Helping you
live sustainably,
simply and
affordably
Centrica plcAnnual Report and Accounts 2022
We put colleagues and
customers at the heart
of everything we do,
delivering innovative
energy and services
solutions to help
homes, businesses
and communities live
sustainably, simply
and affordably.
Key to this is our talented team of 20,000
colleagues including 7,000 engineers,
who serve millions of customers every day
through trusted brands like British Gas,
Bord Gáis Energy and Centrica Business
Solutions.
Our focus on improving operational
performance, a strong financial position and
a responsible approach to business means
our customers can rely on us for their
energy needs. It also allows us to invest
in energy security and the transition to net
zero whilst creating the diverse and inclusive
team we need to succeed and contribute
tothe communities we’re all partof.
In doing so, we can add value for
customers, colleagues, communities
andshareholders alike.
Find out more at centrica.com
Unless otherwise stated, all references to the Company shall mean Centrica plc
(Registered in England and Wales No. 3033654); references to the Group shall mean
Centrica plc and all of its subsidiary entities; and references to operating profit or
loss, taxation, cash flow, earnings and earnings per share throughout the Strategic
Report are adjusted figures, reconciled to their statutory equivalents in the Group Chief
Financial Officer’s Report onpages 14 to 20. See also notes 2, 4 and 10 to the Financial
Statements on pages 128 to 129, 137 to 143 and 154 to 155 forfurther details of these
adjusted performance measures. In addition see pages 253 to 257 for anexplanation and
reconciliation of other adjusted performance measures used within the document.
Creating a more inclusive and
sustainable future that supports
communities, our planet and each other.
Our People & Planet Plan has five Group-wide goals that accelerate
action on issues that matter deeply to our business and society,
and where we’re well-placed to make a world of difference – from
achieving net zero
(1)
and creating the diverse and inclusive team
we need to get there, to contributing to the communities we’re all
partof.
Whilst we’ve made really positive progress towards the majority of
our goals, we’re behind on some of our shorter-term milestones
but are confident we’ll get back on track in the years ahead.
Unprecedented events including COVID-19, the collapse of failed
energy suppliers and the rising cost of energy during the energy
crisis, meant that we needed to shift our focus beyond the People
& Planet Plan, to provide the urgent help our customers and
communities need right now – including stepping up to give 10% of
our British Gas Energy and Bord Gáis Energy profits to help people
pay for the rising cost of energy.
People and Planet
+ Read moreabout our People & Planet Plan, Climate Transition Plan, SDGs
and SASB disclosure amongst others at centrica.com/peopleandplanet
+ Read more about our non-financial KPIs on pages 258 to 260
Over the next decade, we’ll continue to harness the expertise
of colleagues and collaborate with key stakeholders such as
government and local communities, to drive the necessary action
to deliver our People & Planet Plan and ensure we do business
responsibly across our wider activities.
Ultimately, this will enable us to deliver on ourPurpose of
helping our customers live sustainably, simply and affordably
whilst contributing positively to the United Nations Sustainable
Development Goals (SDGs).
* All company and senior leaders to reflect 2011 Census data for working populations. This means 47% women, 14% ethnically diverse, 15% disability, 3% LGBTQ+
and 3% ex-service by 2030 (30% women, 13% ethnically diverse, 4% disability, 3% LGBTQ+ and 3% ex-service by the end of 2022). See page 40 for more.
“2022 has been a year like no other and I’m really
proud of the way we’ve worked together and
with others, to provide the UK’s largest voluntary
support package for customers to help them with
their energy bills, whilst making strong progress on
our People & Planet Plan. We’ve a long way to go
to achieve the inclusive and sustainable world we
need, but I’m fully committed to making sure we
get there.”
Chris O’Shea, Group Chief Executive
Our People & Planet Plan
Supporting communities, our planet and each other
• Inspire colleagues to give 100,000 days to build inclusive communities by 2030 (20,000 days by the end of 2022)
Doing business responsibly
Underpinned by strong foundations to ensure we act fairly and ethically – from customer service to human rights
We want to:
• Create a more engaged and inclusive team that reflects the
full diversity of the communities we serve by 2030*
• Recruit 3,500 apprentices and provide career development
opportunities for under-represented groups by 2030
(1,000 apprentices by the end of 2022)
We want to:
• Help our customers be net zero by 2050
(28% carbon intensity reduction by the end of 2030)
• Be a net zero business by 2045
(40% carbon reduction by the end of 2034)
People
Supporting every colleague to be themselves
to better serve our customers and
communities
Planet
Supporting every customer to live more
sustainably
(1) Net zero is the point at which there is a balance between human-related carbon
dioxide (CO
2
) being emitted into the atmosphere and the CO
2
taken out.
39Strategic report | Centrica plc Annual Report and Accounts 2022
People and Planet
Our People & Planet Plan aims to create a
more inclusive and sustainable future. From
being a net zero business by 2045 and
helping our customers be net zero by 2050,
to creating the diverse and inclusive team to
get there.
+ Read more on pages 39to 54
02
Colleague headcount full-time equivalent (FTE)
2022
19,743
2021
19,783
21,239
2020
XX.X
Listening to our people
We have put in place a Shadow Board which is a unique
partnership with the Centrica Leadership Team to provide impartial
insight, review and assurance on strategic topics relating to
colleagues, customers and cash.
The role of the Shadow Board is to be a forum that the Group
Chief Executive and Centrica Leadership Team will engage with
to bring diverse perspectives from across the organisation into
key discussions to ensure our values and standards are upheld.
Through the Shadow Board, colleagues will be able to influence
decisions, positively disrupt assumptions, and challenge the
thinking of our leaders to support colleague-centred decision-
making. The Shadow Board consists of nine colleagues from
across Centrica.
Centrica stories
Jacqui’s reflections on the Shadow Board
Having left school with a few GCSEs many years
ago, I’ve had the opportunity to develop a wealth of
experience and skills at Centrica. So when I heard
they were creating a Shadow Board, I jumped at the
chance to become its Chair, because I wanted to give
something back.
The Shadow Board meets leaders regularly to share
diverse perspectives from across the business and
deliver colleague-centric decisions. And I’m incredibly
proud of how we’ve worked together during our first
year – from raising awareness and developing and
supporting solutions for the challenges our engineers
face, to strengthening our colleague engagement
survey and providing feedback on how to bring our
Purpose, Values and Strategy to life for colleagues.
In 2023, we’ll build on this with priorities that include
how to develop closer relationships with colleagues
overseas and better support managers to ensure
success. Following feedback, we will also run quarterly
diversity network sessions to ensure our engineers are
aware of, and have the same level of access to our
support groups as our office-based colleagues.
9
Diverse colleagues on the Shadow Board,
each serving an 18-month term
Developing our people
I am delighted that this year we recruited a further 367 apprentices,
continuing to create new, highly skilled and well-paid British jobs.
In addition to this we recruited 258 new employees via other
training opportunities, including newly qualified and trainee
pathways. 20% of our new colleagues were female via the
combined engineering entry routes. In addition, our Ex-Forces
programme got off to a strong start in 2022, hiring 143 former
service personnel, spouses or family members.
• 3,010 internal moves & promotions happened in 2022
• 3,700 new colleagues joined us across the Group including
51graduates, 57 summer placements and 15 Year in Industry
colleagues
Colleague networks
I am incredibly proud that we have a number of active colleague-led
networks that operate across Centrica. Our networks cover areas
such as gender/sexual orientation, family, disability and ethnicity.
I have highlighted someexamplesbelow.
Centrica Forces Network is a group of colleagues across all areas
of Centrica who have either served in, or are serving reservists in
the Armed Forces, or have an interest in being part of a community
that supports these groups of colleagues. The objective is to
createa diverse community that supports veterans and reservists
within Centrica ensuring that we become an employer of choice
for these groups.
Our Carers Network is a supportive group where colleagues are
able to connect with others (who may or may not be carers) who
can share ideas and information about any aspect of caring.
This year the network and Carers UK collected two trophies at
the Corporate Engagement Awards. Following the success of
our three-year strategic charity partnership with Carers UK, we
won bronze for Best Collaborative Approach and were highly
commended in the Best Charity, NGO or NFP category. The
partnership was recognised for itswork to bring about a step
change in the way that society recognises, values and supports
carers. Whilst our strategic charity partnership has now ended,
wecontinue to work closely together.
Jill Shedden, Group Chief People Officer
15 February 2023
38 Strategic report | Centrica plc Annual Report and Accounts 2022
Our Key
Stakeholders
Customers
Importance – It’s vital that we listen to our customers
and act on feedback so that we can understand what
they want and need. This will enable us to satisfy existing
customers and attract new ones too.
Main focuses – Energy efficient and low carbon services and
solutions, customer service, energy prices and bill support.
Engagement – We mainly engage through focus groups, surveys,
proposition and usability testing amongst other channels. In
response, we’re investing in sustainable services and solutions that
help our customers save time, money and energy. And we provide
extra support for those who need help with their energy bills.
+ Read moreon pages 12, 22 to 23, 40, 44 and 68 to 69
Colleagues
Importance – Colleague feedback helps us create a
team where everyone can be themselves and thrive.
In doing so, we can attract, promote and retain more
diverse talent to meet the needs of our customers.
Main focuses – Reward, development, diversity and inclusion,
safety, business strategy and transformation.
Engagement – Feedback is sought through channels like our
Shadow Board of diverse colleagues who regularly meet leaders,
townhalls, quarterly engagement surveys, performance reviews and
structured engagements with trade unions. Together, we’re working
to co-create a fair, safe and inclusive environment by rolling out our
inclusion action plan alongside initiatives including training, policy
development and colleague benefits.
+ Read moreon pages 6, 37 to 38, 40 to 42, 44 and 68 to 71
Investors
Importance – Shareholders and debt holders from
across the world provide funds that help us run and grow
our business.
Main focuses – Financial and operational performance,
shareholder returns and dividend, strategy and growth, and
Environmental, Social and Governance (ESG) factors like net zero.
Engagement – Engagement with investors occurs throughout the
year, predominantly via post-result investor roadshows, the Annual
General Meeting (AGM), and ad-hoc meetings. We also respond to
information requests and assessments from ESG ratings agencies.
This enables us to consider and reflect the views of a diverse range
of investors when updating on our strategy, to provide a sustainable
return on investment.
+ Read moreon pages 46, 57 and 68 to 70
Government and Regulators
Importance – Government and regulatory policies
can have a significant impact on how we do business.
The Directors therefore recognise the importance of
working closely to deliver a stable regulatory environment where
policy is developed in the interests of consumers, whilst enabling
asustainable and investable market.
Main focuses – Market design, customer service, net zero, skills,
energy security and energy prices.
Engagement – Expertise is shared through participation in
consultation processes, meetings and site visits. Through these
interactions, we can effectively support policy development
and reforms to help deliver on key issues like energy security,
progressing net zero targets and support for vulnerable customers.
+ Read moreon pages 12, 43, 46 and 68 to 69
Suppliers
Importance – The Directors fully support collaboration
across our 3,500-strong supply chain. This reduces
risk in our supply chain by targeting high standards of
business conduct whilst securing a stable supply of
services and solutions for customers.
Main focuses – Payment practices as well as social and
environmental compliance on issues like human rights.
Engagement – We interact with suppliers in many ways such as
tendering, surveys, site inspections and remote worker surveys.
Through engagement, we ensure we pay suppliers fairly and
enforce our Responsible Sourcing Policy which sets out ways of
working to benefit communities and the environment, including
obligations under anti-modern slavery laws.
+ Read moreon pages 44 and 68
Communities and NGOs
Importance – Communities expect companies to
support issues that are important to them. By working
alongside charities, non-governmental organisations
(NGOs) and community groups, we can create stronger
and more inclusive communities.
Main focuses – Tackling urgent social and environmental issues
like fuel poverty and net zero.
Engagement–Through meetings and collaborative research
projects, the Board understands community issues and is able to
determine how we can make a big difference – from donating to
the British Gas Energy Trust to provide advice and grants alongside
energy efficiency measures that help people with their energy bills,
to volunteering and match funding for local schools, hospices
andmore.
+ Read moreon pages 12, 40, 42 and 68
13Strategic report | Centrica plc Annual Report and Accounts 2022
Our stakeholders
Engaging a diverse range of stakeholders,
including our workforce, enables us to
deliver on our strategic objectives by
understanding risks and opportunities better,
whilst creating stronger outcomes for people
and planet.
+ Read more on pages 12 to 13, 37 to 38
and 70 to 71
03
Engaging a diverse range of
stakeholders enables us to deliver on our
strategic objectives by understanding
risks and opportunities better, whilst
creating stronger outcomes for people
and planet.
