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northumbrian 
water group plc 
annual report and 
accounts 201 1
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and financial 
statements 
northumbrian water group plc
2011 cautionary statement
this annual report contains certain statements with respect to the future operations performance  
and financial condition of the group by their nature these statements involve uncertainty since  
future events and circumstances can cause results and developments to differ materially from those 
forecast such statements reflect knowledge and information available at the date of preparation of 
this annual report and the company undertakes no obligation to update such statements nothing  
in this annual report should be construed as a profit forecast certain regulatory performance data 
contained in this annual report is subject to regulatory audit
northumbrian water group plc 
is an independent company 
quoted on the ftse 250 index 
of the london stock exchange 
the group principally works in 
the provision of water and 
waste water services
our vision
t o be the national leader in the 
provision of sustainable water  
and waste water services
directors’ report – business review
01 highlights
02 nwg at a glance 
04 chairman’s statement
06 chief executive officer’s review
10 our corporate responsibility
12 our performance measures
14 our market
16 our financial performance
22 our operating performance
50 our risks and uncertainties
52 appendix to the directors’ report – business review
directors’ report – governance
54 board directors’ biographies
56 statutory disclosures
58 corporate governance statement
remuneration
71 directors’ remuneration report
financial statements
85 statement of directors’ responsibilities in relation  
to the group financial statements
86 report of the auditors on the group financial 
statements
88 consolidated income statement
89 consolidated statement of comprehensive income
90 consolidated statement of changes in equity
91 consolidated balance sheet
92 consolidated cash flow statement
93 notes to the consolidated financial statements
132 statement of directors’ responsibilities in relation  
to the parent company financial statements 
133 report of the auditors on the company financial 
statements
135 company balance sheet
136 notes to the company financial statements
140 shareholder information
all corporate responsibility related sections 
throughout the report are highlighted with  
a green shaded box
contents revenue £m
 6335
 6704
 6941
 7047
 7381
 07 08 09 10 2011
dividend per share pence
 1127
 1207
 1279
 1324
 1429
 07 08 09 10 2011
proﬁt before tax £m
 1478
 1703
 1527
 1702
 1810
 07 08 09 10 2011
01 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
financial highlights
– strong financial performance with  
a 63 increase in profit before tax
– regulated business operating 
costs are better than target 
reflecting good progress on our 
efficiency programme and fixing 
of power prices to march 2015
– net interest charges increased by £17 4 
million largely reflecting rpi increases 
on index linked bonds net cash interest 
charges increased by £26 million
– capital investment in the period 
of £2199 million for the group 
capital investment for the regulated 
business of £2215 million
– new loan facilities in place £1000 
million us private placement 
completed for the company in april 
2011 and £1500 million approved 
by the european investment bank 
eib for the regulated business
– funding and approved facilities in 
place to meet the requirements 
of the business to march 2014 
cash and short term deposits at 
31 march 201 1 £1417 million
– proposed final dividend of 957 
pence 2010 885 pence per share 
to be paid on 9 september 2011 
giving a full year ordinary dividend 
of 1429 pence 2010 1324 pence 
per share an increase of 7 9
operational highlights
– continued high levels of  
customer satisfaction
– excellent levels of drinking water quality
– water resource situation is good with 
no plans for restrictions expansion 
of abberton reservoir to secure 
supplies for the essex region for 
25 years is progressing well
– industryleading waste water compliance
– construction commenced on advanced 
anaerobic digestion plant at howdon 
on tyneside a further step towards our 
target of generating 20 of our energy 
from renewable sources by 2015
– achievement of government’s 
skills pledge with 90 of the 
workforce trained to at least national 
qualification framework level 2
highlights
revenue 201 1
£ 7 381 m
2010 £7047m
profit before interest 2011
£3042m
2010 £2758m
profit before tax 2011
£ 1 810m
2010 £1702m
profit for the year 2011
£ 1784m
2010 £1229m
the directors of northumbrian water 
group nwg or the company are 
pleased to present their report on 
the affairs of the company along 
with the audited financial statements 
and the auditors’ report for the year 
ended 31 march 201 1 revenue £m
nwl 
water and waste 
water contracts 
other
6894
400
87
02 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
nwg at a glance
northumbrian water group plc
nwg owns a number of companies which together 
with nwg form the group the largest of these 
companies northumbrian water limited nwl is one 
of the ten regulated water and sewerage businesses  
in england and wales the emphasis given to nwl 
throughout this report reflects its importance to the 
overall performance of the group 
northumbrian water limited
nwl operates in the north east of england where it 
trades as northumbrian water and in the south east  
of england where it trades as essex  suffolk water 
northumbrian water currently provides water and 
sewerage services to 27 million people and essex  
 suffolk water provides water services to 18 million 
people in a combined area of over 12260 square 
kilometres
key facts
47 impounding reservoirs
57 water treatment works
346 water pumping stations
338 water service reservoirs
25624km  water mains
414 sewage treatment works
731 sewage pumping stations
16181km  sewers
nwl is licensed to provide these services and currently 
supplies over 1250 megalitres of water per day this 
water is drawn from reservoirs where it is collected and 
stored rivers and groundwater sources it is treated at 
our works before it is delivered by a network of pipes to 
homes and businesses 
in the north east of england where nwl also provides 
sewerage services waste water is then collected from 
these properties via the sewerage network and treated 
at our works before it is returned to the environment as 
either clean water or sludge which can be recycled as 
fertiliser or used to generate energy
our water and sewerage services in the north east cost 
an average householder 92 pence per day and in essex 
and suffolk area 66 pence for a water only service
the water services regulation authority ofwat as the 
economic regulator sets price limits for companies in 
england and wales every five years 201011 was the 
first year in the current five year investment plan this 
regulation is performance based and companies are 
measured in terms of efficiencies related to operating 
costs capital programmes and financing as well as  
their general operations the regulated revenue of the 
company is set by reference to the rate of inflation 
measured by the retail price index rpi as well as an 
adjustment factor referred to as ‘k’ the profile of ‘k’  
for the current five year period is shown below
201011 201112 201213 201314 201415
k  50 38 09 00 10
nwl has a long term agreement with rwe npower  
for it to operate and sell the energy from nwl ’s 
hydroelectric power station at kielder water which  
is the largest in england
water and waste water contracts
nwg controls a number of special purpose companies 
which have water and waste water contracts in 
scotland ireland and gibraltar
other
sa agrer nv agrer carries out project work in 
developing countries through a number of overseas 
aidfunded agencies newcastle
morpeth
gateshead
darlington
hartlepool
hexham
kielder
cow green
berwick
derwent
head ofce
alnwick
river tyne
river wear
river tees
middlesbrough
durham
sunderland
barsham
norwich
aldeburgh
ipswich
colchester
abberton
clacton
brentwood
barking
basildon
chelmsford
essex area
suffolk area
southend
tilbury
romford
langford
hanningeld
walpole
lowestoft
southwold
great yarmouth
barsham
norwich
aldeburgh
ipswich
colchester
abberton
clacton
brentwood
barking
basildon
chelmsford
essex area
suffolk area
southend
tilbury
romford
langford
hanningeld
walpole
lowestoft
southwold
great yarmouth
03 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
north east england
northumbrian water provides water and 
sewerage services to 27 million people  
in the north east of england the major 
population centres of tyneside wearside 
and teesside are in our area but we also 
serve large rural areas in northumberland 
and county durham provision of waste 
water services only in hartlepool
south east england
essex  suffolk water provides water 
services to two separate supply areas
our essex area which has a population 
of 15 million is part rural and part urban 
with the main areas of population being 
in chelmsford southend and the london 
boroughs of barking and dagenham 
havering and redbridge
we serve a population of 03 million in 
our suffolk area which is mainly rural 
with the biggest towns being great 
yarmouth and lowestoft  04 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
chairman’s 
statement
this was the first year of the five year regulatory 
cycle 20102015 we have made a good start 
delivering value for shareholders and customers 
equally important we have established plans 
and taken actions to ensure we can deliver over 
the whole period and beyond 05 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
the new regulatory cycle introduces new performance 
standards for the period and in this report we indicate 
the substantial progress we are already making  
profit has improved as is needed to ensure we can 
attract the funding required to deliver our ambitious 
investment programme 
this was also the first year with heidi mottram as our 
chief executive officer ceo heidi’s review of the year 
is in pages 6 to 9 of this report it gives a sense of the 
energy and determination she has brought to the 
group our strategy has been reviewed and our values 
reset all our employees have been engaged in the 
work the result is not a change in our direction rather 
it is a change in the pace and scale of improvements 
sought and in our ambition against benchmarks
we are building on strengths developed over many 
years but we recognise that the future will pose new 
challenges and uncertainties often outside our control 
an example is the weather and its impact on our 
environment another is possible reform to the 
regulatory regime although in that case we are seeking 
to influence change to ensure the company can deliver 
its and the government’s objectives efficiently and 
effectively the board reviews all identified strategic 
risks regularly they are detailed on pages 50 and 51 of 
this report we seek to judge and to manage the impact  
of risk on the business financially and operationally
the strong financial performance delivered in difficult 
and uncertain economic conditions has enabled the 
board to recommend a dividend for the year in line  
with the objective we established in 2005 annual real 
increases of 30 have consistently been provided 
since then the economic climate remains uncertain 
although we were pleased to note the agreement by 
sahaviriya steel industries ssi to take over the corus 
plant on teesside and hitachi’s decision to build its  
high speed train assembly plant in durham these  
and other developments should help us to stabilise  
our demand in the future
yet again the weather had a huge impact on our 
operations during the year the worst winter in over  
100 years posed many challenges for us due to the 
extraordinary work of teams across the company 
supplies to our customers were not affected i must  
pay tribute to those who worked in exceptionally hard 
conditions to guarantee supplies and to deal with the 
inevitably increased leakage quickly although in these 
circumstances it was not possible to achieve our 
leakage target in the north
a number of reviews of our regulators are under 
consideration we also expect a white paper for water 
this does create uncertainty for the industry we believe 
that overall the model for the industry has worked well 
much of the necessary change can be made by the 
industry in association with government and regulators 
without potentially disruptive change regulatory 
change must not undermine the confidence of  
our investors
 
our focus remains on our customers and the trust they 
put in us to deliver for them each and every day and  
for the long term ofwat has introduced the service 
incentive mechanism sim in this five year period and  
in the two year trial period we have improved our score 
significantly our aim is to improve much further we 
monitor the company’s performance closely and in  
this report show the balanced scorecard we have 
introduced to do that it is also the base against which the 
remuneration of all senior management will be assessed
our long term commitment to service to customers 
and to achieving efficiency and environmental targets 
requires long term investment the extension of 
abberton reservoir is a perfect example and there is a 
case study of the project on page 43 it will help secure 
the long term supply of water to our customers in 
essex also worthy of note is the commencement of 
work on our second advanced anaerobic digestion 
plant at howdon on north tyneside this follows the 
successful operation of the plant at bran sands on 
teesside together they will significantly increase our 
use of renewable energy
the work of our people during the winter was 
exceptional their unstinting efforts throughout the year 
are always evident and are the basis of our successes 
we thank them for all they do and we seek to ensure 
they have the right environment and personal 
development opportunities we were listed as a 
‘company to watch’ in the sunday times ‘best 
companies to work for’ survey this was a significant 
result as it was the first time we had taken part 
however this was not a surprise as our employee 
survey showed that levels of satisfaction are high
our employees are active in our ‘just an hour’ 
volunteering scheme working in the communities we 
serve these communities are important to us and we 
have developed significant partnerships to ensure that 
we support and help to sustain them that work is part 
of a corporate responsibility programme covering all 
aspects of our business and seeking to embed 
sustainability at all levels 
i must thank my fellow directors for their support  
during the year i would particularly like to thank claude 
lamoureux who leaves the board after this year’s 
annual general meeting agm for his five years on  
the board he has provided us with wisdom and an 
international dimension anita frew and alastair balls 
both left the nwl board after nine years of dedicated 
service we wish them all well we have welcomed  
paul rew to the board since last year’s agm as well  
as simon lyster who has been a member of the nwl 
board for five years the board has considerable 
strength drawn in part from the diverse backgrounds 
and experience of the directors
sir derek wanless
chairman
31 may 2011 06 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
chief executive 
officer’s review
this review highlights our business activity during 
my first year as ceo of nwg
it has been a hugely enjoyable year and also a 
very interesting one as i took time to understand 
the business listen to its stakeholders and 
employees and work with them to develop  
a way forward  07 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
i joined a company which already had a good 
reputation and i was impressed immediately by the 
loyalty and commitment of the workforce it was the 
start of a new five year investment period for nwl and  
i have taken the opportunity to couple that plan with  
a review of our strategy vision and values
nwl had previously stated its vision to ‘be the national 
leader in the provision of sustainable water and waste 
water services’ and our commitment to this is 
reaffirmed we want to continue to deliver value to 
customers and other stakeholders by focusing on  
our core competencies of water and waste water 
management we underpin our drive to be the best  
with five strategic themes containing goals and targets 
that when reached will see our vision and our values 
delivered in the autumn ‘our vision our values our 
way’ was introduced to all our employees during a 
series of interactive roadshows and as a result there  
is clarity and energy throughout the company which  
is driving the business forward
the five themes described below are mutually 
supportive and achieving the right balance between 
them is essential to our success and reputation
customer focuses on delivering industryleading 
customer service our relationship with customers is 
core to the success of our business and it is essential 
that they trust our service customer service is at the 
heart of the company and all employees have a clear 
focus on getting things ‘right first time every time’ 
although we are required to meet regulated standards 
for customer service this should not define our 
aspiration as the quality of our service must go  
beyond that
competitiveness will drive us to greater efficiency 
and indeed to be the most efficient water company  
it is not just about driving cost down but using 
innovation to support our activity
people are our greatest asset and we want to be 
recognised as a great company to work for with high 
levels of satisfaction from our employees we will 
provide support and training and promote excellent 
employee relations
environment is critical to us and our stakeholders  
and we acknowledge our responsibilities to protect  
and enhance the natural environment our carbon 
management plan will help reduce our carbon footprint 
and we will adopt good environmental practice in all 
aspects of our activity
communities are important to us and we want to 
build strong relationships with the communities we 
serve we will ensure that corporate responsibility is 
embedded in performance management and that we 
benchmark ourselves against the best companies
we have agreed specific goals to help us achieve  
our vision against these themes and have clear 
accountability for their achievement throughout  
the company these are measured in a balanced 
scorecard which assesses our performance against  
key performance indicators kpis this is reviewed  
by the board management team and all employees  
on a monthly basis
i believe that clear direction and goals are key to 
success but just as important is a clear sense of 
values and how we do things ‘around here’ so at  
the same time as reviewing our vision we have  
made a clear commitment to five core values
one team – we work together consistently promoting 
cooperation to achieve our corporate objectives
customer focused – we aim to exceed the 
expectations of our external and internal customers
results driven – we take personal responsibility for 
achieving excellent business results
creative – we continuously strive for innovative and 
better ways to deliver our business
ethical – we are open and honest in meeting our 
commitments with a responsible approach to the 
environment and our communities
 
values
reputation
customer
competitiveness
people
environment
communities
vision 08 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
201011
the company was successful in meeting many of the 
targets in its balanced scorecard during the year out  
of 26 targets we improved in 18 which is a very good 
start most notable were the improvements in sewer 
flooding our sim score for customer service as well as 
the reduction in the number of interruptions to supply 
we were also very proud to retain our industryleading 
position in sewage treatment our independent 
customer satisfaction scores still show that customers 
are satisfied with the service we provide as well as value 
for money although we were disappointed that this  
was not reflected at the same level in the research 
undertaken by the consumer council for water 
ccwater this year
the report will also focus on many highlights throughout 
the year but the development of our work to extend 
abberton reservoir and commence our second 
advanced anaerobic digestion plant at howdon after 
the successful operation at bran sands are particularly 
notable the worst winter for over 100 years challenged 
our employees but they responded magnificently 
ensuring that no supplies were interrupted this was a 
fantastic achievement and i am very proud and grateful 
for the commitment and hard work of so many of our 
employees in truly dreadful weather conditions
the company also continued to receive external 
recognition for its activity this year ethisphere listed 
nwg in its top 110 most ethical companies in the world 
one of only five companies chosen in the uk this 
recognises the impact we have on underpinning the 
communities in which we operate and also recognises 
our longstanding relationships with key industrial and 
commercial customers
we continue to be actively involved in the business 
community in all operating areas through direct 
membership and involvement in the councilsboards  
of the confederation of british industry cbi chambers 
of commerce and other similar organisations for  
my part i have been getting involved in a number of 
organisations which i believe can influence the future  
of the company and locally i am a member of the  
cbi council and have been asked to join their  
national infrastructure group i have also joined the 
government’s green economy council as the water 
industry representative and i hope that the council  
can bring a real influence to the development of  
policy relating to a low carbon economy 
this year industrial demand has stabilised and we were 
particularly pleased with the signing of the agreement 
by ssi from thailand to secure the future of the corus 
plant on teesside there is evidence of some industrial 
growth particularly with the confirmation that hitachi will 
develop a site in durham to assemble its high speed 
trains metering of our domestic customers continues  
to increase although at a different pace in our various 
areas of supply and domestic demand is also steady 
the collection of income remains a key focus for us 
particularly in a difficult economic climate
private drains and sewers
one of the major challenges we face in 201112 is the 
transfer of private drains and sewers to the industry in 
october this will almost double our sewerage network 
overnight and much work is already in hand to assess 
what is needed in terms of staffing building effective 
data information sharing and communications to 
customers we don’t fully know the impact of the 
transfer yet but it will lead to higher costs in the order 
of £20 million a year initially which we will need to 
recover in this five year investment period the industry 
has worked well in partnership via water uk to come 
up with the most practical cost effective way forward  
for customers
chief executive officer’s review 
continued 09 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
legislative changes 
we look forward to publication of the government’s 
white papers on water and the natural environment later 
this year the former should bring greater clarity in areas 
such as water resource planning metering social tariffs 
and broader market reform we have worked with the 
industry through water uk to set out a vision of how the 
government can achieve many of its objectives without 
legislation or with only minor legislative changes nwl 
has held frequent meetings with defra and contributed 
ideas on water trading and abstraction reform including  
a joint project ‘trading theory for practice’ with anglian 
water cambridge water and veolia we remain 
committed to any moves that can deliver clear and 
demonstrable improvements for customers other 
stakeholders and the wider environment
the water white paper will be an opportunity to end 
unhelpful speculation around the future regulatory 
regime and provide a clear vision for the future of the 
water industry that retains the confidence of customers 
and investors alike
in addition we await the publication for consultation  
of draft regulations from defra to introduce a duty  
on landlords to provide water companies with relevant 
details so that accurate bills can be issued to tenants 
this should assist in collecting income from the  
private rented sector where bad debts have been 
relatively high
 
regulatory reform
we welcome the conclusions of the defra review of 
ofwat and ccwater conducted by david gray we  
also welcome the view that the overall regulatory 
framework including the continued role for a separate 
customer body is generally fit for purpose we support 
the call for regulatory simplification and a reduced 
reporting burden which is already being championed 
enthusiastically by ofwat we also support further 
clarification of the respective roles of government  
and regulators and a call for more transparency  
in consultation processes
we strongly support the move by ofwat to significantly 
reduce the burden of regulatory reporting and move 
towards riskbased regulation a useful start was  
made in the simplified 2011 june return reporting 
requirements but we support the proposal for more 
radical change in 2012 we have been working in 
partnership with ofwat to pilot a set of high level kpis  
to be reported by companies in place of the current 
detailed and prescriptive reporting requirements
ofwat has published a series of consultation and 
discussion papers on the subject of ‘future price limits’ 
we have responded to these papers and also engaged 
in a range of workshops meetings and informal 
discussions with ofwat we believe the more focused 
approach to regulation should be reflected in the 
approach to future price reviews as well as the annual 
reporting cycle we welcome ofwat’s intention to adopt 
a more outcomefocused approach to price setting and 
have made suggestions as to how the price setting 
methodology could be simplified and made more 
transparent we look forward to responding to ofwat’s 
formal consultation paper outlining its proposals for 
future price reviews later in the year 
the office of fair trading has announced a market 
study looking at whether the market for treatment of 
organic waste is working effectively to deliver the best 
outcomes for customers nwl was an early investor  
in advanced anaerobic digestion technology and we 
welcome this review as it should provide the clarity 
required to inform investment decisions
summary
this has been a very good year for the group we are 
reporting a strong set of results we have a clear vision 
and goals to deliver and have made good progress in 
performance in many areas there is a strong sense of 
energy commitment and accountability in the business 
and i am confident of further success in 201112 
heidi mottram
chief executive officer
31 may 2011 10 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
in previous years in line with many other companies 
we have reported on corporate responsibility 
separately within this report during the year a review 
of our vision values and strategy has given us the 
opportunity to truly embed sustainability throughout 
our business reflecting the importance of 
sustainability to our business we believe that we 
should report sustainability issues alongside our core 
business activities and we have decided to highlight 
sustainability areas throughout our annual report in 
green we recognise that this is an innovative 
approach and would welcome any feedback this 
activity is extensive and it is not possible to include 
everything here as a result key sustainability issues 
appear in green boxes and are linked to our 
sustainability highlights document a partner 
document to this annual report which contains more 
detailed information on our responsible business 
practice policies plans kpis and case studies
 
nwl is expected to provide a secure supply of water 
a basic necessity for health and to protect or enhance 
the environment when we return waste to it our 
stakeholders also expect us to
behave fairly and responsibly −
use resources wisely −
improve quality of life and −
contribute to economic development −
we believe that sustainability helps to improve the 
performance of the company and to achieve our 
business strategy and objectives this is reflected  
in our business plan where our sustainability 
objectives are woven into our core business strategy 
our credentials for our work have been recognised 
and these are outlined on page 44 business in  
the community bitc has highlighted that those 
companies participating in their corporate 
responsibility index outperform other ftse 250 
companies and ethisphere highlights similar 
outperformance for ethical companies nwg’s share 
price has outperformed against the ftse 250 over  
the last five years as highlighted on page 78 
our customer research also highlights that customers 
value the work of nwl in the community and for  
the environment and it helps to build their trust in  
our work each aspect of the highlighted work in  
this report has a direct benefit to the company its 
community and its environment such as cost saving 
carbon reduction environmental impact skills 
development or leverage case studies throughout  
our annual report for example on advanced anaerobic 
digestion or use of reed beds in water treatment 
demonstrate the tangible business benefits such  
as reduced costs and power consumption
to ensure that sustainability runs throughout the 
business all parts of the company are involved from 
the board through to all employees governance of 
our sustainability activity is led by our corporate 
responsibility committee crc a subcommittee of 
the nwl board the crc comprises nonexecutive 
directors executive directors the ceo who is directly 
accountable to the nwl and nwg boards for both the 
environment and sustainable development policies 
and senior managers from across the business in 
addition a cr advisory group crag acts as a 
critical friend helping to validate guide and challenge 
nwl ’s sustainability strategy and activities the crag 
is made up of senior representatives from partner 
organisations to reflect the key areas of our 
communities strategy
“ northumbrian water group’s driving commitment  
to sustainability demonstrates that strong leadership 
and ambition can make a tangible difference to 
communities and the environment” 
 simon lyster chair crc
“ northumbrian water group has an open and 
inclusive approach to working with a wide array of 
external partners to develop extremely impressive 
social and environmental initiatives” 
 norma hope chair crag
our corporate 
responsibility  11 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
kielder water  forest park 12 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
our performance 
measures
the group monitors performance using a range of financial and nonfinancial kpis performance against these 
indicators is reported within the ‘our financial performance’ and ‘our operating performance’ sections later in  
this report
looking forward the financial kpis remain unchanged for 201112 however in order to measure delivery of the 
company business plan and goals a balanced scorecard of kpis has been introduced which replaces the 
existing nonfinancial kpis these indicators are spread across the themes of customer competitiveness people 
environment and communities and targets have been set on a trajectory to deliver the company vision of being 
‘the national leader in water and waste water services’
in order to ensure alignment of the management team this balanced scorecard now represents 80 of the criteria 
contributing to their annual bonus with a further 20 available for the achievement of bespoke personal targets
the table below details those kpis and the targets that have been set for 201112 a full explanation of each  
target follows
strategic theme scorecard measure target 201112
 contribution to 
available bonus
customer customer satisfaction
– sim quantitative score 1 74 2
– sim qualitative score 44 2
unplanned interruptions 6 hours
– north 900
4
– south 600
coliform incidents no 15 4
competitiveness profit before tax set by board 36
capital efficiency set by board 4
people engagement and satisfaction index  81 4
lost time reportable accidents no 11 4
environment leakage mld
– north 147
4
– south 66
sewage treatment works compliance  100 4
pollution incidents categories 1  2 3 4
communities ftse4good accreditation retain 4
bitc platinum plus accreditation retain 4
personal targets bespoke bespoke 20 13 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
measure definition of measure
customer
customer satisfaction – 
sim quantitative score
sim quantitative measure based on customer contacts contacts are normalised per thousand 
connected properties and multiplied by a weighting factor for each ‘unwanted’ category 
categories include unwanted customer calls abandoned calls first stage written complaints 
second stage written complaints and ccwater investigations the lower the score the higher  
the customer satisfaction
customer satisfaction – 
sim qualitative score
sim qualitative measure assessing satisfaction of consumers across their experience from first 
correspondence to final resolution through independent surveys surveys are carried out four 
times a year for water waste water and billing contacts and the average score taken a score of  
5 indicates maximum satisfaction
unplanned interruptions  
6 hours
a weighted scoring of the number of properties affected by interruptions to supply of more than  
six hours’ duration which are unplanned unwarned excluding overruns of planned and warned 
interruptions except for those caused directly by third parties it includes interruptions for which 
customers are notified less than 48 hours in advance the scoring weights interruptions which 
exceed 12 hours and heavily weights those which exceed 24 hours
coliform incidents total number of coliform failures in regulatory samples at water treatment works and service 
reservoirs one coliform or more is a failing sample
competition
profit before tax actual profit before tax compared to the budget approved by the board adjusted for the impact  
of variances related to indexation on index linked bonds which depends on the july rpi in the year 
profit before tax has been chosen because it is a primary financial measure for the group for which 
the executive directors are accountable
capital efficiency an annual assessment of the efficiency of the nwl capital investment programme is undertaken 
by the board
people
engagement and 
satisfaction index 
the engagement and satisfaction index is calculated from scores for 13 items selected from the 
annual employee survey these items align to the sunday times best companies survey and give 
a measure of employee satisfaction
lost time reportable 
accidents no
accidents reportable to the health and safety executive resulting in more than three days lost  
from work
environment
leakage mld water network leakage for the financial year as reported to ofwat 
sewage treatment works 
compliance 
percentage of population equivalent served by sewage treatment works compliant with 
environment agency ea lookup table consents
pollution incidents 
categories 1  2
number of category 1 and 2 pollution incidents in the calendar year as defined by the ea category 
1 is a major water pollution incident and category 2 is a significant water pollution incident
communities
ftse4good accreditation accreditation by ftse4good index series which has been designed to objectively measure the 
performance of companies that meet globally recognised corporate responsibility standards
bitc platinum plus 
accreditation
accreditation by bitc at platinum plus level the highest level in their corporate responsibility index 
bitc is a national businessled charity which advises challenges and supports its members to 
create a sustainable future for people and the planet and to improve business performance 14 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
our market
the largest of nwg’s businesses 
nwl operates in the north east and 
south east of england the two 
areas have very different economic 
demographic and water resource 
characteristics
our external environment 
in the north east there has been a gradual fall in 
overall water demand in recent decades as a 
consequence of a reduction in industrial demand  
for water this trend is expected to continue but the 
pace of decline has now stabilised after some 
industrial closures during the economic recession 
the north east compares well to the rest of the 
country as far as water resources are concerned  
and our major regional rivers can all be supported  
by kielder water this provides very high security  
of supply for our customers we also provide the 
highest levels of compliance for waste water across 
this area ensuring that we can return the water  
and sewage sludge to the environment satisfactorily 
whilst meeting the demands of all customers  
bran sands is particularly important in this respect 
as it supports the heavily industrialised area within 
teesside by treating its waste the advanced 
anaerobic digestion plant there is now operating 
effectively and helping us to build our use of 
renewable energy
nwl ’s southern operating area is in a water scarce 
region that is forecast to experience further 
economic and population growth in the medium 
term while this area has also seen a reduction in 
demand from heavy industry and the recession  
is likely to dampen housing growth in the near future 
we have a current deficit meaning supplies are  
not secure in a severe drought future growth will 
intensify the pressure on the balance between  
supply and demand nwl is implementing long  
term plans to ensure the availability of water supplies 
to meet both current and future demand in the 
region after approval from the ea the project  
to increase the capacity of abberton reservoir  
near colchester coupled with ongoing demand 
management measures will secure supplies to  
the essex area for the foreseeable future 15 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
the current pressures within financial markets have 
been well documented and the credit crunch has 
resulted in reduced availability of certain types of 
finance it is highly unlikely there will be a return to the 
exceptionally low cost of debt experienced from late 
2005 to early 2007 although market conditions have 
improved in recent months some uncertainty remains 
with the financing we have already put in place we are 
sheltered from this uncertainty in the short term as we 
will not need to raise any new debt before march 2014
regulatory and legislative framework 
as a monopoly supplier of an essential public service 
the uk water industry operates within a demanding 
regulatory environment
ofwat regulates prices and levels of customer service 
while the drinking water inspectorate dwi monitors 
drinking water quality and the ea covers environmental 
protection customers’ interests are represented  
by ccwater
nwl aims to maintain good working relationships with 
its regulators and with regional organisations such as 
local authorities which have an interest in the services  
it provides and can influence the company’s business 
this is particularly important following government 
reviews of the regulators changes in regulatory 
reporting and proposals to legislate in the sector 
following the publication of a white paper later in  
the year
abberton reservoir gearing to rcv 
 66
 65
 67
 66
 63
 59 59
 61 61
 56
 07 08 09 10 2011
nwg
nwl
smaller data adjusted so ﬁgures ﬁt
cash interest cover 
 36
 39
 38
 39
 40
 29
 31 31
 33
 32
 07 08 09 10 2011
nwg
nwl
cash ﬂow to net debt 
 16
 17
 18 18
 20
 15
 16
 15 15
 16
 07 08 09 10 2011
nwg
nwl
smaller data adjusted so ﬁgures ﬁt
16 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
our financial 
performance
nwg and nwl use a range of financial kpis to monitor 
the financial standing of the businesses and to ensure 
that strong credit ratings are maintained the definition 
purpose and source of each kpi are shown on page 52
performance against the financial kpis is set out below
performance
target current year previous year
kpi nwg nwl nwg nwl nwg nwl
gearing to rcv  75 70
1
63
2
56
3
66 61
cash interest cover times 25 30 32 40 33 39
cash flow to net debt  13 13 16 20 15 18
notes
1 less than 65 for the regulated business of nwl
2 nwg’s pro forma regulatory capital value rcv at 31 march 2011 was £36431 million 2010 £34205 million see below
3 nwl ’s rcv as advised by ofwat at 31 march 2011 was £33184 million 2010 £30950 million 17 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
the pro forma group rcv includes £2191 million 2010 
£2188 million and £1056 million 2010 £1067 million 
for the kielder securitisation and private finance initiative 
pfi contracts respectively adding these to nwl ’s 
rcv of £33184 million 2010 £30950 million results 
in a pro forma group rcv of £36431 million 2010 
£34205 million
the group’s gearing on this pro forma basis has 
decreased from 66 to 63 with net debt increasing 
by £411 million 18 to £23035 million over the year 
while pro forma group rcv has increased by 65  
due principally to the increase in rpi
gearing at nwl and for the regulated business has 
reduced to 56 from 61 and 60 respectively this  
is due to the impact of the high rpi increase on the 
rcv and a reduction in net debt reduced over the 
period of £285 million to £18683 million due to the 
timing of intragroup dividends which were paid after 
the balance sheet date
the group also prepares detailed medium term 
business plans and annual budgets which are reviewed 
and submitted to the board for approval targets are 
set to measure performance and regular financial 
forecasts are made business plans and budgets 
include an assessment of the key risks and success 
factors facing each business unit on a monthly basis 
management compares the actual operational and 
financial performance of each business with plan and 
budget and this is reported to the board
financial results and dividends
year to 
3132011 
£m
profit for the year 1784
interim dividend paid ordinary – 472 pence 
per share 245
final dividend proposed ordinary – 957 
pence per share 496
nwg
revenue for the year ended 31 march 2011  
increased by 47 to £7381 million 2010 £7047 
million water and sewerage charges at the group’s 
principal subsidiary nwl increased in line with the 
price review final determination allowance of 50  
plus the november 2009 rpi of 03 income from  
the group’s water and waste water contracts  
increased by 44
operating costs increased by £50 million 12 to 
£4339 million principally reflecting movements at nwl 
which are detailed below and the oneoff recovery of 
claim costs by caledonian environmental services 
ces in the prior year profit on ordinary activities 
before interest for the year was £3042 million 2010 
£2758 million an increase of 103
net interest charges increased by £174 million within 
which net cash interest charges increased by £26 
million the noncash element of the increase principally 
reflects inflation of the principal on the index linked 
bonds £285 million and an increase in the interest 
cost of pension plan obligations £72 million these 
were partially offset by better than expected returns  
on pension assets £139 million and oneoff credits  
in respect of the acquisition of the remaining 250 
subordinated loan stock in ces not already held by  
the group £46 million and a termination discount on 
the transfer of a finance lease to a new counterparty 
£29 million
profit on ordinary activities before tax for the year  
was £1810 million 63 higher than the previous year 
2010 £1702 million the current tax charge reduced 
to £331 million 2010 £378 million principally reflecting 
increased profitability more than offset by adjustments 
in respect of prior periods
the deferred tax credit of £305 million 2010 charge of 
£95 million reflects a decrease in the group’s deferred 
tax liability of £463 million following the enactment of a 
reduction in the uk corporation tax rate from 280 to 
260 with effect from 1 april 2011
the effective tax rate for the period was 14 2010 
278 reflecting the impact of the deferred tax rate 
change in the absence of the rate change and  
other prior year items the effective rate would  
have been 285
capital investment for the group was £2199 million 
2010 £2363 million restated including recognition  
of £139 million for assets adopted at £nil cash 
consideration as required under ifric 18 transfers  
of assets from customers 2010 £140 million  18 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
nwl
revenue was £6894 million for the year ended 31 
march 2011 2010 £6578 million the increase is 
mainly due to the application of the final determination 
increase of 50 and 03 in respect of rpi on water 
and sewerage charges demand from both domestic 
and industrial customers has remained steady
operating costs increased by £29 million 07 to 
£3918 million principally reflecting increases in 
depreciation pension charges and water efficiency 
costs partially offset by savings on power £61 million 
other efficiencies and oneoff charges in the prior  
year both for restructuring costs £54 million and for 
bad debt relating to the closure of a major customer 
£17 million
profit on ordinary activities before interest for the year 
was £2976 million 2010 £2689 million
capital investment in the regulated business for the 
period was £2215 million under regulatory accounting 
guidelines 2010 £2183 million this is slightly lower 
than the final determination profile deflated by the 
construction industry price index copi due to some 
delays in maintenance investment as a result of the 
severe winter weather but this should be recovered  
in future years it is difficult to assess any potential 
outperformance over the amp5 period at this early 
stage given the volatile nature of copi but we remain 
focused on delivering our regulatory programme
we have recently tendered our major procurement 
arrangements covering water treatment waste water 
treatment and waste water networks and have 
appointed 19 contractors and consultants to framework 
agreements covering an estimated £15 billion of 
investment over the next ten years commencing 1 april 
2011 in addition we are currently undertaking a tender 
process to appoint additional contractors in readiness 
for the transfer of responsibility for private drains and 
sewers on 1 october 2011
our financial performance 
continued
early in the year we instigated an efficiency programme 
focused on identifying and implementing sustainable 
operating cost efficiencies in order to achieve our 
medium term goal of being in the top efficiency band for 
both water and sewerage as measured by ofwat by 
201314 this programme has progressed well and as 
a result we are ahead of our final determination profile 
further information on this programme is provided on 
page 28
water and waste water contracts
our water and waste water contracts in scotland ireland 
and gibraltar are all performing well and are in line with 
expectations revenue for the contracts increased to 
£400 million for the year ended 31 march 2011 2010 
£383 million principally as a result of the settlement of 
outstanding claims and indexation on revenue tariffs 
both at ces profit on ordinary activities before interest 
was £95 million 2010 £102 million reducing as a result 
of a oneoff recovery of claim costs in the prior year 
partially offset by the increased revenues
the group is involved in two projects to deliver long 
term pfi contracts with scottish water for waste water 
treatment in april 2010 the group acquired the 
remaining 25 noncontrolling equity interest in ces  
for a nominal sum resulting in an increase of £06 million 
in equity shareholders’ funds it also purchased the 
remaining 25 subordinated loan stock for a 
consideration of £04 million which when compared to 
the book value of the loan stock of £50 million resulted 
in a £46 million gain that has been recognised in net 
finance costs in the period
at ces the group now has a 100 shareholding in 
both project and operating companies and the benefit 
of a 40 year contract funding was provided through  
a 37 year fixed interest rate corporate bond with the 
principal amortising from 2008
in ayrshire the group has a 75 shareholding in the 
project company and a 100 shareholding in the 
company that operates the three effluent treatment 
plants that comprise this 30 year contract finance was 
provided through a 27 year loan on a fixed interest basis 
with the principal amortising from 2003 19 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
in ireland the group is part of a contractual consortium 
that designed and built a waste water treatment plant 
for cork city council under the consortium agreement 
the group has responsibility for a 20 year contract for 
the operation and maintenance of the plant during the 
year the group added to its irish project portfolio by 
signing a 20 year operation and maintenance contract 
for the fermoy and mallow waste water treatment 
works with cork county council commencing in 
may 2011
aquagib limited which is two thirds owned by the 
group in a joint venture with the government of 
gibraltar operates gibraltar’s dual drinking water  
and sea water distribution systems under its 30 year 
contract with the government of gibraltar
other
agrer
revenue for the year to 31 march 2011 was £83 million 
2010 £85 million during the year agrer has signed 
new contracts and extensions with a total gross margin 
of €17 million at 31 march 2011 the gross margin of 
the order book is in excess of €21 million
the most significant new contracts signed during the 
year include provision of technical assistance to a local 
development and management of natural resources 
programme in chad €13 million – 54 months 
improvement of the agricultural products value chains  
in mali €05 million – 20 months a country evaluation 
of nepal nicaragua and tanzania €05 million –  
six months and a new framework contract for the 
european commission lot 1 studies and technical 
assistance in all sectors four years in the technical 
assistance to the good governance programme in 
burundi a significant extension has been signed 
€09 million – 28 months
earnings per share and dividends
basic and diluted earnings per share eps for the year 
were 3444 pence and 3438 pence respectively 2010 
2367 pence and 2362 pence respectively
the directors consider that eps adjusted for the 
volatility inherent in some deferred tax items gives a 
better indication of the group’s underlying performance 
in previous years an adjustment has been made  
for total deferred tax however the directors have 
concluded that the ongoing deferred tax charge  
forms part of underlying performance and it is more 
appropriate to only adjust for significant nonrecurring 
deferred tax items for the current period eps from 
continuing operations adjusted for the deferred tax 
credit relating to the corporation tax rate reduction 
were 2550 pence 2010 restated 2367 pence 
a final dividend of 957 pence per share for the year 
ended 31 march 2011 will be recommended by the 
board to shareholders at the agm on 28 july 2011  
and if approved will be paid on 9 september 2011 to 
shareholders on the company’s register of members at 
the close of business on 12 august 2011 together with 
the ordinary interim dividend of 472 pence per share 
the ordinary dividends paid and proposed for the year 
will be 1429 pence per share 2010 1324 pence per 
share this represents an increase of 79 based on 
average inflation over the year of 49 on the ordinary 
dividends for the previous year and is consistent with 
the board’s decision to maintain a progressive dividend 
policy with real increases of 30 per annum the 
dividend cover for the year excluding significant 
nonrecurring deferred tax was 19 times 2010 
18 times
the board of our main subsidiary nwl has proposed 
a dividend policy consistent with the underlying growth 
assumptions adopted by ofwat at the price review  
in 2009
northumbrian water share scheme trustees limited 
which at the date of this report held 765962 shares to 
be used in the future to satisfy the vesting and exercise 
of awards under the company’s long term incentive 
plan ltip has waived the right to all dividends on the 
shares it holds further details of the ltip can be found 
in the directors’ remuneration report nwg’s interest structure 
index linked
fixed
floating
74
20
6
nwg’s funding source 
eib
bonds
bank
lease
73
14
8
5
0
100
200
300
400
500
600
nwg’s gross debt 
maturity proﬁle
£m
2012
2013
2014
2015
2020
2025
2030
2035
2040
2045
2050
2055
nwl 
appointed
group
yearly five year periods
20 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
accounting policies
the consolidated financial statements have been 
prepared in accordance with international financial 
reporting standards ifrs as adopted by the 
european union as it applies to the financial statements 
of the group for the year ended 31 march 2011
capital structure and liquidity
as at 31 march 2011 the group and nwl ’s regulated 
business debt structure remain largely unchanged from 
the previous year end date
in february 2011 the group agreed a new £1000 million 
us private placement with a ten year maturity at a 
coupon of 582 the proceeds of which were received 
on 14 april 2011 on the same date this and existing 
cash reserves were used to refinance £1250 million of 
holding company debt maturing in may 2011 nwl has 
also received approval for a new £1500 million facility 
from the eib which will be drawn in three £500 million 
tranches in the calendar years 2011 to 2013 at interest 
rates to be determined at the time of drawdown
the group and nwl ’s regulated business debt 
structure remain largely unchanged with 74 nwl 
70 fixed at an average rate of 580 nwl 596 
20 nwl 23 index linked at an average real rate of 
185 all nwl and 6 nwl 7 on a variable rate 
basis the blended average rate for the group and 
nwl ’s regulated business for the year ended 31 march 
2011 was 580 and 593 2010 462 445 
respectively reflecting increased rpi
cash interest cover has remained stable for the year as 
have the credit ratings for nwl at bbb stable fitch 
and standard  poors and baa1 stable moody’s
our financial performance 
continued 21 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
total cash cash equivalents and short term cash 
deposits available at 31 march 2011 amounted to 
£1417 million this and the new eib facility is sufficient 
to meet the requirements of the business through to the 
end of march 2014 
 
