanding and overdue balances are reviewed on a regular basis and resulting actions are put in place on a timely basis. In many cases, protection is provided through lien rights on projects or through credit insurance arrangements.

All of the major businesses use professional, dedicated credit teams, in some cases field based. Not only does this lessen the risk of non-payment but it can also provide opportunities where these teams can work with higher risk customers to provide innovative, secured credit arrangements.

Historic write off rates are low and appropriate provisions are made for debts that may be impaired on a timely basis.

Stock Building Supply's construction loans are secured on the related properties and are managed by a dedicated lending team within that business. Policies are also applied to provide further protection and Key Performance Indicators are monitored regularly by management outside the business.