Stakeholder
Engagement
Energy is at the heart of everyone’s lives. So our actions can have
a big impact on a broad range of stakeholders. That’s why we
strive to collaborate with all of our stakeholder groups to effectively
understand, consider and evolve our strategy in a way that meets
their expectations. This not only aids the success of our business
by enabling us to deliver on our Purpose of helping our customers
live sustainably, simply and affordably, but it allows us to maximise
the wider positive contribution we can make to society.
Engagement is often led by our senior leadership team who
regularly update the Board through briefings and presentations.
As a result, the Board is well-placed to consider the long-term
consequences of its decisions from the perspective of a range
ofstakeholders.
Section 172(1) Companies
Act 2006 Statement
The Directors consider that they have performed their
duty as stipulated under Section 172, to promote the
success of the Company for the benefit of all of our
stakeholders throughout its decision-making.
These pages set out our key stakeholders together
with an example of how engagement was vital to
navigating one of the most material issues faced in
2022. Further detail on how the Board engages and
balances the needs of different stakeholders, together
with the key decisions made in 2022, can be found
in the Governance section.
+ Read more about how we considered the interests
of different stakeholdersin the Governance section on
pages 68 to 71
Helping people with their energy bills in
the UK
In 2022, the energy market faced unprecedented
challenges as the war in Ukraine constricted already
tight global energy supplies, causing energy costs
to soar. With the duration of the energy crisis
unknown, rising energy bills have been a real worry
for many. We’ve therefore worked with stakeholders
to understand what we can do to help, enabling the
Directors to take swift action.
To ensure customers can get in touch more easily,
we invested £25 million in customer service with the
recruitment of 700 additional UK-based agents, who
have guided customers through the crisis with expert
advice and support.
And on top of the millions of pounds we already provide
in energy bill support, the Directors recognised that
more needed to be done. So we committed £50 million
to help people with their energy bills, including through
our promise to donate 10% of British Gas Energy’s
profit for the duration of the crisis. This enabled us to
establish the UK’s largest voluntary customer support
package. Of this, £25 million was given to the British
Gas Energy Trust to create a dedicated cash support
fund for customers and to help communities. To reach
those who needed it most, we collaborated closely
with the Trust by running a marketing campaign
urging people not to suffer in silence, volunteered at
over 100 Post Office Pop-Ups at over 50 locations
to share advice at the heart of communities, and
collaborated with charities like StepChange, to help
more people access support. The remaining £25 million
is administered by British Gas and largely supports
prepayment customers and businesses with grants.
At the same time, the Directors alongside specialists in
Corporate Affairs and Regulatory Affairs worked at pace
with the UK Government and Ofgem. Parliamentarians
were engaged to ensure they were up-to-date with
the support available via information leaflets, meetings
and drop-in sessions. Together, we also worked on
short and longer-term improvements to achieve a
more robust and sustainable market for consumers.
We suspended all prepayment warrant activity until at
least the end of Winter. And we increased volumes of
renewable energy, reopened our Rough gas storage
site and worked with Norwegian partners to secure
gas supplies sufficient to heat 4.5 million homes, which
increases greenhouse gas emissions in the short-term
but was vital to boost energy security and reduce costs
for consumers. Meanwhile, we continued to manage
price volatility through agile hedging policies and
effective demand forecasting.
As we balance different stakeholder needs and the
transition to net zero, we’re doing whatever we can
to help people today and avoid another energy crisis
in the future.
+ Read more onpages 40, 51 and 68
Centrica stories
12 Strategic report | Centrica plc Annual Report and Accounts 2022
Our strategy and business model
Our strategy is driven by our Purpose to
help customers live sustainably, simply and
affordably. We have evolved our strategy
to help meet the challenges of today and
prepare us for a net zero future.
+ Read moreabout our strategy and business
model on
pages 7 to 11
01
Our Strategy &
Business Model
Our strategy is driven by our Purpose to
help customers live sustainably, simply
and affordably.
Energy supply for
residential and small
business customers
in England, Scotland
and Wales
British Gas Energy is
transitioning onto a
new digital platform
to lower cost per
customer and
improve service
Services and
solutions for
residential
customers In
England, Scotland,
and Wales
Services & Solutions
is focused on fixing
delivery and helping
customers with the
energy transition
Bord Gáis is
an established
business with
opportunity to
explore future
growth
Centrica Business
Solutions is
refocusing on its
strengths in supply
and services
and increasing
investment in energy
transition assets
Energy supply
services and
solutions for
residential and
business customers
in the Republic of
Ireland
Energy supply and
low carbon solutions
for businesses,
building and
operating a portfolio
of flexible assets
Focusing on delivery Positioned for growth
Retail Optimisation
Our Strategic
Framework
Retail
We remain relentlessly
focused on providing leading
customer service and
experience helping them to
save money and decarbonise
through innovative offerings.
Optimisation
We are supporting the
responsible buying and
selling of energy, managing
risk across our business and
accessing value from green
generation in our trading
business while continuing to
build out the flexibility required
for the future energy system.
Infrastructure
Investing to build a low
carbon, reliable energy system
including power generating
renewables, flexible peaking
generation and energy
storage through batteries and
geological storage.
Our Values
At Centrica we have clear values that guide us every day and
enable us to succeed in delivering on our Strategy and Purpose for
customers: Care, Collaboration, Courage, Agility and Delivery.
+ Read moreon page 7
People and Planet
Our People & Planet Plan aims to create a more inclusive and
sustainable future. From being a net zero business by 2045 and
helping our customers be net zero by 2050, to creating the diverse
and inclusive team to get there.
+ Read moreon pages 40-54
Our Purpose |
Helping you live sustainably, simply and affordably
As the pace of change continues to accelerate, we are responding
by focusing colleagues and technology on helping businesses
andhouseholds to use energy more efficiently and sustainably.
Werecognise the need to help enable a more flexible energy
system and are deploying a range of technologies to help build the
grid of the future with both electric and hydrogen technologies.
8 Strategic report | Centrica plc Annual Report and Accounts 2022
Energy Marketing &
Trading is an
established business
with proven
capability ready
to grow further
Centrica Storage
has an opportunity
to explore its role
in the future of
hydrogen
Spirit has an
opportunity to
explore its role in the
future of hydrogen
and carbon capture
We have a 20%
minority stake in a
declining portfolio,
Centrica is exploring
further investment in
nuclear generation
Trading and
optimisation of
energy globally,
managing energy
procurement
and risk
Storing and
producing gas to
manage seasonal
demand and energy
security
Oil and gas
production in
existing UK assets
Minority stake in the
UKs portfolio of
existing nuclear
power stations
Nuclear
Creating value from optionality
The Value we create
Customers
Helping our customers live sustainably,
simply and affordably through
investment in services and solutions
alongside our desire to do the rightthing.
Colleagues
Working together to achieve a more
inclusive team where everyone feels
motivated, safe and able to reach their
full potential.
Investors
Evolving our strategy in a sustainable
and responsible way to strengthen the
success of our Company and deliver a
return on investment.
Government and regulators
Enabling the delivery of national priorities
through collaboration on key issues like
decarbonisation, energy security and
affordability.
Suppliers
Ensuring communities benefit from our
business by targeting high standards
across our supply chain and treating
suppliers fairly.
Communities and NGOs
Tackling urgent social and environmental
issues through local and national
partnerships.
+ Read moreon pages 12 to 13 and
pages 68 to 69
in our S172 disclosure
Risk Management
The Group’s Risk Management framework protects Centrica’s
financial, operational and strategic assets by identifying, assessing
and responding appropriately to our key risks and uncertainties.
+ Read moreon pages29-33
Governance
The Group’s governance framework seeks to support the creation
of long-term value by enabling effective decision-making for delivery
of the overarching strategy, as well as ensuring that the views of all
stakeholders are properly considered and that reporting is accurate
and transparent.
+ Read moreon pages56-71
Financial Framework underpinned by
balance sheet strength.
Alongside our Interim Results in July we reinstated a progressive
dividend policy, with dividend cover from earnings moving to
around 2x over time. We also signalled our intent to make efficient
use of capital, including the return of surplus structural capital
to shareholders, and in November launched a £250m share
repurchase programme. We will continue to invest in both organic
growth and capital projects, focused on the energy transition
and net zero. We intend to set out our longer term investment
and return plans alongside our 2023 Interim Results in July.
Our Purpose |
Helping you live sustainably, simply and affordably
Infrastructure
9Strategic report | Centrica plc Annual Report and Accounts 2022
Group Financial Metrics
(Year ended 31 December 2022)
Group adjusted
operating profit
Adjusted net cash
Group statutory operating
(loss)/profit
Group free cash flow
from continuing
operations
Statutory loss and earnings predominantly reflects the impact of falling
commodity prices towards the end of the year, on the value of forward
commodity purchases. This will unwind over future periods.
Group statutory net
cash flow from
operating activities
£3,308m £2,487m
2021 £948m 2021 £1,174m
£1,199m
£(240)m £1,314m
2021 £680m
2021 £954m
Group adjusted
basic EPS
Full year dividend
per share
Group statutory
basic EPS
34.9p
2021 4.1p
3.0p
(13.3p)
2021 –
2021 20.7p 2021 £1,611m
Group Highlights
Strategic Report
1 Group Highlights
2 Chairman’s Statement
4 Group Chief Executive’s Statement
7 Our Purpose, Culture and Values
8 Our Strategy & Business Model
10 Macro Trends
11 Market Changes
12 Stakeholder Engagement
14 Group Chief Financial Officer’s Report
21 Our View on Taxation
22 Business Review
26 Key Performance Indicators
28 Our Principal Risks and Uncertainties
34 Assessment of Viability Disclosure
37 Group Chief People Officer’s Report
39 People and Planet
– Non-Financial Information Statement
– Task Force on Climate-related
Financial Disclosures
Governance
56
Directors’ and Corporate
Governance Report
58 Corporate Governance Statement
– Board of Directors
72 Committee Reports
– Audit and Risk Committee
– Nominations Committee
– Safety, Environment and
Sustainability Committee
– Remuneration Committee
104 Other Statutory Information
Financial Statements
108
Independent Auditor’s Report
121 Group Income Statement
122 Group Statement of Comprehensive
Income
123 Group Statement of Changes inEquity
124 Group Balance Sheet
125 Group Cash Flow Statement
126 Notes to the Financial Statements
225 Company Financial Statements
237 Gas and Liquids Reserves (Unaudited)
238 Five Year Summary (Unaudited)
239 Ofgem Consolidated Segmental
Statement
Other Information
252
Shareholder Information
253 Additional Information
– Explanatory Notes (Unaudited)
258 People and Planet
– Performance Measures
IBC Glossary
Group Operational Metrics
Strong underlying financial performance, with the Company managing
elevated and volatile commodity prices very well.
† Included in DNV Business Assurance Services UK Limited (DNV)’s independent limited assurance
engagement. See page 258 or centrica.com/assurance for more.
(1) Measured independently, through individual questionnaires, the customer’s willingness
to recommend British Gas following an engineer visit.
(2) Restated due to Liquified Natural Gas shipping and the retained Spirit Energy assets in the UK
and the Netherlands moving into scope. See pages 43 and 52.
2
022
2
021
2022
2021
2
022
2
021
2022
2021
British Gas Services & Solutions
– Services Engineer Net
Promoter Score
(1)
Total recordable injury
frequency rate
(per 200,000 hours of worked)
Colleague engagement
Total greenhouse gas
emissions (tCO
2
e)
+64
+60
1.12
1.07
73%
55%
2,007,655
†
1,032,807
(2)
Strategic report | Centrica plc Annual Report and Accounts 2022 1
Scott Wheway
Chairman
Chairman’s Statement
In many ways Centrica’s centrally
important role in the energy market has
been affirmed over the last 12 months.
During times of uncertainty, our size,
strength and responsible approach
has helped provide stability in a crisis
that, despite it being no fault of energy
customers, has left many struggling.
I’m proud of what we’ve managed to achieve over the last year
to stabilise the market. We have taken on more than 700,000
customers from failed energy suppliers since the second half
of 2021. We agreed a deal with Equinor to bring additional gas
supplies to the UK, which has already started delivering enough
gas to heat an additional 4.5 million UK homes over the next three
years. We brought 36 Liquified Natural Gas (LNG) cargoes into the
UK, enough to supply millions of homes. And we have re-opened
our Rough gas storage facility in the North Sea, adding 50% to the
UK’s capacity and boosting the UK’s energy resilience.
All of these actions help incrementally reduce costs for our
customers and strengthen the UK’s energy security.
We’ve also taken more direct action for customers, having created
the largest voluntary energy support fund for customers in the UK,
helping those struggling with rising costs through grants of up to
£1,500. Nobody has done more than Centrica in this space. We
donated more money in grants for support and invested more in
customer service to meet additional demand, than we made in
profit from British Gas Energy.