treasury policy
the main purposes of the group’s treasury function  
are to assess the group’s ongoing capital requirement 
to maintain short term liquidity ensuring access to 
medium term committed back up facilities and to  
raise funding taking advantage of any favourable 
market opportunities
it also invests any surplus funds the group may have 
based on its forecast requirements and in accordance 
with the group’s treasury policy on occasions 
derivatives are used as part of this process but the 
group’s policies prohibit their use for speculation  
full details are provided in note 20 to the financial 
statements the group is operating in compliance  
with its policies
pensions
the group operates both a defined benefit pension 
scheme which is closed to new entrants and an 
occupational defined contribution arrangement
the deficit under international accounting standard 
ias 19 retirement benefits of the defined benefit 
scheme has decreased from £1331 million at 31 march 
2010 to £460 million at 31 march 2011 this is due to  
a reduction in the liabilities of the scheme £372 million 
and an increase in the value of scheme assets £499 
million the valuation of the scheme liabilities has taken 
account of legislative changes which mean that future 
statutory deferred revaluations and statutory pension 
increases will be linked to the consumer price index 
cpi as a consequence cpi increases have been 
applied for deferred pensions in all sections of the 
scheme and to those sections where the scheme rules 
link increases to the government’s pension increase 
orders this has given rise to a reduction in the scheme 
liabilities of around £360 million
following the 2004 actuarial valuation the group 
prepaid contributions for the period to 31 december 
2010 in place of recommencing regular contributions 
from 1 january 2011 the group agreed to pay  
further advance contributions to the scheme totalling 
£700 million for the period to 31 march 2015 amounts 
totalling £229 million were paid in the period to 
31 march 2011 and a further £471 million was paid  
in april 2011 these payments comprise employers’ 
contributions and the deficit recovery funding  
assumed in the final determination
a full actuarial valuation of the scheme as at 
31 december 2010 is underway 22 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
our operating
performance
we use a range of kpis to measure nonfinancial 
performance in the business and these indicators are 
reviewed by the management team each month  
performance for the year is reported in this section  
the definition purpose and source of each kpi are 
shown on pages 52 to 53
these measures have been reviewed in the year as 
outlined in ‘our performance measures’ on page 12 
and a new balanced scorecard of kpis has been 
introduced for 201 112
mains cleaning programme – valve installation 23 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
customer
target 
201011
performance 
201011
overall service 
1
 91 89
value for money 
1
 87 85
note
1 satisfaction measured on a net basis see appendix to the directors’ report – business review
customer service
the performance against standards of service is shown below
north n 
south s
target 
201011
performance 
201011
properties at risk of low pressure n 256 230
s 55 41
properties subject to unplanned interruption of six hours or more n 1700 1573
s 1100 700
properties subject to hosepipe bans at any time during the year ns 0 0
properties subject to sewer flooding other causes n 150 253
properties at risk of sewer flooding once in ten years or twice in ten years n 688 487
billing contacts responded to within five working days  n 993 993
s 993 997
written complaints responded to within ten working days 
1
n na 999
s na 998
bills based on meter readings  n 999 9987
s 999 9983
note
1 new sim measures were introduced in 201011 which incorporate this kpi therefore no separate target set
putting customers first
customer service is at the heart of the company  
and the culture of getting things ‘right first time  
every time’ is embedded in the business we keep 
customers informed about our activities through  
leaflets with bills and our websites at wwwnwlcouk 
and wwweswatercouk the sites include information 
about our services and now allow customers to ask 
questions and investigate work being carried out in  
their area if customers are directly affected by any 
work we give advance warning and explain the need 
for the timing of such work we also communicate  
more broadly with local communities through public 
meetings and customer information events
customer satisfaction
we measure the views of our customers with quarterly 
tracking research alongside qualitative work in focus 
groups this helps us to understand their views on 
service value for money and other issues as well  
as their general perception of the company nwl 
measures its performance for domestic customers in 
two key ways customer research and performance 
against standards
customer research is carried out each quarter in the 
regions served and the table below shows the key 
results for overall satisfaction with service and value  
for money 24 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
affordability
we aim to provide accurate clear and timely bills 
which encourage prompt payment customers  
who deliberately avoid paying charges are actively 
pursued in the current economic climate we  
know that affordability continues to be a genuine 
concern for many customers and we continue to  
be considerate of their circumstances ensuring they 
can choose suitable payment options and that our 
recovery techniques are appropriate and effective 
however customers who deliberately avoid paying 
charges are actively pursued and we are working 
closely with ofwat and defra to seek changes to 
legislation which will assist the industry to identify 
those responsible for charges more easily 
the flood and water management act 2010  
outlines how sewerage service providers may 
operate concessions for surface water drainage 
charges to protect certain community groups  
and premises from unaffordable charges we have 
decided to introduce an interim concessionary 
charge for the charging year 1 april 2011 to 31  
march 2012 and will carry out consultation with 
ccwater to determine the longer term future of  
any concessions in the coming months
business customers
the economic situation has had a significant impact 
on some business sectors which are important in our 
operating regions and nwl has been working closely 
with major customers in those sectors to mitigate the 
impact where possible nwl has always tried to 
in addition ofwat introduced the sim in the year  
which monitors both quantitative and qualitative 
aspects of customer service this new mechanism 
financially incentivises the best performing companies 
and penalises the worst endeavouring to simulate 
competition and encourage excellent service 
throughout the industry our aim is to be the  
leading company for sim
the quantitative aspect of sim includes metrics for all 
lines busy and abandoned calls unwanted calls written 
complaints and ccwater investigations each of which 
are worth a number of penalty points depending upon 
the severity results across all metrics improved during 
the year customer complaints continue to reduce and 
our quantitative sim score for 201011 was 211 a 
significant improvement compared to 200910 when 
our score equated to 331
the qualitative aspect of sim takes the form of a survey 
which is conducted each quarter across every water 
company and asks customers who have made contact 
with us about their experience our cumulative score  
for the four quarterly surveys was 414 out of 5 an 
improvement on the previous year’s score of 410
the way we handle customer complaints is reviewed 
annually by ccwater who assess cases against a range 
of criteria during 201011 96 of all cases reviewed 
were assessed as good we value the feedback 
ccwater provide us and actively use their suggestions 
to further improve the customer experience
our operating performance 
customer continued 25 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
work with its major customers in partnership and  
the case study on page 27 highlights such work  
at kp foods while economic conditions remain 
challenging industrial demand has stabilised this 
year following for example the development of the 
former artenius site by lotte chemical uk limited 
the agreement for the takeover of the corus site  
by ssi should help stabilise industrial demand  
going forward
 
nwl is active in the business communities where it 
operates as a member of the cbi and chambers of 
commerce by supporting these and smaller groups 
nwl can help business growth and development in 
the areas it serves as well as retaining contact with 
organisations which represent customers business 
customer satisfaction is also tracked on a regular 
basis and levels of satisfaction are high 
leisure customers
nwl continues to develop its leisure facilities at all 
strategic sites including investment in fishing facilities 
holiday accommodation and supporting ‘access  
for all’ occupancy of the log cabins at kielder was 
85 and we have 5814 fishing members registered 
the combined activity of our reservoirs rates this 
business the largest of its kind in the uk with a high 
customer satisfaction at all sites nwl is also an 
active member of the kielder water  forest park 
development trust
kielder water  forest park lakeside way 26 wwwnwgcouk northumbrian water group plc annual report and financial statements 201 1 directors’ report – business review
strategy in action – customer 27 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
we always aim to exceed the expectations of our customers by 
taking personal responsibility for delivering and communicating  
a good service and keeping promises we have many examples  
of ‘right first time every time’ two of these are outlined below
many of our domestic customers have meters and pay bills based upon how much 
water they use having a meter can help save money however for those who have 
larger families big gardens or use lots of water this can be more difficult
this was exactly the case for the young family from stocktonontees father of two 
stephen young contacted us to discuss his metered bill and seek advice about ways 
to reduce his charges stephen already used water butts to store rainwater however 
following our advice stephen and his family made some simple changes including 
turning off the tap while brushing their teeth taking shorter showers and using nwl ’s 
water efficiency pack containing a variety of water saving devices
commenting on the help and advice he received stephen said “getting in touch 
with nwl is easy i know my call will be answered straight away which is amazing 
these days that i will be able to speak to someone who cares and relates to my 
concerns” vikki anstey our customer advisor who talked to stephen said “it’s all 
about listening to each customer’s concerns and then making sure you meet their 
needs and go the extra mile to help them”
we aim to work in partnership with our major business customers as we know that  
a key factor for them in their business is reliability and security of our services
tees valley crisp manufacturer kp foods kp is a major customer of nwl ’s 
billingham sewage treatment works to improve kp’s economic performance and 
enhance the sustainability of its operations kp proposed to construct a membrane 
bioreactor to enable water to be treated and recirculated at its plant nwl ’s account 
manager worked with kp to ensure that the proposed development did not 
detrimentally impact on nwl ’s sewage treatment works compliance while providing 
advice and support both parties have benefited from the close honest working 
relationship which has resulted in a great deal of trust and respect
water consumption has been reduced meaning less abstraction treatment and  −
pumping for nwl and lower water bills for kp and 
the trade effluent discharge is cleaner and requires less treatment reducing the  −
cost of power and desludging for nwl resulting in lower trade effluent discharge 
costs for kp 
nwl and kp have each increased their competitiveness by improving their efficiency
working in 
partnership 28 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
competitiveness
our operating performance
early in the year we instigated an 
efficiency programme focused 
on identifying and implementing 
sustainable operating cost 
efficiencies in order to achieve 
our medium term goal of being 
in the top efficiency band for 
both water and sewerage 
as measured by ofwat 
efficiency programme
the efficiency programme has identified around 100 
projects and initiatives from across the whole business 
ranging from large scale strategic reviews to smaller 
improvements at a local level examples of some of the 
changes underway include consolidating all chemical 
analysis for our northern operating region at one 
laboratory the implementation of sitespecific energy 
management plans to reduce energy usage increasing 
the capability of our website to enable improved 
customer selfservice investigating opportunities for  
codigestion of external waste streams at our advanced 
anaerobic digestion plant at bran sands and insourcing 
activities where it is more efficient and effective to  
do so
these efficiencies are additional to the benefits already 
secured through procuring our full energy requirements 
to march 2015 and the headcount reductions resulting 
from severances and early retirements for which 
provision was made last year
delivery of the programme is on schedule and as a 
result we are ahead of the final determination profile 
however these benefits are partially offset by the 
impact of the changes to the carbon reduction 
commitment energy efficiency scheme announced by 
the government in its comprehensive spending review 
in october 2010 which is expected to increase energy 
costs by around £30 million next year with further 
increases of up to £15 million by 201415 and which 
was not funded in the final determination
other aspects of performance in relation to our 
competitiveness theme are included in ‘our financial 
performance’ on pages 16 to 21 29 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
research and development
as part of its competitiveness theme nwl runs a 
programme of research and development linked to 
its operations which includes the development of 
technical solutions for water and waste water 
management collaborative research within the 
sector and partnerships with academic and research 
organisations and actively encourages innovation 
this has supported the invention development trial 
andor implementation of
advanced automatic control systems for waste  −
water treatment process
a device for reducing flooding and pollution −
microbial fuel cells and electrochemical cells  −
which respectively generate electricity or 
hydrogen from waste water
novel instruments for monitoring the quality of  −
waste water effluent
beneficial reuses for water treatment sludge −
low power dewatering and thickening of water  −
treatment sludge
internal inspection of water distribution pipes   −
while in service
lining systems for extending the life expectancy   −
of water distribution pipes
water efficient and rapid disinfection of water mains −
novel processes for drinking water production and  −
waste water treatment
renewable energy production using biogas −
regeneration of brownfield land using water  −
treatment byproducts
early warning system for leaks and bursts and −
remote pipeline condition assessment −
during the year the group invested £23 million 
2010 £21 million in research and development
research carried out by london economics for 
professor martin cave’s ‘independent review of 
competition and innovation in water markets’ found 
that in terms of innovation infrastructure nwl was one 
of the companies best equipped to promote innovation 
in terms of the resources it dedicates
bran sands advanced anaerobic digestion 30 wwwnwgcouk northumbrian water group plc  annual report and financial statements 201 1 directors’ report – business review
strategy in action – competitiveness 31 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
an initial stage of water treatment involves removing silts and algae 
from raw reservoir water a process which creates around two 
million litres of a ferric iron based liquid sludge every day around 
998 of this is water which once separated can be recycled 
back to the reservoir for reuse in this case innovation is clearly 
linked to our competitiveness
traditionally sludge was discharged into lagoons storing the solids whilst allowing 
clear water to overflow back into the reservoir at hanningfield our largest water 
treatment works the last lagoon was near the end of its life and although it would 
have been quicker and easier to have specified traditional mechanical treatment  
a considerable amount of work over three years was undertaken to prove that reed 
beds could provide a sustainable and effective alternative for water sludge treatment 
– a world first for a project of this scale
natural england strongly supports the reed bed project at hanningfield reservoir 
because it will provide a sustainable energy and carbonefficient solution to the 
longterm disposal of water treatment sludge it will also create a significant reed bed 
within a few hundred metres of hanningfield reservoir which will be designated as a 
site of special scientific interest that will be of use in its own right for a variety of 
wildlife including reed bed invertebrates birds and foraging bats it will also provide  
a regular water supply for a disused sludge lagoon within the site of special scientific 
interest which the company has recently restored very successfully as a wildliferich 
mosaic of reed bed open water wet scrub and woodland
world  
first at 
hanningfield 32 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
people
our operating performance
employee policy
each company within the group has developed its 
own employee policies reflecting the framework  
set out in nwg’s ‘our code of conduct’ these 
policies are tailored to specific business objectives 
and operating environments each company aims  
to recruit and retain the best people with a diverse 
range of skills experience and backgrounds who are 
committed to making the company successful in 
return each company aims to provide opportunities 
and training for employees to develop their skills and 
capabilities to equip them to meet the challenges of 
their roles while rewarding the contributions of both 
teams and individuals the ceo has responsibility at 
board level for human resources issues the human 
resources director sarah salter reports directly to 
the ceo
employees
throughout the group we employ 3031 people as 
set out below
group business unit
average 
number of 
employees 
nwl 2875 95
water and waste water contracts 132 4
other 24 1
total employees 3031 100
nwg ensures its terms and conditions both attract 
and retain the best people in the areas it serves nwl 
employee turnover is relatively low at 58 below the 
uk water industry average of 94
nwl ’s current level of sickness absence is 31 
which is well below the norm for the sector
target 
201011
performance 
201011
employee turnover  94
1
58
lost time reportable accidents 
per 1000 employees 43 41
sickness absence  29 31
notes
1 no target set industry average provided for information
the active involvement and engagement of everyone 
across the business is an important part of delivering 
performance and nwl continues to seek the views of 
employees through an annual employee engagement 
survey this year’s survey had the largest response rate 
ever at 75 and the feedback covered working life 
training communications managers and the company 
all employees were invited to workshops to consider 
the results and identify areas for improvement in their 
working practices and environment the outputs 
contributing to the development of departmental action 
plans in addition 80 of respondents told us they  
are proud to work for the company 81 would 
recommend working for the company and 77 believe 
that nwl is a great organisation to work for
for the first time nwl took part in the sunday times 
best companies survey and achieved ‘one to watch’ 
status an excellent achievement on first time entry 
nwl employees also have access to a scheme which 
provides a wide range of benefits including tax efficient 
benefits such as childcare vouchers water services 
cars for personal use and discounted store vouchers 
currently 73 of employees participate in the scheme 
up from 72 last year 33 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
equality and diversity
the group operates an equal opportunity policy 
designed to ensure that no job applicant or employee 
receives less favourable treatment on the grounds of 
age gender marital status disability race ethnic or 
national origin religion or sexual orientation nwl 
monitors its workforce profile against census and 
sector data and aims to be recognised as an employer 
of choice within the diverse communities it serves 
ensuring it takes full advantage of the rich backgrounds 
and abilities of current and potential employees
nwl welcomes employment applications from  
people with disabilities and where existing employees 
develop disabilities they are supported to remain  
in employment wherever practicable by providing 
appropriate adjustments to their roles andor effective 
redeployments occupational health physicians assist 
this process with professional medical advice
consultation and engagement
each group company engages with its employees 
through a variety of means appropriate to its working 
environment the importance of an inclusive and 
engaging management style is fully recognised 
in 2010 nwl continued to build on its awardwinning 
approach by engaging with all employees over some 
120 departmental workshops facilitated by senior 
managers and 51 interactive roadshows facilitated  
by the directors these were all structured to outline 
our vision and values encourage a dialogue on 
improvements to working practices and environment 
and to seek views on its people strategy this has 
been further developed to include leadership events 
held biannually engaging the most senior managers  
in the continuous development of plans to enable the 
achievement of the vision 
training and development
all group companies train and develop their 
employees to benefit both the company and the 
individual annual appraisals are given high priority  
as is the identification of training needs in recognition 
of the importance of training and development in 
achieving the group’s goals and policies in nwl  
a 360° feedback mechanism which evaluates 
performance against the company values has been 
introduced for all senior managers the results of the 
feedback are discussed at annual appraisal meetings 34 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
our people are the key to our business success  
our aim is to build and maintain a culture which 
values encourages and recognises outstanding 
performance where we share a commitment to our 
objectives and to delivering our personal best from 
corporate induction days and induction planning to 
individual coaching accreditation of skills through 
national vocational qualifications and management 
and leadership programmes we provide the resources 
needed to help employees reach their full potential
we signed the government’s skills pledge at the end 
of 2007 publicly committing to develop 90 of the 
workforce around 2600 employees to at least 
national qualification framework nqf level 2 – the 
equivalent of five gcses at grades a to c – by the end 
of 2010 this was achieved by july 2010 with 902 
qualified to nqf level 2 or above national vocational 
qualifications continue to be delivered in customer 
and operational areas in addition we currently have 
seven graduates on our graduate development 
programme and 29 apprentices
nwl continues to implement its management 
development framework which is structured see 
diagram on page 33 to cover the training needs of 
those who show the potential for management right 
through to development at director level as part of 
this framework we are working in partnership with 
newcastle business school to provide qualifications 
from a diploma to a masters degree in leadership  
and management in 2010 we introduced our  
leader programme which is the next step in our 
management development framework to some of 
our operational departments this development 
programme for supervisors team leaders and works 
managers includes assessment against nqf levels 2 
3 and 5 management standards as appropriate 
supported by formal development and coaching
recognising our employees’ academic achievements 
the fifth annual skills awards were celebrated this  
year attended by senior managers from around the 
business and with guest speaker kriss akabusi the 
events were again motivational and memorable
communication
the group uses a wide range of communication 
methods including magazines brochures leaflets 
newsletters intranet notice boards and regular team 
meetings nwl issues all employees with a series of 
information booklets clearly explaining areas such as 
the company’s vision and values terms conditions 
and benefits of employment and occupational health 
and wellbeing programmes
disclosure whistleblowing
the group encourages open feedback and is 
committed to protecting employees who wish to voice 
concerns about behaviour or decisions that they 
believe to be illegal or unethical the audit committee 
regularly reviews the disclosure policy
health and safety
nwg places great emphasis on health and safety and  
a safe working environment employees are actively 
encouraged to be involved in identifying and eliminating 
hazards in the workplace this has resulted in a 
significant reduction in accidents over recent years
a health and safety policy is maintained and 
implemented at each subsidiary 
our emphasis on the importance of health and safety 
within nwl has resulted in major improvements  
to our safety record in recent years this year we 
experienced nine reportable accidents and incidents 
per 1000 employees which continues the improving 
trend achieved over the last seven years 
we have established a medium term plan for taking 
health and safety forward in the company to 2015 we 
aim to further reduce the number of accidents by 10 
each year and to maintain and improve the safety 
culture in the company 
our operating performance 
people continued 35 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
employee share incentive plan sip
the directors believe that employee investment 
strengthens the ties between the group and its 
employees more than a third of employees participate 
in the sip and together have an interest in 06 of the 
issued share capital the scheme provides one free 
matching share for every three shares bought by an 
employee shares for the sip are purchased at market 
price by the trustee and dividends are paid in cash 
directly to participants there are no performance 
conditions attached to the sip but free shares not held 
in trust for at least 12 months are forfeited employees 
participating in the sip are given the opportunity to 
exercise their voting rights through the trustee
nwl proactively supports and encourages 
employees to strive for high standards of health  
and wellbeing by providing a wide range of services 
support and resources relating to occupational 
health with the group’s medical advisor providing 
comprehensive occupational health services general 
health promotion and stress management nwl 
employees also have on and offsite access to 
specialist advice and treatment to support recovery 
from musculoskeletal disorders msd we have 
reduced sickness absence due to msd by 39 over 
the year in 2010 we introduced nwl support part 
of this service is an employee wellbeing programme 
which gives employees and their immediate family 
access to face to face or telephone counselling on  
a range of subjects regardless of whether or not the 
issues are work related in addition it also provides  
a telephone based case management service for 
employees who have either a stress related or mental 
health condition we have reduced stress related 
sickness absence by 16 in the first year 
we continue to promote healthy eating hydration 
and to discourage smoking in our workforce  
and offer excellent health screening and medical 
insurance schemes around 2200 employees have 
been through our health screening and fitness 
standards programmes both of which now include 
lifestyle advice elements
quality
the company has successfully extended its scope of 
certification to the international occupational health 
and safety management standard ohsas 80012007 
to include scientific services thus now ensuring 
companywide coverage
chris loftus received the essex young achiever of the year award 36 wwwnwgcouk northumbrian water group plc annual report and financial statements 201 1 directors’ report – business review
strategy in action – people 37 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
as a company we are committed to investing in training and 
development to ensure that our people are competent and safe  
in their current roles to support them to develop skills and 
knowledge to help take the business forward and where people 
are career orientated to help them develop for future roles we 
have many examples of our people in the business who have 
developed their career within nwl
tony erskine our customer manager joined us aged 17 on the young person’s 
development programme a youth training scheme and began studying for a higher 
national certificate qualification he is now in his final year of nwl ’s bespoke ba 
hons in leadership and management and will graduate in july
tony said “the ba course is the best thing that i have ever done it has been a real 
eye opener and enabled me to learn new skills get different perspectives and learn 
from others it’s been a massive benefit to me as a manager and i believe makes me 
a more effective leader it’s been a lot of hard work but i have gained a lot from it and 
so will the company”
chris loftus leakage assistant was unemployed and not sure of what he wanted to 
do with his life when he saw the poster advertising the prince’s trust get into water 
programme in the window of his local jobcentre he found his age and lack of 
experience a real hindrance until he joined us on a three week course designed to 
provide unemployed 1625 year olds with the opportunity to learn about the water 
industry and get some valuable handson work experience before hopefully moving 
into employment he has now been with nwl for three years and has become a 
young ambassador for the princes trust while receiving the essex young achiever  
of the year award
kathryn waugh distribution operations controller joined the accelerated graduate 
development programme in 2001 following her degree in physical geography she 
undertook a series of strategic projects and business support placements to develop 
her knowledge of business processes and gain a broad overview of the company 
and its operations after further development roles in water and waste water works 
management she has now taken a senior role in operations kathryn said “i find 
working with people to make positive improvements to the operations and maintenance 
side of the business very rewarding i really enjoy my job and working for nwl”
growing  
in water – 
investing in 
our people 38 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
environment
our operating performance
water quality
the quality of water is critical to our customers and 
samples are taken on a daily basis for analysis under 
regulations monitored by the dwi the quality in all 
areas served remained high
north n 
south s
target  
201011
performance 
201011
dwi mean zonal 
compliance 
n 9985 9995
s 9995 9994
dwi operational 
performance index 
n 9965 9984
s 9998 9997
distribution 
maintenance index 
n 9970 9970
s 9985 9993
compliance at water treatment works has improved 
significantly in 2010 with fewer microbiological failures 
than any previous year this reflects the work being 
undertaken to achieve internal medium term targets for 
performance in addition service reservoir maintenance 
has been enhanced with inspection rates now three 
times higher than historical frequencies the aim of this 
work is to sustain a higher level of microbiological 
compliance while ensuring the integrity of the asset 
base for the long term 
work using new cleaning techniques to refurbish more 
than 150 kilometres of the large diameter pipe network 
is well advanced the network supplies drinking  
water to over half a million customers in south east 
northumberland and parts of tyneside the majority  
of the cleaning works have now been delivered and 
the programme is due to be completed in june 2011 
achieving a significant reduction in customer 
complaints of discoloured water progress has been 
maintained despite the unusually harsh winter
water resources
water resource availability is a key issue in our essex 
and suffolk areas work continued throughout 2010 
on increasing the capacity of abberton reservoir near 
colchester by 58 good progress was made and 
the project remains on programme
in early 2011 construction of two new pipelines to 
bring water from norfolk commenced the one 
remaining part of the overall abberton scheme that 
requires permissions is the variation of abstraction 
licences at denver and blackdyke in norfolk and we 
are working closely with the ea on progressing this 
once this scheme is operating in 2014 we do not 
expect to have to develop further major resources  
in essex for the next 25 years
in addition to improving the supply of water we believe 
it is important to manage the demand for water so that 
it does not exceed levels that can be supplied in a 
sustainable way metering has an important role to 
play in this regard for several years we have been 
installing water meters upon change of occupier in 
properties in the essex area this is in addition to the 
optional metering scheme available to all customers 
around 48 of domestic households in essex and 
60 in suffolk are now metered in the north east 
where supplies are more plentiful 24 of households 
are metered
new water efficiency targets were introduced in 
201011 to reduce per capita consumption across  
the company’s domestic customers by one litre per 
property per day these targets apply in all areas 
served and the awardwinning work previously carried 
out in essex was extended to the rest of the company 
new initiatives have been developed including an 
innovative theatre production called ‘little green 
riding hood’ with fame factory spotlight which  
took the water efficiency message to 36500 school 
children over the last year nwl met its water 
efficiency targets early before the end of the year 39 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
we continue to monitor the weather patterns and  
the early part of 2011 has proved to be dry with little 
rainfall the resource situation is still good with 
adequate resources in storage to meet demand there 
are no plans for restrictions although the company will 
continue to use awareness campaigns to encourage 
customers to control demand in dry periods
our assets once again proved very resilient during 
the most severe december weather for more than  
100 years in the north east of england it proved very 
challenging but we were able to maintain supplies to 
customers largely due to the exemplary efforts of our 
employees who worked tirelessly in difficult conditions 
the severe freeze and subsequent thaw inevitably 
resulted in a significant increase in burst pipes and 
leakage both on our own network and customer 
premises as a result in our northern operating region 
the water lost over the winter period meant we along 
with other companies did not meet our annual 
leakage target in our southern region conditions were 
not quite so severe and we achieved our target we 
have recovered from the effects of the winter through 
implementing an action plan which will position us well 
to meet the target in the following year
waste water
nwl ’s exceptional performance for sewage treatment 
works continued with all numerically consented works 
again remaining compliant for the year
northern operating area only
target 
201011
performance 
201011
sewage treatment works  100 100
bathing waters mandatory 
standard  100 97
pollution incidents category 1 
2 and 3 102 101
the advanced anaerobic digestion plant at bran 
sands is now fully operational and generating the 
expected volumes of biogas and electricity the 
reorganisation to operate the plant at much lower 
manning levels than previously has been successfully 
implemented construction is now underway on a 
similar plant at howdon on tyneside to process the 
remainder of nwl ’s sludge
a total of 33 of the 34 bathing waters in the north  
east passed the required mandatory standard and  
28 met the more demanding guideline standard the 
single mandatory failure was saltburn and nwl is 
carrying out a detailed investigation on whether any of 
our assets could be contributing to this and is working 
with other agencies to determine how they may be 
impacting on this bathing water
the number of properties experiencing internal 
flooding due to hydraulic overloading reduced 
significantly in 201011 this can be attributed to a 
combination of less frequent and intense summer 
storms in 2010 and the cumulative effect of our sewer 
flooding investment programme enhanced resolution 
rain radar has now been in place in the north east 
since 2009 allowing us to identify severe weather 
across the region
during 201011 we completed 43 schemes at a cost 
of £175 million that resulted in the removal of 178 
properties from flooding registers planning to identify 
schemes for coming years forms a key part of our 
investment programme and is well advanced with  
a further 270 properties to be addressed in 201112 
additionally in line with our serviceability action  
plan for sewer flooding we have embarked on a 
programme of increased mitigation this covers not 
only properties where a scheme is not cost beneficial 
but also properties where a solution may not be 
implemented quickly 40 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
the number of properties flooded due to other causes 
also reduced significantly in 201011 this reduction 
has been influenced by increased sewer cleansing 
activity as well as better weather
 
