Notes to the consolidated financial statements
26. Share incentive plans continued
The fair value of conditional share awards granted was estimated using the Monte-Carlo model. The significant inputs to the model were as follows:
| 31.3.2009 | 31.3.2008 | |
| Dividend yield | 4.9% | 3.5% |
| Expected share price volatility | 28% | 24% |
| Share price at award | 251.50p | 334.00p |
| Expected FTSE 250 Index volatility | 23% | 13% |
| Risk free interest rate | 2.6% | 4.6% |
| Expected life of option (years) | 3 | 3 |
The expected life of these options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
Share Incentive Plan (SIP)
The SIP scheme provides one free matching share for every three shares purchased by an employee. Shares for the SIP are purchased at market price by the Trustee and dividends are paid in cash directly to participants.
The following table illustrates the movements in conditional share awards during the year.
| 31.3.2009 Number |
31.3.2008 Number |
|
| Outstanding at 1 April | 97,876 | 115,219 |
| Granted during the year | 119,922 | 100,721 |
| Forfeited during the year | (2,861) | (3,647) |
| Exercised | (97,250) | (114,417) |
| Outstanding at 31 March | 117,687 | 97,876 |
27. Special purpose entities
As noted under accounting policy 1(b), under SIC 12, two companies are consolidated as special purpose entities. The principal special purpose entity is Bakethin Holdings Limited, the shares in which are owned by Bakethin Charitable Trust. The other special purpose entity is Bakethin Finance plc, which is a wholly owned subsidiary of Bakethin Holdings Limited.
Bakethin Finance plc was established for the purpose of issuing guaranteed secured Eurobonds. On 12 May 2004, Bakethin Finance plc issued £248.0 million of guaranteed secured bonds maturing January 2034. Bakethin Finance plc used the proceeds of the bond issue to make a loan to Reiver Finance Limited to fund the consideration given by that company to Northumbrian Water Limited for the securitisation of the cash flows receivable from the Environment Agency under the Water Resources Operating Agreement relating to Kielder reservoir. The assignment is for a period of 30 years.
The summarised combined financial statements of the special purpose entities are as follows:
| 31.3.2009 £m |
31.3.2008 £m |
|
| Income statement: | ||
| Finance costs receivable | 15.0 | 15.0 |
| Finance costs payable | (15.0) | (15.0) |
| Profit for the year | – | – |
| Balance sheet: | ||
| Investments | 240.7 | 240.4 |
| Current assets | 4.7 | 4.6 |
| Non-current liabilities | (242.6) | (242.2) |
| Current liabilities | (2.7) | (2.7) |
| Net assets | 0.1 | 0.1 |