Outperforming expectations
We’ve been clear that Centrica has been in a period of turnaround
since 2020. In 2022, while we reported a statutory loss, we
delivered strong operational performance, which is reflected in
our underlying financial result. Elevated market prices and volatility
provided favourable market conditions for our Energy Marketing &
Trading business, which continues to play a critical role in storing,
transporting and balancing energy supply across Europe. However,
I am confident that even in a more benign environment we would
have seen adjusted earnings growth, demonstrating our progress
towards delivering the turnaround of Centrica.
I was pleased that we have been able to reinstate the dividend
at a prudent and sensible level. As shareholders you have been
very patient during years of underperformance. The reinstatement,
and the start of a share repurchase programme in November,
underpins the Board’s confidence in the strength of Centrica and
the journey we are on to grow a sustainable business that delivers
for our colleagues, our customers, our shareholders and the UK
asawhole.
Responding to the cost of energy supplier failures
We know that customers are struggling financially in these
challenging economic times. On a number of occasions this year
I have spent time speaking with colleagues who take calls from
our customers. No one couldfail to be touched by some of the
accounts our staff hear every dayof people genuinely struggling
tomake ends meet.
Almost 30 suppliers failed during 2021-2022, leaving the customers
of other suppliers to bear the cost. Given how high customer bills
are already, many simply cannot afford to keep picking up the tab
for the failure of suppliers. This is why we are continuing to engage
with both the UK energy regulator and the Government to put in
place a robust regulatory framework that will deliver a future retail
energy market that is stable and puts at its heart the long-term
interests ofcustomers.
2 Strategic report | Centrica plc Annual Report and Accounts 2022
Strong expertise and capability in risk
management and managing commodity markets
While 2022 has been a challenging year for our retail energy
supply and services businesses, this has been compensated by
the rest of our portfolio, with our Optimisation and Infrastructure
businesses delivering strong operational and financial performance.
This is a demonstration of the resilience that comes from having
a balanced portfolio.
Part of the reason we have been able to manage the storm is
our ability to manage our commodity exposure and risk in core
markets, thanks to the strong expertise and capability we have
built over a number of years within our Energy Marketing &
Tradingbusiness.
With European energy markets increasingly interlinked, it is an
advantage to have expanded our activities outside our core
markets of the UK and Ireland. In total, we now trade in 24 markets
across Europe and employ around 600 colleagues across our main
offices in Aalborg, London, and Antwerp. This is a core platform
forgrowth within thebusiness.
The important role of natural gas in the net
zerotransition
The significant increase in energy costs was born not just of the
conflict in Ukraine, which has created greater uncertainty in energy
markets, but also the premature disinvestment in natural gas driven
by the urgent necessity to move away from carbon-emitting assets.
The net zero transition is happening at pace, but the reality is
that given current capacity and the time it takes to build new
infrastructure, the combination of solar, wind, nuclear and battery
storage are not yet sufficiently developed to allow us to turn our
back on gas completely.
It is likely that for the next 15 years methane will continue to play
a role as a transition fuel. On one hand, by helping to keep UK
homes warm, and on the other providing vital balance to support
the growth of renewables. At present, around 40% of the UK’s
power comes from gas-fired turbines, which are typically brought
online to fill the gap when renewables aren’t generating sufficiently
to meet our needs.
Although this figure is likely to decrease year on year, as more
renewable assets are built and technologies develop, gas is likely
tocontinue to play an important role for the foreseeable future –
playing a vital balancing role in energy markets.
Transitional times for energy
A strong and responsible Centrica is uniquely placed to help see
usthrough to the next phase of the energy transition.
The roll-out of net zero technology remains at a nascent stage,
nevertheless we installed around 8,000 electric vehicle charging
points and nearly 50,000 hydrogen blend ready boilers last year.
And while demand hasn’t been as high in 2022 as we’d hoped,
we still installed more heat pumps than any other supplier in the
UK and we’ve got plans to significantly ramp up roll-out through
our British Gas Net Zero Ventures business which has launched
amarket-leading price guarantee to tackle affordability.
It’s estimated around £500 billion could need to be spent on
transforming the UK and Ireland’s housing stock for net zero.
Having the largest engineering force in the industry positions
ustodeliver a significant proportion of those upgrades.
We are laying the groundwork by growing our apprenticeship
programme and providing world-class engineer training in
ouracademies – to help develop the right capabilities for future
netzero driven growth. This gives us confidence for the future
ofour services business.
We’re excited too about the role that hydrogen can play in energy
generation, heating homes and decarbonising transportation.
Hydrogen represents an opportunity for the UK to return to energy
independence. But it will need long-term thinking beyond the usual
political cycles, as well as both public and private investment to
deliver at the scale and pace required. We’re in a race with other
developed economies for first mover advantage and the rewards
for the winner could be very attractive.
Without question, a combination of technologies will be required,
creating opportunities for companies with strong balance sheets,
flexible business models and detailed knowledge of markets.
In summary
This year’s strong performance demonstrates the new resilience
ofCentrica, showing our ability to trade through difficult times
whileproviding support to our customers struggling with the
cost of living crisis.
There is still work to do, and we haven’t got everything right,
butwe’re striving to improve.
Centrica is evolving into a new type of integrated energy company
using our strong established positions in retail, optimisation and
infrastructure. These capabilities and our financial strength are a
result of the magnificent work of every member of the Centrica
team and I want to take this opportunity to thank them for
everything they have done for our customers, shareholders
and our wider stakeholders in 2022.
Scott Wheway, Chairman
15 February 2023
3Strategic report | Centrica plc Annual Report and Accounts 2022
Group Chief
Executive’s Statement
Chris O’Shea
Group Chief
Executive
When I wrote to you last year, I said it
appeared that this decade may be one
of the most eventful for a long time,
onewhere we learn and adapt more
quickly than we’ve done in the past.
I’msure you’ll agree that 2022 was
another year where the unexpected
became the norm!
It’s hard to look at a news site or watch a news programme
withoutseeing a mention of ‘global warming’, ‘climate change’,
‘netzero’, ‘energy transition’ or ‘decarbonisation’. And it’s difficult
to know what to think – is it a real threat? Is it exaggerated?
Whatdoes it mean for society, and for your Company, both today
and in the future?
My belief is that climate change is the biggest single threat facing
civilisation today, and net zero is the biggest single opportunity
wehave at Centrica.
Climate change is real, it’s here, and it’s impacting lives across the
planet. We can see that clearly with changing weather patterns.
Reducing the carbon we put into the atmosphere is the best way
tostop the march towards a climate catastrophe. Transforming
how we generate, store and use energy can make a huge
difference to reducing the warming of our planet.
Longer term, if the net zero transition is thoughtful and targeted,
itcan keep prices stable for customers and drive economic growth,
especially for those companies and countries at the forefront of
thetransition.
Russia’s invasion of Ukraine led to an energy crisis on a scale not
seen in decades. Using our agility, skills and assets to support
energy security in our core markets of the UK and Ireland and
help customers navigate through the cost of living crisis has been
mission critical.
Protecting vulnerable customers is also an absolute priority and we
have clear processes and policies to ensure we manage customer
debt carefully and safely. We need to strike a balance between
managing spiralling bad debt and being aware that there are those
who refuse to pay and those who cannot pay.
However, allegations around a third-party contractor
were unacceptable. I was deeply concerned to hear how
somevulnerable customers appeared to be treated in our name,
this is simply not how we should do business. We will get to the
bottom of this and where we got it wrong, we’ll make it right.
No one else in the industry has put in place the level of support
for those struggling to pay that we have. We were right to invest
in customer care and to set up a £50 million support fund for
vulnerable customers. We have taken the decision to suspend
prepayment warrant activity and have called on Government,
industry and the regulator to come together to agree a long-term
plan to address the issue of affordability and the needs of
vulnerable customers and, ultimately, create an energy market
that issustainable.
Uniquely integrated
Your Company is a uniquely integrated energy company operating
primarily in the UK and Ireland, active in both energy and related
services. We operate across the energy sector with distinct but
complementary businesses.
• We Make it – Producing gas at Spirit Energy and generating
electricity through our Nuclear stake and in Centrica Business
Solutions
• We Store it – Both gas storage through Centrica Storage Limited
and electricity storage in our Centrica Business Solutions battery
projects
• We Move it – Our Energy Marketing & Trading team is one
ofEurope’s largest wholesalers of gas and electricity
• We Sell it – Over 8 million homes are supplied with gas
andelectricity through British Gas and Bord Gáis Energy
• We Mend it – We install and maintain heating systems
in more than 3 million homes
No other company is as comprehensively involved in the UK &
Ireland energy markets and as well placed to both drive, and
benefit from, the energy transition. In 2022, we have been busy
dealing with the energy crisis in Europe and its impact on our
customers, investing in improved customer service, simplifying our
business, growing our workforce for the future, and empowering
our colleagues to deliver for our customers – happy colleagues
mean happy customers, which leads to happy shareholders.
4 Strategic report | Centrica plc Annual Report and Accounts 2022
Progress made in 2022
Every one of our eight business units has substantial growth
opportunities, whether it’s growing customer numbers and new
customer offerings in our Retail businesses; expanding both our
Liquefied Natural Gas (LNG) business and our Route-to-Market
activities for third-party power producers in our Optimisation
businesses; or growing both our gas and electricity storage and our
electricity generation capacity in our Infrastructure businesses.
In order to capture these opportunities, we needed to make sure
our foundations were solid so that whatever we build is sustainable.
Some of our businesses are further on than others, and you can
see from the results that 2022 has been a year of building on the
foundations we laid in 2020 and 2021, and starting to show that
we can grow again.
The glue that holds our Group together is our Energy Marketing &
Trading business, matching our energy production to our customer
needs and making sure we have access to additional third party
gas and electricity where needed to make up any shortfall. Our
operations are critical to security of supply across Europe, and
the team did an amazing job in 2022, making sure that we had
enough gas and electricity to supply our customers. They secured
gas from Norway and the USA amongst other countries, and
electricity from the Nordics, Spain, France, Belgium and elsewhere,
helping to maintain supplies for homes and businesses in the UK
and Ireland. We put well over £1 billion of gas into storage across
Europe to withdraw in 2023 when customers need it most, and
we continued to play a major role in balancing physical gas and
electricity markets across many European countries. This team of
around 600 colleagues, based in the UK and Denmark, sit in the
background quietly doing their work to make sure countries have
the right amount of gas and power in the right place at the right
time, moving gas around the world on ships as LNG or through
pipelines in Europe, and moving power through the cables and
interconnectors which connect different European power markets.
In British Gas Energy, we grew our customer numbers organically
for the first time in many years. We now have more than 2 million
customers on our new cloud-based IT platform and I’m looking
forward to accelerating the transition of customers during 2023.
This is not only to give our customers better service, but to allow
us to use an integrated system which will allow households to
dynamically manage their energy use and earn new revenue
streams by what is known as Demand Side Response (DSR).
British Gas Services and Solutions completed the first year of
its turnaround. We made material investments in improving our
customer service, and whilst this means that this year’s financial
performance is disappointing, we leave 2022 with our operations
in a stronger place than they have been for many years. In 2023,
our efforts will be on maintaining the operational improvements
and rebuilding commercial offerings to our customers, focused on
what they want to buy. Undoubtedly the current cost of living crisis
has had an impact on customer demand in 2022, and whilst this
is expected to continue into 2023, we believe that longer term, this
business will be at the forefront of the UK’s journey to net zero.
The building blocks are being put in place with the formation of
the British Gas Net Zero Ventures team, which is already delivering
greater flexibility for customers through the launch of Peak Save,
as well as installing the electric vehicle (EV) charge points and
heat pumps that put our customers at the very heart of residential
decarbonisation, and in greater control of their energy future.
Bord Gáis Energy performed well in the year, demonstrating the
value of vertical integration as we invested some of the additional
profits from our Whitegate power station in keeping customer
prices as low as we could. During the year we took the decision to
invest €250 million in two new hydrogen-ready gas-fired electricity
plants to bring much-needed flexible and readily available electricity
to the Irish market.
On Wednesday 20 July 2022 parts of East London
came perilously close to a blackout due to surging
electricity demand combined with a still day which
meant wind farms were not turning.
Our Energy Trading & Marketing team did what they
do many times a day and found a solution, which
played an important role in ensuring that the lights
stayed on and homes and businesses could continue
with their daily operations. Because we operate
across the continent, we were able to move electricity
from Belgium, where conventional electricity plants
were fired-up and the electrons propelled back across
the channel. All of this happened in under two hours.
We provide 15% of the traded volume that the UK
electricity grid relies upon. Every year we are playing
a more significant role as the energy makers and
movers that keep the wheels turning. We currently
manage more than 15GW of third-party electricity
generation assets, with everything from solar farms
to grid-scale batteries helping to put power where
it’s needed. Our team in Denmark help to physically
balance gas and power markets across Europe and
our team in Belgium operates one of Europe’s biggest
virtual power plants, combining thousands of assets
to provide the flexibility grid operators need.