carbon management plan 
the water industry is one of the largest users of 
energy in the uk and we aim to play a full part in 
support of government’s plans to reduce emissions 
we have been working hard over recent years to 
reduce our carbon footprint while preparing ourselves 
for the future challenges of a change in climate and 
the weather events we may face as a consequence 
nwl has published its carbon management plan to 
meet its target of a 35 reduction in operational 
emissions by 2020 from a 2008 base
the carbon management plan includes energy 
efficiency renewable energy generation and water 
efficiency and supports our activities to help us adapt 
to a changing climate it represents a sustainable  
and responsible way forward for the business our 
customers and the environment the projects which 
will help us to achieve our carbon reduction target  
are outlined below
our £330 million investment in thermal hydrolysis  −
advanced anaerobic digestion at bran sands 
which provides 50 c47 mw of the energy 
requirements of the site this enables waste water 
sludge to generate methane to fuel gas engines  
and produce green electricity a similar plant will  
be constructed at howdon which is planned for 
completion in 201314 together these plants will 
help meet our target of generating 20 of our 
energy needs from renewable energy as well  
as reduce our overall energy demand
hydroelectric installations at five reservoirs including  −
the uk’s largest manmade reservoir kielder water 
a recently commissioned £25 million hydroelectric 
project at our selset reservoir that will generate up 
to 750 kilowatts of electricity – 4000 megawatt 
hours a year renewable energy is also being 
generated with hydroelectric plants at derwent 
lartington and wear valley reservoirs in addition  
to biogas combined heat and power plants at 
stressholme hexham and aycliffe
limiting tertiary ultraviolet disinfection outside the  −
bathing water season at five major works reduces 
energy consumption and carbon emissions with no 
detrimental effect on the marine environment and
encouraging customers through our ‘using water  −
wisely’ campaign to recognise that if they waste 
water they also waste energy information and tools 
are available for customers on our websites
through these projects and by reviewing the efficiency 
of our pumps across the business we have reduced 
the amount of energy used by almost 9 over the  
last five years
nwl has successfully achieved the carbon trust 
standard for its efforts in reducing greenhouse gas 
emissions the standard provides an objective 
benchmark against which our commitment and 
success in addressing our climate change impact  
was assessed and is significant as it demonstrates 
progress against our ambitious carbon  
management plan
our operating performance 
environment continued
selset hydroelectric plant 41 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
changing weather patterns 
the water cycle and the changing weather have a 
direct influence on the provision of water and waste 
water services nwl ’s employees are experienced in 
managing the effects of too much or too little rainfall 
but changing weather patterns will present a growing 
challenge for the business
in past years we have carried out research into the 
likely impact of climate change on all our assets and 
water resources and this has been incorporated in  
our climate change policy as part of our corporate 
responsibility work this work is continuing based on 
the latest ukcp09 projections published in 2009 by 
the uk climate impacts programme
over the course of the past year we have incorporated 
this work into our response to the new adaptation 
reporting power granted to the government by the 
2008 climate change act this work has highlighted 
that increasing rainfall intensity is the most significant 
short term threat that we will face as a result of the 
changing climate this represents a serious challenge 
if we are to manage successfully the higher level of risk 
of sewer flooding that will result we have already 
begun to take actions that will better prepare us for 
this challenge including investment in weather radar 
remote monitoring of the sewer network and joint 
working with other drainage agencies these will  
all contribute to our better understanding and 
management of the threat 
more positively we have found that the anticipated  
drier summers of the future are less of a concern for 
nwl than for many other companies in our industry 
the ongoing investment to increase the capacity of 
abberton reservoir plays a big part in this for our  
essex operating area work is now underway on this 
project that has been in development for over 15  
years a reflection of the long lead times for such 
environmentally sensitive schemes the presence  
of kielder water helps protect the north east region  
to an even greater extent despite this we anticipate 
that we will need to monitor and formally update our 
understanding of the threat from the changing  
weather at regular intervals
quality
nwl has maintained its certification to the international 
quality standard iso 90012008 and to the international 
environmental standard iso 140012004 across all 
areas of the business including operational sites and 
office based teams northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk 42 directors’ report – business review
strategy in action – environment 43 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
essex is the driest county in the uk in a dry year demand already 
outstrips supply and due to population rise this situation is 
expected to get worse 
after 17 years in the planning the £150 million abberton construction scheme to  
help secure water supply to 15 million customers in essex made good progress  
in its first year 
the reservoir near colchester will be enlarged by 58 with its footprint extended  
by 40 and the increased capacity will be in service in 2014 over the last year 
significant progress has been made and two important milestones have now been 
reached water is now flowing into the reservoir via the newly completed reservoir 
inlet structure at broadmeadows and work has begun on the construction of two 
major raw water pipeline routes these 12 metre diameter 16 kilometre long steel 
pipelines will transfer water from the river stour at wormingford to abberton 
abberton is a site of international environmental significance designated under the 
ramsar convention on wetlands in designing our proposals working closely with 
natural england the rspb and essex wildlife trust we have gone beyond what is 
required to not only maintain the environmental significance of the site but to enhance 
it the new reservoir will have existing concrete edging removed will include more 
marginal shallow waters as well as a new resited visitor centre and an extensive 
wetland area at the western end of the reservoir the new proposals will improve 
biodiversity as well as enhance the amenities for visitors 
good 
progress  
for the 
abberton 
scheme 44 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
communities
our operating performance
nwl supports the communities we serve in a number 
of different ways we have been widely recognised as 
leaders in our support for projects that make the areas 
we serve better places in which to live work or invest 
this year the company has been reaccredited by 
ftse4good and is awaiting reaccreditation as a 
platinum plus company by business in the community 
the queens award for industry is still in place as it is 
awarded for a five year period this year the company 
was also recognised by ethisphere an american
based international thinktank as one of the 110 most 
ethical companies in the world and was one of only 
five ukbased companies 
the support we give to our communities focuses on 
five broad areas
investment in our communities
this year the group made charitable donations 
totalling £152000 in addition and in line with previous 
years we have contributed resources with a value 
equivalent to at least 1 of our annual pretax profits 
through cash employee time and expertise or use of 
our facilities to projects which benefit the communities 
we serve our employees fundraised £69000 for 
charities this year
the ‘care for safety’ scheme which encourages 
employees to reduce accidents and associated lost 
time has triggered payments over £16000 for our 
charities nominated by employees great north air 
ambulance service royal national lifeboat institution 
rnli myelin project zoe’s place macmillan cancer 
support st cuthbert’s hospice and east anglian 
children’s hospice since it began in 2004 over 
£326000 has been raised for charity
community foundations covering our areas of supply 
hold endowment funds totalling nearly £10 million 
contributed by nwl over the last 19 years these  
are long term investments with the income from the 
funds used to support community and environmental 
initiatives community groups are chosen by 
committees of our own employees 44 recipients  
this year
in addition to cash donations nwl seeks to support 
many projects through inkind giving and support 
through ‘good moves’ we aim to put nwl estates 
into productive community use working in partnership 
with artist groups coexist and metal we have 
developed a temporary art project at our empty 
southend complex to provide space for a temporary 
gallery studio and small creative business complex 
we have focused on developing affordable rural 
housing to contribute to the sustainability and vitality  
of those communities including support of the prince 
of wales’ affordable rural housing initiative since it 
was launched in 2003 as part of this commitment  
we are working with hastoe housing on a project  
for 12 houses on land close to hanningfield water 
treatment works in essex and these are due for 
completion in 2011  45 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
the kielder partnership was created in 1994 and 
consisted of private public and voluntary sector 
partners committed to the development of kielder 
water  forest park as a tourism leisure and 
recreation destination activity has focused on 
delivering the partnership’s vision –‘kielder big picture’ 
– including the use of the fabulous tracks and trails 
developed in 200809 
the 26 mile lakeside way a multiuser track is now 
used by 45 of all visitors this trail was used for the 
first kielder marathon in october 2010 dubbed the 
most beautiful in britain organised by olympic athlete 
steve cram this combined with other activities 
including the development of mountain bike trails and 
the increasingly popular kielder observatory has 
helped to increase visitor numbers between 2008 and 
2010 by 94 to 306250 creating an additional 66 
direct and indirect jobs and boosting the spend in the 
local economy by 20 to £155 million 
in december 2010 the structure of the partnership 
was formalised by forming a registered charity  
called the kielder water  forest park development 
trust which will continue to deliver the vision and  
25 year investment plan for the area the website 
wwwvisitkieldercom provides further details of  
all facilities
participation in our communities
as part of nwl ’s inkind giving we encourage 
employees to volunteer their time skills and expertise 
through our ‘just an hour’ volunteering scheme  
we support our people to actively participate in  
their local communities by giving them work time to 
volunteer in projects of their choice during the year 
our people have helped hundreds of community 
projects completing tasks as varied as beach clean 
ups organising charity balls and taking on ambitious 
gardening and decorating challenges
for example a group of employees volunteered their 
time to support people with disabilities to participate  
in an activity weekend organised by the charity 
leonard cheshire disability together volunteers and 
service users enjoyed outdoor activities including 
abseiling and taking a zip wire across a river further 
highlights came from the essex based employees  
who collected over 1000 boxes of food supplies as 
part of the harvest for the hungry campaign 2010 
this important contribution helped the humanitarian 
campaign to provide an essential lifeline to villages  
and communities scattered across eastern europe
currently 27 of employees participate in the ‘just  
an hour’ volunteering scheme and last year gave over 
7600 hours to the community over 870 different 
organisations were given financial and inkind support 
during the year 
heidi mottram ceo hands over cheque 46 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
educating our communities about their 
environment
key partnerships have been developed by nwl to 
help the conservation of biodiversity on our sites to 
facilitate public access and to develop conservation 
education our contribution includes funding project 
officers and providing expertise to the organisations 
our current partnerships include
northumberland wildlife trust kielder and bakethin −
durham wildlife trust −
essex wildlife trust hanningfield −
broads authority lound and trinity broads and −
davy down trust north stifford essex −
a wide range of targeted educational materials are 
available on our websites for children and teachers 
we promote the use of these materials and celebrate 
innovative approaches to environment and health 
education via our support of the northumbrian water 
schools awards in the north east and cash for 
schools awards in essex
we also lead on specific environmental education 
initiatives such as the innovative ‘northumbrian water 
globe’ project this year the project in collaboration 
with the climate change schools project climatene 
ea and globe uk is supporting five schools to take 
control of capturing and analysing local weather data 
patterns and extreme events using weather stations 
and training provided by nwl ultimately children 
involved will become ‘community scientists’ to drive 
behavioural change at local levels
supporting healthy communities
nwl continues to promote the health benefits of 
drinking tap water and our ‘water for health’ campaign 
aims to encourage people to lead a healthy lifestyle  
to date over £341000 has been provided to fund free 
mainsfed water coolers in schools and around 740 
have been supplied in nearly 410 schools we also 
continue to promote bottlefree water coolers as a 
sustainable alternative to bottlefed coolers similarly 
we use our ‘tap into’ initiative to donate bottled tap 
water to community sporting events in order to 
promote the importance of rehydration during 
exercise this year we donated 82300 bottles  
of tap water to events 
working with a wide and diverse range of sporting 
partners is a natural extension of our ‘water for  
health’ campaign and we work with them to support 
grassroots sporting activities to get people active  
as well as educating them on healthy eating and  
good hydration
through our partnerships we have reached over 
96000 children and adults we provide
links and networks to enable sporting partners   −
to get together to share ideas and resources
financial support of approximately £50000 per  −
annum which then levered over £600000 from 
other sources 
advice and marketing support on programme  −
development
bottled tap water sports bottles water jugs or  −
mainsfed bottlefree coolers to reinforce the 
importance of drinking tap water to rehydrate  
during sporting activities and 
help with fundraising and raising the profile of the  −
partnerships to attract additional investment
our operating performance 
communities continued 47 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
we have linked our ‘good moves’ initiative and our 
‘water for health’ campaign to develop healthworks 
this is a unique project utilising one of our redundant 
buildings to help tackle the poor long term health of 
the residents in easington county durham by 
granting a 99 year lease to county durham primary 
care trust and working in partnership to develop 
services for the local community in an area where 
census records show one of the worst health  
records in the country
we are represented on the steering group for 
healthworks and provide research marketing and 
communications support the centre has received 
almost 20000 visits to date and now provides over 
58 health and community support services including  
a gp led walkin health centre open 8am to 8pm 365 
days a year it acts as a community focal point where 
service providers and community groups can come 
together to address issues that affect the quality  
of life in their local community 
supporting developing communities through 
wateraid
nwl has continued to raise funds and awareness for 
the work of wateraid which brings sustainable water 
and sanitation solutions as well as hygiene education 
to the poorest parts of africa and asia as it has since 
the charity was formed by the water industry in 1981 
the employee fundraising committee has raised  
more than £4 million since 1997 with the help of the 
company and last year focused its fundraising support 
on specific projects in ethiopia we support our 
employees to become ambassadors for the charity 
and encourage annual supporter trips to see wateraid 
projects this year asset manager craig holliday 
visited bangladesh and saw first hand how our 
adopted international charity saves lives
craig holliday visits wateraid project in bangladesh 48 wwwnwgcouk northumbrian water group plc annual report and financial statements 201 1 directors’ report – business review
strategy in action – communities 49 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
castle view enterprise academy in sunderland completed its  
first year of operations during the year 
nwl is the lead sponsor and wanted to create a centre of excellence with a clear 
focus on raising standards of academic performance to enable every student to 
achieve their personal best in all areas of academy life within a safe secure and 
stable environment nwl formed a new trust board to govern the school recruited 
an inspirational head teacher and helped her to form a new leadership team design 
an engaging curriculum and implement a set of new policies which would 
fundamentally change and improve school life for the students 
during the first year castle view enterprise academy students achieved 43 a–cs 
in gcses english and maths up from 26 in the old castle view school and 86 
five or more gcses a–cs up from 63 persistent absences decreased from 10 
in the old castle view school to 63 in the new academy’s first year of operation  
in march 2011 the new academy undertook ofsted assessment and from being a 
failing school previously is now a school making good progress 
indeed sixteen students at castle view enterprise academy have gained amongst 
the highest grades possible in the january 2011 gcse mathematics examinations – 
six months ahead of schedule eight of the sixteen gained grade a and the other 
eight gained grade a 
in addition to the excellent teaching in the academy and after school tutorials  
these more able students were also coached by one of our graduate trainees  
david bullin who has a maths degree david has given his time under our employee 
volunteering scheme just an hour on wednesdays after school and more recently 
on saturday mornings
a 
performance 
at castle 
view 50 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
our risks and
uncertainties
the nwg board requires all 
subsidiaries within the group to 
identify and assess the impact 
of risks to their business using 
a standard risk model for each 
risk identified the model records 
the uncontrolled magnitude and 
likelihood of the risks occurring 
as well as the controls in place 
to mitigate those risks before 
assessing the controlled magnitude 
the board’s view of acceptable 
risk is based on a balanced view 
of all of the risks in the operating 
environment it aims to ensure 
an appropriate balance between 
risk aversion and opportunities
the board sets the tone for risk management within the 
group and determines the appropriate risk appetite 
the board monitors the management of fundamental 
risks and approves major decisions affecting the 
group’s risk profile senior management implements 
policies on risk management and internal control
for nwl the management team reviews the approach 
to risk management in detail every year and the audit 
committee considers the outcome the management 
team reviews the significant risks every month and a  
full review of the model for emerging significant risks is 
carried out quarterly any issues that arise from these 
management team reviews are reported by the ceo  
to the board
apart from nwl none of the subsidiaries has risks 
considered to be significant to the group’s short and 
long term value
the system of internal control incorporates risk 
management it encompasses a number of elements 
that together facilitate an effective and efficient 
operation enabling the company to respond to  
a variety of risks these elements include
policies and procedures
attached to fundamental risks are a series of policies 
that underpin the internal control process written 
procedures support the policies where appropriate
business planning and budgeting
the business planning and budgeting process is used 
to set objectives agree action plans and allocate 
resources progress against meeting business plan  
and budget objectives is monitored regularly
risk register
the risk register identifies key risks each with a risk 
owner who is responsible for evaluating the risk on  
a regular basis as a way of ensuring that risk 
management is embedded into the business the risk 
owners have the management of these risks as a 
personal kpi
strategic risk model
risks that are known but not yet well defined enough 
for the likelihood and consequence to be reasonably 
foreseen are included in a strategic risk model 51 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
audit committee
the audit committee reports to the board on internal 
controls and alerts the board to any emerging issues  
in addition the audit committee oversees internal audit 
external audit and management as required in its 
review of internal controls
last year the audit committee commissioned an 
additional risk and assurance mapping report from 
ernst  young the objective of which was to provide 
nwl management and the audit committee with  
a view of the different assurance functions within  
the company and the extent to which they provide 
assurance that the control activities are operating  
an assurance map now forms a permanent part of  
the process and for each risk highlights who provides 
assurance that the control activities are in place and 
operating effectively
risk description mitigation measures
funding and liquidity risk the financial ratios financial results liquidity position and credit ratings are described in the 
financial performance section on pages 16 to 21 in addition note 20 to the financial statements 
on pages 1 18 to 123 includes details on the group’s strategy and treasury operations for 
managing its capital its exposures to liquidity risk interest rate risk foreign currency risk and 
counterparty risk and details of its financial instruments the board reviews the treasury strategy 
periodically and approves specific proposals
unfavourable changes to  
the regulatory structure  
as a result of the water 
white paper
we play a leading role in the policy debate through water uk direct lobbying and forging positive 
relationships with relevant parties we respond positively to consultation papers
unfavourable changes to the 
regulatory structure or price 
setting mechanism by ofwat
we play a leading role in consultation groups with ofwat and other stakeholders we respond 
positively to consultation papers
impact of the transfer of 
private drains and sewers is 
greater than anticipated
an internal project team has been established to understand and prepare the business for the 
transfer we maintain sound financial documentation to support a future claim for tariff increases in 
order to recover additional costs borne we maintain close liaison with the rest of the industry and 
have had constructive dialogue with ofwat regarding the process 
unexpected shift in climate 
change impact
we have processes in place to anticipate and plan for the impact of climate change while these 
have long time horizons they are reviewed regularly to ensure that any changes are identified early
loss of supply due to failure 
of strategic water main  
this covers catastrophic 
failure that is greater than 
the response capability  
of the company
in most cases duplicate mains and diversion of supplies would limit supply consequences 
comprehensive plans exist to provide a minimum emergency service to customers until repairs are 
completed including mutual aid arrangements with other water companies a proactive inspection 
regime is in place along with longer term reviews of network resilience
sewer flooding failures a sewer flooding group comprising stakeholders from various teams is responsible for managing 
the process flood reporting network capacity studies and prioritisation of investment to reduce 
risk significant additional capital expenditure has been invested to address affected properties 
the recently constructed rain radar station for the region is now operational and provides improved 
data however controls are not yet sophisticated enough to predict or prevent consequences of 
severe rainfall
pesticides lead to prescribed 
concentration or value 
failure and possible 
enforcement action
undertakings have been agreed with the dwi to carry out certain actions to mitigate pesticide 
issues metaldehyde and clopyralid while specific treatment processes such as carbon dosing 
are undertaken at treatment works proactive catchment management is also being carried out 
this involves working with farmers regulators and other stakeholders to advise on improved 
storage and application techniques for such pesticides this is a more sustainable solution than 
the alternative of constructing major new treatment processes
loss of income through 
closure of large customers 
or lower industrial volumes
it is not possible to directly influence industrial volumes however our account managers liaise 
closely with significant customers to provide support where possible
incident at bran  
sands waste water 
treatment works causes 
business interruption
we have a number of contracts to treat industrial waste streams at our bran sands works the 
liability under each contract is capped except in certain cases where nwl is in willful breach  
a sitespecific management regime is in place incorporating additional monitoring and a greater 
amount of standby assets
risk of increasing pension 
contributions resulting  
from increasing longevity 
and the impact of  
economic conditions  
on investment returns
the defined benefit scheme was closed to new entrants benefits restructured and employee 
contributions increased in 2008 advance contributions have been made to the scheme including 
deficit funding allowed in the final determination the scheme trustee determines investment policy 
and monitors performance of investment managers triennial actuarial valuations of the scheme 
are carried out with the latest currently underway
health and safety 
prosecution 
our health and safety policy and safety management system define clear arrangements and 
responsibilities for implementation and management throughout the company this is audited as 
part of our quality and environmental management system visible high level support for health and 
safety is provided by the board and management team long term plans and targets are set to 
promote continuous improvement 52 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
appendix to the 
directors’ report – 
business review
financial kpis
gearing to rcv nwg
definition and calculation the ratio of group net 
debt to a pro forma rcv calculated as nwl ’s rcv 
plus the level of debt associated with the kielder 
securitisation and the pfi contracts the nwl rcv 
represents the total capital value of the appointed water 
and sewerage business on which ofwat allows a rate  
of return at price reviews
purpose the rcv generates most of the revenue 
stream of the group and regulatory gearing is an 
important factor in credit ratings
source of underlying data nwl ’s rcv is calculated 
by ofwat and published each year ofwat also 
publishes anticipated values up to five years ahead 
based on its last price determination group net debt  
is disclosed in the audited financial statements
gearing to rcv nwl
definition and calculation the ratio of nwl net  
debt to nwl ’s rcv the nwl rcv represents the total 
capital value of the appointed water and sewerage 
business on which ofwat allows a rate of return at  
price reviews
purpose the rcv generates most of the revenue 
stream of the group and regulatory gearing is an 
important factor in credit ratings
source of underlying data nwl ’s rcv is calculated 
by ofwat and published each year ofwat also 
publishes anticipated values up to five years ahead 
based on its last price determination nwl ’s net debt  
is disclosed in the audited regulatory accounts
cash interest cover nwg and nwl
definition and calculation cash generated from 
operations less tax divided by net interest paid
purpose measures the ability of the group or 
company to service its debt
source of underlying data audited  
financial statements
cash flow to net debt nwg and nwl
definition and calculation cash generated from 
operations less tax paid divided by net debt
purpose indicates the group’s or company’s ability 
to reduce debt in the absence of need for additional 
investment without resorting to asset disposal
source of underlying data audited  
financial statements
nwl nonfinancial kpis
customer satisfaction
definition and calculation domestic customers’ 
satisfaction with overall service and overall value for 
money expressed as satisfaction averaged over the 
surveys carried out during the year average satisfaction 
is based on a scale of 1 to 10 using the score of 6 and 
above as satisfied net scores are used to show true 
satisfaction by taking into consideration those who  
are dissatisfied who score between 1 and 3 
purpose to enable tracking of perception of 
reputation service and value for money over time
source of underlying data independent surveys  
of 500 customers 300 north 200 south chosen at 
random but representative of the customer base 
carried out each quarter – a total of 2000 customers
customer – levels of service
definition and calculation customer service 
standards are established by ofwat and calculated 
using source data in the company
purpose to monitor customer service performance 
of nwl
source of underlying data information collected  
by the company and submitted to ofwat it is 
independently certified
employee turnover
definition and calculation number of leavers within 
the year as a percentage of average headcount
purpose to track the employee turnover within the 
business to ensure that it is within benchmark data
source of underlying data current employees’ 
details are held within the human resources 
management system – reports show leavers  
against headcount
lost time reportable accidents
definition and calculation injury accidents that are 
reported to the health  safety executive as required 
by the reporting of injuries diseases and dangerous 
occurrences regulations 1995 calculated as the 
number of accidents reported in financial year per  
1000 employees
purpose to monitor the safety performance of nwl 
over time
source of underlying data completed nwl 
accidentincident report forms employee numbers  
are provided by the human resources department 53 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
sickness absence
definition and calculation sickness absence days 
as a percentage of total working days multiplied by the 
end of month headcount
purpose to track and trend sickness absence levels 
across the organisation
source of underlying data statement of fitness for 
work fit note return to work interviews and weekly 
returns by managers
water quality
definition and calculation compliance with drinking 
water regulations as monitored by the dwi
purpose to monitor drinking water quality
source of underlying data samples recorded by 
nwl and audited by the dwi
sewage treatment works
definition and calculation percentage of population 
equivalent served by noncompliant works failing 
lookup table consents as defined by the ea
purpose to monitor the performance of nwl ’s 
sewage treatment works and their impact on  
the environment
source of underlying data information recorded by 
nwl and the ea and reported on by the latter
bathing waters mandatory standard
definition and calculation percentage of bathing 
waters complying with mandatory standards
purpose to monitor the impact of nwl ’s coastal 
treatment works on the environment
source of underlying data information recorded and 
reported by the ea
pollution incidents
definition and calculation number of category 1 2 
and 3 pollution incidents in the calendar year as defined 
by the ea
purpose to monitor the performance of nwl ’s 
sewerage system and its impact on the environment
source of underlying data information recorded and 
reported to ofwat by the ea 54 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – governance
board directors’ 
biographies
1 claude lamoureux
nonexecutive director
claude lamoureux was appointed 
to the boards of nwg and nwl 
on 1 december 2006 claude 
was until 1 december 2007 
president and ceo of the ontario 
teachers’ pension plan board 
otpp previously he spent 25 
years as a financial executive with 
metropolitan life in canada and 
the us he is a director of xstrata 
plc industrial alliance insurance 
and financial services inc maple 
leaf foods inc atrium innovations 
inc the learning partnership and 
the york university foundation 
otpp holds 27 of the issued 
share capital of nwg and claude 
is therefore not regarded as an 
independent director claude will 
retire from the boards of nwg 
and nwl on 28 july 2011
2 paul rew from 
1 october 2010
independent nonexecutive 
director
paul rew was appointed to 
the boards of nwg and nwl 
on 1 october 2010 paul is 
a member of the audit and 
nomination committees and of 
nwl ’s corporate responsibility 
committee paul a chartered 
accountant was a partner in 
pricewaterhousecoopers llp 
pwc from 1987 until march 
2010 and was lead partner 
for a diverse range of ftse 
100 clients and for pwc’s uk 
energy utilities and mining sector 
practice most recently he was 
pwc’s sustainability and climate 
change assurance leader and 
renewables leader he is a non
executive director of both the 
met office and the sustainable 
development commission and 
chairs their audit committees
3 martin nègre
independent nonexecutive 
director
martin nègre was appointed to 
the board in may 2003 and to the 
board of nwl in january 2006
and is a member of the audit 
remuneration and nomination 
committees he was between 
april 2000 and april 2001 the 
ceo of the former northumbrian 
water group plc and the chief 
corporate representative of its 
parent company suez in the uk 
he currently chairs ecofin global 
utilities hedge fund limited 
ecofin special situations utilities 
fund ecofin north american 
hedge fund and ecofin china 
power  infrastructure fund his 
other directorships include ecofin 
water  power opportunities 
plc hansen transmissions 
international nv bolux utilities 
sicav luxembourg mercurius 
utilities liechtenstein efmi 
funds plc and ecofin global 
longshort fund all the above 
funds are focused on utilities in 
2005 he became a director of 
promethean plc an aimlisted 
investment company and sits on 
the supervisory board of banque 
jeanphilippe hottinguer  c
ie

