united-utilities-annual-report-2015

UNITED UTILITIES GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2015Stock Code: UU.unitedutilities.comNotes to the financial statements – appendicesA6 ACCOUNTING POLICIES continuedShare-based compensation arrangementsThe group operates equity-settled, share-basedcompensation plans, issued to certain employees. Theequity-settled share-based payments are measured at fairvalue at the date of grant. The fair value determined at thegrant date is expensed on a straight-line basis over thevesting period, based on estimates of the number of optionsthat are expected to vest. Fair value is based on simulationmodels, according to the relevant measures of performance.The group has the option to settle some of these equitysettledshare-based payments in cash.At each reporting date, the group revises its estimate of thenumber of options that are expected to become exercisablewith the impact of any revision being recognised in theincome statement, and a corresponding adjustment toequity over the remaining vesting period.ProvisionsProvisions are recognised when the group has a presentlegal or constructive obligation as a result of past events,it is probable that an outflow of resources will be requiredto settle the obligation, and the amount can be reliablyestimated. Expenditure that relates to an existing conditioncaused by past operations that does not contribute tocurrent or future earnings is expensed.Foreign currency translationTransactions and balancesTransactions in foreign currencies are recorded at theexchange rates applicable on the dates of the transactions.At each reporting date, monetary assets and liabilitiesdenominated in foreign currencies are translated intosterling at the relevant rates of exchange applicable on thatdate. Gains and losses arising on retranslation are includedin net profit or loss for the period. Exchange differencesarising on investments in equity instruments classified asavailable for sale are included in the gains or losses arisingfrom changes in fair value which are recognised directly inequity.In order to hedge its exposure to certain foreign exchangerisks, the group enters into derivative instruments (seenote A3).Group companiesOn consolidation, the statements of financial position ofoverseas subsidiaries and joint ventures (none of which hasthe currency of a hyperinflationary economy) are translatedinto sterling at exchange rates applicable at each reportingdate. The income statements are translated into sterlingusing the average rate unless exchange rates fluctuatesignificantly in which case the exchange rate at the datethe transaction occurred is used. Exchange differencesresulting from the translation of such statements offinancial position at rates ruling at the beginning and end ofthe period, together with the differences between incomestatements translated at average rates and rates ruling atthe period end, are dealt with as movements on the group’scumulative exchange reserve, a separate component ofequity. Such translation differences are recognised asincome or expense in the period in which the operation isdisposed of.Goodwill and fair value adjustments arising on theacquisition of a foreign entity are treated as assets andliabilities of the foreign entity and translated at the closingrate. The group has elected to treat goodwill and fair valueadjustments arising on acquisitions before the date ofimplementation of IFRS 3 ‘Business Combinations’ (1 April1999) as sterling denominated assets and liabilities.Grants and contributionsGrants and contributions receivable in respect of property,plant and equipment are treated as deferred income, whichis credited to the income statement over the estimateduseful economic lives of the related assets.LeasesLeases are classified according to the substance of thetransaction. Operating leases are leases that do nottransfer substantially all the risks and rewards of ownershipto the lessee.Operating lease rentals are charged to the incomestatement on a straight-line basis over the period of thelease.162