When we set out on the turnaround of Centrica three years
ago, we had a clear view of the three stages:
1. Simplifying the portfolio and strengthening
the balance sheet;
2. Stabilising the Company and driving operational
performance; and
3. Delivering growth and positioning ourselves for net zero.
Energy Movers by Nature
Demand Side
Response
When there’s not enough
electricity on the grid, consumers
can be paid to reduce demand,
thus helping balance the grid.
5Strategic report | Centrica plc Annual Report and Accounts 2022
Centrica Business Solutions delivered a profit, made material
progress towards building out its 900MW target of flexible
generating assets and has an exciting, diverse pipeline of projects.
In our Infrastructure businesses I was delighted that we were
able to return the Rough gas field in the North Sea to storage
operations in September, and withdrew the first gas from storage
for five years on 30 November. Whilst only at 20% of its previous
capacity, this is a critical first step to underpin the return to full
capacity, and an investment of up to £2 billion to build the world’s
largest hydrogen storage facilities right here in the UK. Spirit
Energy had a strong year in gas production, while also beginning
to prepare for a carbon-free future by submitting an application for
a carbon storage licence for the huge Morecambe Bay gas field in
the East Irish Sea. This is the first step towards building what could
be one of the world’s largest carbon storage facilities. And our
Nuclear electricity generation business had a strong year, delivering
higher volumes and profits in2022.
Managing responsibly for all stakeholders
Companies have a responsibility to make sure they are a
constructive and responsible part of society, and at Centrica
we are focused on delivering for all stakeholders – including
colleagues, customers, communities and our shareholders.
We are supporting our 20,000 colleagues through these
challenging times, including through the payment of two significant
one-off cost of living payments. For customers, we provided by
some distance the largest ever energy support package in the
UK and Ireland. And we’ll continue to review what more we can
do as times remain hard for many customers, having committed
to donate 10% of both British Gas Energy and Bord Gáis Energy’s
profits to help until the current crisis is over.
We donated £4.5 million to a number of charities, including over
£1million to the Disasters Emergency Committee Ukraine fund.
Wealso took the decision in January to return £27 million received
in 2020 from the UK Government under the furlough scheme.
I also feel it’s important that we continue to be good neighbours
in the communities we serve. This has seen us commit to give
100,000 volunteering days into local communities by 2030, as
part of our People & Planet goals. All of our colleagues can use
15hours of their time each year to support local communities.
And we also delivered for our shareholders – restarting dividend
payments and commencing our £250 million share repurchase
programme.
Reflecting on our 2022 financial performance
While a detailed breakdown of our financial performance is within
the Group Chief Financial Officer’s Report on pages 14 to 20,
Iwould like to briefly reflect on a year which has seen us expertly
navigate volatile trading conditions.
Our Purpose
Helping you live sustainably,
simply and affordably. This
is our Purpose – it’s why we
come to work every day.
The Group’s adjusted earnings per share from continuing
operations reached 34.9 pence, up from 4.1 pence during the
previous year, as we delivered strong performance in Energy
Marketing & Trading and our Upstream businesses. Free cash
flowwas also up significantly, and we closed the year with
£1.2 billion of adjusted net cash.
Continuing what we started
Last year, I noted that our people had started to adopt a winning
mindset, and I have seen that our passion and determination to
succeed continued to build momentum throughout 2022. We have
a plan of action underpinned by our Purpose, and customers are
atthe heart of it.
We’ll continue to focus on the end goal; by doing that, we’ll put
ourselves in the best position to drive further improvements in our
performance and ultimately deliver long-term shareholder value.
We’ll continue to do all we can to support colleagues and
customers through difficult, uncertain times. And we’ll continue
to see the opportunities where others see the obstacles, moving
faster than the competition to deliver an energy transition which
leaves no one behind. I expect to see material progress in growing
our market share in the residential net zero arena with heat pumps
and EV chargers, as well as the expansion of the demand side
response part of our business, from one which primarily focuses
on B2B customers to one which ultimately sees a huge proportion
of our customers being able to earn money for turning down their
electricity demand. This is the future for energy markets – smarter,
more interconnected energy systems. And your Company has
everything needed to deliver this system and make it simple,
sustainable and affordable for our customers.
It is a huge privilege to be your Chief Executive, to lead an
incredible team of 20,000 colleagues, to serve over 10 million
amazing customers and to work for over 450,000 incredible
shareholders. I’m so very grateful for your support, and your
patience, as we continue to transform your Company.
Chris O’Shea, Group Chief Executive
15 February 2023
6 Strategic report | Centrica plc Annual Report and Accounts 2022
Our Purpose, Culture
and Values
Care
We care deeply about
our impact on the
planet, our customers
and our colleagues.
We want to make a
difference to society
and the safety and
well-being of our team
and customers is
paramount
Delivery
We do things right
and deliver for all of
our stakeholders
At Centrica we are strongly led by our Purpose – “to
help customers live sustainably, simply and affordably”.
Our Strategy is driven by our Purpose and our
enduring Values at Centrica underpin our delivery and
culture. Whilst we have evolved our Strategy to help
meet the challenges of today and prepare us for a net
zero future, our Values remain firmly embedded in who
we are and give direction to everything we do.
Our Values
We are delivering
crucial support for
customers through
the volatile market
conditions and
exceptional cost of
living crisis delivering
material,targeted
support including
through funding the
British Gas Energy
Trust and committing
10% of our energy
profits to help those
who need it.
We collaborate
closely across
our businesses
to understand
how our Group
is exposed and
responding to the
climate challenge.
Our ability to draw
insights effectively
between our
businesses through
close collaboration
is demonstrated
by our strong
performance in
climate disclosures.
We’ve stepped
up to support the
UK’s security of
supply, reinstating
the Rough field as
gas storage. We
recognise the long-
term needs for the
UK and will invest in
long-term security
and decarbonisation
throughhydrogen
and carbon capture.
Our Optimisation
businesses have
rapidly responded
to volatile
energy markets,
managing risk
across our Group
and proactively
supporting our
customers through
access to scale
long-term gas supply
and Liquified Natural
Gas deals.
We value delivering
great service and
customer outcomes.
We are rigorous, and
do things the right
way. We have been
recognised by Ofgem
as a well run supplier,
been protecting
customers’ credit
balances and
invested an additional
£25 million in
customer service
through the crisis.
Collaboration
Together we win,
we build winning
relationships
throughout our own
organisation and with
others to deliver on
the scale challenges
the industry faces
Courage
We step up and
take responsibility.
We recognise the
importance of
challenging the industry
to make difficult
decisions for our
future and we stand
by our beliefs
Agility
We are nimble, curious
and innovative; we
adapt to our markets
rapidly and seek
out opportunities to
support the system
and succeed
7Strategic report | Centrica plc Annual Report and Accounts 2022
Our Strategy &
Business Model
Our strategy is driven by our Purpose to
help customers live sustainably, simply
and affordably.
Focusing on delivery Positioned for growth
Retail Optimisation
Our Strategic
Framework
Retail
We remain relentlessly
focused on providing leading
customer service and
experience helping them to
save money and decarbonise
through innovative offerings.
Optimisation
We are supporting the
responsible buying and
selling of energy, managing
risk across our business and
accessing value from green
generation in our trading
business while continuing to
build out the flexibility required
for the future energy system.
Infrastructure
Investing to build a low
carbon, reliable energy system
including power generating
renewables, flexible peaking
generation and energy
storage through batteries and
geological storage.
Our Values
At Centrica we have clear values that guide us every day and
enable us to succeed in delivering on our Strategy and Purpose for
customers: Care, Collaboration, Courage, Agility and Delivery.
+ Read moreon page 7
People and Planet
Our People & Planet Plan aims to create a more inclusive and
sustainable future. From being a net zero business by 2045 and
helping our customers be net zero by 2050, to creating the diverse
and inclusive team to get there.
+ Read moreon pages 40-54
Our Purpose |
Helping you live sustainably, simply and affordably
As the pace of change continues to accelerate, we are responding
by focusing colleagues and technology on helping businesses
andhouseholds to use energy more efficiently and sustainably.
Werecognise the need to help enable a more flexible energy
system and are deploying a range of technologies to help build the
grid of the future with both electric and hydrogen technologies.
8 Strategic report | Centrica plc Annual Report and Accounts 2022
Nucle ar
Creating value from optionality
The Value we create
Customers
Helping our customers live sustainably,
simply and affordably through
investment in services and solutions
alongside our desire to do the rightthing.
Colleagues
Working together to achieve a more
inclusive team where everyone feels
motivated, safe and able to reach their
full potential.
Investors
Evolving our strategy in a sustainable
and responsible way to strengthen the
success of our Company and deliver a
return on investment.
Government and regulators
Enabling the delivery of national priorities
through collaboration on key issues like
decarbonisation, energy security and
affordability.
Suppliers
Ensuring communities benefit from our
business by targeting high standards
across our supply chain and treating
suppliers fairly.
Communities and NGOs
Tackling urgent social and environmental
issues through local and national
partnerships.
+ Read moreon pages 12 to 13 and
pages 68 to 69in our S172 disclosure
Risk Management
The Group’s Risk Management framework protects Centrica’s
financial, operational and strategic assets by identifying, assessing
and responding appropriately to our key risks and uncertainties.
+ Read moreon pages29-33
Governance
The Group’s governance framework seeks to support the creation
of long-term value by enabling effective decision-making for delivery
of the overarching strategy, as well as ensuring that the views of all
stakeholders are properly considered and that reporting is accurate
and transparent.
+ Read moreon pages56-71
Financial Framework underpinned by
balance sheet strength.
Alongside our Interim Results in July we reinstated a progressive
dividend policy, with dividend cover from earnings moving to
around 2x over time. We also signalled our intent to make efficient
use of capital, including the return of surplus structural capital
to shareholders, and in November launched a £250m share
repurchase programme. We will continue to invest in both organic
growth and capital projects, focused on the energy transition
and net zero. We intend to set out our longer term investment
and return plans alongside our 2023 Interim Results in July.
Our Purpose |
Helping you live sustainably, simply and affordably
Infrastructure
9Strategic report | Centrica plc Annual Report and Accounts 2022
Macro Trends
We continue to face into
the biggest challenge our
industry, Government
and customers have
faced – climate change.
Our ultimate long-term
ambition is to support
the transition to net
zero by developing the
green economy, finding
sustainable solutions for
customers, and ensuring
a just transition.
The need to decarbonise
How we’re responding
• Investing in green and flexible generation and
storage through a range of participation models
• Developing potential options for scale investment
in low carbon infrastructure supporting the
system today and in the future
• Helping customers on their decarbonisation
journeys, installing heat pumps and electric
vehicle chargers while exploring the future
of hydrogen
The energy system of
the future will need to be
flexible, creating a greener
and more intelligent grid
alongside increasingly
connected demand in
customers’ homes and
businesses is our ultimate
vision. We continue to
develop our market-
leading solutions to enable
this future.
Enabling system flexibility
How we’re responding
• We are optimising the buying and selling of
renewable power through our trading business
• Our leading connectivity and optimised
trading technology is being embedded in our
customer solutions and systems
• Through Hive we are bringing customers
along the journey and building solutions that
allow them to be active participants in helping
manage the UK’s energy system, accessing
rewards, saving costs and decarbonising
Consumers continue
to be at the core of
our priorities with our
focus being providing
the best service and
cost competitiveness
throughout the transition,
while providing the
confidence and tools to
enable the roll-out of the
technology of the future.
The need to support consumer change
How we’re responding
• Through digitalising our energy and services
businesses with new, flexible platforms we will
be able to ensure our customers have access
to quality service at an affordable price
• We are committed to enabling the transition to
net zero and will continue to provide the best
energy and heating solutions to our customers,
tailored to their homes and businesses
• We advocate for the policy changes needed
to reach net zero and drive the market on our
customers’ behalf
10 Strategic report | Centrica plc Annual Report and Accounts 2022
Market Changes
The rapidly rising cost
of living poses a major
near-term challenge
that affects our
customers, colleagues
and our business.
Cost of living crisis
How we’re responding
• Providing vulnerable customers with the support
they need with £50 million in donations, including
through the British Gas Energy Trust and the
British Gas Energy Support Fund
• Helping customers lower their consumption and
save on their bills with innovative products in Hive
• Striving to complete the transformation of our
business, lowering costs for customers while
continuing to provide the energy and services
they need
• We are passionate about protecting and
rewarding our colleagues with fair pay deals
This year has seen
unprecedented
volatility in global
energy markets directly
impacting the prices of
the gas and power we
buy for our customers.
Energy market volatility
How we’re responding
• We have used our Optimisation businesses
to help manage risk across the Group and
responsibly procure energy for our customers
• We’ve acted responsibly in our supply
businesses ensuring we hedge our customers’
demand and ring fence credit balances to
protect their money
• We’ve continued to invest in flexible generation
which will help reduce and stabilise energy
costs in the long term
Geopolitical tensions
and rising prices
have created security
of supply concerns
and risks of energy
shortages globally.