4 simon lyster from 
1 april 2011
independent nonexecutive 
director
simon lyster was appointed to 
the board of nwg on 1 april 2011 
having joined the board of nwl 
in september 2006 is a member 
of the nomination committee 
and chairs nwl ’s corporate 
responsibility committee simon 
is a lawyer by training qualified 
in both the uk and the usa and 
has been chief executive of lead 
international since 2005 before 
joining lead which he will leave 
during july 2011 simon was 
director general of the wildlife 
trusts one of the largest nature 
conservation organisations in 
the uk for seven years before 
that simon worked for world 
wildlife fund wwf for nine 
years where he was responsible 
for wwf’s global policy work on 
international conventions simon 
is a trustee of conservation 
international – uk the world 
land trust and the kilverstone 
wildlife conservation trust
5 margaret fay cbe 
from 1 june 2010
independent nonexecutive 
director
margaret fay was appointed to 
the boards of nwg and nwl on 
1 june 2010 and is a member of 
the remuneration and nomination 
committees she is also a member 
of nwl ’s corporate responsibility 
committee margaret was formerly 
managing director of tyne tees 
television until she took early 
retirement in december 2003 
to become chairman of one 
north east a position she held 
until august 2010 she is deputy 
chairman of the sage gateshead 
a governor of the university of 
sunderland patron of tees valley 
community foundation and the 
prince of wales’ ambassador 
for the north east of england 
margaret was awarded an obe 
for services to broadcasting in 
2004 and in 2010 a cbe for 
services to regional development
1 2 3 4 5 55 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – governance
6 heidi mottram obe
chief executive officer
heidi mottram was appointed to 
the boards of nwg and nwl on 
1 march 2010 and became ceo 
on 1 april 2010 heidi is a member 
of the nomination committee and 
nwl ’s corporate responsibility 
committee heidi was commercial 
director for arriva trains northern 
from january 2004 before joining 
serconedrailways in november 
2004 as managing director 
northern rail limited she was 
named rail business manager 
of the year in 2009 and was 
awarded an obe for services 
to the rail industry in 2010
7 sir derek wanless
chairman 
sir derek wanless was appointed 
to the board as an independent 
nonexecutive director in 
december 2003 he joined the 
board of nwl in january 2006 
and in july 2006 became 
chairman of nwg and nwl 
sir derek chairs the nomination 
committee and is a member of 
the remuneration committee 
he became a director of national 
westminster bank in 1991 and its 
group chief executive in 1992 
he retired from that position 
in 1999 sir derek is currently 
chairman of legal and general 
plc’s longevity science advisory 
panel and a member of the board 
for actuarial standards at the 
financial reporting council
8 chris green
finance director 
chris green was appointed 
to the boards of nwl in april 
2000 and nwg in may 2003 
chris qualified as a chartered 
accountant and after ten years 
in the accounting profession he 
joined the former northumbrian 
water group plc in january 
1990 he was initially involved in 
the group’s diversified business 
activities before being appointed 
as group finance director in 
1997 chris is chair of trustees 
for the northumbria calvert trust 
a charity devoted to providing 
outdoor activities for the disabled 
and is deputy chair of governors 
at the university of sunderland
9 alex scottbarrett 
independent nonexecutive 
director
alex scottbarrett was appointed 
to the board of nwg in september 
2006 having joined the board 
of nwl in november 2005 
he chairs the remuneration 
committee and is a member 
of the audit and nomination 
committees alex qualified as 
a chartered accountant in 1981 
and joined cazenove a city 
corporate stockbroker in 1982 
he worked initially as an analyst 
and transferred to the corporate 
finance department in 1986 
becoming a partner in 1988 
in 1996 he became a director 
of the firm’s fund management 
division and from 2000 to 
2003 was the chief operating 
officer of that division alex left 
cazenove in 2003 he is a non
executive director of lighthouse 
group plc and is a trustee of 
l ’arche and help for heroes
10 sir patrick brown
senior independent  
nonexecutive director 
sir patrick brown was appointed 
to the board in may 2003 and 
to the board of nwl in january 
2006 sir patrick chairs the audit 
committee and is a member of 
the nomination and remuneration 
committees he held various 
positions in the department of 
transport and the department 
of the environment becoming 
second permanent secretary and 
chief executive of the property 
services agency in 1990 he  
was permanent secretary for  
the department of transport from 
1991 to 1997 sir patrick became 
a nonexecutive director of the 
goahead group plc in 1999 
and its chairman in 2002 he is 
also chairman of the advisory 
committee of alexander proudfoot 
uk and a nonexecutive director 
of camelot uk lotteries limited
11 martin parker not pictured
general counsel and 
company secretary 
martin parker was appointed 
as company secretary of nwg 
in may 2003 martin joined the 
former northumbrian water group 
plc in 1990 concentrating on 
acquisitions overseas projects 
and contracts with industrial 
customers before being appointed 
head of group legal services 
in 1998 and general counsel 
and company secretary of nwl 
in 2000 martin is secretary of 
all the board committees
6 7 8 9 10 directors’ report – governance 56 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
directors’ report – business review and governance
in accordance with s417 of the companies act 2006 the directors’ report – business review on pages 1 to 53 
contains a review of the performance of the group’s business during the year and the position at the end of the 
year with analysis using kpis a description of the group’s future prospects research and development the 
principal risks and uncertainties facing the business and details of the group’s use of financial instruments are also 
contained within the business review
pages 54 to 70 of this section of the directors’ report contain the board of directors’ biographies together with 
such other statutory disclosures as required by s416 and s418 of the companies act 2006 and schedule 7 to the 
large and medium sized companies and group’s accounts and reports regulations 2008 as are not already 
referred to in the business review section of the report the corporate governance statement explains how the 
company has applied the principles of the combined code during the year and also complies with the 
requirements of disclosure  transparency rule 72 
principal activities
the principal activities of the group during the year were the provision of water and waste water services
political
during the year the group has worked with politicians of all major parties officials and opinion formers this work 
has included making representations on issues which nwl feels are important to our customers and communities 
such as competition the review of regulators the water white paper adoption of private sewers ‘water for health’ 
climate change the water framework directive and other legislative issues which could affect our customers
we do not support any political party and we do not directly or through any subsidiary make what are commonly 
regarded as donations to any political party or other political organisation however the wide definition of 
donations in the political parties elections and referendums act 2000 covers activities which form part of the 
necessary relationship between the group and political parties and political organisations these activities include 
attending party conferences as these provide the best opportunity to meet a range of stakeholders both national 
and local to explain our activities as well as local meetings with mps meps and their agents the costs 
associated with these activities during 201011 were as follows
name of political party £
conservative 6845 
labour 8208 
liberal democrats 3312 
total 18365
shareholder authority to permit the company to continue with these activities until the 2012 agm will be sought at 
this year’s agm
statutory disclosures directors’ report – governance 57 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
creditors
the company’s policy is to agree payment terms with suppliers and to pay on time according to those agreed 
terms the company’s policy is to make payment not more than 30 days after receipt of a valid invoice except as 
otherwise agreed the ratio expressed in days between the amount invoiced by its suppliers during the year and 
the amount owed to its trade creditors at 31 march 2011 was 30 days 2010 21 days
directors’ remuneration and interests
information about directors’ remuneration and their interests in the shares of the company is contained in the 
directors’ remuneration report
indemnification of directors 
the company has in place directors’ and officers’ insurance and on 28 november 2005 entered into a deed of 
indemnity to grant the directors further protection against liability to third parties subject to the conditions set out 
in the companies act such qualifying third party indemnity provision remains in force as at the date of approving 
the directors’ report 
auditors
ernst  young llp has indicated its willingness to continue in office and a resolution proposing its reappointment 
as auditors will be put to shareholders at the agm
directors’ declaration
as required under s418 of the companies act 2006 so far as each current director is aware there is no relevant 
audit information of which the company’s auditors are unaware and each director has taken all the steps that he  
or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information 
and to establish that the company’s auditors are aware of that information
going concern
the group has sufficient funding and facilities in place to meet its requirements to march 2014 the directors 
believe that the group is well placed to manage its business risks successfully and accordingly they continue  
to adopt the going concern basis in preparing the annual report and financial statements directors’ report – governance 58 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
the board believes best practice in corporate governance is an important tool in helping it meet its responsibilities 
the board considers that during the year and up to the date of this report it has complied with the main principles 
and provisions of the combined code 2008 the code the code is available to download from the financial 
reporting council’s frc website at wwwfrcorgukcorporateukcgcodecfm or alternatively printed copies can 
be obtained free of charge from frc publications tel 020 8247 1264 email customerservicescchcouk and 
online at wwwfrcpublicationscom
this statement together with the directors’ remuneration report describes how the company has applied the 
principles of the code during the year the board of nwl also maintains high standards of corporate governance 
and endeavours to comply with the code wherever practicable
in june 2010 the frc introduced a new uk corporate governance code which will apply to the company’s 
financial year ending 31 march 2012 the board has considered the requirements of the new code and believes 
that the company is well positioned to achieve compliance some of the main principles such as the annual 
reelection of all directors have already been implemented
 
the board has a code of ethics ‘our code of conduct’ which is available on the company’s website covering  
its relationships with customers employees suppliers local communities shareholders other investors  
and regulators 
board composition
as at 31 march 2011 the directors of the company were sir derek wanless sir patrick brown heidi mottram 
chris green claude lamoureux martin nègre alex scottbarrett margaret fay and paul rew who all served 
throughout the year except for margaret fay and paul rew who were appointed on 1 june and 1 october  
2010 respectively
simon lyster who has been a nonexecutive director of nwl since 26 september 2006 was appointed as a 
nonexecutive director of nwg on 1 april 2011 
in accordance with the company’s articles of association the articles paul rew and simon lyster having been 
appointed as directors by the board since the last agm will be eligible for election at this year’s agm all other 
directors holding office on the day of the notice convening the agm will retire from office and offer themselves  
for reelection with the exception of claude lamoureux who will retire from office at the end of this year’s agm 
nwl ’s instrument of appointment usually called its ‘licence’ requires nwl to have at least three independent 
directors with an understanding of the interests of customers and a connection with the areas in which the company 
operates until 31 march 2011 these roles were held by anita frew alastair balls and simon lyster none of whom 
were directors of nwg prior to the retirement of anita frew and alastair balls from the nwl board on 31 march 
2011 nwl and ofwat agreed that the independent directors of nwl for the purposes of the licence may also  
be nonexecutive directors of nwg ofwat considered that given nwg’s focus on the core business such cross
directorships would not create a conflict of interest ofwat will review its position on this if the nature of nwg’s 
business changes significantly the directors in question must still of course demonstrate the necessary experience 
and understanding ofwat agreed that margaret fay and alex scottbarrett would be suitable for these roles in 
addition to simon lyster anita frew and alastair balls have therefore not been replaced on the nwl board  
apart from streamlining the work of the two main boards which now have common nonexecutive membership  
this reduction in the number of nonexecutive directors brings a significant saving in fees and expenses
corporate governance 
statement directors’ report – governance 59 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
board responsibilities and processes
the board sets and implements the company’s strategy and ensures compliance with group policies and legal 
and regulatory obligations the group’s vision values and strategy are set out in the chief executive officer’s 
review board agendas are proposed by the ceo and company secretary with input from nwl ’s management 
team for approval by the chairman
the company has adopted terms of reference which set out the matters reserved to the board for approval and 
matters which are or can be delegated to the committees and management the company has also adopted 
financial approval rules which set out the authorisation processes and financial limits to be applied to financial 
transactions within the company nwl has adopted its own version of these guidelines standing or executive 
committees can take decisions not delegated to specific committees between board meetings all directors 
receive notice of standing committee meetings and may participate if they wish decisions taken by the  
standing or executive committees are reported at the next board meeting
the following table sets out the attendance of directors at board and committee meetings during 201011
board nomination remuneration audit
number of meetings 6 4 3 3 
sir derek wanless 6 4 3 3
1
 
sir patrick brown 5 4 2 3 
margaret fay
2
 5 3 2 –
chris green 6 – – 3
1
 
claude lamoureux 4 1
1
 – –
heidi mottram 6 4 3
1
 3
1
 
martin nègre 6 4 3 1 
paul rew
3
 4 2 – 2 
alex scottbarrett 6 4 3 3 
jenny williams
4
 1 1 – 1 
notes
1 not a member but attended at the invitation of the committee chairman
2 appointed to the board on 1 june 2010
3 appointed to the board on 1 october 2010
4 retired from the board on 29 july 2010
the nwg board meets at least every two months usually immediately following meetings of the nwl board  
as nwl is so significant within the group it may be helpful to provide an insight as to how the nwl board works 
typically the ceo provides an overview of performance since her last report highlighting issues to which the 
board needs to pay particular attention she also reports on regulatory and other developments affecting the 
sector nwl ’s performance is captured by means of a balanced scorecard which shows performance against a 
series of kpis achievement against this scorecard will also be a key element of nwg and nwl directors’ bonuses 
in 201112 and future years the ceo’s overview also contains detailed reports on finance regulation operations 
and human resources reports are provided from chairmen of committees which have met since the last board 
meeting health and safety performance is addressed at each meeting the nwl board considers papers seeking 
approval of contracts worth over £20 million and capital projects which may in time require a series of contracts 
over £50 million papers seeking investment approval are required to contain sections on sustainability and risk  
for example a paper seeking investment approval for a scheme to alleviate sewer flooding would need to 
demonstrate that the solution proposed is sustainable directors’ report – governance 60 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
as well as the reports described above the nwl board receives risk reports and approves budgets financial 
plans reports to ofwat accounts dividends payable and a range of other matters the nwl board also sets time 
aside during its meetings to consider forwardlooking strategy and meets on separate strategy days to develop 
that work the papers submitted to the board are used as the basis for discussion rather than as an end in 
themselves the chairman ensures that wherever possible the board avoids becoming too immersed in detail 
and that the meetings are used to generate ideas and to constructively challenge the management nonexecutive 
directors readily question the assumptions of the management team and bring new perspectives from their 
experience elsewhere
nonexecutive directors are encouraged to meet employees in order to gain a closer understanding of the  
issues they face on 30 march 2011 six of nwg’s nonexecutive directors and the ceo held an open forum  
with employees at nwl ’s offices at hanningfield in essex this event was successful and will be repeated  
at other venues
the nwg board works in a very similar way the members of the nwg board all sit on the nwl board and 
therefore the nwg board does not need to become too involved in nwl ’s operational issues the nwg board’s 
focus is strategic it sets the future direction of all group companies with a particular emphasis on the medium 
and long term including funding 
the nwg board also oversees the nonnwl businesses and particularly the pfi contracts in scotland the 
operating contracts in ireland aquagib and agrer
during the year the nonexecutive directors met formally once without the executive directors and are in regular 
contact with each other throughout the year the nonexecutive directors also met once without the chairman  
but did not consider additional formal meetings to be necessary
authorisation of directors’ conflicts of interest
directors have a statutory duty under s175 of the companies act 2006 to avoid a situation in which they have or 
could have a conflict of interest with the company’s interests however there is no breach of this duty if the board 
has authorised the matter in question the articles permit directors other than the director having the interest in 
question to authorise any situation giving rise to a known or potential conflict a register of the interests which have 
been authorised is maintained by the company secretary and is available at every board meeting the company 
will follow emerging best practice in line with the general counsel 100’s guidance paper
board balance and independence
ten directors served during the year – the chairman two executive directors the senior independent non
executive director and six other nonexecutive directors sir derek wanless is the nonexecutive chairman the 
executive directors are heidi mottram ceo and chris green finance director sir patrick brown is the senior 
independent nonexecutive director and the other independent nonexecutive directors who served during the 
year were margaret fay martin nègre paul rew alex scottbarrett and jenny williams claude lamoureux is also 
a nonexecutive director but is not independent as he was until 1 december 2007 president and ceo of otpp 
which holds 27 of the issued share capital of the company jenny williams retired from the boards of nwg and 
nwl on 29 july 2010 
the company complies with the code’s requirement that half of the directors excluding the chairman are 
independent nonexecutive directors the chairman was independent on appointment biographical details of the 
directors appear on pages 54 and 55 and details of their service contracts are in the directors’ remuneration report 
the chairman and ceo have clearly defined written responsibilities which have been agreed by the board  
the chairman leads the board and creates the conditions for overall board and individual director effectiveness 
both inside and outside the boardroom the ceo is responsible for running the company’s business on a day  
to day basis
corporate governance statement
continued directors’ report – governance 61 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
sir patrick brown as senior independent nonexecutive director is available to shareholders who wish to raise 
any concerns and leads the nonexecutive directors in their evaluation of the chairman’s performance
the nonexecutive directors bring to the board many years of business experience as well as financial expertise 
and the ability and willingness to challenge and support the executive directors
the general counsel and company secretary martin parker assists the board to ensure that good corporate 
governance compliance is achieved he is also company secretary of nwl and is secretary to all board committees
the nwg board supports the findings of lord davies’ recent review ‘women on boards’ over the coming 
months the board will review its procedure for the appointment of directors including the impact of the approach 
taken to management development at a less senior level and consider which of the davies recommendations 
should be adopted whether or not they become formally binding on companies following this year’s agm  
if heidi mottram and margaret fay are reelected two 22 of the nine directors will be female
information and professional development
all directors have access to independent professional advice to assist them in the performance of their duties  
at the company’s expense and to the company secretary for advice and assistance the chairman with the 
assistance of the company secretary monitors the induction and training requirements of directors all new 
directors receive an induction information pack and are encouraged to make site visits and to arrange meetings 
with managers since joining the company in june 2010 margaret fay has visited birtley sewage treatment works 
stw lumley water treatment works wtw and bran sands stw since joining in october 2010 paul rew has 
visited bran sands stw lumley wtw kielder hanningfield and abberton reservoirs and the pity me customer 
contact centre
managers from within the group submit papers or give presentations at board meetings water industry 
representatives meet the nwl board to discuss current issues
the company secretary ensures that directors are kept informed and that information flows effectively within the 
group by
keeping in regular contact with directors −
sending board papers to directors before each board meeting −
sending briefing packs to directors in the months when board meetings are not held and −
providing a directors’ team room intranet site containing board and committee papers minutes analysts’  −
reports and reference and regulatory documents to which all directors have access
directors attend conferences and seminars where this will help them in the performance of their duties
performance evaluation
a full evaluation of the performance of the board and its committees was conducted during the year by an external 
consultant who observed board meetings of nwg and nwl and a meeting of the audit committee each 
director completed a detailed questionnaire prior to a onetoone meeting with the consultant the questionnaire 
was designed to address strategic issues and succession planning as well as the approach of the board to 
operational and financial matters the role of the nonexecutive directors and the quality of information received by 
the board the performance of nwl ’s board and its committees was evaluated at the same time the chairman 
used the evaluation to assist with his evaluation of each director
the results of the external evaluation were generally very positive and a number of actions were agreed with a 
view to further improving the performance of the boards although the board discussions are already lively and 
vigorous the consultant encouraged directors to be even more challenging in their approach directors’ report – governance 62 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
in relation to board papers it was agreed that some could be a little more incisive and state their main points  
more clearly
as well as commenting on the contributions from the directors and the processes adopted at board and 
committee meetings the consultant made certain practical observations the consultant felt for example that  
a meeting of the audit committee was hampered by the fact that some people who were not members of the 
committee participated by video conference it was agreed that this was not helpful and the schedule of  
meetings was immediately adjusted to avoid the need for this in future
it was agreed that the board’s time would be more tightly focused on strategic issues so that maximum value  
is added
the board has also considered the frc’s ‘guidance on board effectiveness’ published in march 2011 the 
directors consider that the work of both the nwg and nwl boards and the roles played by the chairman the 
senior independent nonexecutive director and the other directors are consistent with both the practical content 
and underlying philosophy of the guidance
the chairman’s comments on the evaluation of the directors seeking election and annual reelection at the agm 
are provided in the notice of meeting the comments of the senior independent nonexecutive director on the 
evaluation of the chairman are also provided in the notice
external appointments
executive directors have generally only accepted nonexecutive positions outside the group where this would 
benefit either the group or the local community these positions have tended to be with educational institutions 
economic regeneration groups or similar bodies the board has agreed that executive directors of the company 
who are appointed to nonexecutive directorships of a more commercial nature may retain the fees subject to 
obtaining the chairman’s consent before an appointment is accepted only one such external appointment per 
director will generally be permitted 
board committees
the board has audit nomination and remuneration committees to assist it in the performance of its duties  
the board sets the terms of reference of the committees and receives regular reports from their chairmen at  
board meetings the terms of reference of committees are available on the company’s website or from the 
company secretary
remuneration committee
the work of the remuneration committee and details of the directors’ remuneration are set out in the directors’ 
remuneration report
nomination committee
the main duty of the nomination committee is to identify and nominate candidates to fill board vacancies for 
approval by the board the committee also reviews succession planning for the board nwl board and senior 
appointments and will make recommendations to the board when appropriate the committee’s usual policy  
is to use external recruitment consultants or to advertise in order to identify suitable candidates
corporate governance statement
continued directors’ report – governance 63 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
during the year the committee recommended to the nwg and nwl boards the appointments of margaret fay 
and paul rew as additional independent nonexecutive directors the committee felt that an additional non
executive with strong business and political contacts especially in the north east would be a valuable addition  
to the boards margaret fay was regarded by the committee as an ideal candidate for this role and she was 
therefore approached by the company to discuss the opportunity paul rew was appointed for his first class 
finance skills and experience and particular expertise in sustainability the committee considered that these 
attributes and paul rew’s allround understanding of business made him an excellent addition to the two principal 
boards leading executive search consultants assisted the committee with paul rew’s appointment simon lyster 
a nonexecutive director of nwl since 26 september 2006 was appointed to the nwg board on 1 april 2011 
simon lyster brings very significant experience of sustainability issues as well as excellent analytical skills and a 
firsthand understanding of nwl ’s essex operating area
the committee also considered extensions to the appointments of nonexecutive directors on the nwg and nwl 
boards whose contracts for services expired during the year nonexecutive directors are appointed for a term of 
one year and all directors are subject to annual reelection at the agm
the members of the nomination committee are now sir derek wanless chairman sir patrick brown margaret 
fay heidi mottram martin nègre paul rew alex scottbarrett and simon lyster and the membership is 
compliant with the code
audit committee
the audit committee members during the year were sir patrick brown chairman martin nègre alex scott
barrett paul rew from 1 october 2010 and jenny williams until 29 july 2010 paul rew and alex scottbarrett 
are chartered accountants and the board is satisfied that they both have recent and relevant financial experience 
it is proposed that paul rew will take over as chairman of the audit committee on 28 july 2011 following the 
agm paul rew was a senior partner with pwc until march 2010 the committee’s membership complies with  
the code the chairman and executive directors are invited to audit committee meetings with the permission  
of its chairman but have no right of attendance managers from within the group are invited to audit committee 
meetings to discuss issues relating to their areas of the business during the year the committee met with both 
the external audit partner and internal audit manager to discuss audit business without the executive directors 
being present the committee remains satisfied that the internal audit function is able to operate with 
independence and is not under any pressure from the executive management of the company to produce 
particular results
the committee members receive regular briefings from the external auditors to enable them to keep up to date  
on financial reporting standards
the purpose of the audit committee is to assist both executive and nonexecutive directors of nwg to discharge 
their individual and collective responsibilities in relation to
ensuring the financial and accounting systems of nwg and its subsidiaries are providing accurate and up to  −
date information on their current position
ensuring nwg’s published financial statements represent a true and fair reflection of this position and −
assessing the scope and effectiveness of the group’s risk management systems and the integrity of its internal  −
financial controls directors’ report – governance 64 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
during the year its work included
monitoring the integrity of the financial statements of the company −
reviewing the company’s internal controls both financial and information systems by considering reports of  −
both the internal and external auditors directing questions to management and reviewing the financial risks and 
controls information provided to them on an annual basis
monitoring and reviewing the effectiveness of the internal audit function by reviewing the scope of the annual  −
audit plan the results of those audits and monitoring the completion of actions identified during the audits
monitoring and reviewing the performance and effectiveness of the external auditors in particular by reviewing  −
the scope and costs of the audit process
reviewing the external auditors’ independence by monitoring the extent of the provision of nonaudit services  −
and receiving reports from the external auditors
monitoring the potential impact and management of significant risks to the business using a risk methodology  −
meeting the recommendations of the 2005 turnbull review group guidance which sets out and rates all 
identified risks including operational external financial environmental social and governance risks
reviewing the committee’s terms of reference −
reviewing the group’s financial approval rules −
reviewing the group’s tax strategy −
reviewing nwl ’s contract terms −
reviewing the group’s accounting and treasury policies and −
reviewing the company’s interim management statements halfyearly and preliminary results announcements  −
and final published annual report and financial statements
the committee has now assumed responsibility for the practical work being done to ensure that the group’s 
procedures designed to prevent bribery are adequate having regard to the provisions of the bribery act 2010 and 
the official guidance published in relation to that act this builds on significant work done by the nwg board with 
advice from the company secretary and internal audit manager to assess the bribery risk faced by the group 
clarify policies and map the procedures to be put in place
given the importance of nwl to the group’s business the committee works closely with the audit committee of 
nwl in particular both committees review significant regulatory reports for ofwat and regularly review nwl ’s debt 
recovery strategy and performance in addition meetings were held with the ofwat reporter during the year to 
discuss the june return process
the audit committee chairman reports to the board following each meeting of the committee and committee 
minutes are circulated to the board
external auditors
ernst  young llp have been the group’s auditors since 2003 the audit engagement partner is subject to 
change every five years and was last changed in 2008
nonaudit services
the committee has approved a procedure for the approval of nonaudit services to safeguard the objectivity and 
independence of the external auditors which complies with the requirements of the auditing practices board’s 
revised ethical standard no 5 the external auditors are not permitted to provide bookkeeping financial information 
systems design and implementation or internal audit outsourcing services permitted services require prior approval 
either from the audit committee chairman if under £50000 or from the audit committee if over £50000 the 
company requires the auditors to report annually details of all nonaudit services provided a breakdown of the  
cost of audit and nonaudit services provided by the auditors is set out in note 4 to the financial statements
corporate governance statement
continued directors’ report – governance 65 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
on 25 may 2011 ernst  young llp confirmed to the audit committee in accordance with isa 260 communication 
of audit matters to those charged with governance that they have considered their relationship with the company 
and that in their professional judgement the objectivity of the audit engagement partner and audit staff is  
not impaired
review of internal control
the board believes that as explained below there are effective systems in place to identify and manage significant 
risks and that it receives sufficient information to enable it to assess these risks
the board has overall responsibility for maintaining a sound system of internal control and for reviewing its 
effectiveness the system is designed to manage rather than eliminate the risk of failure to achieve business 
objectives regular reviews of the effectiveness of the internal control system are carried out in accordance with 
the 2005 turnbull review group guidance the actions necessary to address weaknesses and otherwise improve 
the system of internal control are communicated to management internal audit monitors implementation of these 
actions and reports back to the audit committee this process has been in place throughout the year and up to 
the date of approval of the 201011 annual report and financial statements there are inherent limitations in any 
system of internal control and even the most effective system can only provide a reasonable and not absolute 
assurance against material misstatement or loss
the use of our standard accounting manual by finance teams throughout the group ensures that transactions and 
balances are recognised and measured in accordance with prescribed accounting policies and that information is 
appropriately reviewed and reconciled as part of the reporting process the use of a standard reporting pack by all 
entities in the group ensures that information is gathered and presented in a consistent way that facilitates the 
production of the consolidated financial statements
the board has reviewed the effectiveness of the group’s system of internal control as follows during the year  
the internal audit team manages a process whereby all of the financial controls within the group are identified  
and certified by the relevant manager as having operated for the full year as part of a programme of work which 
is agreed with the audit committee these controls are tested throughout the year a report detailing any areas of 
concern is produced after each audit as part of the same process all of the key business risks are identified each 
risk is assessed on an unmanaged basis the controls in place to mitigate the risks are detailed and the risk is then 
reassessed after these controls 
internal audit’s findings and recommendations are presented to the audit committee along with agreed actions 
internal audit updates progress against any agreed actions until the control weakness is resolved
organisational structure
the trading subsidiaries have their own boards of directors the subsidiary boards which are responsible for the 
operational and financial control of their own businesses the subsidiary boards report to the executive directors 
and to the company’s board on matters including major strategic financial organisational compliance and 
regulatory issues
the nwl management team manages the major business of the group and consists of heidi mottram ceo 
chris green finance director graham neave operations director and on nwl board ceri jones regulation  
 scientific services director and on nwl board john devall water director ian donald customer services 
director sarah salter hr director from 4 january 2011 colin price technical director and henry wilson 
wastewater director nwl ’s former hr director diane morton resigned on 30 september 2010 the nwl 
management team meets monthly to consider and discuss progress against annual and monthly financial and 
operational targets it prepares an annual budget and business plan for consideration and approval by the nwl 
board nwl operates a balanced scorecard which monitors progress against kpis and which covers all areas  
of operation of the business directors’ report – governance 66 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
the board is able to monitor the impact of environmental social and governance matters on the group’s business 
to assess the impact of significant risks on the business and to evaluate methods of managing these risks through 
reports it receives from the subsidiary boards and the audit committee the environmental risks considered to be 
significant by the board are described on page 51 together with a summary of how nwl is managing these risks
for a number of years the subsidiary boards have performed a full annual business risk analysis to meet the 
recommendations of the 2005 turnbull review group guidance this methodology is described above in relation 
to the work of the audit committee the results of the risk reviews are reported in detail to the audit committee 
and a summary is reported to the company’s directors accompanying the risk model is a detailed review of each 
company’s internal financial controls along with either confirmation that the controls have operated throughout the 
year or details of any exceptions action points arising from these reviews are followed up as part of the internal 
audit process
some subsidiaries such as nwl consider risks more frequently the executive directors consider significant  
risks in a structured way on a monthly basis assessing the likelihood and potential impact of the relevant risks  
both before and after risk management measures have been put in place further details about how risks and 
uncertainties facing the group are assessed and managed are included in the directors’ report – business  
review on pages 50 and 51
on a monthly basis the executive directors compare the actual operational and financial performance of each 
business with its plan and budget targets are set to measure performance and regular forecasts are made
information and reporting system
each subsidiary board holds a copy of the company’s financial approval rules and terms of reference which 
contain full details of the procedures for distribution of information and financial reporting each subsidiary board 
has developed financial control systems appropriate to its activities
budgets and business planning
the group prepares detailed medium term business plans and annual budgets which are reviewed by the 
executive directors and submitted to the board for approval business plans and budgets include an assessment 
of the key risks and success factors facing each business unit
the approval of the board is required for major investments including those in new markets and large capital 
expenditure programmes the treasury strategy which is approved by the board requires that investments are 
limited to certain money market and treasury instruments and that the group’s exposure to any single bank 
building society or market is controlled with maximum deposits allowed with any single counterparty the group’s 
investment strategy aims to fix interest rates for part of the group’s borrowings and investments for periods 
determined by the forecast cash flow of the individual businesses this manages the exposure to the risk of 
changes in short term interest rates foreign currency exposure is also managed as part of the treasury strategy 
approved by the board
corporate governance statement
continued directors’ report – governance 67 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
investor relations
the company welcomes constructive communication with all its shareholders our main communication with 
shareholders is through the publication of the annual report and financial statements halfyearly financial report 
interim management statements and through information on the company’s website in addition the executive 
directors have regular contact with the company’s large institutional investors as well as giving presentations to 
analysts and stockbrokers during the year the executive directors held 36 meetings with a range of institutional 
investors investor feedback reports from investor meetings prepared by the company’s advisers are considered 
at board meetings and analysts’ notes on the company are made available to all directors on the board’s intranet 
team room the board believes that these methods of investor feedback provide the senior independent non
executive director and the other nonexecutive directors with a balanced understanding of the issues and 
concerns of major shareholders the senior independent nonexecutive director is available to shareholders  
who wish to raise any matters of concern and the chairman welcomes contact with any shareholders who have 
matters they wish to discuss the company has not received any requests from institutional shareholders to  
meet with nonexecutive directors
all shareholders are encouraged to contact the company with queries or suggestions a welcome letter is sent  
to all new noncorporate shareholders which includes information on services available to shareholders
agm
shareholders are encouraged to attend the company’s agm at which they can meet and question the directors 
the company will make a presentation at the agm to highlight the key business developments and events during 
the year the full board is expected to be available at the agm to answer shareholders’ questions voting at the 
agm will be on a show of hands but the proxy votes cast on each resolution will be displayed after each resolution 
has been voted on if the voting on a show of hands produces a different result from that which would have been 
achieved on a poll the chairman will call a poll so that the result of the voting on that resolution reflects the wishes 
of the majority of shareholders the proxy votes cast at each agm are disclosed on our website the notice 
convening the agm to be held on 28 july 2011 has been sent to shareholders together with an explanation  
of the business to be conducted at the meeting and a form of proxy
information pursuant to the takeovers directive
structure of the company’s share capital
as at 31 march 2011 the company had 518623845 ordinary 10 pence shares admitted to trading 
rights and obligations attaching to the shares
the rights attaching to the shares in the company are set out in the articles and may be changed with the 
approval of the shareholders subject to the provisions of the companies acts shares may be issued with or have 
attached thereto such preferred deferred qualified or other rights or such restrictions whether in regard to 
dividend voting return of capital or otherwise as the company may by ordinary resolution determine or if there 
has not been any such determination as the board may determine
shareholders are entitled to requisition a general meeting of the company and to attend vote and speak at 
general meetings in accordance with the companies acts and the articles shareholders have the right to  
appoint proxies directors’ report – governance 68 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
restrictions on the transfer of shares
any shareholder may transfer a certificated share as defined in the articles by an instrument of transfer in the 
usual form or in such other form as the board may approve however the transfer of an uncertificated share as 
defined in the articles need not be in writing and shall comply with any rules adopted by the board under article 
137 the board may however in its absolute discretion and without assigning any reason decline to register any 
transfer of any share that is not a fully paid up share or on which the company has a lien provided that such 
discretion may not be exercised in such a way as to prevent dealings in the shares from taking place on an open 
and proper basis the board may also decline to register any transfer unless
in the case of a certificated share the instrument of transfer duly stamped is lodged with the company  −
accompanied by the certificate for the shares to which it relates and such other evidence as the board may 
reasonably require to show the right of the transferor to make the transfer
in the case of a certificated share the instrument of transfer is in respect of only one class of share and −
in the case of a transfer to joint holders of a certificated or uncertificated share the number of joint holders to  −
whom the share is to be transferred does not exceed four
if the share to be transferred is an uncertificated share the board may refuse to register a transfer if the 
uncertificated securities regulations 2001 allow it to do so
additionally where a member or other person on whom a disclosure notice has been served pursuant to s793  
of the companies act 2006 and has not within the period specified supplied to the company the information 
required in respect of any shares the board may impose a sanction declining to register any transfer of shares 
other than a sale to a bona fide unconnected third party
significant shareholdings 
details of shareholders with significant holdings in the company’s issued share capital are set out below
number of  
shares at  
3132011
 share 
capital
number of  
shares at  
31 52011
 share 
capital
ontario teachers’ pension plan board 138776864 2676 138776864 2676
pictet asset management ltd 38770495 748 40787412 786
artemis investment management llp below 3 – 15654522 302
legal  general investment management ltd uk 16319467 315 15573103 300
the holdings include where applicable the aggregate of investment management clients’ interests within the 
respective asset management companies and may have since changed without triggering a further notification
restrictions on voting rights
in accordance with the articles no member shall unless the board otherwise determines be entitled to be 
present or to vote either personally or by proxy unless all calls or other sums presently payable by him in respect 
of shares in the company have been paid
additionally where a member or other person on whom a disclosure notice pursuant to s793 of the companies 
act 2006 has been served and has not within the period specified supplied to the company the information 
required in respect of any shares the board may impose a sanction preventing the member from attending and 
voting at any general meeting
corporate governance statement
continued directors’ report – governance 69 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
shares required to fulfil vested awards made under the northumbrian water group plc employee trust are 
acquired through northumbrian water share scheme trustees limited in line with association of british insurers 
abi guidelines dividends and voting rights are waived on these shares at 31 march 2011 the employee trust 
held a total of 765962 shares
the deadline for delivering either written or electronic proxy voting forms is 48 hours before the appointed time of 
the meeting
appointment and replacement of directors
the company may by ordinary resolution appoint any person to be a director the board may also appoint 
directors either to fill casual vacancies or as an addition to the board but any director so appointed shall hold 
office only until the next agm and shall then be eligible for election paul rew and simon lyster who were 
appointed to the board since the last agm will be eligible for election at this year’s agm additionally the articles 
provide for the annual reelection of all directors details of all the directors seeking reelection at this year’s agm 
are set out in the notice of meeting
the main duty of the nomination committee is to identify and nominate candidates to fill board vacancies for 
approval by the board the work of the nomination committee is described above
the company may by special resolution or by ordinary resolution of which special notice has been given in 
accordance with the provisions of the companies acts remove any director before the expiration of his period  
of office and may by ordinary resolution appoint another person in his place any person so appointed shall be 
subject to retirement at the same time as if he had become a director on the day on which the director in whose 
place he is appointed was last appointed a director
amendments to the company’s articles
the company may amend its articles by passing a special resolution of its members 
powers of the board
the articles provide that the business of the company shall be managed by the board which may exercise all 
such powers of the company as are not required by the companies acts or the articles to be exercised by the 
company in general meeting subject to the companies acts the articles and any directions given by special 
resolution the board may inter alia
establish local or divisional boards or agencies to manage any of the company’s affairs and appoint any  −
persons to be members of such local or divisional boards or agents and fix their remuneration
appoint attorneys for such purposes and with such powers authorities and discretions and for such period  −
and subject to such terms and conditions as it may think fit
delegate its powers to any director −
sign draw accept endorse or otherwise execute all cheques promissory notes drafts bills of exchange and  −
other instruments and all receipts for moneys paid to the company in such manner as the board shall from time 
to time determine and
exercise all of the powers of the company to grant and pay pensions annuities gratuities superannuation or  −
other allowances and benefits in favour of any person
allotment of shares
subject to the provision of the companies acts the articles and any authorising resolutions passed in general 
meeting the shares of the company shall be at the disposal of the board which may offer allot grant options  
over or otherwise dispose of them to such persons at such times for such consideration and upon such terms 
and conditions as the board may determine the directors will again be seeking authority from shareholders at  
this year’s agm for the directors to allot shares during the ensuing year although at present the company has  
no intention of doing so directors’ report – governance 70 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
purchase of own shares
subject to the provisions of the companies acts and the articles and to any confirmation or consent required by 
law the company may from time to time purchase its own shares the company will again be seeking authority 
from shareholders at this year’s agm to purchase its own shares during the ensuing year although at present  
the company has no intention of doing so
significant agreements
as at 31 march 2011 nwl had £3447 million of loans provided by the eib and the applicable terms include 
change of control clauses if after consultation with nwl the eib is of the opinion that a change of control has 
had or is likely to have a material adverse effect then the eib could give 30 days notice of requesting early 
repayment of the loans plus in certain circumstances a premium depending on prevailing market interest rates
by order of the board
martin parker
general counsel and company secretary
31 may 2011
northumbrian water group plc
registered office northumbria house abbey road pity me durham dh1 5fj
registered in england and wales no 4760441
corporate governance statement
continued remuneration 71 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
in this report which will be submitted for approval at the agm on 28 july 2011 we describe how the chairman 
executive and nonexecutive directors are remunerated those parts of the remuneration report which are subject 
to audit by ernst  young llp are marked ‘audited’
the remuneration committee
the role of the remuneration committee
the remuneration committee of the board the committee determines the remuneration and terms of 
employment of the chairman of the company executive directors of nwg and nwl and a further six senior 
managers in accordance with a remuneration policy approved by the board the terms of reference of the 
committee are published on our website at wwwnwgcouk in the ‘about us corporate governance’ section  
or a copy can be requested from the company secretary
the committee is always available to engage with major shareholders and their representatives to discuss 
remuneration matters 
remuneration committee members
the committee members are alex scottbarrett committee chairman sir patrick brown martin nègre  
and margaret fay who are all considered by the company to be independent and sir derek wanless the 
membership of the committee was therefore compliant with the code throughout the year martin parker  
the company secretary is secretary to the committee
external advice
the committee continued to receive advice during the year from its appointed advisers hewitt new bridge street 
hnbs and also from the ceo although never about her own remuneration the human resources director 
sarah salter who joined the group on 4 january 2011 also attends committee meetings to provide expert advice 
hnbs was paid £33399 for these services in 201011 and continues to assist the committee in maintaining best 
practice in relation to remuneration hnbs did not provide any other services to the company during the year
the committee’s work over the past year
the committee met three times during the year with 100 attendance by all members except for sir patrick 
brown who was not present at the march 2011 meeting and margaret fay who did not join the committee until 
june 2010 to 
agree bonus payments for 200910 −
set performance targets for executive directors and senior managers −
agree salaries for 201112 −
determine the vesting percentage to be applied to the ltip awards made on 13 december 2007 which   −
vested on 13 december 2010
grant ltip awards on 8 december 2010 to vest subject to performance and continued service on   −
8 december 2013
consider the impact of changes to the tax treatment of pensions and −
review the pension contributions payable in respect of executive members of the company’s defined  −
contribution pension scheme
following the year end the committee wrote to its largest shareholders and the major representative bodies to 
consult on a number of changes to executive remuneration arrangements for 201112 in summary these changes 
were to introduce an executive tier to the defined contribution pension scheme expand the range of annual bonus 
metrics to include a balanced scorecard increase maximum bonus potential for executive directors from 70 to 
100 of base salary and introduce bonus deferral and clawback further details of the changes are set out below 
no changes were made to long term incentive provisions
as the committee works closely with nwl ’s remuneration committee committee papers and minutes are 
circulated to all nwg and nwl nonexecutive directors who can give their views direct to the committee 
chairman and can attend meetings if they wish
directors’ remuneration 
report maximum
0 50
fixed pay variable pay
100 150 200 250 350 300
total
basic salary pension  beneﬁts annual bonus ltip
remuneration 72 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
remuneration policy
the committee considers the principles and provisions of the code when setting its policy and believes it is fully 
compliant the policy of the company is to provide remuneration that is sufficient to attract retain and motivate 
directors of the quality required to run the company successfully while paying fairly although hnbs provides  
the committee with detailed comparative data on other companies in the utilities sector and more widely the 
committee uses this data with caution given the lack of direct comparators and to avoid remuneration being 
ratcheted up as a result of benchmarking exercises
consistent with its fair pay policy when considering the remuneration packages of senior executives and directors 
the committee takes into account the pay and employment conditions of other employees in the group however 
it does not consider that a formulaic approach to the pay differentials between directors and other employees 
would of itself be helpful it recognises however that excessive pay differentials would be divisive and would 
undermine the group’s core value of working as ‘one team’ the committee is determined to ensure that 
executive’s remuneration continues to be set at a level which is reasonable and appropriate the directors  
have been awarded the same 371 increase in their basic pay as nearly all other employees for 201112
the committee also considers environmental social risk management and governance issues when setting 
remuneration terms
the remuneration policy of the committee is that
the setting of base salaries is largely influenced by individual contributions and internal relativities rather   −
than external comparators although for 201011 and 201112 the committee was influenced by general 
economic conditions
the annual bonus plan recognises the interests of all of the company’s stakeholders including shareholders  −
customers and employees rather than being focused solely on profit and
management shares in the longer term value created for the company’s investors and the serviceability   −
of the company’s regulated assets
elements of remuneration 
the remuneration of the executive directors comprises
basic salary −
benefits including pension and participation in the company’s sip −
a performance related annual bonus and −
annual ltip awards −
in addition to reviewing each constituent element the committee reviews the remuneration packages as a whole to 
ensure that they remain appropriate in terms of structure and quantum the chart below shows the composition of 
the ceo’s remuneration as a percentage of basic salary both at ‘target’ and ‘maximum’ levels of performance 
maximum performance assumes the achievement of maximum bonus and full vesting of ltip awards
directors’ remuneration report
continued shareholders – proﬁt before tax 40
20
5
5
customers – ofwat’s overall
performance assessment rating
employees – percentage lost 
time through
bespoke personal
remuneration 73 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
basic salary and benefits
basic salary is reviewed annually based on individual contributions and internal relativities the committee also has 
regard to market practice in other quoted water companies and similar sized companies more generally
current basic salaries together with the previous year’s salaries are set out below
 
