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• pennon-group.co.uk

Contents

• Financial highlights and Group strategy
• Directors’ Report - Business Review
• Chairman’s statement
• Pennon Group: Financial performance
• Pennon Group: Funding position
• Chief Executives’ overviews:
  • South West Water
  • Viridor
• About our businesses:
  • South West Water
    • Regulatory and competitive environment
    • Customers, community and employees
    • Key relationships
    • Principal risks and uncertainties
  • Viridor
    • Regulatory and competitive environment
    • Customers, community and employees
    • Key relationships
    • Principal risks and uncertainties
  • Pennon Group
    • Other financial information
    • Key relationships
    • Principal risks and uncertainties
  • Our corporate responsibility
  • Interpretation
  • Glossary
• Directors’ Report - Other statutory information
• Board of Directors
• Directors’ Remuneration Report
• Corporate Governance and Internal Control
• Independent Auditors’ report
• Financial statements:
  • Consolidated income statement
  • Statements of comprehensive income
  • Balance sheets
  • Statements of changes in equity
  • Cash flow statements
  • Notes to the financial statements:
    • 1. General information
    • 2. Principal accounting policies
    • 3. Financial risk management
    • 4. Critical accounting judgements and estimates
    • 5. Prior year adjustment
    • 6. Operating segments
    • 7. Operating costs
    • 8. Net finance costs
    • 9. Taxation
    • 10. Profit of parent company
    • 11. Earnings per share
    • 12. Dividends
    • 13. Employment costs
    • 14. Directors' emoluments
    • 15. Goodwill
    • 16. Other intangible assets
    • 17. Property, plant and equipment
    • 18. Financial instruments by category
    • 19. Other non-current assets
    • 20. Investments
    • 21. Inventories
    • 22. Trade and other receivables current
    • 23. Derivative financial instruments
    • 24. Cash and cash deposits
    • 25. Trade and other payables current
    • 26. Current tax liabilities/(recoverable)
    • 27. Borrowings
    • 28. Other non-current liabilities
    • 29. Retirement benefit obligations
    • 30. Deferred tax
    • 31. Provisions
    • 32. Share capital
    • 33. Share premium account
    • 34. Capital redemption reserve
    • 35. Retained earnings and other reserves
    • 36. Cash flow from operating activities
    • 37. Net borrowings
    • 38. Aquisitions
    • 39. Principal subsidiary and joint venture undertakings
    • 40. Operating lease commitments
    • 41. Contingent liabilities
    • 42. Capital commmitments
    • 43. Related party transactions
• Five-year financial summary
• Shareholder information

NOTES TO THE FINANCIAL STATEMENTS

27. BORROWINGS

The Company issued £125m 4.625% convertible bonds on 20 August 2009. The bonds mature five years from the issue date at their nominal value of £125m or can be converted into shares at the holders option at the maturity date on the conversion price of 597.81 pence per ordinary share.

The values of the liability component and the equity conversion component were determined at issuance of the bond. The value of the equity conversion component was determined to be £10m, using the Black-Scholes valuation model and has been recognised in shareholders' equity in retained earnings (note 35).

The fair values of non-current borrowings were:

Where market values are not available, fair values of borrowings have been calculated by discounting expected future cash flows at prevailing interest rates.

The maturity of non-current borrowings was:

The weighted average maturity of non-current borrowings was 22 years (2009 23 years).

Finance lease liabilities - minimum lease payments:

Included above are accrued finance charges arising on obligations under finance leases totalling £135.3m (2009 £135.9m), of which £11.9m (2009 £13.8m) is repayable within one year.

Within obligations under finance leases, South West Water Limited has utilised finance lease facilities of £180.0m for certain water and sewerage business property, plant and equipment which are secured by bank letters of credit issued by United Kingdom financial institutions. These letters of credit, covering the full period of the finance leases, are renewable between the financial institutions and South West Water Limited at five-yearly intervals, the next being March 2011.

During 2007 the period for repayment of these leases was extended with an agreement to deposit with the lessor group amounts equal to the difference between the original and revised payments due. The accumulated deposits, £24.1m at 31 March 2010 (2009 £16.7m), are being held to settle the lease liability over the period from the end of the original lease term. The deposits are subject to a registered charge given as security to the lessor for the balance outstanding.

During 2010 the period for repayment of certain existing leases was extended with an agreement to deposit with the lessor group amounts equal to the difference between the original and revised payments due. The deposit at 31 March 2010 of £9.4m (2009 nil) is being held to settle the lease liability at the end of the lease term, subject to rights to release by negotiation with the lessor.

The effective interest rates at the balance sheet date and the exposure to interest rate changes and the repricing dates were:

Undrawn committed borrowing facilities:

In addition the Group has short-term uncommitted bank facilities of £60.0m available to the Company or South West Water Limited.

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