System security
How we’re responding
• Helping to keep our customers warm by
signing scale long-term purchasing agreements
for the import of European gas and US LNG
into the UK
• Converting the Rough facility back to gas
storage supporting supply security for homes
and businesses
• Both directly and indirectly investing in bringing
online additional green, low cost generation
capacity
• Continuing to explore long-term scale
investments in nuclear which will provide
reliable baseload power
11Strategic report | Centrica plc Annual Report and Accounts 2022
Engaging a diverse range of
stakeholders enables us to deliver on our
strategic objectives by understanding
risks and opportunities better, whilst
creating stronger outcomes for people
and planet.
Stakeholder
Engagement
Energy is at the heart of everyone’s lives. So our actions can have
a big impact on a broad range of stakeholders. That’s why we
strive to collaborate with all of our stakeholder groups to effectively
understand, consider and evolve our strategy in a way that meets
their expectations. This not only aids the success of our business
by enabling us to deliver on our Purpose of helping our customers
live sustainably, simply and affordably, but it allows us to maximise
the wider positive contribution we can make to society.
Engagement is often led by our senior leadership team who
regularly update the Board through briefings and presentations.
As a result, the Board is well-placed to consider the long-term
consequences of its decisions from the perspective of a range
ofstakeholders.
Section 172(1) Companies
Act 2006 Statement
The Directors consider that they have performed their
duty as stipulated under Section 172, to promote the
success of the Company for the benefit of all of our
stakeholders throughout its decision-making.
These pages set out our key stakeholders together
with an example of how engagement was vital to
navigating one of the most material issues faced in
2022. Further detail on how the Board engages and
balances the needs of different stakeholders, together
with the key decisions made in 2022, can be found
in the Governance section.
+ Read more about how we considered the interests
of different stakeholdersin the Governance section on
pages 68 to 71
Helping people with their energy bills in
the UK
In 2022, the energy market faced unprecedented
challenges as the war in Ukraine constricted already
tight global energy supplies, causing energy costs
to soar. With the duration of the energy crisis
unknown, rising energy bills have been a real worry
for many. We’ve therefore worked with stakeholders
to understand what we can do to help, enabling the
Directors to take swift action.
To ensure customers can get in touch more easily,
we invested £25 million in customer service with the
recruitment of 700 additional UK-based agents, who
have guided customers through the crisis with expert
advice and support.
And on top of the millions of pounds we already provide
in energy bill support, the Directors recognised that
more needed to be done. So we committed £50 million
to help people with their energy bills, including through
our promise to donate 10% of British Gas Energy’s
profit for the duration of the crisis. This enabled us to
establish the UK’s largest voluntary customer support
package. Of this, £25 million was given to the British
Gas Energy Trust to create a dedicated cash support
fund for customers and to help communities. To reach
those who needed it most, we collaborated closely
with the Trust by running a marketing campaign
urging people not to suffer in silence, volunteered at
over 100 Post Office Pop-Ups at over 50 locations
to share advice at the heart of communities, and
collaborated with charities like StepChange, to help
more people access support. The remaining £25 million
is administered by British Gas and largely supports
prepayment customers and businesses with grants.
At the same time, the Directors alongside specialists in
Corporate Affairs and Regulatory Affairs worked at pace
with the UK Government and Ofgem. Parliamentarians
were engaged to ensure they were up-to-date with
the support available via information leaflets, meetings
and drop-in sessions. Together, we also worked on
short and longer-term improvements to achieve a
more robust and sustainable market for consumers.
We suspended all prepayment warrant activity until at
least the end of Winter. And we increased volumes of
renewable energy, reopened our Rough gas storage
site and worked with Norwegian partners to secure
gas supplies sufficient to heat 4.5 million homes, which
increases greenhouse gas emissions in the short-term
but was vital to boost energy security and reduce costs
for consumers. Meanwhile, we continued to manage
price volatility through agile hedging policies and
effective demand forecasting.
As we balance different stakeholder needs and the
transition to net zero, we’re doing whatever we can
to help people today and avoid another energy crisis
in the future.
+ Read more onpages 40, 51 and 68
Centrica stories
12 Strategic report | Centrica plc Annual Report and Accounts 2022
Our Key
Stakeholders
Customers
Importance – It’s vital that we listen to our customers
and act on feedback so that we can understand what
they want and need. This will enable us to satisfy existing
customers and attract new ones too.
Main focuses – Energy efficient and low carbon services and
solutions, customer service, energy prices and bill support.
Engagement – We mainly engage through focus groups, surveys,
proposition and usability testing amongst other channels. In
response, we’re investing in sustainable services and solutions that
help our customers save time, money and energy. And we provide
extra support for those who need help with their energy bills.
+ Read moreon pages 12, 22 to 23, 40, 44 and 68 to 69
Colleagues
Importance – Colleague feedback helps us create a
team where everyone can be themselves and thrive.
In doing so, we can attract, promote and retain more
diverse talent to meet the needs of our customers.
Main focuses – Reward, development, diversity and inclusion,
safety, business strategy and transformation.
Engagement – Feedback is sought through channels like our
Shadow Board of diverse colleagues who regularly meet leaders,
townhalls, quarterly engagement surveys, performance reviews and
structured engagements with trade unions. Together, we’re working
to co-create a fair, safe and inclusive environment by rolling out our
inclusion action plan alongside initiatives including training, policy
development and colleague benefits.
+ Read moreon pages 6, 37 to 38, 40 to 42, 44 and 68 to 71
Investors
Importance – Shareholders and debt holders from
across the world provide funds that help us run and grow
our business.
Main focuses – Financial and operational performance,
shareholder returns and dividend, strategy and growth, and
Environmental, Social and Governance (ESG) factors like net zero.
Engagement – Engagement with investors occurs throughout the
year, predominantly via post-result investor roadshows, the Annual
General Meeting (AGM), and ad-hoc meetings. We also respond to
information requests and assessments from ESG ratings agencies.
This enables us to consider and reflect the views of a diverse range
of investors when updating on our strategy, to provide a sustainable
return on investment.
+ Read moreon pages 46, 57 and 68 to 70
Government and Regulators
Importance – Government and regulatory policies
can have a significant impact on how we do business.
The Directors therefore recognise the importance of
working closely to deliver a stable regulatory environment where
policy is developed in the interests of consumers, whilst enabling
asustainable and investable market.
Main focuses – Market design, customer service, net zero, skills,
energy security and energy prices.
Engagement – Expertise is shared through participation in
consultation processes, meetings and site visits. Through these
interactions, we can effectively support policy development
and reforms to help deliver on key issues like energy security,
progressing net zero targets and support for vulnerable customers.
+ Read moreon pages 12, 43, 46 and 68 to 69
Suppliers
Importance – The Directors fully support collaboration
across our 3,500-strong supply chain. This reduces
risk in our supply chain by targeting high standards of
business conduct whilst securing a stable supply of
services and solutions for customers.
Main focuses – Payment practices as well as social and
environmental compliance on issues like human rights.
Engagement – We interact with suppliers in many ways such as
tendering, surveys, site inspections and remote worker surveys.
Through engagement, we ensure we pay suppliers fairly and
enforce our Responsible Sourcing Policy which sets out ways of
working to benefit communities and the environment, including
obligations under anti-modern slavery laws.
+ Read moreon pages 44 and 68
Communities and NGOs
Importance – Communities expect companies to
support issues that are important to them. By working
alongside charities, non-governmental organisations
(NGOs) and community groups, we can create stronger
and more inclusive communities.
Main focuses – Tackling urgent social and environmental issues
like fuel poverty and net zero.
Engagement–Through meetings and collaborative research
projects, the Board understands community issues and is able to
determine how we can make a big difference – from donating to
the British Gas Energy Trust to provide advice and grants alongside
energy efficiency measures that help people with their energy bills,
to volunteering and match funding for local schools, hospices
andmore.
+ Read moreon pages 12, 40, 42 and 68
13Strategic report | Centrica plc Annual Report and Accounts 2022
Group Chief Financial
Officer’s Report
Financial overview
The environment was unprecedented in 2022, with high and
volatile commodity prices being a key driver of the Group’s financial
performance, position and cash flow. The Group’s adjusted
operating profit was £3.3bn (2021: £0.9bn), with Energy Marketing
& Trading (EM&T) increasing to £1.4bn (2021: £0.1bn) as we
managed commodity volatility very well, and Upstream increasing
to £1.8bn (2021:£0.7bn), a reflection of high market prices. British
Gas Energy adjusted operating profit of £0.1bn was slightly lower
than in 2021, reflecting voluntary support given to customers during
the year. The Group’s adjusted EPS was 34.9p (2021: 4.1p).
The Group’s total Free Cash Flow (FCF) from continuing operations
rose to £2.5bn (2021: £1.2bn), reflecting the higher adjusted
operating profit and some big swings in working capital, including
a £1.1bn inflow due to accelerated cash flows in British Gas Energy
from government support schemes, offset by a £1.2bn outflow in
EM&T, with a large proportion of profit in EM&T expected to settle
from a cash perspective in 2023 and a significant year-on-year
increase in gas held in storage. The reopening of the Rough asset
also led to a £0.4bn outflow as we bought gas held in storage
in the Upstream segment.
Kate Ringrose
Group Chief
Financial Officer
Our underlying financial performance
was strong in 2022, with significant
improvements in adjusted operating
profit, adjusted earnings per share and
free cash flow. Our balance sheet is in
a much more robust place now than it
was two years ago, providing us with
cash agility and resilience against the
current volatile environment, and the
ability to respond to attractive investment
opportunities aligned to the energy
transition when they arise. And I’m
pleased we were able to recommence
returns to shareholders in 2022, with
the restart of our dividend and the launch
of a share repurchase programme.
14 Strategic report | Centrica plc Annual Report and Accounts 2022
From a statutory perspective, the numbers include a large certain
re-measurement loss during the year of £3.4bn (2021: £1.2bn)
which, when added to business performance adjusted operating
profit, leads to an overall statutory operating loss of £0.2bn (2021:
£1.0bn gain). The certain re-measurement loss is predominantly
because our net buy portfolios (mainly for future downstream
supply requirements) bought forward commodity when prices were
high, and market prices then fell towards year-end, thus leading
to losses on the re-measurement of those derivatives on the
balance sheet. In addition, commodity derivatives that had been
in-the-money at the end of FY21 unwound to the middle column
as certain re-measurements. These losses of £5.2bn were partially
offset in the middle column of the income statement by a significant
£1.8bn positive movement in the onerous supply contract provision
over the course of 2022. None of the items reported in the middle
column are considered to reflect the underlying performance of the
business as they are economically related to our upstream assets,
capacity/off-take contracts or our downstream demand, which are
typically not fair valued, and hence they are reported in a separate
performance column in the Income statement.
The Group’s net assets fell to £1.3bn (2021: £2.8bn) as a result
of the statutory loss, in addition to the impact of items reported in
other comprehensive income or directly in equity, which include
IAS 19 pension losses arising from our equity accounted Nuclear
investment (£0.3bn), the share buyback programme (£0.3bn)
and dividend payments to both shareholders and non-controlling
interests (£0.3bn).
From a statutory cash flow perspective, net cash flow from
operating and continuing investing activities was £0.7bn
(2021:£1.3bn). This was lower than the Free Cash Flow balance
noted above because of the exclusion from that measure of
movements in variation margin and collateral (£1.2bn) to support
our commodity hedging activity and the trading business, pension
deficit payments (£0.2bn) and a loan to the pension scheme
(£0.4bn).
Revenue
Group statutory revenue increased by 61% to £23.7bn
(2021:£14.7bn). Group revenue included in business performance,
which includes revenue arising on contracts in scope of IFRS 9
(see note 4b for further details) increased by 84% to £33.6bn
(2021:£18.3bn).
Gross segment revenue, which includes revenue generated from
the sale of products and services between segments, increased
by 82% to £37.2bn (2021: £20.5bn). This was driven largely by the
impact of higher wholesale commodity prices on Energy Marketing
& Trading and Upstream, and the impact of higher wholesale prices
on retail tariffs in British Gas Energy, Bord Gáis Energy and Centrica
Business Solutions.