as at 
142011
as at 
142010
as at 
142009
heidi mottram £331872 £320000 na
chris green £236459 £228000 £225000
for 201112 salaries for senior executives have been increased by 371 this is the same as for nearly all  
other employees
benefits provided to the executive directors comprise membership of pension schemes as detailed below  
car allowance and healthcare
pensions
the main features of the northumbrian water pension scheme are set out in note 24 to the financial statements 
basic salary is the only pensionable element of the executive directors’ remuneration packages
the executive directors’ pensions were modified with effect from 1 january 2008 in line with the changes 
proposed for the pension scheme as a whole and the executive pension arrangements were closed to new 
entrants on that date in 201011 heidi mottram received an employer’s contribution of 8 of salary to the defined 
contribution section of the northumbrian water pension scheme and made an employee contribution of 5 the 
employer’s contribution of 8 was the same as was available to any other employee making a 5 contribution 
during 201011 following consultation with the company’s largest shareholders and major representative bodies 
the employer contributions on behalf of executive members of the defined contribution scheme have been 
increased from 8 to 15 of salary with employee contributions increased from 5 to 8 from 1 april 2011  
this was thought necessary in order to make the remuneration packages available for senior recruits market 
competitive heidi mottram is the only executive director of the company in the defined contribution scheme
annual bonus 
the annual bonus plan has been designed to reflect the interests of all of the company’s stakeholders  
the maximum annual bonus potential for the executive directors for 201011 was 70 of salary remuneration 74 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
actual performance against the 201011 targets was as follows
 
bonus metric
maximum
bonus
 of salary
chris green
actual bonus
 of salary
heidi 
mottram
actual bonus
 of salary
profit before tax pbt
1
 40  39 39
overall performance assessment opa rating
2
 5 2 2 
percentage time lost through sickness
3
 5 – – 
bespoke personal targets
4
 20 20 20
total 70 61 61 
notes
1 the pbt bonus is based on actual pbt performance compared to the budget pbt set by the board at the beginning of the year pbt has been chosen because it is a 
primary financial measure for the company for which the executive directors are accountable the calculation of pbt performance is adjusted to exclude the impact of 
any variance between the actual and budget interest charge on index linked bonds issued by northumbrian water finance plc which depends entirely on rpi in july of 
each year and is therefore outside of management control
2 the directors’ remuneration report for 200910 stated that the bonus metrics to be used in 201011 would be the same as in the previous year therefore although 
ofwat no longer publishes an opa rating the committee has estimated nwl ’s opa score for 201011 on the same basis as before as 362 this has been placed in a 
range for bonus purposes of 351 to 426 being the published range of performance across the 10 water and sewerage companies in 200910 
3 the year end percentage of time lost through sickness was 31 against a range for bonus purposes of 27 to 299
4 in 201011 heidi mottram’s personal targets related principally to maintaining key financial ratios and measures ensuring that good relationships were maintained with 
major investors and analysts increasing operating and capital maintenance efficiencies identifying business development opportunities ensuring that investment needs 
were properly quantified refreshing the risk model and preparing a high level strategic risk matrix chris green’s personal targets were focused mainly on maintaining 
key financial ratios and measures maintaining good relationships with major investors and analysts ensuring treasury management achieved an appropriate balance 
between risk and reward reviewing and developing strategy in relation to market reform and competition identifying business development opportunities ensuring that 
investment needs were properly quantified refreshing the risk model preparing a high level strategic risk matrix and identifying further opportunities to impact the cost 
base and investment programme of nwl
following consultation with the company’s largest shareholders the range of annual bonus metrics has been 
expanded to include a balanced scorecard to align annual incentive pay more closely with stakeholders’ wider 
interests for 201112 in addition to the introduction of the balanced scorecard the maximum annual bonus 
potential for the executive directors in 201112 will be increased from 70 to 100 of salary and will be 
apportioned as follows
bonus metric  of salary
pbt 36 
balanced scorecard measures 44
bespoke personal targets 20 
total 100
the new metrics are firmly linked to the company’s strategic goals customer competitiveness people environment 
and communities the pbt performance metric reflects ‘competitiveness’ along with an assessment of capital 
efficiency while the other elements of the balanced scorecard are linked to the other strategic goals the ‘customer’ 
goal underpins targets based on customer satisfaction unplanned interruptions and water quality the ‘people’ goal 
is reflected in targets for employee engagement and lost time reportable accidents the ‘environment’ goal targets 
comprise leakage sewage treatment performance and pollution incidents while ‘communities’ targets are based on 
external recognition of the group’s corporate social responsibility achievement definitions of these measures are 
outlined on pages 12 and 13
directors’ remuneration report
continued remuneration 75 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
the pbt element of the bonus will be scored on a sliding scale around the target figure a simple passfail 
measure will apply to the other targets and most of the targets have been set at levels which would require 
significant improvements over the 201011 actual results the remuneration committee considers the overall 
bonus metrics to be appreciably more stretching than before and that they reflect operational performance and 
delivery to customers in a more structured way a similar approach has been adopted in relation to executives 
below board level and senior managers albeit at varying levels of bonus opportunity
bespoke personal targets have been set for heidi mottram and chris green for 201112 for heidi mottram these 
include maintaining key financial ratios in line with the nwg and nwl approved budgets maintaining good 
relationships with investors and analysts delivering the operating efficiency plans for 201112 and keeping the 
remainder of the plans for 201415 on track and progressing the group’s strategy on advanced anaerobic 
digestion codigestion and renewable energy chris green’s targets include maintaining key financial ratios 
maintaining good relationships with investors and analysts refreshing the risk model and preparing a high level 
strategic risk matrix and work on current cost depreciation and its impact on return on capital employed 
bonus deferral
following the increase in bonus potential the company has introduced bonus deferral for executive directors of 
the total bonus awarded 70 will be payable in cash and 30 will be payable in shares deferred for three years
bonus and ltip clawback
as part of the changes introduced for 201112 the committee has introduced a clawback provision which will 
apply in the event that results on which bonuses are paid or ltips are awarded are subsequently found to be 
inaccurate or there has been relevant misconduct on the part of the employee
ltip
under the ltip executive directors and senior managers may receive at the discretion of the remuneration 
committee annual conditional awards of shares in the company worth up to 100 of annual salary at grant 
although only the executive directors of nwg participate at the 100 level all awards have three year prevesting 
performance conditions
conditional awards made on 8 december 2010 to heidi mottram and chris green were
number of 
conditional 
awards 
granted
value of 
awards 
granted as a
 of salary
1
heidi mottram 96212 99
chris green 68551 99
note
1 based on a closing share price on 7 december 2010 of 3285 pence remuneration 76 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
details of the prevesting performance conditions for awards made during 2010 are
performance metric weighting description calibration
total 
shareholder 
return tsr
50 relative tsr against the ftse 250 
excluding investment trusts and companies 
in the following sectors banks financial 
services life insurance nonlife insurance 
real estate investment and services and 
real estate investment trusts oil and gas 
producers and oil equipment and services 
in addition awards will only vest if the 
committee is satisfied that the company’s 
tsr performance is consistent with the 
underlying business performance of  
the company 
30 of this part of an award ie 15 of the 
total award will vest for median performance 
increasing on a straight line so that 100 
ie 50 of the total award vests for upper 
quartile performance
return 
on capital 
employed 
roce
20 average absolute roce for nwl over the 
three financial years starting from 1 april 
immediately preceding grant date
30 of this part of an award ie 6 of the 
total award will vest for average threeyear 
roce of 63 increasing on a straight line 
so that 50 ie 10 of the total award will 
vest for average three year roce of 645 
and on a straight line so that 100 ie 20 
of the total award will vest for an average 
roce of 675
serviceability 20 ofwat serviceability targets for the four 
asset classes ie water noninfrastructure 
water infrastructure sewerage non
infrastructure and sewerage infrastructure 
in the final year of the relevant three year 
performance period serviceability is 
measured by ofwat based on a number  
of indicators which include asset 
performance indicators water quality 
compliance environmental compliance  
and consumer service
50 of this part of an award ie 10 of the 
total award will vest for ‘stable’ assessments 
in three out of the four asset classes 100 
of this part of an award ie 20 of the total 
award will vest for ‘stable’ assessments in 
all four asset classes no awards would vest 
under this part of an award for less than three 
‘stable’ assessments
customer 10 results of nwl ’s independently run 
customer satisfaction index measured  
as the average score for the surveys 
carried out during the relevant three  
year performance period
30 of this part of an award ie 3 of 
the total award will vest for a customer 
satisfaction index of 83 increasing on a 
straight line so that 100 of this part of an 
award ie 10 of the total award vests for a 
customer satisfaction index of 93 or above
the committee is satisfied that the above metrics and targets remain appropriate for the following reasons
a significant part of the award based on tsr ensures alignment with investors −
the use of an absolute roce target for part of the awards ensures that reward is directly linked to the  −
management’s delivery of the business plan
the serviceability targets recognise that the maintenance of nwl ’s regulated assets is critical to the longer term  −
returns for shareholders and
customer satisfaction is a key objective for nwl and customers are important stakeholders −
directors’ remuneration report
continued remuneration 77 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
in the event of a change of control the committee would determine the extent to which the performance 
conditions had been met and the proportion of the performance period that had elapsed in deciding whether  
or not any vesting of awards would take place
the ltip award granted on 13 december 2007 became available to vest on 13 december 2010 the committee 
instructed hnbs to assess the level of vesting of this award hnbs reported that 4884 of the award was 
available to vest being 9768 of the award relating to the company’s tsr performance against the ftse 250 
index and 0 of the award relating to the company’s roce performance against the other water companies 
prior to vesting the committee satisfied itself that the recorded tsr performance was a genuine reflection of  
the company’s underlying performance details of the number of awards which lapsed and those which were 
exercised by the directors of the company are shown in table 3
full details of past award levels and performance conditions are shown in table 2
share ownership guidelines
the nwg board has introduced a guideline requesting nwg directors to build up over a maximum of five years 
shares in the company with a value equal to one year’s basic salary in the case of the executive directors or one 
year’s fees in the case of nonexecutive directors
responsible investment
the committee is aware of guideline 32 of the abi guidelines on responsible investment disclosure and is 
satisfied that neither the executive directors’ annual bonus targets nor the ltip performance conditions are likely 
inadvertently to motivate irresponsible behaviour
nonexecutive directors’ fees
the company’s remuneration policy is that the chairman and the nonexecutive directors should receive a fixed 
fee for their normal duties reflecting the added responsibilities and time commitment chairing the remuneration 
and audit committees attracts an additional fee over the nonexecutive directors’ standard base fee
fees payable during 201011 and the company’s policy from 1 april 2011 in line with the approach taken in 
respect of the salaries of nwg executives are
 
201112
£
201011
£
chairman 165434 159516 
nonexecutive director base fee 38601 37220 
audit committee chairing fee 11029 10634 
remuneration committee chairing fee 5514 5317 
the chairman and the nonexecutive directors do not receive benefits in kind and do not participate in bonus 
pension or share schemes operated by the company further details of nonexecutive directors’ remuneration  
are set out in table 1
directors’ interests in ltip awards
the directors’ conditional interests in the ordinary 10 pence shares of the company awarded in accordance with 
the terms of the ltip as at 31 march 2011 are set out in table 3 0
20
40
60
80
100
120
140
160
180
200
1apr06
135
126
93
53
92
108
158
103
141
172
31mar07 31mar08
nwg ftse 250 excluding investment trusts
31mar09 31mar10 31mar11
remuneration 78 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
ordinary 10 pence shares required to fulfil ltip awards which have vested may be provided by the northumbrian 
water group plc employee trust through northumbrian water share scheme trustees limited the trustees are 
sir patrick brown martin nègre and kate alsop anita frew and alastair balls stood down as trustees when they 
retired as nonexecutive directors of nwl on 31 march 2011 at that date the trust held a total of 765962 ordinary 
10 pence shares this represents 01 of the company’s total issued share capital so is substantially less than the 
5 limit on shares that can be held in trust in line with the abi guidelines dividends are waived on these shares 
and the voting rights attached to these shares will not be exercised at the agm
share dilution
the company’s share plans contain dilution limits that comply with the abi guidelines shares for both the ltip 
and sip schemes are provided by purchase on the market there has therefore been no dilution to date and  
there is no commitment to issue new shares in relation to either scheme
performance graph
the graph below shows a comparison between the tsr for the company’s shares for the five year period to 
31 march 2011 and the tsr for the companies comprising the ftse 250 index excluding investment trusts  
over the same period this index has been selected as the company is a constituent of the ftse 250
note
this graph shows the value by 31 march 2011 of £100 invested in nwg on 1 april 2006 compared with the value of £100 invested in the ftse 250 index excluding 
investment trusts over the same period
source thomson datastream
service contracts
all nonexecutive directors are appointed for a term of 12 months with a six month notice period for the company 
and the director the executive directors have service contracts with 12 months notice periods and which expire 
when the directors reach normal retirement age no special arrangements apply if there is a change of control the 
contracts do not contain any liquidated damages clauses or provide explicitly for termination payments if a contract 
is to be terminated the committee will determine the compensation to be paid there is no automatic entitlement to 
bonus payments and ltip vesting is at the discretion of the committee the committee will apply such mitigation to 
any contractual obligations as it considers fair and reasonable taking into account the best practice provisions of the 
code details of the contracts of the executive and nonexecutive directors who served during the year are shown in 
table 4
directors’ remuneration report
continued remuneration 79 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
terms and conditions of appointment of nonexecutive directors are available for inspection at the company’s 
registered office during normal business hours and at the agm the terms of appointment set out the expected 
time commitment for each nonexecutive director
external appointments of executive directors
the board’s position on external appointments is described in full in the corporate governance statement but  
in summary the board has agreed that executive directors of the company who are appointed to nonexecutive 
directorships which pay a fee may retain the fees subject to obtaining the chairman’s consent before an 
appointment is accepted only one such external appointment per director will generally be permitted heidi 
mottram is a board member of yorkshire forward for which she is paid and retains an annual fee of £8666
directors’ interests in shares
the directors’ beneficial interests in the ordinary 10 pence shares of the company as at 31 march 2011 are set 
out in table 6 
directors’ interests in shares under the sip
the company sip is open to uk employees with more than three months service further details of the sip are  
set out in the directors’ report – business review during the year the executive directors had the opportunity to 
participate in the sip and their interests in the ordinary 10 pence shares of the company purchased and held in 
accordance with the terms of the sip are set out in table 7
this directors’ remuneration report has been produced in accordance with the companies act 2006 and 
schedule 8 of the large and medium sized companies and groups accounts and reports regulations 2008  
it was approved by the board and signed on its behalf by the chairman of the remuneration committee it will  
be put to the shareholders for approval at the company’s agm
alex scottbarrett
chairman of remuneration committee
31 may 2011 remuneration 80 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
these tables form the part of the directors’ remuneration report which are audited except for tables 2 and 4 which 
do not require auditing
table 1
directors’ emoluments audited 
the emoluments of the directors of the company for their services as directors of the company and where 
relevant its subsidiaries are set out below rounded to the nearest thousand pounds
 
 
 
 
fees
£000
 
basic salary
£000
 
benefits
1
£000
 
bonus
2
£000
total for the 
year ended
3132011
£000
total for the 
year ended
3132010
£000
executive directors       
john cuthbert  –  –  –  –  –  429 
heidi mottram  –  320  11  195  526  38 
chris green  –  228  12  139  379  323 
nonexecutive directors       
sir derek wanless  160  –  –  –  160  158 
sir patrick brown
3
  48  –  –  –  48  47 
margaret fay  31  – – – 31  – 
claude lamoureux  37  –  –  –  37  37 
martin nègre  37  –  –  –  37  42 
alex scottbarrett
4
  43  –  –  –  43  37 
paul rew  19  – – – 19  – 
jenny williams  12  –  –  –  12  37 
total remuneration  387  548  23  334  1292  1148 
notes
1 the remuneration of each executive director includes noncash benefits comprising the provision of car allowances and healthcare
2 the annual bonus is payable in june 2011 for performance during the year ended 31 march 2011
3 includes additional fee paid as chairman of the audit committee
4 includes additional fee paid as chairman of the remuneration committee
directors’ remuneration report
continued remuneration 81 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
table 2
summary of ltip performance conditions unaudited
ltip award made 13 december 2007 and 15 december 2008
maximum award 100 of salary permitted and actual grants to executive directors 
related to shares worth 100 of salary
performance conditions 1  50 of award depends on nwl ’s return on capital employed relative to 
that of the other water and sewerage companies of england and wales
2  50 of award depends on the company’s tsr performance against 
the ftse 250 index excluding investment trusts
vesting schedules 1  30 vests at median performance at upper quartile or above all 
of this element of the award will vest between median and upper 
quartile straight line prorating will apply where the return on capital 
employed performance is below the median none of this element of 
the award will vest
2  30 vests at median performance with straight line prorating of tsr 
performance against the members of the ftse 250 index excluding 
investment trusts to 100 for upper quartile performance where 
the company’s tsr performance is below the median none of this 
element of the award will vest
ltip award made 4 january 2010 and 8 december 2010
maximum award 100 of salary permitted and actual grants to executive directors 
related to shares worth 100 of salary
performance conditions and  
vesting schedules
please refer back to the remuneration report for performance conditions
  remuneration 82 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
table 3
directors’ interests in ltip awards audited
as at 31 march 2011 the directors had the following conditional interests in the ordinary 10 pence shares of the 
company awarded in accordance with the terms of the ltip
 
 
 
award date
awards  
held at the 
start of  
the year
awarded 
during
the year
awards 
lapsed 
during
the year
awards 
vested  
during
the year
awards 
held as at 
3132011
heidi mottram 8122010
5
  – 96212 – – 96212 
totals  –  96212  –  –  96212 
chris green 13122007
1
 61620  –  31525  30095
2
  – 
 15122008
3
 78650  –  –  –  78650 
 412010
4
 83240  –  –  –  83240 
 8122010
5
 –  68551  –  –  68551 
totals  223510  68551  31525  30095  230441 
notes
1 the market value of the shares on the date of the award was 3340 pence per share the three year performance period ran from 1 october 2007 to  
30 september 2010
2 shares vested on 13 december 2010 and the closing price on that date was 3320 pence per share
3 the market value of the shares on the date of the award was 2515 pence per share the three year performance period runs from 1 october 2008 to  
30 september 2011
4 the market value of the shares on the date of the award was 2725 pence per share the three year performance period runs from 1 october 2009 to  
30 september 2012
5 the market value of the shares on the date of the award was 3287 pence per share the three year performance period runs from 1 october 2010 to  
30 september 2013
6 the cost of conditional awards is charged to the income statement over the three year performance period to which they relate after taking account  
of the probability of performance criteria being met in the year £01 million was charged to the income statement 2010 £04 million
7 details of the performance conditions are shown at table 2
8 the market price of the shares on 31 march 2011 was 3322 pence per share during the year the highest market price was 3640 pence per share  
and the lowest market price was 2451 pence per share
9 aggregate gross gains made by directors on exercise of awards at date of vesting was £99915 2010 £103955
table 4
directors’ service contracts unaudited
details as at 31 may 2011 of the contracts of the directors who served during the year are shown below
 
initial 
appointment
contract  
start date
unexpired 
term
1
notice period 
by either party current contract end date
executive directors
2
      
heidi mottram 132010 132010 not fixed term 12 months normal retirement age 65
chris green 2352003 2352003 not fixed term 12 months normal retirement age 65
nonexecutive directors
3
      
sir derek wanless 1122003 1122010 6 months 6 months 30112011
sir patrick brown 1252003 1252011 11 months 6 months 1152012
margaret fay 162010 162010 – 6 months 3152011
claude lamoureux 1122006 1122010 2 months 6 months 287201 1
martin nègre 1252003 1252011 11 months 6 months 1152012
alex scottbarrett 2692006 2692010 4 months 6 months 2592011
paul rew 1102010 1102010 4 months 6 months 3092011
notes
1 calculated as at 31 may 2011 and rounded to nearest whole month
2 the service contracts of the executive directors do not contain provisions relating to compensation for termination in the event of termination by the company the 
remuneration committee would make recommendations to the board on what payments if any should be made to the director depending on the circumstances of the 
termination taking into account the code which discourages payment for failure the company would also expect directors to seek to mitigate their loss
3 contracts do not provide for compensation for loss of office in excess of fees accrued
directors’ remuneration report
continued remuneration 83 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
table 5
directors’ pensions and pension benefits audited
the accrued defined benefit pensions and corresponding transfer values for the executive directors are set  
out below
defined contribution scheme
employee 
contributions 
during the 
year 
£000
employer 
contributions 
during the 
year 
£000
heidi mottram –
1
436
defined benefit scheme
accrued 
pension at 
3132010
£000
accrued 
pension at 
3132011
£000
increase 
in accrued 
pension
£000
increase 
in accrued 
pension net 
of inflation
£000
transfer 
value of net 
increase 
in accrued 
pension less 
directors’ 
contributions 
£000
transfer 
value of 
accrued 
pension at 
142010
£000
transfer 
value of 
accrued 
pension at 
3132011
£000
total change 
in transfer 
value less 
directors’ 
contributions 
£000
chris green 1043  1107  64  09  189  21114  22813  1699 
notes 
1 the directors participate in a salary sacrifice arrangement and therefore paid no contributions to the schemes during the year
2 accrued pensions shown are the amounts that would be paid annually at the normal retirement age based on service to the end of the year
3 voluntary contributions paid by the directors and resulting benefits are not shown
4 the change in transfer value reflects fluctuations in the transfer value due to factors beyond the control of the company and directors such as changes in stock  
market conditions
5 the transfer values have been calculated in line with the relevant legislation and using actuarial assumptions agreed by the trustee
 
table 6
directors’ interests in shares audited
the directors had the following beneficial or family interests in the ordinary 10 pence shares of the company as at 
31 march 2011
number  
of shares 
held at the 
start of  
the year
number 
of shares 
held as at 
3132011
number 
of shares 
held as at 
31 52011
sir derek wanless 65000 65000 65000 
chris green 169339
1
 199434
2
 199434 
sir patrick brown 43000 43000
3
 43000 
claude lamoureux 25000 25000 25000 
martin nègre 70000 20000 20000 
alex scottbarrett 20000 20000 20000 
jenny williams
4
 6000 – –
notes
1 at 1 april 2010 139339 of these shares were beneficially owned by mrs g green and 10000 were beneficially owned by each of miss p j green mr m f green and  
mr j m green
2 at 31 march 2011 139434 of these shares were beneficially owned by mrs g green and 20000 were beneficially owned by each of miss p j green mr m f green and 
mr j m green
3 at 31 march 2011 the 43000 shares were beneficially owned by lady brown
4 jenny williams retired from the board on 29 july 2010 remuneration 84 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
table 7
directors’ interests in shares under the sip audited
the directors who held office as at 31 march 2011 had the following interests in the ordinary 10 pence shares of 
the company purchased and held in accordance with the terms of the sip
 
