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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

32. SHARE CAPITAL

Allotted, called up and fully paid

Shares held as treasury shares may be sold or re-issued for any of the Company's share schemes, or cancelled.

Employee share schemes

The Group operates a number of equity-settled share plans for the benefit of employees. Details of each plan are:

i) Sharesave Scheme

An all-employee savings related plan is operated that enables employees, including executive directors, to invest up to a maximum of £250 per month for three or five years. These savings can then be used to buy ordinary shares at a price set at a 20% discount to the market value at the start of the savings period at the third, fifth or seventh year anniversary of the option being granted. Options expire six months following the exercise date and, except for certain specific circumstances such as redundancy, lapse if the employee leaves the Group before the option exercise period commences.

Outstanding options to subscribe for ordinary shares of 40.7p each under the Company's share option schemes are:

At 31 March 2010 there were 1,492 participants in the Sharesave Scheme (2009 1,299).

The number and weighted average exercise price of Sharesave options are:

The weighted average price of the Company's shares at the date of exercise of Sharesave options during the year was 468p (2009 594p). The options outstanding at 31 March 2010 had a weighted average exercise price of 396p (2009 389p) and a weighted average remaining contractual life of 3.0 years (2009 1.9 years).

The aggregate fair value of Sharesave options granted during the year was £1.5m (2009 £0.8m), determined using the Black-Scholes valuation model. The significant inputs into the valuation model at the date of issue of the options were:

Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous two years.

ii) Restricted Share Plan

Under this plan Executive Directors and senior management receive a conditional award of ordinary shares in the Company.

The eventual number of shares, if any, which vest is dependent upon the achievement of the performance condition of the plan over the restricted period, being not less than three years.

The number and weighted average price of shares in the Restricted Share Plan are:

The plan was succeeded in 2007 by the Performance and Co-investment Plan.

iii) Performance and Co-investment Plan

Executive Directors and senior management receive a conditional award of ordinary shares in the Company and are also required to hold a substantial personal shareholding in the Company. The eventual number of shares, if any, which vest is dependent upon the achievement of conditions of the plan over the restricted period, being not less than three years.

The number and price of shares in the Performance and Co-investment Plan are:

The awards outstanding at 31 March 2010 had a weighted exercise price of 554p (2009 598p) and a weighted average remaining contractual life of 1.4 years (2009 1.9 years).

The aggregate fair value of awards granted during the year was £1.9m (2009 £1.8m) determined using a Monte-Carlo simulation model.

The significant inputs into the valuation model at the date of the share awards were:

Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous two years.

iv) Annual Incentive Bonus Plan - Deferred Shares

Awards under the plan to Executive Directors and senior management involve the release of ordinary shares in the Company to participants. There is no performance condition since vesting is conditional upon continuous service with the Group for a period of three years from the award. The number and weighted average price of shares in the Incentive Bonus Plan are:

The awards outstanding at 31 March 2010 had a weighted average exercise price of 547p (2009 575p) and a weighted average remaining contractual life of 1.8 years (2009 1.4 years). The Company's share price at the date of the awards ranged from 473p to 620p.

The aggregate fair value of awards granted during the year was £0.7m (2009 £0.9m), determined from market value. No option pricing methodology is applied since dividends declared on the shares are receivable by the participants in the scheme.

Further details of the plans and options granted to Directors, included above, are shown in the Directors' Remuneration Report.

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