A table reconciling the different revenue measures is shown in the
table below:
2022 2021
Gross
segment
revenue
£m
Less inter-
segment
revenue
£m
Group
revenue
£m
Gross
segment
revenue
£m
Less inter-
segment
revenue
£m
Group
revenue
£mYear ended 31 December
British Gas Services & Solutions 1,527 (50) 1,477 1,513 (53) 1,460
British Gas Energy 13,096 – 13,096 7,513 – 7,513
Bord Gáis Energy 1,771 – 1,771 1,111 – 1,111
Centrica Business Solutions 3,000 (19) 2,981 1,981 (28) 1,953
Energy Marketing & Trading 14,441 (219) 14,222 6,082 (214) 5,868
Upstream 3,351 (3,261) 90 2,282 (1,887) 395
Group revenue included in business performance 37,186 (3,549) 33,637 20,482 (2,182) 18,300
Less: revenue arising on contracts in scope of IFRS 9
included in business performance
(9,896) (3,556)
Group revenue 23,741 14,744
15Strategic report | Centrica plc Annual Report and Accounts 2022
Operating profit/(loss)
Adjusted operating profit increased to £3,308m (2021:£948m). Excluding the disposed Spirit Energy assets, adjusted operating profit
increased to £2,823m (2021: £392m). The statutory operating loss from continuing operations was £240m (2021: profit of £954m).
Thedifference between the two measures of profit relates to exceptional items and certain re-measurements, which are explained
on pages 17 to 18. A table reconciling the different profit measures is shown below:
2022 2021
Business
performance
£m
Exceptional
items and
certain re-
measurements
£m
Statutory
result
£m
Business
performance
£m
Exceptional
items and
certain re-
measurements
£m
Statutory
result
£mYear ended 31 December Notes
Continuing operations
British Gas Services & Solutions (9) 121
British Gas Energy 72 118
Bord Gáis Energy 31 28
Centrica Business Solutions 44 (52)
Energy Marketing & Trading 1,400 70
Core EM&T 1,381 155
Legacy gas contract 19 (85)
Upstream 1,308 107
Spirit Energy (retained) 245 68
Centrica Storage 339 77
Nuclear 724 (38)
Profit Share (23) —
Total Group excluding Spirit Energy disposed assets
2,823
392
Spirit Energy disposed assets 485 556
Group operating profit/(loss)
4(c)
3,308 (3,548) (240) 948 6 954
Net finance cost
8
(143) — (143)
(187) — (187)
Taxation
9
(1,046) 793 (253) (454) 236 (218)
Profit/(loss) from continuing operations
2,119 (2,755) (636)
307 242 549
Profit attributable to non-controlling interests (69) (77) (146) (70) 107 37
Adjusted earnings from continuing operations attributable
to shareholders
2,050 (2,832) (782) 237 349 586
Discontinued operations — — — — 624 624
Adjusted earnings attributable to shareholders 2,050 (2,832) (782) 237 973
1,210
Adjusted earnings attributable to shareholders excluding
disposed Spirit Energy assets
2,005 162
Profit and inventory from Rough operations are reported under Centrica Storage Limited for presentational purposes only. Centrica Storage Limited does not produce,
supplyor trade gas, except to the extent necessary for the efficient operation of the storage facility. In accordance with the Gas Act 1986, such production, supply and
trading of gas is carried out wholly independently of Centrica Storage Limited by other Centrica group companies.
Group operating profit from business performance (adjusted operating profit)
The increase in adjusted operating profit was primarily in Energy Marketing and Trading, with our diverse range of contractual gas storage,
pipeline and power generation capacity proving very valuable in elevated and volatile commodity markets, and in Upstream, reflecting
strong gas production and nuclear generation volumes against a backdrop of higher commodity prices and the return of Rough to gas
storage operations.
In Retail, British Gas Energy profit fell, as we provided £50m of additional support to customers struggling in the current environment,
while British Gas Services & Solutions reported a small loss, as we invested in improving customer service and pricing, and saw weak
commercial performance against a challenging external backdrop.
More detail on specific business unit adjusted operating profit performance is provided in the Business Review on pages 22 to 25.
16 Strategic report | Centrica plc Annual Report and Accounts 2022
Certain re-measurements
The Group enters into a number of forward energy trades to
protect and optimise the value of its underlying production,
generation, storage and transportation assets (and similar capacity
or off-take contracts), as well as to meet the future needs of our
customers. A number of these arrangements are considered to be
derivative financial instruments and are required to be fair valued
under IFRS9.
The Group has shown the fair value adjustments on these
commodity derivative trades separately as certain
re-measurements,as they do not reflect the underlying
performance of the business because they are economically
relatedto our upstream assets, capacity/off-take contracts
ordownstream demand, which are typically not fair valued.
As a result of significant commodity price increases, since 2021 the
Group has also recognised an onerous contract provision for its
UK downstream energy supply contract portfolio. Although gains
and losses on the commodity derivative hedge trades are already
separately recognised in the income statement, the Group must
assess whether downstream customer contracts have become
onerous, taking into account the reversal of any mark-to-market
gains. Movement in the amount provided is recognised in certain
re-measurements, as the supply contracts are economically related
to both the hedges and forecast future profitability of supply and
therefore do not reflect underlying performance.
The operating profit in the statutory results includes a net pre-tax
loss for continuing operations of £3,393m (2021: loss of £1,241m)
relating to re-measurements, comprising:
– A net loss of £5,160m on the re-measurement of derivative
energy contracts. With the Group generally a net purchaser
of commodity, we saw a negative revaluation of energy supply
contract hedge purchases entered into over 2022 due for
delivery in future periods given the reductions in forward
commodity prices towards the end of the year, after the contracts
were entered into. These re-measurements should unwind as
the commodity is delivered to customers, mostly in H1 2023. In
addition there was an unwind of in-the-money positions for the
UK downstream energy supply business from December 2021
as the commodity was delivered to customers in 2022. The net
negative impact of these two factors was £6,364m. This was
partially offset by the unwind of Upstream and Energy Marketing
& Trading out-the-money positions from December 2021,
together with the revaluation of their sell trades due for delivery
in future periods. The net positive impact of these two factors
was£1,204m.
Group finance charge and taxation
Finance costs
Net finance costs from continuing operations decreased to £143m
(2021: £187m), largely due to an increase in interest income on
cash balances reflecting higher UK interest rates. Interest costs
on bonds, bank loans and overdrafts were slightly down, with the
impact of the decision to redeem the €750m hybrid bond at its
first call date in April 2021 and the further maturity of two bonds
in early 2022 largely offset by the impact of the higher interest rate
environment on floating debt.
Taxation
Business performance taxation on profit from continuing operations
increased to £1,046m (2021: £454m). After taking account of tax
on joint ventures and associates, the adjusted tax charge was
£1,077m (2021: £433m).
The resultant adjusted effective tax rate for the Group was 34%
(2021: 59%), with the profit mix moving away from highly taxed
E&P activities.
The adjusted effective tax rate calculation is shown below:
2022
2021
Year ended 31 December £m £m
Adjusted operating profit from continuing
operations before impacts of taxation
3,308 948
Add: JV/associate taxation included in
adjusted operating profit
31 (21)
Net finance cost from continuing
operations
(143) (187)
Adjusted profit before taxation 3,196 740
Taxation on profit from continuing operations (1,046) (454)
Share of JV/associate taxation (31) 21
Adjusted tax charge (1,077) (433)
Adjusted effective tax rate 34% 59%
Exceptional items and certain re-measurements
Total certain re-measurements and exceptional items from
continuing operations included within Group operating profit
generated a pre-tax loss of £3,548m (2021:profit of £6m), made
up of a loss on certain re-measurements of £3,393m (2021: loss
of £1,241m) and an exceptional loss of £155m (2021: profit of
£1,247m).
Total certain re-measurements and exceptional items from
continuing operations generated a tax credit of £793m
(2021:£236m), with a credit of £1,000m (2021: £486m) related to
certain re-measurements and a charge of £207m (2021: £250m)
related to exceptional items from continuing operations.
17Strategic report | Centrica plc Annual Report and Accounts 2022
– A £1,766m release from the onerous energy supply contract
provision. As the Group purchases the commodity required
for future supply in advance, the decline in commodity prices
towards the end of 2022 meant the costs of fulfilling residential
downstream customer contracts would now be lower than the
fixed/capped charges recoverable from customers. As a result,
this portion of the provision has been reversed. The remaining
provision of £999m relates to non-domestic customers on
longer-term fixed contracts agreed at levels below the current
forward commodity prices. The gain from releasing this provision
will offset losses from the ultimate unwinding of in-the-money
hedge positions, without affecting the ultimate profitability of the
underlying transactions.
– There was also a £1m net gain arising on re-measurement of
certain associates’ contracts (net of taxation).
These re-measurements generated a taxation credit of £1,000m
(2021: credit of £486m), including £473m associated with re-
basing deferred tax on certain relevant derivatives for the Energy
Profits Levy. As a result, the total loss from net re-measurements
after taxation for continuing operations was £2,393m (2021: loss
of £755m).
The Group recognises the realised gains and losses on commodity
derivative and onerous supply contracts when the underlying
transaction occurs. The business performance profits arising
from the physical purchase and sale of commodities during the
year, which reflect the prices in the underlying contracts, are not
impacted by these re-measurements.
Further details can be found in note 7(a).
Exceptional items
An exceptional pre-tax charge of £155m was included within
the statutory Group operating profit from continuing operations
in 2022. In 2021, an exceptional pre-tax profit of £1,247m was
recognised, largely relating to the write-back of Upstream gas
production and electricity generation assets.
The 2022 pre-tax exceptional charge was made up of:
– A charge of £362m relating to the Spirit Energy Norwegian
E&P and Statfjord disposal, which completed on 31 May 2022.
Seenote 12 for further details.
– A £207m write-back of power assets, predominantly relating
to the write-back of the nuclear investment as a result of
higher forecast forward commodity prices, largely offset by the
projected impact of the Electricity Generator’s Levy announced
in November 2022 and applicable from 1 January 2023.
The taxation charge on exceptional items was £207m (2021:
£250m), which includes a £121m credit associated with deferred
tax provisions related to E&P tax losses and decommissioning
carry-back, due to the increase in forecast commodity prices
and an exceptional £325m charge from the recognition of higher
deferred tax liability balances due to the implementation of the
Energy Profits Levy.
As a result, the total post-tax exceptional loss recognised in
continuing operations after taxation was £362m (2021: profit
of£997m).
Further details on exceptional items, including on impairment
accounting policy, process and sensitivities can be found in notes
7(b) and 7(c).
Discontinued operations
There was no adjusted operating profit or adjusted earnings from
discontinued operations in 2021 or 2022. Statutory earnings of
£624m from discontinued operations in 2021 are related to the
profit on disposal and release of a tax provision following the
disposal of Direct Energy, which completed on 5 January 2021.
Group earnings
Adjusted earnings
Profit for the year from business performance from continuing
operations after taxation was £2,119m (2021: £307m). After
adjusting for non-controlling interests relating to Spirit Energy,
adjusted earnings were £2,050m (2021: £237m). Excluding the
disposed Spirit Energy assets, adjusted earnings were £2,005m
(2021: £162m).
Adjusted basic EPS was 34.9p (2021: 4.1p). Excluding Spirit
Energy assets, adjusted basic EPS was 34.2p (2021: 2.8p).
Statutory earnings
After including exceptional items, certain re-measurements
and earnings from discontinued operations, the statutory loss
attributable to shareholders for the period was £782m (2021: profit
of £1,210m).
The Group reported a statutory basic EPS loss of 13.3p (2021:
profit of 20.7p, of which 10.0p related to continuing operations).
Dividend
In addition to the interim dividend of 1.0p per share, the proposed
final dividend is 2.0p per share, giving a total full year dividend of
3.0p per share (2021: nil).
18 Strategic report | Centrica plc Annual Report and Accounts 2022
Group cash flow, net debt and balance sheet
Group cash flow
Free cash flow is the Group’s primary measure of cash flow as
management believe it provides relevant information to show the
cash generation of the business after taking account of the need
to maintain its capital asset base. Free cash flow is reconciled to
statutory net cash flow from operating and investing activities in the
table below. See the explanatory note in note 4(f) for further details.
Year ended 31 December
2022
£m
2021
£m
Statutory cash flow from continuing
operating activities 1,314 1,611
Statutory cash flow from continuing
investing activities (566) (325)
Statutory cash flow from continuing operating
and investing activities 748 1,286
Add back/(deduct):
Sale and purchase of securities 398 3
Interest received (46) (2)
Movements in collateral and margin cash 1,173 (481)
Defined benefit pension deficit payments 214 368
Free cash flow from continuing operations 2,487 1,174
Discontinued operations free cash flow — 2,588
Free cash flow 2,487 3,762
Net cash flow from continuing operating activities of £1,314m was
down 18% (2021: £1,611m), with the impact of higher adjusted
EBITDA partially offset by higher tax payments, and material
working capital and collateral and margin cash outflows.
These significant working capital movements were largely a
reflection of the higher commodity price environment and UK
Government initiatives to address this. British Gas Energy saw
a working capital inflow of £1.1bn in the year reflecting the
introduction of the Energy Price Guarantee and Energy Bill Support
Scheme, which resulted in earlier payment than under standard
consumer payment patterns. EM&T saw a large working capital
outflow of £1.2bn driven by a higher volume of gas inventory and
by the timing of settlements on trading cash flows. In addition, we
invested £0.4bn of working capital in Rough, having injected 16bcf
into gas storage.