number of 
sip shares 
held at the 
start of 
the year
1
number of 
sip shares 
held as at 
3132011
1
number of 
sip shares 
held as at 
31 52011
1
heidi mottram – 606  606 
chris green 5653  6372  6936 
notes
1 these figures include the shares paid for by the participant and the free shares granted by the company
2 a summary of the sip can be found in the directors’ report – business review
directors’ remuneration report
continued financial statements 85 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
the directors are responsible for preparing the annual report and the group financial statements in accordance 
with applicable united kingdom law and those international financial reporting standards ifrss as adopted by 
the european union
the directors are required to prepare group financial statements for each financial year under company law the 
directors must not approve the financial statements unless they are satisfied that they present fairly the financial 
position of the group and the financial performance and cash flows of the group for that period in preparing those 
group financial statements the directors are required to
select suitable accounting policies in accordance with ias 8 accounting policies changes in accounting  −
estimates and errors and then apply them consistently
present information including accounting policies in a manner that provides relevant reliable comparable and  −
understandable information
provide additional disclosures when compliance with specific requirements in ifrs is insufficient to enable users  −
to understand the impact of particular transactions other events and conditions on the group’s financial 
position and financial performance
state that the group has complied with ifrss subject to any material departures disclosed and explained in the  −
financial statements and
make judgements and estimates that are reasonable and prudent −
the directors are responsible for keeping adequate accounting records that are sufficient to show and explain the 
group’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 
enable them to ensure that the group financial statements comply with the companies act 2006 and article 4 of 
the ias regulation they are also responsible for safeguarding the assets of the group and hence for taking 
reasonable steps for the prevention and detection of fraud and other irregularities
responsibility statements
we confirm that to the best of our knowledge
the financial statements prepared in accordance with ifrss as adopted by the european union give a true and  −
fair view of the assets liabilities financial position and profit of the company and the undertakings included in 
the consolidation taken as a whole and
the directors’ report and business review includes a fair review of the development and performance of the  −
business and the position of the company and the undertakings included in the consolidation taken as a whole 
together with a description of the principal risks and uncertainties that they face
by order of the board
sir derek wanless
chairman
heidi mottram
chief executive officer
statement of directors’ responsibilities in relation  
to the group financial statements financial statements 86 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
report of the auditors on the  
group financial statements
independent auditors’ report to the members of northumbrian water group plc
we have audited the group financial statements of northumbrian water group plc for the year ended 31 march 
2011 which comprise the consolidated income statement consolidated statement of comprehensive income 
consolidated statement of changes in equity consolidated balance sheet consolidated cash flow and the related 
notes 1 to 28 the financial reporting framework that has been applied in their preparation is applicable law and 
international financial reporting standards ifrss as adopted by the european union
this report is made solely to the company’s members as a body in accordance with chapter 3 of part 16 of the 
companies act 2006 our audit work has been undertaken so that we might state to the company’s members 
those matters we are required to state to them in an auditor’s report and for no other purpose to the fullest  
extent permitted by law we do not accept or assume responsibility to anyone other than the company and  
the company’s members as a body for our audit work for this report or for the opinions we have formed
respective responsibilities of directors and auditor
as explained more fully in the statement of directors’ responsibilities set out on page 85 the directors are 
responsible for the preparation of the group financial statements and for being satisfied that they give a true  
and fair view our responsibility is to audit the group financial statements in accordance with applicable law and 
international standards on auditing uk and ireland those standards require us to comply with the auditing 
practices board’s ethical standards for auditors
scope of the audit of the financial statements
an audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to 
give reasonable assurance that the financial statements are free from material misstatement whether caused by 
fraud or error this includes an assessment of whether the accounting policies are appropriate to the group’s 
circumstances and have been consistently applied and adequately disclosed the reasonableness of significant 
accounting estimates made by the directors and the overall presentation of the financial statements in addition 
we read all the financial and nonfinancial information in the annual report to identify material inconsistencies with 
the audited financial statements if we become aware of any apparent material misstatements or inconsistencies 
we consider the implications for our report
opinion on financial statements
in our opinion the group financial statements
give a true and fair view of the state of the group’s affairs as at 31 march 2011 and of its profit for the year   −
then ended
have been properly prepared in accordance with ifrss as adopted by the european union and −
have been prepared in accordance with the requirements of the companies act 2006 and article 4 of the   −
ias regulation
opinion on other matters prescribed by the companies act 2006
in our opinion
the information given in the directors’ report for the financial year for which the financial statements are prepared  −
is consistent with the group financial statements and
the information given in the corporate governance statement set out on  − pages 58 to 70 with respect to internal 
control and risk management systems in relation to financial reporting processes and about share capital 
structures is consistent with the financial statements financial statements 87 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
matters on which we are required to report by exception
we have nothing to report in respect of the following
under the companies act 2006 we are required to report to you if in our opinion
certain disclosures of directors’ remuneration specified by law are not made −
we have not received all the information and explanations we require for our audit or −
a corporate governance statement has not been prepared by the company −
under the listing rules we are required to review
the directors’ statement set out on  − page 57 in relation to going concern and
the part of the corporate governance statement on  − pages 58 to 70 relating to the company’s compliance with 
the nine provisions of the june 2008 combined code specified for our review
other matter
we have reported separately on the parent company financial statements of northumbrian water group plc for the 
year ended 31 march 2011 and on the information in the directors’ remuneration report that is described as 
having been audited
debbie o’hanlon senior statutory auditor
for and on behalf of ernst  young llp
statutory auditor
newcastle upon tyne
31 may 2011 financial statements 88 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
consolidated income statement
for the year ended 31 march 201 1
notes
year to 
3132011 
£m
year to 
3132010 
£m
continuing operations
revenue 2 7381 7047
operating costs 3 4339 4289
profit on ordinary activities before interest 2 3042 2758
finance costs payable 6 1788 1437
finance income receivable 6 549 372
share of profit after tax of jointly controlled entities 07 09
profit on ordinary activities before taxation 2 1810 1702
– current taxation 7 331 378
– deferred taxation 7 305 95
profit for the year 1784 1229
attributable to
equity shareholders of the parent company 1783 1225
noncontrolling interests 01 04
1784 1229
basic earnings per share attributable to ordinary equity holders of the 
parent company 8 3444p 2367p
diluted earnings per share attributable to ordinary equity holders of the 
parent company 8 3438p 2362p
adjusted earnings per share attributable to ordinary equity holders of the 
parent company 8 2550p 2367p
adjusted diluted earnings per share attributable to ordinary equity holders 
of the parent company 8 2545p 2362p
ordinary final dividend proposed per share 9 957p 885p
dividend paid per share 9 1357p 1289p financial statements 89 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
consolidated statement of comprehensive income
for the year ended 31 march 201 1
notes
year to 
3132011 
£m
year to 
3132010 
£m
profit for the year 1784 1229
other comprehensive income
actuarial gains 24 740 11
gainslosses on cash flow hedges taken to equity 26 08
translation differences 02 03
tax on items charged or credited to equity 231 01
total other comprehensive gainloss 537 01
total comprehensive income for the year 2321 1228
attributable to
equity shareholders of the parent company 2320 1224
noncontrolling interests 01 04
2321 1228 financial statements 90 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
consolidated statement of changes in equity
for the year ended 31 march 201 1
equity share 
capital 
£m
share 
premium 
reserve 
£m
cash flow 
hedge 
reserve 
£m
treasury 
shares 
£m
currency 
translation 
£m
retained 
earnings 
£m
total  
equity  
£m
non
controlling 
interests 
£m
total 
£m
at 1 april 2009 519 4465 76 23 10 2345 2550 24 2574
profit for the year – – – – – 1225 1225 04 1229
other comprehensive 
income – – 06 – 03 08 01 – 01
total comprehensive 
income and expense for 
the year – – 06 – 03 1233 1224 04 1228
sharebased payment – – – – – 04 04 – 04
exercise of ltip awards – – – 03 – 03 – – –
equity dividends paid – – – – – 667 667 – 667
at 1 april 2010 519 4465 82 20 07 1778 3111 28 3139
profit for the year – – – – – 1783 1783 01 1784
other comprehensive 
income – – 16 – 02 519 537 – 537
total comprehensive 
income and expense for 
the year – – 16 – 02 2302 2320 01 2321
sharebased payment – – – – – 01 01 – 01
exercise of ltip awards – – – 03 – 03 – – –
deferred tax related to 
sharebased payment – – – – – 01 01 – 01
acquisition of non
controlling interest in 
subsidiaries – – – – – 06 06 06 –
equity dividends paid – – – – – 703 703 – 703
at 31 march 2011 519 4465 66 17 09 174 4736 23 4759 financial statements 91 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
consolidated balance sheet
as at 31 march 201 1
notes
year to 
3132011 
£m
year to 
3132010
restated
1
£m
noncurrent assets
goodwill 10 36 36
other intangible assets 10 642 642
property plant and equipment 11 36268 35189
investments in jointly controlled entities 12 40 41
financial assets 120 129
amounts receivable relating to consortium relief 17 17
37123 36054
current assets
inventories 13 33 33
trade and other receivables 14 1539 1364
short term cash deposits 15 14 158
cash and cash equivalents 15 1417 1748
3003 3303
total assets 40126 39357
noncurrent liabilities
interest bearing loans and borrowings 17 22958 24339
provisions 19 24 22
deferred income tax liabilities 7 5987 6061
pension liability 24 460 1331
other payables 68 78
grants and deferred income 2551 2335
32048 34166
current liabilities
interest bearing loans and borrowings 17 1637 331
provisions 19 02 02
trade and other payables 16 1556 1512
interest rate swaps 20 98 125
income tax payable 26 82
3319 2052
total liabilities 35367 36218
net assets 4759 3139
capital and reserves
issued capital 21 519 519
share premium reserve 4465 4465
cash flow hedge reserve 66 82
treasury shares 17 20
currency translation 09 07
retained earnings 174 1778
equity shareholders’ funds 4736 3111
noncontrolling interests 23 28
total capital and reserves 4759 3139
note
1 the prior year balance sheet has been restated to reflect the impact of ifric 18 transfers of assets from customers
approved by the board on 31 may 2011 and signed on its behalf by
sir derek wanless   heidi mottram
chairman    chief executive officer financial statements 92 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
consolidated cash flow statement
for the year ended 31 march 201 1
notes
year to 
3132011 
£m
year to 
3132010 
£m
operating activities
reconciliation of profit before interest to net cash flows from  
operating activities
profit on ordinary activities before interest 3042 2758
depreciation 1116 1055
other noncash charges and credits 89 57
net credit for provisions less payments 02 03
difference between pension contributions paid and amounts recognised in the 
income statement 115 103
increase in inventories – 01
increase in trade and other receivables 147 50
increase in trade and other payables 52 04
cash generated from operations 4091 3809
advanced contributions in respect of retirement benefits 224 –
interest paid 1161 1148
income taxes paid 387 357
net cash flows from operating activities 2319 2304
investing activities
interest received 47 88
capital grants received 132 101
proceeds on disposal of property plant and equipment 13 03
dividends received from jointly controlled entities 08 06
short term cash deposits 144 1448
maturity of investments 11 14
purchase of property plant and equipment 2029 2206
net cash flows from investing activities 1674 546
financing activities
dividends paid to equity shareholders 703 667
repayment of borrowings 195 209
payment of principal under hire purchase contracts and finance leases 73 72
acquisition of externally held loan stock issued by a subsidiary 04 –
net cash flows from financing activities 975 948
decreaseincrease in cash and cash equivalents 330 810
cash and cash equivalents at start of year 15 1733 923
cash and cash equivalents at end of year 15 1403 1733
cash and cash equivalents at end of year 15 1403 1733
short term cash deposits 15 14 158
total cash cash equivalents and short term cash deposits 1417 1891 financial statements 93 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
1 accounting policies
a statement of compliance
the consolidated financial statements have been prepared in accordance with ifrs as adopted by the european 
union as it applies to the financial statements of the group for the year ended 31 march 2011 and in accordance 
with the companies act 2006
the financial statements have been prepared on a going concern basis which assumes that the group will have 
adequate funding to meet its liabilities as they fall due in the foreseeable future as at 31 march 2011 the group 
had net current liabilities of £316 million 2010 net current assets of £1251 million the directors have reviewed 
cash flow requirements and are confident that they will be able to meet these from funds available and new 
financing facilities accordingly the directors believe it is appropriate to prepare the financial statements on a going 
concern basis
the directors consider the following accounting policies to be relevant in relation to the group’s financial 
statements the financial statements of the group for the year ended 31 march 2011 were authorised for issue  
by the board of directors on 31 may 2011 and the balance sheet was signed on the board’s behalf by sir derek 
wanless chairman and heidi mottram chief executive officer
the group has adopted the following standards and interpretations during the year
ifrs 3 business combinations revised −
ias 27 consolidated and separate financial statements amendment −
ias 32 financial instruments classification of rights issues amendment −
ias 39 financial instruments recognition and measurement – eligible hedged items amendment −
ifric 17 distributions of noncash assets to owners −
ifric 18 transfers of assets from customers −
improvements to ifrs 2009 −
the adoption of ias 27 consolidated and separate financial statements amendment has required the 
reclassification of minority interests as noncontrolling interests also any transactions with noncontrolling 
interests that do not result in gaining or losing control will be accounted for as equity transactions
ifric 18 transfers of assets from customers was adopted in the period ifric 18 is effective for accounting 
periods beginning on or after 31 october 2009 applicable to transactions effected on or after 1 july 2009 this 
has required the prior year balance sheet to be restated resulting in the balances of property plant and equipment 
and grants and deferred income each increasing by £140 million at 31 march 2010 the impact on profit for both 
the current period and prior periods is £nil
the adoption of the other standards and interpretations listed above do not have a material impact on the group
the guidance provided in the urgent issues task force draft abstract accounting implications of the 
replacement of the retail prices index with the consumer prices index for retirement benefits has also been 
applied in the period
northumbrian water group plc is a public limited company incorporated and domiciled in england and wales  
the company’s ordinary shares are traded on the london stock exchange
the group financial statements are presented in sterling and all values are rounded to the nearest one hundred 
thousand pounds £01 million except where otherwise indicated financial statements 94 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
1 accounting policies continued
b basis of consolidation
the consolidated financial statements include the company and its subsidiary undertakings the results of 
subsidiaries acquired during the period are included from the date of their acquisition the results of subsidiaries 
disposed of during the period are included to the date of their disposal intersegment sales and profits are 
eliminated fully on consolidation where for commercial reasons the accounting reference date of a subsidiary  
is a date other than that of the company management accounts made up to the company’s accounting reference 
date have been used in accordance with sic 12 ‘consolidation – special purpose entities’ the financial 
statements of two companies are consolidated as special purpose entities with effect from 12 may 2004  
the date of the transaction which utilised these entities
where necessary adjustments are made to bring the accounting policies used under relevant local gaap in the 
individual financial statements of the company subsidiaries and jointly controlled entities into line with those used 
by the group under ifrs
noncontrolling interests represent the portion of profit or loss and net assets in subsidiaries that is not held  
by the group and is presented within equity in the consolidated balance sheet separately from parent 
shareholders’ equity
c associates and jointly controlled entities
investments in associates and jointly controlled entities in the group financial statements are accounted for using 
the equity method of accounting where the group exercises significant influence over the associate significant 
influence is generally presumed to exist where the group’s effective ownership is 20 or more the group’s share 
of the post tax profits less losses of associates and jointly controlled entities is included in the consolidated income 
statement and the carrying value in the balance sheet comprises the group’s share of their net assetsliabilities 
less distributions received and any impairment losses goodwill arising on the acquisition of associates and jointly 
controlled entities representing the excess of the cost of investment compared to the group’s share of net fair 
value of the associate’s identifiable assets liabilities and contingent liabilities is included in the carrying amount of 
the associate and is not amortised financial statements of jointly controlled entities and associates are prepared 
for the same reporting period as the group where necessary adjustments are made to bring the accounting 
policies used into line with those of the group to take into account fair values assigned at the date of acquisition 
and to reflect impairment losses where appropriate adjustments are also made to the group’s financial statements 
to eliminate the group’s share of unrealised gains and losses on transactions between the group and its jointly 
controlled entities and associates
d goodwill
goodwill arising on the acquisition of subsidiary undertakings and businesses represents the excess of the fair 
value of the consideration given over the fair value of the identifiable assets and liabilities acquired following initial 
recognition goodwill is measured at cost less any accumulated impairment losses prior to 1 april 2004 goodwill 
was amortised over its estimated useful life such amortisation ceased on 31 march 2004 goodwill relating to 
acquisitions since 1 april 2004 is not amortised goodwill is reviewed for impairment annually or more frequently  
if events or changes in circumstances indicate that the carrying value may be impaired for the purposes of 
impairment testing goodwill is allocated to the related cashgenerating units monitored by management  
where the recoverable amount of the cashgenerating unit is less than its carrying amount including goodwill  
an impairment loss is recognised in the income statement the carrying amount of goodwill allocated to a cash
generating unit is taken into account when determining the gain or loss on disposal of the unit or of an operation 
within it financial statements 95 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
1 accounting policies continued
e intangible assets other than goodwill
other intangible fixed assets represent the right to receive income under the operating agreement with the 
environment agency in respect of the kielder water transfer scheme the value of this intangible asset has been 
assessed with reference to the net monies raised in accordance with the kielder securitisation on 12 may 2004 
the term of the operating agreement is in perpetuity and accordingly no amortisation is provided the value of 
this intangible is assessed for impairment on an annual basis in accordance with ias 36 ‘impairment of assets’
expenditure on internally developed intangible assets excluding development costs is taken to the income 
statement in the year in which it is incurred intangible assets acquired separately from a business are carried 
initially at cost an intangible asset acquired as part of a business combination is recognised outside goodwill if  
the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably 
development expenditure is recognised as an intangible asset only after its technical feasibility and commercial 
viability can be demonstrated the availability of adequate technical and financial resources and an intention to 
complete the project have been confirmed and the correlation between development costs and future revenues 
has been established
f property plant and equipment
property plant and equipment and depreciation
property plant and equipment including assets in the course of construction comprise infrastructure assets 
being mains and sewers impounding and pumped raw water storage reservoirs dams sludge pipelines and  
sea outfalls and other assets including properties overground plant and equipment
property plant and equipment are included at cost less accumulated depreciation and any provision for 
impairment cost comprises the aggregate amount paid and the fair value of any other consideration given to 
acquire the asset and includes costs directly attributable to making the asset capable of operating as intended
freehold land is not depreciated other assets are depreciated evenly over their estimated economic lives which 
are principally as follows freehold buildings 3060 years operational structures plant and machinery 492 years 
infrastructure assets 13200 years see below and fixtures fittings tools and equipment 410 years
the carrying values of property plant and equipment are reviewed for impairment if events or changes in 
circumstances indicate the carrying value may not be recoverable and are written down immediately to their 
recoverable amount useful lives and residual values are reviewed annually and where adjustments are required 
these are made prospectively
assets in the course of construction are not depreciated until commissioned
infrastructure assets
in the regulated water services business infrastructure assets comprise a network of systems being mains and 
sewers reservoirs dams and sea outfalls
infrastructure assets were measured at a date prior to transition to ifrs 23 may 2003 at their fair value which 
was adopted as deemed historical cost on transition to ifrs the assets and liabilities were measured at fair value 
as a result of the acquisition on 23 may 2003
expenditure on infrastructure assets which enhances the asset base is treated as fixed asset additions while 
maintenance expenditure which does not enhance the asset base is charged as an operating cost financial statements 96 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
1 accounting policies continued
infrastructure assets are depreciated evenly to their estimated residual values over their estimated economic lives 
which are principally as follows
dams and impounding reservoirs 150 years
water mains 100 years
sea outfalls 60 years
sewers 200 years
dedicated pipelines 420 years
g financial assets
financial assets comprise loans to third parties recoverable in more than one year and include cash held on  
long term deposit as a guaranteed investment contract relating to the kielder securitisation these assets are 
recognised at cost and are measured annually based on the ability of the borrower to repay any impairment is 
taken to the income statement in the period in which it arises loans and receivables are measured at amortised 
cost using the effective interest rate method the group assesses at each balance sheet date whether a financial 
asset or group of financial assets is impaired
h foreign currencies and foreign currency transactions
transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange 
rate ruling at the date of the transaction monetary assets and liabilities denominated in foreign currencies are 
retranslated at the functional currency rate of exchange ruling at the balance sheet date the functional and 
presentational currency of northumbrian water group plc is united kingdom sterling £ assets and liabilities  
of subsidiaries and jointly controlled entities in foreign currencies are translated into sterling at rates of exchange 
ruling at the end of the financial period and the results of foreign subsidiaries are translated at the average rate  
of exchange for the period differences on exchange arising from the retranslation of the opening net investment 
in subsidiary companies and jointly controlled entities and from the translation of the results of those companies  
at average rate are taken to equity all other foreign exchange differences are taken to the income statement in  
the period in which they arise
unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows however 
the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported  
in the cash flow statement in order to reconcile cash and cash equivalents at the beginning and the end of the 
period this amount is presented separately from cash flows from operating investing and financing activities 
where material and includes the differences if any had those cash flows been reported at end of period  
exchange rates
i inventories
inventories are stated at the lower of cost and net realisable value cost comprises direct materials and where 
applicable direct labour costs as well as an element of overheads that have been incurred in bringing the 
inventories to their present locations and condition
j revenues
provision of services
revenue which excludes value added tax represents the fair value of the income receivable in the ordinary course 
of business for services provided revenue is recognised to the extent that it is probable that the economic 
benefits will flow to the group and the revenue can be reliably measured financial statements 97 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
1 accounting policies continued
revenue is not recognised until the services have been provided to the customer revenue for services relates  
to the year excluding any amounts paid in advance revenue for measured water and waste water charges 
includes amounts billed plus an estimation of the amounts unbilled at the year end the accrual is estimated using 
a defined methodology based upon daily average water consumption which is calculated based upon historical 
billing information
dividends
revenue is recognised when the shareholders’ right to receive the revenue is established
k grants and contributions
grants are recognised at their fair value where there is reasonable assurance that the grant will be received and  
all attaching conditions will be complied with revenue grants are credited to the income statement in the period  
to which they relate capital grants and contributions relating to property plant and equipment are treated as 
deferred income and amortised to the income statement over the expected useful economic lives of the related 
assets deferred income relating to assets adopted from customers recognised in accordance with ifric 18  
is amortised to the income statement over the expected useful economic lives of the related assets
l leases
where assets are financed by leasing arrangements which transfer substantially all the risks and rewards of 
ownership to the group the assets are treated as if they had been purchased at their fair value or if lower at the 
present value of the minimum lease payments rentals or leasing payments are treated as consisting of a capital 
element and finance charges the capital element reducing the outstanding liability and the finance charges being 
charged to the income statement over the period of the leasing contract at a constant rate on the reducing 
outstanding liability
rentals under operating leases where the lessor retains a significant proportion of the risks and rewards  
of ownership are expensed in the income statement on a straight line basis over the lease term
m pensions and other postemployment benefits
defined benefit scheme
the cost of providing benefits under the defined benefit scheme is determined using the projected unit credit 
method which attributes entitlement to benefits to the current period to determine current service cost and to  
the current and prior periods to determine the present value of defined benefit obligation and is based on 
actuarial advice past service costs are recognised in the income statement on a straight line basis over the vesting 
period or immediately if the benefits have vested when a settlement eliminating all obligations for benefits already 
accrued or a curtailment reducing future obligations as a result of a material reduction in the scheme membership 
or a reduction in future entitlement occurs the obligation and related plan assets are remeasured using current 
actuarial assumptions and the resultant gain or loss recognised in the income statement during the period in which 
the settlement or curtailment occurs
the interest element of the defined benefit cost represents the change in present value of scheme obligations 
resulting from the passage of time and is determined by applying the discount rate to the opening present value  
of the benefit obligation taking into account material changes in the obligation during the year the expected 
return on plan assets is based on an assessment made at the beginning of the year of long term market returns  
on scheme assets adjusted for the effect on the fair value of plan assets of contributions received and benefits 
paid during the year
the service cost is disclosed in employment costs and the expected interest income and interest cost on 
obligations are disclosed within finance costs payableincome receivable
actuarial gains and losses on experience adjustments and changes in actuarial assumptions are recognised  
in full in the period in which they occur in the consolidated statement of comprehensive income financial statements 98 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
1 accounting policies continued
defined contribution scheme
the group also operates a defined contribution scheme obligations for contributions to the scheme are 
recognised as an expense in the income statement in the period in which they arise
n sharebased payments
the cost of equitysettled transactions with employees is measured by reference to the fair value at the date at 
which they are granted and is recognised as an expense over the vesting period which ends on the date on which 
the relevant employees become fully entitled to the award fair value is determined by an external valuer using the 
montecarlo simulation model in valuing equitysettled transactions no account is taken of any vesting conditions 
other than conditions linked to the price of the shares of the company market conditions or those not related to 
performance or service nonvesting conditions
no expense is recognised for awards that do not ultimately vest except for awards where vesting is conditional 
upon a market or nonvesting condition which are treated as vesting irrespective of whether or not the market  
or nonvesting condition is satisfied provided that all other performance conditions are satisfied
at each balance sheet date before vesting the cumulative expense is calculated representing the extent to which 
the vesting period has expired management’s best estimate of the achievement or otherwise of vesting conditions 
and the number of equity instruments that will ultimately vest or in the case of an instrument subject to a market  
or nonvesting condition be treated as vesting as described above this includes any award where nonvesting 
conditions within the control of the group or the employee are not met the movement in cumulative expense 
since the previous balance sheet date is recognised in the income statement with a corresponding entry in equity
where the terms of an equitysettled award are modified or a new award is designated as replacing a cancelled  
or settled award the cost based on the original award terms continues to be recognised over the original vesting 
period in addition an expense is recognised over the remainder of the new vesting period for the incremental fair 
value of any modification based on the difference between the fair value of the original award and the fair value of 
the modified award both as measured on the date of the modification no reduction is recognised if this difference 
is negative
o taxes
current tax
current tax assets and liabilities for the current and prior periods are measured at the amount expected to be 
recovered from or paid to the taxation authorities the tax rates and tax laws used to compute the amounts are 
those that are enacted or substantively enacted by the balance sheet date
deferred tax
deferred tax is provided using the liability method on temporary differences at the balance sheet date between the 
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes
deferred tax liabilities are recognised for all taxable temporary differences except
where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a  −
transaction that is not a business combination and at the time of the transaction affects neither the accounting 
profit nor taxable profit or loss and
in respect of taxable temporary differences associated with investments in subsidiaries associates and interests  −
in jointly controlled entities where the timing of the reversal of the temporary differences can be controlled and it 
is probable that the temporary differences will not reverse in the foreseeable future financial statements 99 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
1 accounting policies continued
deferred tax assets are recognised for all deductible temporary differences carry forward of unused tax credits 
and unused tax losses to the extent that it is probable that taxable profit will be available against which the 
deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be 
utilised except
where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of  −
an asset or liability in a transaction that is not a business combination and at the time of the transaction affects 
neither the accounting profit nor taxable profit or loss and
in respect of deductible temporary differences associated with investments in subsidiaries associates and  −
interests in jointly controlled entities deferred tax assets are recognised only to the extent that it is probable that 
the temporary differences will reverse in the foreseeable future and taxable profit will be available against which 
the temporary differences can be utilised
the carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that 
it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to 
be utilised unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to 
the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered
deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the 
asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or substantively 
enacted at the balance sheet date
deferred tax is recognised in the income statement unless it relates to items accounted for outside profit or loss in 
which case it is recognised in correlation with the underlying transaction either in other comprehensive income or 
directly in equity
deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current  
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same 
taxation authority
value added tax
revenues expenses and assets are recognised net of the amount of value added tax except
where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation  −
authority in which case the value added tax is recognised as part of the cost of acquisition of the asset or as 
part of the expense item as applicable and
receivables and payables −
the net amount of value added tax recoverable from or payable to the taxation authority is included as part of 
receivables or payables in the balance sheet
p derivative financial instruments
the group utilises interest rate swaps forward rate agreements and forward exchange contracts as derivative 
financial instruments
a derivative instrument is considered to be used for hedging purposes when it alters the risk profile of an 
underlying exposure of the group in line with the group’s risk management policies interest rate swap agreements 
are used to manage interest rate exposures derivative financial instruments are stated at their fair value financial statements 100 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
1 accounting policies continued
under ias 39 derivative financial instruments are always measured at fair value with hedge accounting employed 
in respect of those derivatives fulfilling the stringent requirements for hedge accounting as prescribed under ias 
39 in summary these criteria relate to initial designation and documentation of the hedge relationship prospective 
testing of the relationship to demonstrate the expectation that the hedge will be highly effective throughout its life 
and subsequent retrospective testing of the hedge to verify effectiveness
the fair value of forward exchange contracts is calculated by reference to current forward exchange rates for 
contracts with similar maturity profiles the fair value of interest rate swaps is determined by reference to market 
values for similar instruments
hedging transactions undertaken by the company are classified as either fair value hedges when they hedge the 
exposure to changes in the fair value of a recognised asset or liability or cash flow hedges where they hedge 
exposure to variability in currency cash flows that is either attributable to a particular risk associated with a 
recognised asset or liability or a forecast transaction
in relation to fair value hedges which meet the conditions for hedge accounting any gain or loss from re
measuring the hedging instrument at fair value is recognised immediately in profit or loss any gain or loss on the 
hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and 
recognised in the income statement where the adjustment is to the carrying amount of a hedged interest bearing 
financial instrument the adjustment is amortised to the net profit and loss such that it is fully amortised by maturity
in relation to cash flow hedges to hedge firm currency commitments which meet the conditions for hedge 
accounting the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge  
is recognised directly in equity and the ineffective portion is recognised in the income statement
when the hedged firm commitment results in the recognition of a nonfinancial asset or a nonfinancial liability 
then at the time the asset or liability is recognised the associated gains or losses that had previously been 
recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the 
asset or liability for all other cash flow hedges the gains or losses that are recognised in equity are transferred to 
the income statement in the same periods in which the hedged firm commitment affects the net profit and loss
for derivatives that do not qualify for hedge accounting any gains or losses arising from changes in fair value are 
taken directly to the income statement
hedge accounting is discontinued when the hedging instrument expires or is sold terminated or exercised or no 
longer qualifies for hedge accounting at that point in time any cumulative gain or loss on the hedging instrument 
recognised in equity is kept in equity until the forecast transaction occurs if a hedged transaction is no longer 
expected to occur the net cumulative gain or loss recognised in equity is transferred to the income statement
q interest bearing loans and borrowings
all loans and borrowings are initially stated at the amount of the net proceeds being fair value of the consideration 
received net of issue costs associated with the borrowing finance costs including issue costs are taken to the 
income statement over the term of the debt at a constant rate on the balance sheet carrying amount the carrying 
amount is increased by the finance charges amortised and reduced by payments made in respect of the 
accounting period the carrying amount of index linked borrowings increases annually in line with the july rpi 
with the accretion being charged to the income statement as finance costs payable other borrowing costs are 
recognised as an expense when incurred financial statements 101 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
1 accounting policies continued
loans and borrowings acquired at acquisition are restated to fair value the adjustment arising on acquisition  
is amortised to the income statement on the basis of the maturity profile of each instrument realised gains  
and losses that occur from the early termination of loans and borrowings are taken to the income statement  
in that period
net debt is the sum of all current and noncurrent liabilities less cash and cash equivalents short term cash 
deposits financial investments and loans receivable
r borrowing costs
borrowing costs are generally expensed as incurred borrowing costs that are directly attributable to the 
acquisition or construction of an asset that necessarily takes a substantial time to prepare for its intended use  
are capitalised while the asset is being constructed as part of the cost of that asset
capitalisation ceases when the asset is substantially ready for its intended use or sale if active development is 
interrupted for an extended period capitalisation is suspended when construction occurs piecemeal and use  
of each part ceases upon substantial completion of that part a weighted average cost of borrowings is used
the group capitalises borrowing costs for all eligible assets when construction commenced on or after  
1 april 2009 and continues to expense borrowing costs relating to construction projects that commenced  
prior to that date
s loans and receivables
loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted 
in an active market do not qualify as trading assets and have not been designated as either fair value through 
profit and loss or available for sale gains and losses are recognised in income when the investments are de
recognised or impaired as well as through the amortisation process