We saw a £1.2bn outflow of collateral and margin cash. In an
elevated and volatile commodity price environment, initial margin
requirements are greater and the likelihood of large movements on
variation margin are also increased. At the end of 2022, commodity
purchases made for our retail customers were out-the-money as
prices fell towards the end of the year. We would expect these
outflows to reverse in future periods, as we deliver the commodity
to customers.
Net cash outflow from continuing investing activities increased to
£566m (2021: £325m), with lower net investment in gas production
more than offset by higher net investment in non-E&P activities and
a £400m loan to the pension schemes in October 2022 to help
them manage through volatile market conditions.
Group total free cash flow from continuing operations was £2,487m
(2021: £1,174m), as reconciled to statutory cash flow measures
in the table above.
Net cash outflow from continuing financing activities remained
broadly unchanged at £917m (2021: £938m) with the two bond
repayments in February and March 2022 resulting in lower cash
outflow than from the hybrid redemption in 2021, offset by the
impacts of the distribution of £273m to Spirit Energy’s minority
partner relating to the disposal of Spirit Energy’s Norway assets
and the recommencement of returns to shareholders through the
payment of a 2022 interim dividend and the buyback of shares as
part of the Group’s £250m share repurchase programme.
Group adjusted net cash
The above resulted in a £169m decrease in cash and cash
equivalents over the year, and when including the impact of
reduced gross debt resulting from the bond repayments, the
loan to the pension schemes and lease adjustments, the Group’s
adjusted net cash position at the end of December 2022 was
£1,199m, compared to £680m on 31 December 2021.
Further details on the Group’s sources of finance and net debt
areincluded in note 24.
Pension deficit
The Group’s IAS 19 net pension position improved to a £40m
surplus as at the year-end, from £nil at 31 December 2021, with
the impact of pension deficit contributions during the year being
partially offset by net actuarial losses.
Further details on the post-retirement benefits are included
innote22.
Balance sheet
Net assets decreased to £1,280m (2021: £2,750m). This largely
reflects the impact of the statutory loss in the year, in particular the
net re-measurements in relation to energy supply contracts, the
impact of the share repurchase programme, IAS 19 pension losses
from our equity accounted Nuclear investment and the minority
dividend payment.
19Strategic report | Centrica plc Annual Report and Accounts 2022
2022 acquisitions, disposals and disposal groups
classified as held for sale
On 8 December 2021, Centrica announced that the Spirit Energy
Group, of which the Group owns 69%, had agreed to dispose of
its Norwegian oil and gas exploration and production business
and its interests in the Statfjord field for headline consideration of
$1,076m (approximately £800m) on a debt-free cash-free basis,
plus a deferred commodity price-linked contingent payment.
The commercial effective date of the transaction was 1 January
2021, with the transaction approved by Centrica shareholders
at a General Meeting on 13 January 2022 and completed on
31May2022.
After adjustments for the net post-tax cash flows generated by the
sale business and interests after the commercial effective date, less
any remaining tax payable on these cash flows, net consideration
was £69m, including a deferred commodity price-linked receivable
and a tax indemnity provided to Sval Energi. Spirit Energy has
distributed the net cash flow generated since 1 January 2021 and
the net consideration to Centrica and its joint venture partners in
proportion to their ownership, with £233m distributed to Centrica’s
non-controlling interest in June 2022 and a further £40m distributed
in the second half of 2022.
Further details on assets purchased, acquisitions and disposals
areincluded in notes 4(e) and 12.
Events after balance sheet date
Details of events after the balance sheet date are described
innote26.
Risks and capital management
The nature of the Group’s principal risks and uncertainties are
broadly unchanged from those set out in its 2021 Annual Report.
However, the Group’s top three Principal Risks are now Credit &
Liquidity Risk, Market Risk (including the outage risk of financial
loss due to impact of lost asset production) and Weather Risk,
reflecting the potential impacts of gas and electricity prices
reaching record levels during 2022 together with extreme volatility.
The Group has actively responded to those risks heightened
by global wholesale energy prices. Centrica’s approach to risk
management includes agile hedging policies and effective demand
forecasting processes. The extent to which the Group may
continue to be impacted by the consequences of the high level
of commodity prices will, in part, depend on further government
and regulatory policy, including setting of future levels of default
tariff caps, levies on profits and any extension to customer
supportschemes.
Details of how the Group has managed financial risks such as
liquidity and credit risk are set out in note S3. Details of the
Group’s capital management processes are provided under
sources of finance in note 24.
Accounting policies
The Group’s accounting policies and specific accounting measures,
including changes of accounting presentation and selected key
sources of estimation uncertainty, are explained in notes 1, 2 and 3.
Kate Ringrose, Group Chief Financial Officer
15 February 2023
20 Strategic report | Centrica plc Annual Report and Accounts 2022
Our View on Taxation
The Group takes its obligations to pay and collect the correct
amount of tax very seriously.
Responsibility for tax governance and strategy lies with the Group
Chief Financial Officer, overseen by the Board and the Audit and
Risk Committee.
Our approach
Wherever we do business in the world, we take great care to
ensure we fully comply with all our obligations to pay or collect
taxes and to meet local reporting requirements.
We are committed to providing disclosures and information
necessary to assist understanding beyond that required by law and
regulation.
We do not tolerate tax evasion or fraud by our employees or other
parties associated with Centrica. If we become aware of any such
wrongdoing, we take appropriate action.
Our cross-border pricing reflects the underlying commercial reality
of our business.
We ensure that income and costs, including costs of financing
operations, are appropriately recognised on a fair and sustainable
basis across all countries where the Group has a business
presence. We understand that this is not an exact science and
we engage openly with tax authorities to explain our approach.
In the UK we maintain a transparent and constructive relationship
with His Majesty’s Revenue & Customs (HMRC). This includes
regular, open dialogue on issues of significance to HMRC and
Centrica. Our relationship with fiscal authorities in other countries
where we do business is conducted on the same principles.
We carefully manage the tax risks and costs inherent in every
commercial transaction, in the same way as any other cost.
We do not enter into artificial arrangements in order to avoid
taxation nor to defeat the stated purpose of tax legislation.
We seek to actively engage in consultation with governments on
tax policy where we believe we are in a position as a Group to
provide valuable commercial insight.
The Group’s tax charge, taxes paid and the
UK tax charge
The Group’s businesses are subject to corporate income tax rates
as set out in the statutory tax rates on profits table.
The overall tax charge is dependent on the mix of profits and the
tax rate to which those profits are subject.
Tax charge compared to cash tax paid
2022 2022
Current tax
charge/(credit)
Cash tax paid/
(received)
UK (including Petroleum Revenue Tax) 618 243
Norway 339 300
Denmark 130 17
Ireland (26) 13
Rest of world 10 1
1,071 574
Corporation tax is paid in instalments, generally based on estimates; one-off items
and fluctuations in mark to market positions may cause divergence between the
charge for the year and the tax paid.
+ Further information on the tax charge is set out in note 9 on pages 151 to 153.
+ Our Group Tax Strategy, a more detailed explanation of the way the Group’s
tax liability is calculated and the timing of cash payments, is provided on our
website at centrica.com/responsibletax
19.0%
(2)
65.0%
(3)
22.0%
12.5%
UK supply of energy services
(1)
UK oil & gas production
Denmark energy services
Republic of Ireland supply of energy and services
(1) With effect from 1 January 2023, revenues from our Nuclear business (included
in energy supply and services) will also be subject to Electricity Generator Levy
at 45% in addition to corporation tax.
(2) With effect from 1 April 2023 the statutory rate applicable to UK supply of energy
and services will increase to 25%.
(3) With effect from 1 January 2023, the statutory tax rate applicable to UK gas
production increased to 75%; the statutory rate increased from 40% to 65%
with effect from 26 May 2022.
Statutory tax rates on profits
Group activities
21Strategic report | Centrica plc Annual Report and Accounts 2022
Business Review
Business unit operational, commercial and
financial performance
Improved operational metrics but weak commercial
performance in British Gas Services & Solutions,
with increased challenges from cost of living and
inflationary pressures
British Gas Services & Solutions 2022 2021 Change
Services customers (‘000) (closing)
(1)
3,141 3,428 (8%)
Installs and on-demand jobs (‘000) 270 282 (4%)
Services complaints per customer (%)
(2)
12.6% 12.1% 0.5ppt
Services Engineer NPS
(3)
64 60 4pt
Adjusted operating (loss) / profit (£m) (9) 121 (107%)
All 2022 metrics and 2021 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Services customers are defined as single households having a contract with
British Gas.
(2) Total complaints, measured as any oral or written expression of dissatisfaction,
as a percentage of average customers over the year.
(3) Measured independently, through individual questionnaires, the customer’s
willingness to recommend British Gas following an engineer visit.
We continued to focus on fixing operational delivery in British Gas
Services & Solutions in 2022, to improve the experience for our
customers. We have been focused on recruitment, to enable us
to complete a greater proportion of jobs using our own workforce,
and in 2022 recruited over 800 engineers. This, coupled with a
reduction in average sickness rates, resulted in improved capacity.
Reflecting this, the number of rescheduled appointments fell from
11% to 6%, while Engineer NPS increased by 4 points to +64 over
the year. Complaints per customer increased slightly to 12.6% as
we still let some customers down, but improved in H2 2022 relative
to H1 and further improvements in customer experience remains a
focus for 2023.
Customer retention increased 1ppt to 83%, as we remained
mindful of price changes that customers can absorb in the current
economic environment, despite inflationary pressures on our own
cost base. However, sales remained challenging against the weak
economic backdrop, and there was also an impact of our decision
to pause proactive selling for a period earlier in the year to focus on
delivery for our existing customers. Reflecting this, total customer
numbers fell by 287,000, or 8%, over the year. We also continue
to see a trend of more customers trading down to lower priced
products within our HomeCare range, with the number of services
products per customer dropping to 2.17 compared with 2.23 at the
start of the year and 33% of HomeCare products now coming with
an excess compared with 31% at the start of the year.
The total number of installs and on-demand jobs for the year fell by
4% compared with 2021. Within this boiler installations increased
by 9%, but a changed sales mix resulted in a lower average gross
margin per installation. However, with our focus on catching up on
a backlog of Annual Service Visits, we completed nearly 600,000
more in 2022 than in 2021, which reduced capacity for on-demand
work and resulted in a 10% fall in these type of jobs.
British Gas Services & Solutions adjusted operating loss was £(9)m
in 2022 against an adjusted operating profit of £121m in 2021.
• The reversal of COVID-19 and industrial action impacts from
2021 totalling £50m was partially offset by temporary factors
seen in the first half of 2022, specifically increased workload
that we believe was a function of customers choosing to have
non-urgent work completed which they had delayed during the
COVID-19 pandemic, temporary higher absence rates and
an increase in the payment of compensation to customers.
These factors negatively impacted adjusted operating profit
by approximately £25m.
• We continued to invest in the future of the business, through
increasing our direct engineer capacity and upgrading core
IT systems, to ensure we are able to better serve customers
today and well placed to capture longer-term opportunities
arising from the decarbonisation of heating in the UK. This
investment in service resulted in a negative impact on operating
profit of approximately £45m in 2022. Having now stabilised
our operational metrics, we would expect recruitment costs
to reduce in 2023, while we expect to start benefiting from
our investments through improved engineer productivity and
increased sales of net zero products.
• We also continue to see inflationary cost pressures, on both
direct labour as we support our colleagues through the cost of
living crisis, and on third party costs. We chose not to fully pass
these through in pricing to our customers, resulting in a negative
impact on adjusted operating profit of approximately £50m.
• Lower contract customer numbers coupled with customers
trading down to lower priced products was a factor in the
financial result, as was a changed boiler sales mix. These factors
negatively impacted adjusted operating profit by approximately
£60m. Improving commercial performance remains a focus and
we have a clear commercial plan for 2023.
Helping customers in British Gas Energy in a
volatile and high price environment
British Gas Energy 2022 2021 Change
Residential energy customers (‘000)
(closing)
(1)
7,516 7,260 4%
Small business customer sites (‘000)
(closing)
480 455 5%
Energy complaints per customer (%)
(2)
14.4% 8.5% 5.9ppt
Energy Touchpoint NPS
(3)
13 11 2pt
Cost per residential energy customer
(excl. bad debt) (£)
83 84 (1%)
Adjusted operating profit (£m) 72 118 (39%)
All 2022 metrics and 2021 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Residential energy customers are defined as single households buying energy
from British Gas.
(2) Total complaints, measured as an expression of dissatisfaction in line with
submissions made to Ofgem, as a percentage of average customers over the year.
(3) 2021 restated to reflect the average weighted score by channel across the year.
Measured independently, through individual questionnaires and the customer’s
willingness to recommend British Gas following contact.