t cash and cash equivalents and short term cash deposits
cash and cash equivalents disclosed in the balance sheet comprise cash at bank and in hand and short term 
deposits with a maturity on acquisition of three months or less which are held for the purpose of meeting short 
term cash commitments rather than for investment or other purposes cash equivalents are readily convertible  
to a known amount of cash and subject to an insignificant risk of changes in value
short term cash deposits disclosed in the balance sheet comprise cash deposited with a maturity of greater than 
three months on acquisition a fixed interest rate and which do not constitute cash equivalents under ias 7 
‘statement of cash flows’
for the purpose of the consolidated cash flow statement cash and cash equivalents are as defined above  
net of outstanding bank overdrafts
u trade and other receivables
trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectable 
amounts invoices for unmeasured water and waste water charges are due on fixed dates other receivables 
generally have 30 day payment terms an estimate for doubtful debts is made when collection of the full amount  
is no longer probable bad debts are written off when identified trade and other receivables do not carry  
any interest financial statements 102 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
1 accounting policies continued
v investments
investments are initially recorded at the fair value of the consideration given including the acquisition charges 
associated with the investment subsequent to initial recognition they are valued at original cost less  
any impairment
w provisions
provisions are recognised when the group has a present obligation legal or constructive as a result of a past 
event it is probable that an outflow of resources will be required and a reliable estimate can be made of the 
amount of the obligation
x impairment of assets
the group assesses at each reporting date whether there is an indication that an asset may be impaired if any 
such indication exists or when annual impairment testing for an asset is required the group makes an estimate  
of the asset’s recoverable amount an asset’s recoverable amount is the higher of an asset’s or cashgenerating 
unit’s fair value less costs to sell and its value in use and is determined for an individual asset unless the asset 
does not generate cash inflows that are largely independent of those from other assets or groups of assets where 
the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written 
down to its recoverable amount in assessing value in use the estimated future cash flows are discounted to their 
present value using a pretax discount rate that reflects current market assessments of the time value of money 
and the risks specific to the asset impairment losses on continuing operations are recognised in the income 
statement in those expense categories consistent with the function of the impaired asset
an assessment is made at each reporting date as to whether there is any indication that previously recognised 
impairment losses may no longer exist or may have decreased if such indication exists the recoverable amount is 
estimated a previously recognised impairment loss is reversed only if there has been a change in the estimates 
used to determine the asset’s recoverable amount since the last impairment loss was recognised if that is the 
case the carrying amount of the asset is increased to its recoverable amount that increased amount cannot 
exceed the carrying amount that would have been determined net of depreciation had no impairment loss been 
recognised for the asset in prior years such reversal is recognised in the income statement unless the asset is 
carried at revalued amount in which case the reversal is treated as a revaluation increase after such a reversal the 
depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount less any residual 
value on a systematic basis over its remaining useful life
y derecognition of financial assets and liabilities
a financial asset or liability is generally derecognised when the contract that gives rise to it is settled sold 
cancelled or expires
where an existing financial liability is replaced by another from the same lender on substantially different terms  
or the terms of an existing liability are substantially modified such an exchange or modification is treated as a 
derecognition of the original liability and the recognition of a new liability such that the difference in the respective 
carrying amounts together with any costs or fees incurred are recognised in the income statement financial statements 103 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
1 accounting policies continued
z accounting standards
during the year the international accounting standards board and international financial reporting interpretation 
committee ifric have issued the following standards and interpretations with an effective date after the date of 
these financial statements
international accounting standards iasifrs
effective for accounting 
periods beginning  
on or after
ifrs 1 amendment to ifrs 1 – limited exemption from comparative ifrs 7 disclosures 172010
ifrs 7 amendment to ifrs 7 – financial instrument disclosures 172011
ifrs 9 financial instruments classification and measurement 112013
ifrs10 consolidated financial statements 112013
ifrs11 joint arrangements 112013
ifrs12 disclosure of interests in other entities 112013
ifrs13 fair value measurement 112013
ias 24 related party disclosures revised 112011
improvements to ifrs 2010 172010 172011
ifric
effective for accounting 
periods beginning  
on or after
ifric 14 amendment prepayments of a minimum funding requirement 112011
ifric 19 extinguishing financial liabilities with equity instruments 172010
given the recent publication of ifrs 101112 and 13 the directors are still evaluating the impact of these standards 
on the group’s financial statements in the period of initial application
aa key assumptions
the directors consider that the key assumptions applied at the balance sheet date which may have a significant 
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial  
year are
those assumptions used in arriving at the pension assetliability under ias 19 these key assumptions and their  −
possible impact are disclosed in note 24 ‘pensions and other postretirement benefits’
the bad debt provision which is calculated by applying a range of percentages to debt of different ages these  −
percentages also vary between different categories of debt higher percentages are applied to those categories 
of debt which are considered to be of greater risk and also to debt of greater age the value of the bad debt 
provision is sensitive to the specific percentages applied and
the asset lives assigned to property plant and equipment details of which can be found in  − note 1f financial statements 104 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
2 segmental analysis
for management purposes the group is organised into business units according to the nature of its products and 
services and has three reportable operating segments the trading of the business is principally carried out within 
the uk profit is measured at profit on ordinary activities before interest
northumbrian water limited
nwl is one of the ten regulated water and sewerage businesses in england and wales nwl operates in the north 
east of england where it trades as northumbrian water and in the south east of england where it trades as 
essex  suffolk water nwl also has nonregulated activities closely related to its principal regulated activity
water and waste water contracts
nwg owns a number of special purpose companies for specific water and waste water contracts in scotland 
ireland and gibraltar
other
agrer provides overseas aid funded project work in developing countries through a number of funding agencies 
central unallocated costs and provisions are also included in this segment
transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions 
with third parties segment revenue segment expense and segment result include transfers between business 
segments those transfers are eliminated on consolidation
revenue
northumbrian 
water 
limited 
£m
water and 
waste water 
contracts 
£m
other 
£m
total 
£m
year ended 31 march 2011
segment revenue 6894 400 141 7435
intersegment revenue – – 54 54
revenue from external customers 6894 400 87 7381
year ended 31 march 2010
segment revenue 6578 383 148 7109
intersegment revenue – – 62 62
revenue from external customers 6578 383 86 7047 financial statements 105 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
2 segmental analysis continued
profit on ordinary activities before interest
northumbrian 
water 
limited  
£m
water and 
waste water 
contracts 
£m
other  
£m
total  
£m
year ended 31 march 2011
segment profit on ordinary activities before interest 2976 95 29 3042
net finance costs 1239
share of profit from jointly controlled entities 07
profit on ordinary activities before taxation 1810
taxation 26
profit for the year from continuing operations 1784
year ended 31 march 2010
segment profit on ordinary activities before interest 2689 102 33 2758
net finance costs 1065
share of profit from jointly controlled entities 09
profit on ordinary activities before taxation 1702
taxation 473
profit for the year from continuing operations 1229
assets and liabilities
northumbrian water limited
water and waste  
water contracts other total
3132011 
£m
3132010 
restated 
£m
3132011 
£m
3132010 
£m
3132011 
£m
3132010 
£m
3132011 
£m
3132010 
restated 
£m
segment assets 37096 35176 1236 1306 1794 2875 40126 39357
segment liabilities 4223 4585 180 229 30964 31404 35367 36218
other comprises taxation interest and net debt
northumbrian water limited
water and waste  
water contracts total
3132011 
£m
3132010 
restated  
£m
3132011  
£m
3132010  
£m
3132011  
£m
3132010 
restated  
£m
property plant and equipment additions 2196 2309 03 54 2199 2363
depreciation 1058 995 58 60 1116 1055
ifric 18 transfers of assets from customers was adopted in the period this has required the prior year segment 
assets and property plant and equipment additions to be restated by £140 million for transactions effected on or 
after 1 july 2009
geographical information
revenue from external customers from the uk was £7148 million 2010 £6800 million revenue from other 
countries was £233 million 2010 £247 million
noncurrent assets for operations in the uk were £37007 million 2010 £35921 million noncurrent assets for 
operations in other countries were £116 million 2010 £133 million financial statements 106 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
3 operating costs
year to 
3132011
£m
year to 
3132010 
£m
materials and consumables 256 237
manpower costs see note 5 1106 1114
own work capitalised 287 270
depreciation of property plant and equipment 1116 1055
profit on disposal of property plant and equipment 09 02
amortisation of capital grants 46 50
costs of research and development 23 21
operating lease payments 12 12
bad debt charge 178 196
other operating costs 1990 1976
operating costs 4339 4289
4 auditors’ remuneration
year to 
3132011 
£m
year to 
3132010 
£m
audit of the financial statements
1
03 03
other fees to auditors
other services 01 –
note
1 £97000 of this relates to the company 2010 £95000
5 employee information
the total employment costs of all employees including directors of the group were
year to 
3132011 
£m
year to 
3132010 
£m
wages and salaries 876 871
restructuring cost – wages and salaries – 09
restructuring cost – defined benefit pension service cost see note 24 – 48
social security costs 73 73
defined benefit pension service cost see note 24 139 97
other pension costs 18 16
total employment costs 1106 1114
total employment costs were charged as follows
capital schemes and infrastructure renewals 254 231
manpower costs 852 883
1106 1114
included in wages and salaries is a total expense of sharebased payments of £04 million 2010 £07 million 
which arises from transactions accounted for as equitysettled sharebased payments financial statements 107 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
5 employee information continued
the average monthly number of employees of the group during the year was
year to 
3132011 
number
year to 
3132010 
number
northumbrian water limited 2875 2930
water and waste water contracts 132 151
other 24 24
3031 3105
the information required by schedule 5 of the large and mediumsized companies and groups accounts  
and reports regulations 2008 is contained in the directors’ remuneration report under directors’ emoluments 
directors’ pensions and benefits directors’ interests in shares and debentures directors’ interests in ltip awards 
and directors’ interests in shares under the share incentive plan
6 finance costs payableincome receivable
year to 
3132011 
£m
year to 
3132010 
£m
finance costs payable on debentures bank and other loans and overdrafts 1129 1147
amortisation of discount fees loan issue costs and other financing items 44 45
accretion on index linked bonds 219 66
interest cost on pension plan obligations 433 361
finance costs payable on hire purchase contracts and finance leases 51 40
total finance costs payable 1788 1437
expected return on pension plan assets 455 316
finance income receivable 19 56
acquisition of ces loan stock 46 –
finance lease termination discount 29 –
net finance costs payable 1239 1065
during the period the group acquired the subordinated loan stock issued by ces from an external party this was 
acquired at below book value leading to a gain of £46 million in addition the group transferred a finance lease to 
a new counterparty with a termination discount valued at £29 million financial statements 108 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
7 taxation
a tax on profit on ordinary activities
year to 
3132011 
£m
year to 
3132010 
£m
current tax
current income tax charge at 28 423 389
income tax recycled from equity on cash flow hedges 01 –
adjustment in respect of prior periods 95 13
uk corporation tax 329 376
overseas tax 02 02
total current tax 331 378
deferred tax
origination and reversal of temporary differences in the year at 26 2010 28 90 92
effect of changes in tax rates and laws
– impact of reduction in rate of uk corporation tax 463 –
adjustment in respect of prior periods 68 03
total deferred tax creditcharge 305 95
tax charge in the income statement 26 473
the rate of uk corporation tax was reduced from 28 to 27 by the finance no 2 act 2010 with effect from 
1 april 2011 the rate was further reduced to 26 with effect from the same date on the passing of a resolution 
under the provisional collection of taxes act 1968 on 23 march 2011 at which point the new rate was 
substantively enacted as a result deferred tax was remeasured at the rate at which timing differences are 
expected to reverse adjustments in respect of prior periods arise from revisions to uk tax returns
b tax relating to items charged or credited outside of profit or loss
year to 
3132011 
£m
year to 
3132010 
£m
current tax
current tax recycled to income statement on cash flow hedges 01 –
deferred tax
actuarial gains and losses on pension schemes 194 03
interest rate swaps 07 02
impact of reduction in rate of uk corporation tax 31 –
tax charge in the statement of comprehensive income 231 01
deferred tax
share based payment 01 –
tax credit in the statement of changes in equity 01 – financial statements 109 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
7 taxation continued
c reconciliation of the total tax charge
year to 
3132011 
£m
year to 
3132010 
£m
accounting profit before tax 1810 1702
accounting profit multiplied by standard rate of corporation tax 28 507 477
effects of
expenses not deductible for tax purposes 21 18
depreciation in respect of nonqualifying items 11 09
nontaxable income and enhanced tax reliefs – 05
nontaxable amortisation of financing items 14 15
adjustment to tax charge in respect of prior periods 27 10
other 02 01
496 473
effect of changes in tax rates and laws
– impact of rate reduction on opening deferred tax 463 –
– impact of rate reduction on movement in deferred tax 07 –
total tax expense reported in the income statement 26 473
the effective tax rate for the year to 31 march 2011 was 14 2010 278 the decrease of 264 is mainly due 
to the impacts of the reduction in the rate of uk corporation tax and prior year items in the absence of the rate 
change and prior year items the effective rate would have been 285
d deferred tax
the movements in deferred tax liabilitiesassets are as follows
accelerated 
tax 
depreciation 
£m
deferred 
income 
£m
tax losses 
£m
retirement 
benefit 
obligations 
£m
fair values 
interest rate 
swaps 
£m
business 
combinations 
£m
other
 £m
total 
£m
at 1 april 2009 6714 589 51 342 33 113 153 5965
chargecredit in the income 
statement 155 13 06 42 – 04 05 95
chargecredit in other 
comprehensive income – – – 03 02 – – 01
at 1 april 2010 6869 602 57 381 35 109 158 6061
chargecredit in the income 
statement 435 138 02 04 – 10 04 305
charge in other comprehensive 
income – – – 221 10 – 01 232
reported in equity on sharebased 
payment – – – – – – 01 01
at 31 march 2011 6434 464 55 164 25 99 162 5987
the group has tax losses of £70 million 2010 £71 million which have arisen in its gibraltar subsidiary for which  
a deferred tax asset has not been recognised as they may not be used to offset taxable profits elsewhere in the 
group and it is not expected that the subsidiary will utilise significant amounts in the foreseeable future the losses 
are however available for offset against future taxable profits arising in the subsidiary without time limit financial statements 110 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
7 taxation continued
e factors that may affect future tax charges
the government has stated its intention to reduce the uk rate of corporation tax to 23 by 1 april 2014 had that 
rate applied in 201011 the closing deferred tax liability would have been reduced by £691 million to £5296 million 
and the current year’s corporation tax charge would have been reduced by £76 million to £347 million
the group expects to continue to incur high levels of capital expenditure during nwl ’s 201015 regulatory period 
and be able to claim tax reliefs in excess of depreciation however it is expected that capital allowances will be 
claimed at a slower rate in future because finance no3 bill 2011 contains clauses to reduce rates from 20 to 
18 general plant pool and from 10 to 8 special rate pool with effect from 1 april 2012
8 earnings per share
basic eps is calculated by dividing the profit attributable to ordinary equity holders of the parent company by the 
weighted average number of ordinary shares in issue during the year treasury shares held are excluded from the 
weighted average number of shares for basic eps
the weighted average number of shares for diluted eps is calculated by adding the weighted average number of 
ordinary shares in issue during the year and the weighted average number of ordinary shares that would be issued 
on the conversion of all the dilutive potential ordinary shares into ordinary shares
profit 
3132011 
£m
weighted 
average 
number 
of shares 
3132011 
million
earnings 
per share 
3132011 
pence
profit 
3132010 
£m
weighted 
average 
number 
of shares 
3132010 
million
earnings 
per share 
3132010 
pence
basic eps 1783 5178 3444 1225 5176 2367
diluted eps 1783 5186 3438 1225 5186 2362
the directors consider that eps adjusted for the volatility inherent in some deferred tax items gives a better 
indication of the group’s underlying performance in previous years an adjustment had been made for total 
deferred tax however the directors have concluded that the ongoing deferred tax charge forms part of underlying 
performance and it is more appropriate to only adjust for significant nonrecurring deferred tax items for the 
current period the deferred tax credit relating to the corporation tax rate reduction has been adjusted and the prior 
year adjusted eps has been restated with no element of deferred tax removed the deferred tax charge now 
included in adjusted eps for the current period is £158 million 2010 £95 million and has an impact on the 
adjusted eps of 280 pence 2010 184 pence per share
profit 
3132011 
£m
weighted 
average 
number 
of shares 
3132011 
million
earnings 
per share 
3132011 
pence
profit 
3132010 
restated 
£m
weighted 
average 
number 
of shares 
3132010 
million
earnings 
per share 
3132010 
restated 
pence
basic eps 1783 5178 3444 1225 5176 2367
deferred tax – effect of changes in tax rates 463 894 – –
adjusted eps 1320 5178 2550 1225 5176 2367
diluted adjusted eps 1320 5186 2545 1225 5186 2362 financial statements 111 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
9 dividends paid and proposed
year to 
3132011 
£m
year to 
3132010 
£m
declared and paid during the year
equity dividends on ordinary shares
final dividend for 200910 885 pence 200809 850 pence 458 440
interim dividend for 201011 472 pence 200910 439 pence 245 227
dividends paid 703 667
proposed for approval by shareholders at the agm
final dividend for 201011 957 pence 200910 885 pence 496 458
10 intangible assets
goodwill  
£m
other  
£m
total  
£m
cost
at 1 april 2009 1 april 2010 and 31 march 2011 38 642 680
impairment
at 1 april 2009 1 april 2010 and 31 march 2011 02 – 02
net book value at 31 march 2011 36 642 678
net book value at 1 april 2009 and 31 march 2010 36 642 678
as from 1 april 2004 the date of transition to ifrs goodwill is no longer amortised but is now subject to an annual 
impairment review
goodwill has been allocated to the water and waste water cashgenerating unit and the other intangible asset has 
been allocated to the northumbrian water limited cashgenerating unit which are also the operating segments
the other intangible asset represents the right in perpetuity to receive income under the operating agreement  
with the environment agency in respect of the kielder water transfer scheme and therefore the directors consider 
the asset has an indefinite life accordingly future cash flows which increase in line with inflation have been 
discounted at a rate of 644 in perpetuity this represents a long term nominal gilt yield and an assumed credit 
spread this calculation satisfied the group that the carrying value at 31 march 2011 had not been impaired 
furthermore it is improbable that the discount rate would increase to such a level that the carrying value would  
be impaired financial statements 112 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
11 property plant and equipment
freehold land 
and buildings 
£m
infrastructure 
assets 
£m
operational 
structures 
plant and 
machinery 
£m
fixtures 
fittings 
tools and 
equipment 
£m
assets in the 
course of 
construction 
£m
total 
£m
cost
at 1 april 2009 953 17029 21250 1809 1705 42746
additions restated – 187 16 03 2157 2363
schemes commissioned 69 967 1329 383 2748 –
reclassifications 134 – 20 114 – –
disposals – 66 32 – – 98
at 1 april 2010 restated 1156 18117 22543 2081 1114 45011
additions – 145 12 04 2038 2199
schemes commissioned 37 763 737 131 1668 –
reclassifications 28 – 25 03 – –
disposals 05 68 24 – – 97
at 31 march 2011 1216 18957 23243 2213 1484 47113
depreciation
at 1 april 2009 340 837 6407 1280 – 8864
charge for the year 19 228 718 90 – 1055
reclassifications 01 – – 01 – –
disposals – 66 31 – – 97
at 1 april 2010 360 999 7094 1369 – 9822
charge for the year 22 252 728 114 – 1116
reclassifications – – 03 03 – –
disposals – 68 25 – – 93
at 31 march 2011 382 1183 7794 1486 – 10845
net book value at 31 march 2011 834 17774 15449 727 1484 36268
net book value at 31 march 2010 restated 796 17118 15449 712 1114 35189
net book value at 1 april 2009 613 16192 14843 529 1705 33882
operational structures plant and machinery include an element of land and buildings dedicated to those assets 
the group has applied ias 23 borrowing costs revised in the year and has capitalised £19 million for the year to 
31 march 2011 2010 £12 million the capitalisation rate used to determine the amount of borrowing costs eligible 
for capitalisation was 596 2010 596 ifric 18 transfers of assets from customers was adopted in the 
period this has required prior year additions to be restated by £140 million for transactions effected on or after 
1 july 2009
the net book value of property plant and equipment held under hire purchase contracts and finance leases was 
as follows
3132011 
£m
3132010 
£m
infrastructure assets 473 478
operational structures plant and machinery 220 236
693 714 financial statements 113 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
12 investments
3132011 
£m
3132010 
£m
investments in jointly controlled entities 40 41
a investments in jointly controlled entities
the group through northumbrian services limited holds 50 of the nominal value of issued ordinary £1 shares 
in vehicle lease and service limited vls the group’s principal jointly controlled entity vls was incorporated in 
england and wales and undertakes the business of hiring leasing and servicing of vehicles and plant
the group through agrer also holds a 50 interest in agreco a jointly controlled entity incorporated in belgium
vls 
3132011 
£m
agreco 
3132011 
£m
vls 
3132010 
£m
agreco 
3132010 
£m
revenue 67 32 69 31
operating costs 57 29 59 25
profit on ordinary activities before interest 10 03 10 06
finance costs payable 05 – 06 –
profit on ordinary activities before taxation 05 03 04 06
current taxation 01 – 01 –
profit for the year 04 03 03 06
noncurrent assets 84 – 79 –
current assets 77 14 79 36
share of gross assets 161 14 158 36
current liabilities 49 08 46 28
noncurrent liabilities 78 – 79 –
share of gross liabilities 127 08 125 28
share of net assets 34 06 33 08 financial statements 114 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
12 investments continued
b the group’s interests in principal subsidiaries at 31 march 2011 were as follows
name of undertaking
country of incorporation or 
registration and operation description of shares held
proportion 
of nominal 
value of issued 
shares held by 
group  business activity
northumbrian services 
limited
england and wales ordinary shares of £1 100 holding of investments and 
loans
northumbrian water 
limited
england and wales ordinary shares of £1 100 water and sewerage services
northumbrian water 
finance plc
england and wales ordinary shares of £1 100 holding of finance 
instruments
caledonian environmental 
services plc
scotland ordinary shares of £1 100 waste water services
caledonian environmental 
levenmouth treatment 
services limited
scotland ordinary shares of £1 100 waste water services
ayr environmental services 
limited
scotland ordinary shares of £1 75 waste water services
ayr environmental services 
operations limited
scotland ordinary shares of £1 100 waste water services
aquagib limited gibraltar ordinary shares of £1 67 water and sewerage services
northumbrian water 
projects limited
england and wales ordinary shares of £1 100 waste water services
sa agrer nv belgium ordinary shares of £1 100 aid funded project work
in 201011 the group increased its shareholding in both caledonian environmental services plc and caledonian 
environmental levenmouth treatment services limited from 75 to 100
all subsidiaries listed above are indirectly held the directors consider that to give full particulars of all subsidiary 
and associated undertakings would lead to a statement of excessive length the above information relates to those 
subsidiary and associated undertakings or groups of undertakings whose results or financial position in the 
opinion of the directors principally affect the figures of the group a full list of the company’s subsidiaries is 
attached to the company’s latest annual return filed at companies house
13 inventories
3132011 
£m
3132010 
£m
stores 33 33 financial statements 115 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
14 trade and other receivables
3132011 
£m
3132010 
£m
trade receivables 782 722
amounts owed by jointly controlled entities 06 05
prepayments and accrued income 603 534
financial assets 38 11
other receivables 110 92
1539 1364
as at 31 march 2011 trade receivables at nominal value of £445 million 2010 £371 million were impaired 
movements in the provision for impairment of trade receivables were as follows
£m
at 1 april 2009 317
charge for the year 196
utilised 142
at 1 april 2010 371
charge for the year 178
utilised 104
at 31 march 2011 445
at 31 march the analysis of trade receivables overdue but not impaired is as follows
03  
months  
£m
312  
months  
£m
1224 
months 
£m
2436 
months 
£m
3648 
months 
£m
48  
months  
£m
total 
£m
2011 06 268 124 64 25 – 487
2010 05 249 118 58 27 06 463
15 cash and cash equivalents and short term deposits
for the purposes of the consolidated cash flow statement cash and cash equivalents comprise the following at  
31 march
3132011 
£m
3132010 
£m
cash at bank and in hand 767 661
cash equivalent deposits 650 1087
1417 1748
bank overdrafts 14 15
cash and cash equivalents 1403 1733
3132011 
£m
3132010 
£m
short term cash deposits 3 months 14 11
short term cash deposits 3 months – 147
short term cash deposits 14 158
short term cash deposits of £nil 2010 £147 million with a maturity of less than three months represent amounts 
on deposit at fixed rates with the northumbrian water pension scheme financial statements 116 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
16 trade and other payables
3132011 
£m
3132010 
£m
trade payables 165 110
other payables 178 194
interest payable 391 397
accruals and deferred income 822 811
1556 1512
17 interest bearing loans and borrowings
3132011 
£m
3132010 
£m
current
bank overdrafts 14 15
current instalments due on borrowings principal £1504 million 2010 £197 million 1551 246
current obligations under finance leases and hire purchase contracts see note 18 72 70
1637 331
noncurrent
noncurrent obligations under finance leases and hire purchase contracts principal  
£1035 million 2010 £1041 million see note 18 1035 1041
noncurrent instalments on borrowings principal £21669 million 2010 £23002 million 21923 23298
22958 24339
borrowings comprise the following
loans principal £5271 million 2010 £5466 million 5300 5505
subordinated loan stock principal £19 million 2010 £68 million 19 68
eurobonds – due 11 october 2017 bearing interest rate of 60 principal £3000 million  
2010 £3000 million 3075 3086
eurobonds – due 6 february 2023 bearing interest rate of 6875 principal £3500 million 
2010 £3500 million 3840 3868
eurobonds – due 29 april 2033 bearing interest rate of 5625 principal £3500 million  
2010 £3500 million 3464 3463
eurobonds – due 23 january 2034 bearing interest rate of 587526 principal £2480 million 
2010 £2480 million 2414 2411
eurobonds – due 31 march 2037 bearing interest rate of 6627 principal £615 million  
2010 £616 million 589 589
index linked eurobonds – due 15 july 2036 bearing interest rate of 2033  
principal £1776 million 2010 £1695 million 1766 1685
index linked eurobonds – due 30 january 2041 bearing interest rate of 16274  
principal £698 million 2010 £666 million 697 665
index linked eurobonds – due 16 july 2049 bearing interest rate of 17118  
principal £1157 million 2010 £1104 million 1155 1102
index linked eurobonds – due 16 july 2053 bearing interest rate of 17484  
principal £1157 million 2010 £1104 million 1155 1102
23474 23544
less current instalments due on bank loans principal £1504 million 2010 £197 million 1551 246
21923 23298 financial statements 117 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
17 interest bearing loans and borrowings continued
the difference between the principal value of £21669 million 2010 £23002 million and the carrying value of 
£21923 million 2010 £23298 million are unamortised issue costs of £141 million 2010 £147 million and a 
credit of £395 million 2010 £443 million in excess of the original loan proceeds to reflect the fair value of loans 
owed by subsidiaries acquired in 2003
the eurobonds – due 23 january 2034 are secured on the income receivable under the kielder water transfer 
scheme for the period to 23 january 2034
the value of the capital and interest elements of the index linked eurobonds are linked to movements in the uk rpi 
see note 1q
18 obligations under hire purchase contracts and finance leases
3132011 
£m
3132010 
£m
amounts due
not later than one year 72 70
after one year but not more than five years 235 235
later than five years 1516 1546
1823 1851
less finance charges allocated to future periods 716 740
present value of minimum lease payments 1107 1111
disclosed as due
not later than one year 72 70
after more than one year 1035 1041
1107 1111
lease commitments
the group has entered into noncancellable operating leases in respect of land and buildings plant machinery 
and motor vehicles the future minimum rentals payable under noncancellable operating leases are as follows
3132011 
£m
3132010 
£m
not later than one year 07 08
after one year but not more than five years 24 26
after five years 266 267
297 301 financial statements 118 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
19 provisions
£m
at 1 april 2010
current 02
noncurrent 22
at 1 april 2010 24
arising during the year 04
utilised 02
at 31 march 2011 26
analysed as
current 02
noncurrent 24
26
the provision represents outstanding discretionary pension liabilities the discretionary pension liabilities have 
been calculated by an independent actuary using the same actuarial assumptions as applied to the defined 
benefit pension scheme see note 24 and are expected to be paid over the remaining lives which is approximately 
11 years
20 financial instruments
a group strategy
the level of capital expenditure which the group is obliged to incur is such that it cannot be wholly financed by 
internally generated sources as a result the group must rely upon raising additional finance on a regular basis  
to be principally used to fund the long term assets required in its regulated business the group’s strategy is to 
finance such investment by raising medium to long term debt to provide a balance sheet match with long term 
assets and to fix a major proportion of interest rates
b treasury operations
the main purpose of the group’s treasury function is to assess the group’s ongoing capital requirement and to 
raise funding on a timely basis taking advantage of any favourable market opportunities it also invests any surplus 
funds the group may have based upon its forecast requirements and in accordance with the group’s treasury 
policy on occasions derivatives are used as part of this process but the group’s policies prohibit their use  
for speculation
c risks arising from the group’s financial instruments
the main risks arising from the group’s financial instruments are liquidity risk interest rate risk and foreign currency 
risk the board reviews and agrees policies for managing each of these risks and they are summarised below  
all treasury activities are conducted in accordance with these policies
d liquidity risk
as regards day to day liquidity the group’s policy is to have available standby committed bank borrowing facilities 
with a value of no less than £500 million and with a bank agreement availability period of no less than three 
months at 31 march 2011 the group had £350 million of undrawn committed bank facilities 2010 £750 million 
a further £700 million of committed bank facilities were entered into on 7 april 2011 financial statements 119 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
20 financial instruments continued
e interest rate risk
the group finances its operations through a mixture of retained profits and bank borrowings it borrows at both 
fixed and floating rates of interest and accordingly uses interest rate swaps to generate the desired interest profile 
and to manage the group’s exposure to interest rate fluctuations the group’s policy is to keep a minimum 60 of 
its borrowings at fixed rates of interest at 31 march 2011 74 2010 75 of the group’s borrowings were at fixed 
rates of interest index linked borrowings are treated as variable rate debt
f foreign currency risk
the group’s policy is that any foreign currency exposure in excess of £100000 sterling equivalent of a transactional 
nature or £30 million sterling equivalent of a translation nature should be covered immediately on identification any 
exposures are covered through the use of forward foreign exchange contracts
g market price risk
the group’s exposure to market price risk principally comprises interest rate exposures the group’s policy is to 
accept a degree of interest rate risk the following table shows the impact on profit and equity of an increase in the 
variable cost of borrowing the range is considered reasonable based on the forecast variable rates of borrowing 
and all other elements being consistent for the next 12 months and highlights this is not material to the group
increase in basis points
effect on 
profitequity 
£m
2011
50 13
100 25
150 38
2010
50 09
100 19
150 28
h credit risk
there are no significant concentrations of credit risk within the group management’s assessment of the maximum 
credit risk exposure relating to financial assets is represented by their carrying value as at the balance sheet date 
see o a significant proportion of the trade debtor balances are with domestic customers who are unlikely to 
have a published credit rating
i counterparty risk
the treasury strategy which is approved by the board requires that investments are limited to certain money 
market and treasury instruments and that the group’s exposure to any single bank building society or market is 
controlled with maximum deposits allowed with any single counterparty the investment criteria cover credit rating 
and asset size including sovereign and political risk current market conditions have resulted in closer monitoring 
of counterparties and cancellation or suspension of deposits
j capital risk
the primary objective of the group’s capital management is to ensure that it maintains a strong credit rating and 
healthy capital ratios in order to support its business and maximise shareholder value
the group monitors capital using gearing ratios for the group and nwl for nwl this is net debt divided by  
the rcv as determined and published by ofwat and for the group rcv plus a pro forma rcv for the kielder 
securitisation and the pfi contracts at the level of associated debt included in the group’s net debt relating  
to those assets the group’s policy is to keep the gearing ratio less than 75 and 70 for the group and  
nwl respectively financial statements 120 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued 
20 financial instruments continued
for the group the pro forma rcv at 31 march 2011 was £36431 million for nwl the rcv at 31 march 2011 
was £33184 million on this basis the gearing ratios were 63 for the group and 56 for nwl
k contractual maturity of financial liabilities principal and future interest payments
the table below summarises the maturity profile of the group’s financial liabilities at 31 march based on contractual 
undiscounted payments
year ended 31 march 2011
on demand 
£m
less than 
3 months 
£m
312 months  
£m
15 years 
£m
more than 
5 years 
£m
total 
£m
interest bearing loans and borrowings 14 1624 1246 7045 43818 53747
trade and other payables – 823 487 – – 1310
14 2447 1733 7045 43818 55057
year ended 31 march 2010
on demand 
£m
less than  
3 months 
£m
312 months 
£m
15 years  
£m
more than  
5 years  
£m
total 
£m
interest bearing loans and borrowings 15 403 1180 8244 43818 53660
trade and other payables 01 313 200 – – 514
16 716 1380 8244 43818 54174
l maturity profile of financial assets and liabilities carrying value
year ended 31 march 2011
within 1 year  
£m
12 years 
£m
23 years 
£m
34 years 
£m
45 years 
£m
more than 
5 years 
£m
total 
£m
fixed rate
eurobonds 42 41 42 42 43 13172 13382
subordinated loan stock – – – – – 19 19
bank loans 243 212 211 213 221 1459 2559
obligations under finance leases and hire 
purchase contracts 28 20 15 10 05 04 82
other loans 03 03 03 03 03 09 24
fixed rate at 31 march 2011 316 276 271 268 272 14663 16066
variable rate
cash and cash equivalents 1431 – – – – – 1431
financial investments 09 05 02 – – 113 129
eurobonds – – – – – 4773 4773
bank loans 1263 554 100 100 100 600 2717
overdrafts 14 – – – – – 14
obligations under finance leases and hire 
purchase contracts 44 44 45 45 45 802 1025
variable rate at 31 march 2011 119 593 143 145 145 6062 6969
net borrowings at 31 march 2011 23035 financial statements 121 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
20 financial instruments continued
year ended 31 march 2010
within 1 year 
£m
12 years 
£m
23 years 
£m
34 years 
£m
45 years 
£m
more than 
5 years 
£m
total 
£m
fixed rate
eurobonds 40 41 42 41 43 13210 13417
subordinated loan stock – – – – – 68 68
bank loans 177 245 211 212 212 1680 2737
obligations under finance leases and hire 
purchase contracts 27 23 17 11 05 04 87
other loans 04 03 03 03 03 10 26
fixed rate at 31 march 2010 248 312 273 267 263 14972 16335
variable rate
cash and cash equivalents 1748 – – – – – 1748
short term cash deposits 158 – – – – – 158
financial investments 11 09 05 02 – 113 140
eurobonds – – – – – 4554 4554
bank loans 25 1717 100 100 100 700 2742
overdrafts 15 – – – – – 15
obligations under finance leases and  
hire purchase contracts 43 44 45 45 45 802 1024
variable rate at 31 march 2010 1834 1752 140 143 145 5943 6289
net borrowings at 31 march 2010 22624
the variable rate net borrowings comprise sterling denominated bank borrowings and deposits that bear interest 
at rates based upon up to 12 months libor
m currency exposures
at 31 march 2011 after taking into account the effects of forward foreign exchange contracts the group had no 
currency exposures 2010 £nil
n borrowing facilities
the group has various undrawn committed borrowing facilities the facilities available at 31 march in respect of 
which all conditions precedent have been met are as follows
3132011 
£m
3132010 
£m
expiring in less than one year 350 750 financial statements 122 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
20 financial instruments continued
o fair values of financial assets and financial liabilities
a comparison by category of book values which are all recognised at amortised cost and fair values of the 
group’s financial assets and liabilities as at 31 march is set out below
book value fair value
3132011 
£m
3132010 
£m
3132011 
£m
3132010 
£m
financial assets
cash and cash equivalents 1431 1748 1431 1748
short term cash deposits – 158 – 158
financial investments 129 140 129 140
trade and other receivables 1539 1364 1539 1364
financial liabilities
overdraft 14 15 14 15
bank loans principal of £5271 million 2010 £5466 million 5300 5505 5413 5595
subordinated loan stock principal of £19 million 2010 £68 million 19 68 19 68
eurobonds principal of £17883 million 2010 £17664 million 18155 17971 18992 18040
obligations under finance leases and hire purchase contracts  
principal of £1107 million 2010 £1111 million 1107 1111 1107 1111
interest rate swaps 98 125 98 125
trade and other payables 1555 1512 1555 1512
23149 22897 24099 23056
the fair values of the interest rate swaps and sterling denominated long term fixed rate and index linked debt with  
a book value of £18155 million 2010 £17971 million have been determined by reference to prices available from 
the markets on which the instruments involved are traded all the other fair values shown above have been 
calculated by discounting cash flows at prevailing interest rates
in the absence of an openly traded market value for the index linked bonds with a book value of £4773 million 
2010 £4554 million the fair value at the balance sheet date has been calculated by considering the remaining 
debt maturity the relevant uk index linked gilt rate and an appropriate credit spread by reference to market 
evidence for conventional bonds
the difference between the principal value of £24280 million 2010 £24309 million and the carrying value of 
£24581 million 2010 £24655 million are unamortised issue costs of £143 million 2010 £147 million and a 
credit of £444 million 2010 £493 million in excess of the original loan proceeds to reflect the fair value of loans 
owed by subsidiaries acquired in 2003
p hedges
cash flow hedges – currency forward contracts
at 31 march 2011 the group held no forward exchange contracts 2010 nil financial statements 123 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
20 financial instruments continued
cash flow hedges – interest rate swap
at 31 march 2011 the group held three interest rate swaps designated as a hedge of future interest cash flows 
for which the group has firm commitments the swaps were used to convert variable rate interest payments to a 
fixed rate basis the terms of these swaps were as follows
notional amount start date termination date
fixed rate 

gbp 1000 million 1592008 1532022 479
gbp 625 million 2912009 3152011 2345
gbp 625 million 2912009 3152011 2435
the £1000 million swap was designated as highly effective the two £625 million swaps were not effective
at 31 march 2010 the group held three interest rate swaps designated as a hedge of future interest cash flows 
for which the group had firm commitments the swaps were used to convert variable rate interest payments to a 
fixed rate basis the terms of these swaps were as follows
notional amount start date termination date
fixed rate  

gbp 1000 million 1592008 1532022 479
gbp 625 million 2912009 3152011 2345
gbp 625 million 2912009 3152011 2435
these hedges were designated as highly effective
q fair value hierarchy
the group uses the following hierarchy for determining and disclosing the fair value of financial instruments by 
valuation technique
level 1 quoted unadjusted prices in active markets for identical assets or liabilities −
level 2 other techniques for which all inputs which have a significant effect on the recorded fair value are  −
observable either directly or indirectly and
level 3 techniques which use inputs which have a significant effect on the recorded fair value that are not based  −
on observable market data
all other financial assets and liabilities are carried at amortised cost
liabilities measured at fair value
year ended 31 march 2011
3132011 
£m
level 1 
£m
level 2 
£m
level 3 
£m
interest rate swap 98 – 98 –
year ended 31 march 2010
3132010 
£m
level 1  
£m
level 2  
£m
level 3  
£m
interest rate swap 125 – 125 –
during the year to 31 march 2011 there were no transfers between level 1 and level 2 fair value measurements 
and no transfers into and out of level 3 fair value measurements financial statements 124 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
21 authorised and issued share capital
3132011 
£m
3132010 
£m
authorised
700 million ordinary shares of 10 pence each 700 700
allotted called up and fully paid
5186 million ordinary shares of 10 pence each 519 519
the northumbrian water group plc employee trust through northumbrian water share scheme trustees limited 
currently holds 765962 2010 914518 ordinary 10 pence shares in the company for use under the company’s 
ltip all of these shares have been conditionally awarded under the ltip details of the main features of the ltip  
and the conditions for vesting can be found in the directors’ remuneration report on pages 71 to 84 as at 31 march 
2011 the share price of the ordinary 10 pence shares in the company was 3322 pence 2010 2831 pence
22 additional cash flow information
analysis of net debt as at 31 march 2011
as at 
142010  
£m
cash flow 
£m
other 
noncash 
movements 
£m
as at 
3132011 
£m
cash and cash equivalents 1733 330 – 1403
short term cash deposits 158 144 – 14
financial investments 140 11 – 129
loans principal of £23173 million 2010 £23198 million 23544 199 129 23474
finance leases principal of £1107 million 2010 £1111 million 1111 73 69 1107
22624 213 198 23035
the difference between the principal value of £24280 million 2010 £24309 million and the carrying value of 
£24581 million 2010 £24655 million are unamortised issue costs of £143 million 2010 £147 million and a 
credit of £444 million 2010 £493 million in excess of the original loan proceeds to reflect the fair value of loans 
owed by subsidiaries acquired in 2003
noncash movements on loans relate to the principal uplift on index linked borrowings and amortisation of loan 
issue costs offset by the amortisation of debt fair value for the year noncash movements on finance leases relate 
to the inception of new finance leases on the acquisition of plant and machinery during the year
analysis of net debt as at 31 march 2010
as at 
142009  
£m
cash flow 
£m
other 
noncash 
movements 
£m
as at 
3132010 
£m
cash and cash equivalents 923 810 – 1733
short term cash deposits 1606 1448 – 158
financial investments 154 14 – 140
loans principal of £23198 million 2009 £23472 million 23863 209 110 23544
finance leases principal of £1111 million 2009 £1116 million 1117 72 66 1111
22297 371 44 22624 financial statements 125 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
22 additional cash flow information continued
the difference between the principal value of £24309 million 2009 £24588 million and the carrying value of 
£24655 million 2009 £24980 million are unamortised issue costs of £147 million 2009 £154 million and a 
credit of £493 million 2009 £546 million in excess of the original loan proceeds to reflect the fair value of loans 
owed by subsidiaries acquired in 2003
noncash movements on loans relate to the principal uplift on index linked borrowings and amortisation of loan 
issue costs offset by the amortisation of debt fair value for the year noncash movements on finance leases relate 
to the inception of new finance leases on the acquisition of plant and machinery during the year
23 financial commitments
3132011 
£m
3132010 
£m
expenditure contracted for 2223 853
in addition to these commitments the group has longer term expenditure plans which include investment to meet 
shortfalls in performance and condition and to provide for new demand and growth within the water and 
sewerage business
24 pensions and other postretirement benefits
the group operates a defined benefit pension scheme northumbrian water pension scheme nwps or the 
scheme providing benefits based on final pensionable remuneration to 1908 active members at 31 march 2011 
2010 2033
the assets of the nwps are held separately from those of the group in independently administered funds
the most recent actuarial valuation of the scheme was at 31 december 2007 at that date the value of assets 
amounted to £7323 million and the funding level was 1061
the future service contribution rate jointly payable by members and the employers from 31 december 2007 was 
226 of pensionable salaries members’ contributions are 73 on average with the employers paying 153
the employer contribution rate was assessed using the projected unit method and the following actuarial assumptions

preretirement 61
postretirement 52
pay increases 37
pension increases 34
price inflation 34
following the 2004 actuarial valuation the employers had prepaid contributions to the scheme up to 31 december 
2010 the scheme actuary recommended that regular contributions should recommence from 1 january 2011 
however the group made an alternative proposal which was accepted by the nwps trustees to make new 
capital injections of £700 million to cover the period 1 january 2011 to 31 march 2015 these payments comprise 
employers’ contributions and the deficit recovery funding assumed in the final determination amounts totalling 
£229 million have been paid in the period of which £05 million was paid by a jointly controlled entity the 
remaining £471 million was paid in april 2011 which along with other payments of an estimated £19 million 
relating to early retirements will bring total contributions to the scheme next year to £490 million a full actuarial 
valuation of the scheme as at 31 december 2010 has commenced financial statements 126 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
24 pensions and other postretirement benefits continued
the scheme also has a defined contribution section which had 460 active members at 31 march 2011 2010 389 
members can choose to contribute either 3 4 or 5 of salary with employers contributing at either 6 7 or 
8 depending on the member contribution rate the contributions paid to the defined contribution section by the 
group in the year totalled £08 million 2010 £06 million
the additional disclosures regarding the group’s defined benefit scheme as required under ias 19 employee 
benefits and the relevant impact on the group’s financial statements are set out below
a qualified actuary using revised assumptions that are consistent with the requirements of ias 19 has updated 
the actuarial valuation described above as at 31 march 2011 investments have been valued for this purpose at 
fair value
3132011 3132010
pay increases
1
45 47
rpi inflation 35 37
cpi inflation 28 na
pension increases linked to rpi 35 37
pension increases linked to cpi 28 na
discount rate 55 55
mortality assumptions
2
pcmapcfa00 pcmapcfa00
– life expectancy for a member aged 65 – female years 230 230
– life expectancy for a member aged 65 – male years 207 207
notes
1 including promotional salary scale
2 115 of pcma00pcfa00 year of birth with medium cohort improvements
the fair value of the assets in the nwps the present value of the liabilities in the scheme and the long term 
expected rate of return at 31 march were
long term 
expected 
rate of 
return 
3132011  

3132011  
£m
long term 
expected 
rate of  
return 
3132010  

3132010 
£m
equities 73 5118 75 4993
corporate bonds 55 621 55 707
government bonds 43 639 45 272
property 58 716 60 666
cash 38 39 39 143
loan to scheme from company – – 05 147
total fair value of assets 7133 6634
present value of liabilities 7593 7965
deficit 460 1331
the discount rate at 31 march 2011 has been set by reference to the yield on aa corporate bonds aa over 15 
years at that date extrapolated forward to a duration of 18 years which reflect the duration of the expected benefit 
payments the expected rate of return on equities represents a 3 premium of the yield on long term government 
bonds at 31 march 2011 the gross redemption yield on index linked uk government stocks was 07 the long 
term inflation rate implied by these yields is 36 which has been reduced by 01 to allow for an inflation risk 
premium mortality rates have been based on the pa00 tables applying medium cohort adjustment of 115 
loading to mortality rates based on the year of birth of the membership financial statements 127 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
24 pensions and other postretirement benefits continued
the valuation of the scheme liabilities has taken account of legislative changes which mean that future statutory 
deferred revaluations and pension increases will be linked to cpi as a consequence cpi increases have been 
applied for deferred pensions in all sections of the scheme and to those sections where the scheme rules link 
increases to the government’s pension increase orders this has given rise to a reduction in the actuarial valuation 
of the liabilities of around £360 million
the amounts recognised in the income statement and in the statement of comprehensive income for the year are 
analysed as follows
3132011 
£m
3132010 
£m
recognised in the income statement
current service cost 135 99
past service cost 04 46
recognised in operating costs in arriving at profit on ordinary activities before interest 139 145
interest cost on plan obligations 433 361
expected return on plan assets 455 316
recognised in income receivablefinance costs payable 22 45
recognised in the statement of comprehensive income
actual return on scheme assets 562 2090
less expected return on scheme assets 455 316
107 1774
other actuarial gains and losses 633 1763
net actuarial gains 740 11
cumulative amounts recognised since adopting the standard 65 805
history of experience gains and losses
3132011 
£m
3132010 
£m
3132009 
£m
3132008 
£m
3132007 
£m
fair value of assets 7133 6634 4786 6667 7108
present value of defined benefit obligation 7593 7965 5980 5762 6681
deficitsurplus 460 1331 1194 905 427
experience adjustments arising on plan assets 107 1774 2053 934 06
experience adjustments arising on plan liabilities – – 187 06 17
changes in the present value of the defined benefit pension obligations are analysed as follows
3132011 
£m
3132010 
£m
at 1 april 7965 5980
current service cost 135 99
past service cost 04 46
interest cost on plan obligations 433 361
contributions by plan participants 01 01
actuarial gainloss on obligations 633 1763
benefits paid 312 285
at 31 march 7593 7965
present value of funded defined benefit obligations 7593 7965 financial statements 128 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the consolidated financial statements
continued
24 pensions and other postretirement benefits continued
changes in the fair value of plan assets are analysed as follows
3132011 
£m
3132010 
£m
at 1 april 6634 4786
expected return on plan assets 455 316
actuarial gain on plan assets 107 1774
contributions by employer 248 42
contributions by plan participants 01 01
benefits paid 312 285
at 31 march 7133 6634
the group through its subsidiary aquagib also operates a noncontributory defined benefit scheme the deficit 
at 31 march 2011 under local gaap was £21 million 2010 £28 million the group made contributions 
amounting to £10 million 2010 £08 million to the defined benefit pension scheme
sensitivity to key assumptions 
ias 1 requires disclosure of the sensitivity of the results to the methods and assumptions used
the costs of a pension arrangement require estimates regarding future experience the financial assumptions 
used for ias 19 reporting are the responsibility of the directors of the company these assumptions reflect market 
conditions at the balance sheet date changes in market conditions which result in changes in the net discount 
rate essentially the difference between the discount rate and the assumed rates of increases of salaries deferred 
pension revaluation or pensions in payment can have a significant effect on the value of the liabilities reported
a reduction in the net discount rate will increase the assessed value of liabilities as a higher value is placed on 
benefits paid in the future a rise in the net discount rate will have an opposite effect of similar magnitude the 
overall effect of a change in the net discount rate of 01 would change the liabilities by around £148 million
there is also uncertainty around life expectancy for the uk population the value of current and future pension 
benefits will depend on how long they are assumed to be in payment
the disclosures have been prepared using the mortality assumptions adopted for the 2007 formal valuation – 
namely the pcmapcfa00 tables applying a medium cohort adjustment with a 115 loading to mortality rates 
based on the year of birth of the membership these assumptions imply an assumed life expectancy for a member 
aged 65 at 31 march 2011 of 207 years 2010 207 years for males and 230 years 2010 230 years for females
the effect of increasing the assumed life expectancies by one year would be to increase the value of liabilities by 
around 28 financial statements 129 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
25 long term incentive plan 
under the ltip executive directors and senior managers may receive at the discretion of the remuneration 
committee annual conditional awards of shares in the company further details of the ltip can be found in the 
directors’ remuneration report
the following table illustrates the movements in conditional share awards during the year
3132011  
number
3132010  
number
outstanding at 1 april 1242293 1190034
granted during the year 378503 414679
forfeitedlapsed during the year 351299 238686
exercised 148556 123734
outstanding at 31 march 1120941 1242293
exercisable at 31 march 4649 4724
the weighted average exercise price throughout the year was £nil 2010 £nil the fair value of conditional share 
awards granted during the year was £nil 2010 £01 million
the weighted average share price at the date of exercise for the conditional share awards is 32479 pence  
2010 26871 pence
for the conditional awards outstanding as at 31 march 2011 the weighted average remaining contractual life is 
17 years 2010 18 years
the fair value of conditional share awards granted was estimated using the montecarlo model the significant 
inputs to the model were as follows
3132011 3132010
dividend yield 40 47
expected share price volatility 28 29
share price at award 32870p 27250p
expected ftse 250 index volatility 21 24
risk free interest rate 15 21
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 financial statements 130 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
25 long term incentive plan continued
share incentive plan
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
3132011 
number
3132010 
number
outstanding at 1 april 143201 117687
granted during the year 115519 134397
forfeited during the year 3383 1805
exercised 95155 107078
outstanding at 31 march 160182 143201
26 special purpose entities
as noted under accounting policy 1b 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 £2480 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 ea under the water resources operating agreement relating to kielder water transfer 
scheme the assignment is for a period of 30 years
the summarised combined financial statements of the special purpose entities are as follows
3132011 
£m
3132010 
£m
income statement
finance costs receivable 149 149
finance costs payable 149 149
balance sheet
investments 2414 2410
current assets 47 47
noncurrent liabilities 2432 2429
current liabilities 27 27
net assets 02 01
notes to the consolidated financial statements
continued financial statements 131 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
27 related parties
during the year the group entered into transactions in the ordinary course of business with other related parties 
transactions entered into and trading balances outstanding at 31 march between the group and its associates 
and joint ventures are as follows
trading transactions
sales to 
related party 
£m
purchases 
from related 
party 
£m
amounts 
owed by 
related party 
£m
amounts 
owed to 
related party 
£m
related party
jointly controlled entities
2011 01 96 06 82
2010 01 102 05 87
purchases from jointly controlled entities include £25 million 2010 £33 million in respect of capital purchases 
under finance leases £01 million 2010 £01 million in respect of operating leases £63 million 2010 £62 million 
in respect of costs payable under finance leases and £07 million 2010 £06 million in respect of other purchases
at 31 march 2011 the group had a short term cash deposit with the northumbrian water pension scheme of  
£nil 2010 £147 million
outstanding balances due from related parties are expected to be settled within 60 days and amounts due to 
related parties are in respect of leasing arrangements where the amounts owed will relate specifically to the terms 
of the lease
remuneration of key management personnel
the remuneration of the directors is included within the amounts disclosed below further information about the 
remuneration of individual directors is provided in the audited part of the directors’ remuneration report on pages 
80 to 84
3132011 
£m
3132010 
£m
short term employee benefits 14 12
post employment benefits 02 02
share based payments 05 02
21 16
28 post balance sheet event
on 14 april 2011 the group borrowed £1000 million through a us private placement facility with a 10 year 
maturity at a coupon of 582 on the same date two £625 million loans to northumbrian services limited 
maturing in may 2011 were repaid financial statements 132 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
statement of directors’ responsibilities in relation  
to the parent company financial statements
the directors are responsible for preparing the annual report and the financial statements in accordance with 
applicable law and regulations
company law requires the directors to prepare financial statements for each financial year under that law the 
directors have elected to prepare the financial statements in accordance with united kingdom generally accepted 
accounting practice united kingdom accounting standards and applicable law under company law the 
directors must not approve the financial statements unless they are satisfied that they give a true and fair view of 
the state of affairs of the company and of the profit or loss of the company for that period in preparing those 
financial statements the directors are required to
select suitable accounting policies and then apply them consistently −
make judgements and estimates that are reasonable and prudent −
state whether applicable united kingdom accounting standards have been followed subject to any material  −
departures disclosed and explained in the financial statements and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the  −
company will continue in business
the directors are responsible for keeping adequate accounting records that are sufficient to show and explain the 
company’s transactions and disclose with reasonable accuracy at any time the financial position of the company 
and to enable them to ensure that the financial statements comply with the companies act 2006 they are also 
responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention 
and detection of fraud and other irregularities financial statements 133 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
report of the auditors on the
company financial statements
independent auditors’ report to the members of northumbrian water group plc
we have audited the parent company financial statements of northumbrian water group plc for the year ended 
31 march 2011 which comprise the parent company balance sheet and the related notes 1 to 10 the financial 
reporting framework that has been applied in their preparation is applicable law and united kingdom accounting 
standards united kingdom generally accepted accounting practice
this report is made solely to the company’s members as a body in accordance with chapter 3 of part 16 of the 
companies act 2006 our audit work has been undertaken so that we might state to the company’s members 
those matters we are required to state to them in an auditor’s report and for no other purpose to the fullest extent 
permitted by law we do not accept or assume responsibility to anyone other than the company and the 
company’s members as a body for our audit work for this report or for the opinions we have formed
respective responsibilities of directors and auditors
as explained more fully in the statement of directors’ responsibilities set out on page 132 the directors are 
responsible for the preparation of the parent company financial statements and for being satisfied that they give  
a true and fair view our responsibility is to audit the parent company financial statements in accordance with 
applicable law and international standards on auditing uk and ireland those standards require us to comply 
with the auditing practices board’s ethical standards for auditors
scope of the audit of the financial statements
an audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to 
give reasonable assurance that the financial statements are free from material misstatement whether caused by 
fraud or error this includes an assessment of whether the accounting policies are appropriate to the parent 
company’s circumstances and have been consistently applied and adequately disclosed the reasonableness of 
significant accounting estimates made by the directors and the overall presentation of the financial statements
opinion on financial statements
in our opinion the parent company financial statements
give a true and fair view of the state of the company’s affairs as at 31 march 2011 −
have been properly prepared in accordance with united kingdom generally accepted accounting practice and −
have been prepared in accordance with the requirements of the companies act 2006 −
opinion on other matters prescribed by the companies act 2006
in our opinion
the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the  −
companies act 2006 and
the information given in the directors’ report and business review for the financial year for which the financial  −
statements are prepared is consistent with the parent company financial statements financial statements 134 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
matters on which we are required to report by exception
we have nothing to report in respect of the following matters where the companies act 2006 requires us to report 
to you if in our opinion
adequate accounting records have not been kept by the parent company or returns adequate for our audit  −
have not been received from branches not visited by us
the parent company financial statements and the part of the directors’ remuneration report to be audited are  −
not in agreement with the accounting records and returns
certain disclosures of directors’ remuneration specified by law are not made or −
we have not received all the information and explanations we require for our audit −
other matters
we have reported separately on the group financial statements of northumbrian water group plc for the year 
ended 31 march 2011
debbie o’hanlon senior statutory auditor
for and on behalf of ernst  young llp
statutory auditor
newcastle upon tyne
31 may 2011
report of the auditors on the
company financial statements  
continued financial statements 135 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
company balance sheet
as at 31 march 201 1
notes
3132011 
£m
3132010 
£m
fixed assets
investments in subsidiary undertakings 4 11014 10226
11014 10226
current assets
debtors receivable within one year 5 35 43
cash at bank 591 120
626 163
creditors amounts falling due within one year 6 932 28
net current liabilitiesassets 306 135
total assets less current liabilities 10708 10361
creditors amounts falling due after more than one year 7 4900 4919
net assets 5808 5442
capital and reserves
called up share capital 8 519 519
share premium account 9 4465 4465
treasury shares 9 17 20
profit and loss account 9 841 478
equity shareholders’ funds 5808 5442
approved by the board on 31 may 2011 and signed on its behalf by
sir derek wanless   heidi mottram
chairman    chief executive officer financial statements 136 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes to the company financial statements
1 accounting policies
a basis of accounting
the financial statements have been prepared in accordance with applicable united kingdom law and accounting 
standards the accounting policies have been reviewed in accordance with the requirements of frs 18 accounting 
policies the directors consider the following accounting policies to be relevant in relation to the company’s financial 
statements the company’s financial statements are included in the consolidated financial statements of 
northumbrian water group plc accordingly the company has taken advantage of the exemption from publishing  
a profit and loss account and cash flow statement and from disclosing related party transactions with its wholly
owned subsidiaries the company is also exempt from disclosing the information otherwise required by frs 29 
financial instruments disclosures as the consolidated financial statements in which the company is included 
provide equivalent disclosures for the group under ifrs 7 financial instruments disclosures
the financial statements have been prepared on a going concern basis which assumes that the company will 
have adequate funding to meet its liabilities as they fall due in the foreseeable future as at 31 march 2011 the 
company had net current liabilities of £306 million 2010 net current assets of £135 million the directors have 
reviewed cash flow requirements and are confident that they will be able to meet these from funds available 
accordingly the directors believe it is appropriate to prepare the financial statements on a going concern basis
b fixed asset investments
fixed asset investments are stated at their purchase cost less any provision for impairment
c taxation
corporation tax is based on the profit for the year as adjusted for taxation purposes using the rates of tax enacted 
at the balance sheet date provision is made for deferred tax in respect of all timing differences that have originated 
but not reversed at the balance sheet date that will result in an obligation to pay more or a right to pay less tax in 
future periods deferred tax is calculated at the tax rates that are expected to apply in the periods in which timing 
differences are expected to reverse based on tax rates and laws enacted or substantively enacted at the balance 
sheet date deferred tax assets are recognised only to the extent that the directors consider that it is more likely 
than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences 
can be deducted
d interest bearing loans and borrowings
all loans and borrowings are initially stated at the amount of the net proceeds being fair value of the consideration 
received net of issue costs associated with the borrowing finance costs including issue costs are taken to the 
income statement over the term of the debt at a constant rate on the balance sheet carrying amount the carrying 
amount is increased by the finance charges amortised and reduced by payments made in respect of the 
accounting period
2 auditors’ remuneration
auditors’ remuneration for the year ended 31 march 2011 was £97000 2010 £95000
fees paid to ernst  young llp for nonaudit services to the company itself are not disclosed in the individual 
financial statements of the company because group financial statements are prepared which are required to 
disclose such fees on a consolidated basis
3 profit attributable to members of the parent company
the profit dealt with in the financial statements of the parent company is £1069 million 2010 £677 million financial statements 137 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
4 investments in subsidiary undertakings
£m
at 1 april 2010 10226
additions 788
at 31 march 2011 11014
additions in the year represent the acquisition of shares in a subsidiary company atlantic water ltd from a 
subsidiary company three rivers finance ltd
during the year the company increased its shareholding in both caledonian environmental services plc and 
caledonian environmental levenmouth treatment services limited from 75 to 100 at a nominal cost
name of undertaking
country of incorporation or 
registration and operation description of shares held
proportion 
of nominal 
value of issued 
shares held by 
group  business activity
northumbrian services 
limited
england and wales ordinary shares of £1 100 holding of investments and 
loans
northumbrian water 
limited
england and wales ordinary shares of £1 100 water and sewerage services
northumbrian water 
finance plc
england and wales ordinary shares of £1 100 holding of finance 
instruments
caledonian environmental 
services plc
scotland ordinary shares of £1 100 waste water services
caledonian environmental 
levenmouth treatment 
services limited
scotland ordinary shares of £1 100 waste water services
ayr environmental services 
limited
scotland ordinary shares of £1 75 waste water services
ayr environmental services 
operations limited
scotland ordinary shares of £1 100 waste water services
aquagib limited gibraltar ordinary shares of £1 67 water and sewerage services
northumbrian water 
projects limited
england and wales ordinary shares of £1 100 waste water services
sa agrer nv belgium ordinary shares of £1 100 aid funded project work
all subsidiaries listed above are indirectly held the directors consider that to give full particulars of all subsidiary 
and associated undertakings would lead to a statement of excessive length a full list of the company’s 
subsidiaries is attached to the company’s latest annual return filed at companies house
5 debtors
3132011 
£m
3132010 
£m
amounts owed by subsidiary undertakings 33 40
other 02 03
35 43
amounts owed by subsidiary undertakings include amounts receivable for the provisional surrender of tax losses 
amounting to £16 million 2010 £23 million financial statements 138 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
6 creditors amounts falling due within one year
3132011 
£m
3132010 
£m
trade creditors 01 –
amounts owed to subsidiary undertakings 930 26
accruals and deferred income 01 02
932 28
7 creditors amounts falling due after more than one year
3132011 
£m
3132010 
£m
amounts owed to subsidiary undertakings 4900 4919
3132011 
£m
3132010 
£m
loans are repayable as follows
not wholly repayable within five years 4900 4919
the loan bears a rate of interest linked to libor the loan will continue until such time as terminated by  
mutual agreement
8 authorised and issued share capital
3132011 
£m
3132010 
£m
authorised
700 million ordinary shares of 10 pence 700 700
allotted called up and fully paid
5186 million ordinary shares of 10 pence 519 519
the northumbrian water group plc employee trust through northumbrian water share scheme trustees limited 
currently holds 765962 2010 914518 ordinary 10 pence shares in the company for use under the company’s 
ltip all of these shares have been conditionally awarded under the ltip details of the main features of the ltip  
and the conditions for vesting can be found in the directors’ remuneration report on pages 71 to 84 as at 31 march 
2011 the share price of the ordinary 10 pence shares in the company was 3322 pence 2010 2831 pence
notes to the company financial statements
continued financial statements 139 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
9 reserves
treasury 
shares 
£m
share 
premium 
account 
£m
profit and 
loss account 
£m
at 1 april 2009 23 4465 470
profit for the year – – 677
sharebased payment – – 01
exercise of ltip awards 03 – 03
dividends paid – – 667
at 31 march 2010 20 4465 478
profit for the year – – 1069
exercise of ltip awards 03 – 03
dividends paid – – 703
at 31 march 2011 17 4465 841
10 commitments
the company has issued letters of continuing support to subsidiary companies with net liabilities amounting to 
£119 million 2010 £83 million and net current liabilities of £nil 2010 £nil these subsidiary companies are 
expected to meet their working capital requirements from operating cash flows
the company is guarantor to the eib in respect of borrowings by northumbrian water limited the loan principal 
outstanding at 31 march 2011 amounted to £3447 million 2010 £3624 million
the company is party to a cross guarantee arrangement with other group companies in respect of bank  
facilities overdrafts outstanding at 31 march 2011 in respect of the arrangement amounted to £272 million  
2010 £09 million the directors do not expect any loss to arise as a result of this arrangement financial statements 140 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
share portal wwwcapitashareportalcom
you can manage your shareholding 
online through the website of our 
registrar capita registrars by 
registering for the share portal  
this provides free secure online 
access to your shareholding 
facilities include
electronic communications
this allows you to register your email address to enable 
you to receive shareholder communications such as 
annual reports via the internet rather than by post
account enquiry
you can access your personal shareholding including 
share transaction history dividend payment history  
and to obtain an uptodate shareholding valuation
amendment of standing data
this allows you to change your registered postal 
address and add change or delete dividend  
mandate instructions
you can also download from this site forms such  
as change of address stock transfer and dividend 
mandates and buy and sell shares in the company
to use any of these facilities please log on to capita 
registrars’ website at wwwcapitashareportalcom
if you have any queries about the above facilities  
please contact the capita share portal helpline on  
0871 664 0391 calls cost 10 pence per minute plus 
network extras overseas 44 020 8639 3367 or  
by email at shareportalcapitacouk
shareholder information
financial calendar
2011
july
28 july agm
28 july interim management statement
august
10 august exdividend date
12 august record date
september
09 september final dividend payment
november
30 november halfyearly announcement
december
14 december exdividend date
16 december record date
2012
january
27 january interim dividend payment number of shareholders by size of holding
as at 31 march 2011   
shareholders with 1–1000 shares
shareholders with 1001–5000 shares
shareholders with 5001–10000 
shares
shareholders with 10001–100000 
shares
shareholders with 100001–1000000 
shares
shareholders with over 1000000 
shares
breakdown of shareholdings by type
as at 31 march 2011
individuals
ontario teachers’ pension plan board
nominee accounts
investment trusts pensions funds and 
other institutions
banks and bank nominees
34
49
8
6
2
27
63
2
6
21
financial statements 141 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
capita share dealing services
capita registrars provides a low cost share  
dealing service further information is available at  
wwwcapitadealcom or by telephoning 0871 664 0445 
calls cost up to 10 pence per minute plus network 
extras this enables you to deal in the shares of the 
company and other companies for which capita acts 
as registrar provided you are already a shareholder in 
the relevant company and it offers the share deal 
facility to its shareholders
international payment services
capita registrars has partnered with travelex the 
world’s largest specialist provider of commercial 
international payment services to provide a service  
that will convert your sterling dividends into your local 
currency at a competitive rate they can either arrange 
for these funds to be sent to you by currency draft or 
can pay them direct into your bank account for further 
information telephone 44 020 8639 3405 from 
outside the uk or 0871 664 0385 from within the uk 
between 900am and 530pm in the uk calls cost 
10 pence per minute plus network extras
sharegift
you may donate your shares to charity free of  
charge through sharegift further details are  
available at wwwsharegiftorguk or by telephoning  
44 020 7930 3737
dividend reinvestment plan
the company receives occasional requests from 
shareholders wishing to receive their dividends in the 
form of shares instead of cash there are costs involved 
in providing this service and at present it would not be 
cost effective this issue is kept under regular review
beneficial owners of shares with  
‘information rights’
please note that beneficial owners of shares who have 
been nominated by the registered holder of those 
shares to receive information rights under section 146  
of the companies act 2006 are required to direct all 
communications to the registered holder of their shares 
rather than to the company’s registrar capita 
registrars or the company
shareholder analysis
disability discrimination act
if you wish to receive a copy of our report on audio 
tape in braille or in a large text version please 
telephone us on 44 0191 301 6701 or email us  
at shareholdersnwlcouk
for general queries about your shares please 
contact capita registrars
the registry
34 beckenham road
beckenham
kent br3 4tu
tel 0871 664 0300 calls cost 10 pence per minute plus 
network extras
from overseas 44 020 8639 3399
fax 44 01484 600 911
email ssdcapitaregistrarscom
web wwwcapitaregistrarscom financial statements 142 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
for general shareholder queries please contact 
secretariat
tel 44 0191 301 6701
fax 44 0191 301 6705
email shareholdersnwlcouk
to request financial statements and other 
company literature please contact 
communications
tel 44 0191 301 6734
email shareholdersnwlcouk
annual general meeting
the notice of meeting information about the agm to 
be held on 28 july 2011 and the proxy voting card are 
enclosed with these financial statements shareholder 
questions and special needs requests should be 
addressed to secretariat at our registered office 
address raised by telephone on 44 0191 301 6701 
or sent by email to shareholdersnwlcouk
warning to shareholders – boiler room scams
in recent years many companies have become aware 
that their shareholders have received unsolicited phone 
calls or correspondence concerning investment 
matters these are typically from overseas based 
‘brokers’ who target uk shareholders offering to sell 
them what often turn out to be worthless or high risk 
shares in us or uk investments these operations are 
commonly known as ‘boiler rooms’ these ‘brokers’ can 
be very persistent and extremely persuasive and a 
2006 survey by the financial services authority fsa 
has reported that the average amount lost by investors 
is around £20000
it is not just the novice investor that has been duped  
in this way many of the victims had been successfully 
investing for several years shareholders are advised  
to be very wary of any unsolicited advice offers to buy 
shares at a discount or offers of free company reports 
if you receive any unsolicited investment advice
make sure you get the correct name of the person  −
and organisation
check that they are properly authorised by the fsa  −
before getting involved by visiting wwwfsagovuk
register and contacting the firm using the details  
on the register
report the matter to the fsa either by calling 0845  −
606 1234 or visiting wwwfsagovukpages
consumerinformation and
if the calls persist hang up −
if you deal with an unauthorised firm you will not be 
eligible to receive payment under the financial services 
compensation scheme the fsa can be contacted by 
completing an online form at httpwwwfsagovuk
pagesdoingregulatedlawalertsformsthml 
details of any share dealing facilities that the company 
endorses will be included in company mailings
more detailed information on this or similar activity 
can be found on our consumer information section  
at wwwfsagovukpagesconsumerinformation 
general counsel and company secretary
martin parker
registered office
northumbrian water group plc
northumbria house
abbey road
pity me
durham dh1 5fj
tel 0845 604 7468
group websites
wwwnwgcouk
wwwnwlcouk
wwweswatercouk
wwwnwsscouk
wwwnwpropertysolutionscouk
wwwvisitkieldercom
wwwagrercom
northumbrian water main switchboard
tel 0845 604 7468
northumbrian water customer queries
customer services 0845 717 1100
customer accounts 0845 733 5566
essex  suffolk water customer queries
customer services 0845 782 0999
customer accounts 0845 782 0111
shareholder information
continued financial statements 143 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes financial statements 144 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk
notes this annual report has been printed using vegetable 
based inks on uncoated recycled paper stock all 
paper stock used for the production of this annual 
report is environmentallyfriendly ecf elemental 
chlorine free wood free paper and board with a high 
content of selected preconsumer recycled material 
and postconsumer reclaimed material this product 
is completely biodegradable and recyclable wwwnwgcouk
northumbrian water group plc
northumbria house
abbey road
pity me
durham dh1 5fj
tel 0845 604 7468
fax 0191 301 6202
registered in england  wales
registered number 4760441


Summary:
 revenue £m
 6335
 6704
 6941
 7047
 7381
 07 08 09 10 2011
dividend per share pence
 1127
 1207
 1279
 1324
 1429
 07 08 09 10 2011
proﬁt before tax £m
 1478
 1703
 1527
 1702
 1810
 07 08 09 10 2011
01 northumbrian water group plc  annual report and financial statements 201 1 wwwnwgcouk directors’ report – business review
financial highlights
– strong financial performance with  
a 63 increase in profit before tax
– regulated business operating 
costs are better than target 
reflecting good progress on our 
efficiency programme and fixing 
of power prices to march 2015
– net interest charges increased by £17 4 
million largely reflecting rpi increases 
on index linked bonds net cash interest 
charges increased by £26 million
– capital investment in the period 
of £2199 million for the group 
capital investment for the regulated 
business of £2215 million
– new loan facilities in place £1000 
million us private placement 
completed for the company in april 
2011 and £1500 million approved 
by the european investment bank 
eib for the regulated business
– funding and approved facilities in 
place to meet the requirements 
of the business to march 2014 
cash and short term deposits at 
31 march 201 1 £1417 million
– proposed final dividend of 957 
pence 2010 885 pence per share 
to be paid on 9 september 2011 
giving a full year ordinary dividend 
of 1429 pence 2010 1324 pence 
per share an increase of 7 9
operational highlights
– continued high levels of  
customer satisfaction
– excellent levels of drinking water quality
– water resource situation is good with 
no plans for restrictions expansion 
of abberton reservoir to secure 
supplies for the essex region for 
25 years is progressing well
– industryleading waste water compliance
– construction commenced on advanced 
anaerobic digestion plant at howdon 
on tyneside a further step towards our 
target of generating 20 of our energy 
from renewable sources by 2015
– achievement of government’s 
skills pledge with 90 of the 
workforce trained to at least national 
qualification framework level 2
highlights
revenue 201 1
£ 7 381 m
2010 £7047m
profit before interest 2011
£3042m
2010 £2758m
profit before tax 2011
£ 1 810m
2010 £1702m
profit for the year 2011
£ 1784m
2010 £1229m
the directors of northumbrian water 
group nwg or the company are 
pleased to present their report on 
the affairs of the company along 
with the audited financial statements 
and the auditors’ report for the year 
ended 31 march 201 1