22 Strategic report | Centrica plc Annual Report and Accounts 2022
We continued to focus on helping our customers in British Gas
Energy in 2022, choosing to invest as much in customer service
and support as we made in profits for the year, including through
the UK’s biggest ever energy support package totalling £50m.
Residential customer numbers increased by 256,000, or 4%, over
2022. This included a net increase of 158,000 customers who
joined us through Ofgem’s Supplier of Last Resort Process from
Together Energy, while we also saw organic net growth of 98,000
in the year, against a backdrop of low levels of market switching.
We also delivered a 25,000, or 5%, increase in the number of small
business customers we serve, to 480,000, including organic net
growth of 18,000.
With higher wholesale commodity prices resulting in significantly
higher customer bills, we saw customer contact increase by almost
a third compared to 2021, with greater customer focus on the level
of their bill and direct debit payments. This led to a higher number
of complaints, although almost 70% were resolved within a day,
while Energy Touchpoint NPS improved to +13. We remain focused
on ensuring we are able to handle an increased level of customer
contact at this challenging time for many customers, and have now
completed the recruitment of an additional 700 UK-based contact
centre colleagues.
We continue to make good progress in migrating customer
accounts in a controlled manner onto our new ‘software as a
service’ IT platform. Around 2.2m customers have now been
migrated onto the platform, more than double the amount at the
half year, which combined with more modern ways of working is
intended to enable a lower cost to serve and improved levels of
customer service.
Cost per customer (excluding bad debt) decreased by £1 to £83
per customer, despite the impacts of inflation, a £3 impact of dual
running IT costs and our investment in additional call centre agents,
as we continue our drive to become more efficient. This figure
excludes incremental voluntary support and donations.
British Gas Energy adjusted operating profit decreased by 39% to
£72m, which largely reflects voluntary donations made to support
customers and the repayment of furlough funds received by the
Group in 2020.
• Rising wholesale commodity prices for much of the year meant
that default tariffs remained cheaper thannew fixed-price tariffs,
resulting in more customers on default tariffs than we had
hedged for. This required us to purchase more commodity at
prices above the allowance in the price cap in Q1 2022, although
with allowances introduced into the price cap from April 2022
to allow recovery for suppliers, the impact was broadly neutral
in the year.
• Warmer than normal temperatures in H1 2022 resulted in lower
demand and allowed the sale of surplus gas and power back into
a high-priced market at a profit. Temperatures were also warmer
in H2 2022, particularly in October and November. However, this
came alongside a material fall in near-term commodity prices to
levels below which we had forward purchased gas and power
for our customers, and resulted in us selling surplus gas and
power into the market at a loss. We also saw changing customer
behaviour against a backdrop of higher customer bills, leading to
a reduction in underlying consumption. Overall, the net impact of
these factors on adjusted operating profit was slightly positive.
• The positive impact of increased residential customer numbers
and average unit gross margins, and demand recovery from
small business customers following the removal of COVID-19
restrictions, were more than offset by a £213m increase in the
bad debt charge reflecting higher customer bills and the wider
economic uncertainty.
• We also made a number of voluntary choices, including the
repayment of £27m received by the Group under the UK
Government’s Coronavirus Job Retention Scheme, and
investments totalling over £70m to support customers who need
it most and in building our contact centre capacity to improve
customer service resilience.
Bord Gáis Energy retail energy supply was loss
making in 2022, but we delivered good operational
performance, including from the Whitegate CCGT
which was back online
Bord Gáis Energy 2022 2021 Change
Customers (‘000) (closing) 526
509
3%
Complaints per customer (%)
(1)
2.2% 1.6% 0.6ppt
Journey NPS
(2)
19 30 (11pt)
Adjusted operating profit (£m) 31 28 11%
All 2022 metrics and 2021 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Total complaints, measured as any oral or written expression of dissatisfaction,
asa percentage of average customers over the year.
(2) Weighted NPS for the main customer interaction channels.
While Bord Gáis Energy saw the return to service of Whitegate
CCGT, the retail energy supply business was loss making in 2022,
reflecting our decision to protect customers and absorb higher
commodity costs. We have committed to donate 10% of Bord
Gáis adjusted operating profit to our energy support fund to help
vulnerable customers for the duration of the current crisis.
The number of customers grew by 17,000 in 2022, with the
addition of customers from failed suppliers, and good retention
rates reflecting the support we provided for existing customers.
Customer complaints increased slightly and Journey NPS fell by
11 points over the year, which reflects market-wide customer
concerns over the sharp rise in retail tariffs due to the significant
increase in global commodity prices.
Despite the loss in retail energy, which also includes the impact of
higher bad debt and lower customer consumption from warmer
weather and changing customer behaviour, Bord Gáis Energy
adjusted operating profit increased by 11% to £31m, reflecting
good wholesale trading performance and strong availability from
the Whitegate CCGT, which was offline for most of 2021. This
demonstrates the value of an integrated business model in Ireland.
As part of the push for increased security of supply and
decarbonisation in Ireland, we have also taken a positive final
investment decision on two 100MW flexible gas peaking plants in
Athlone and Dublin, at an expected cost of over €250m.
23Strategic report | Centrica plc Annual Report and Accounts 2022
Strong management of commodity market
volatility in Energy Marketing & Trading
Energy Marketing & Trading (EM&T) 2022 2021 Change
Renewable capacity under
management (GW)
11.6 11.7 (1%)
Total EM&T adjusted operating
profit (£m)
1,400 70 1,900%
All 2022 metrics and 2021 comparators are for the 12 months ended 31 December
unless otherwise stated.
Our EM&T business has a diverse portfolio of contracted positions
and is very well positioned when commodity prices are high
and/or volatile, given our in-depth understanding of energy markets
and ability to manage system complexity. We deployed more
working capital, with an outflow of £1.2bn relating to investment
in gas inventory for our storage and LNG positions and unrealised
profit on derivative positions. However, this investment was well
rewarded, with material in-year profits from our Gas & Power
trading, Route-to-Market and LNG activities.
In Gas & Power Trading, our contracted pipeline and interconnector
positions across Europe allowed us to move gas and power
between markets and benefit during periods of significant price
dislocations. In addition, our significant gas storage positions
meant we were able to benefit from volatility in seasonal spreads.
In Route-to-Market, we’ve grown one of Europe’s largest third-
party renewable energy portfolios, creating an advanced, cross-
European virtual power plant, and in 2022 we also benefited from
the higher power price environment. Capacity under management,
including renewables and optimisation assets such as battery and
CHP, increased to 15.4GW from 14.6GW of which approximately
75% are renewable technologies. The diverse range of markets we
serve and technologies we offer are proving increasingly valuable,
as more intermittent generation comes online across Europe to
increase the importance of balancing services. We remain focused
on growing our route-to-market capacity as more renewable assets
come online across Europe.
Our LNG business was profitable in 2022, despite us having
forward sold all cargoes from our Cheniere contract for 2022
delivery in times of lower geographical price spreads, as large
differentials between US and European gas prices provided
opportunity to capture additional value. In total we traded 284
physical cargoes in 2022 and we continue to look to build on
our contractual positions. During the year, we signed a Heads of
Agreement with Delfin to take 1 million tonnes of LNG from their
floating facility in the Gulf of Mexico, with a final agreement being
worked up and operations expected to commence in 2026.
The remaining legacy gas contract delivered a profit for the year of
£19m (2021: loss of £85m). At current forward prices we expect
adjusted operating losses to total around £100m across the period
2023 to 2025 when the contract ends, an improvement of £50m
from our expectation at the time of the Interim Results last July.
Reflecting the strong management of high and volatile commodity
markets, EM&T adjusted operating profit was £1,400m (2021:
£70m).
Delivering improved gross margin and building
lower carbon and flexible generation assets in
Centrica Business Solutions
Centrica Business Solutions 2022 2021 Change
Energy supply total gas and electricity
volume (TWh)
22.3 22.3 nm
Energy supply complaints per
customer (%)
(1)(2)
9.1% 6.1% 3.0ppt
Energy supply Touchpoint NPS
(3)
31 21 10pt
Services order intake (£m)
(4)
212 371 (43%)
Services order book (£m)
(4)
670 685 (2%)
Adjusted operating profit / (loss) (£m) 44 (52) (185%)
All 2022 metrics and 2021 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Total complaints, measured as any oral or written expression of dissatisfaction,
as a percentage of average customers over the year.
(2) 2021 restated as previously shown on a per site basis.
(3) Measured independently, through individual questionnaires and the customer’s
willingness to recommend.
(4) 2021 restated following re-segmentation of activity to EM&T.
The amount of energy supplied by Centrica Business Solutions
to medium and large sized businesses wasflat at 22.3TWh
compared to 2021, with the easing of COVID-19 restrictions and
underlying growth inmedium sized business volumes being offset
by the impacts of warmer weather and lower underlying customer
demand in response to higher prices and the economic climate.
Customer complaints increased, reflecting increased customer
concern around higher energy prices, however Touchpoint NPS
increased to +31 reflecting investments to improve overall customer
service.
Services order intake of £212m was 43% lower than in 2021,
driven by actions taken to focus the business and weaker uptake
in the UK. The Services order book of £670m was broadly stable,
ending the year 2% lower than in 2021.
Centrica Business Solutions operates a portfolio of flexible
generation assets, principally a 49MW battery at Roosecote and
a 49MW gas-peaking plant at Brigg. These assets performed well
in the year, playing important roles for UK security of supply during
times of high demand or reduced system availability. A further five
large scale projects totalling nearly 150MW are currently under
construction, including a 18MW solar farm at Codford, a 50MW
battery at Brigg and a 30MW battery at Dyce.
Centrica Business Solutions reported an adjusted operating profit
of £44m (2021: loss of £52m). Energy supply reported a significant
improvement in adjusted operating profit to £73m (2021: £1m)
driven by strong gross margins, which included gains from the sell
back of excess hedged volumes in periods of warmer weather and
lower underlying customer demand. These impacts were partially
offset by an increase in the bad debt charge reflecting the current
weaker economic environment.
Energy Services and Assets reported a reduced adjusted operating
loss of £29m (2021: loss of £53m), reflecting higher gross margin
capture due to improved operational focus and lower operating
costs due to recent efforts to refocus the business.
24 Strategic report | Centrica plc Annual Report and Accounts 2022
Strong gas production and nuclear generation
volumes and Rough reopened as a storage asset
Upstream 2022 2021 Change
E&P total production volumes (mmboe) 27.0 39.7 (32%)
Nuclear power generated (GWh) 8,719 8,342 5%
Adjusted operating profit (£m) 1,793 663 170%
All 2022 metrics and 2021 comparators are for the 12 months ended 31 December.
Please note that profit and inventory from Rough operations are reported under
Centrica Storage Limited for presentational purposes only. Centrica Storage Limited
does not produce, supply or trade gas, except to the extent necessary for the
efficient operation of the storage facility. In accordance with the Gas Act 1986, such
production, supply and trading of gas is carried out wholly independently of Centrica
Storage Limited by other Centrica group companies.
Total E&P production was down 32% to 27.0mmboe. When
excluding the disposed Spirit Energy assets, production was flat
at 20.7mmboe.
• Total volumes from the retained Spirit Energy were down 2% to
17.5mmboe. Liquids volumes fell from 2.1mmboe to 1.2mmboe,
with remaining 2P liquids reserves now only 1mmboe. Gas
production volumes business increased by 3% to 16.3mmboe,
reflecting strong operational performance at the Greater
Markham Area and Cygnus.
• Production volumes from Centrica Storage’s Rough field
increased by 9% to 3.2mmboe, reflecting strong operational
performance as a production asset in the first half of the year,
with the asset then returning to gas storage operations in
September 2022.
Centrica’s share of nuclear generation volumes of 8.7TWh was 5%
higher than 2021, despite the end of generation at Hunterston B
in January and Hinkley Point B in August, reflecting improved plant
reliability.
Upstream adjusted operating profit increased to £1,793m
(2021: £663m). Excluding the disposed Spirit Energy assets,
adjusted operating profit was £1,308m (2021: £107m).
• The retained Spirit Energy business reported an adjusted
operating profit of £245m (2021: £68m), with higher wholesale
commodity prices resulting in a higher achieved price, despite
the impact of hedging. This was partially offset by a higher
depreciation charge following impairment write-backs in 2021.
• Centrica Storage adjusted operating profit was £339m
(2021: £77m). This reflects strong production from Rough
in the first half of 2022 during periods of high commodity
prices, and capture of higher seasonal gas price spreads
in the second half of the year following Rough’s return
to storage operations.
• Nuclear reported adjusted operating profit was £724m
(2021: loss of £38m), reflecting strong generation volumes
and higher achieved prices.
25Strategic report | Centrica plc Annual Report and Accounts 2022
Our Key Performance Indicators
(KPIs) help the Board and executive
management assess performance
against our Group Priorities set out
in2019.
Key Performance
Indicators
Group adjusted basic earnings per share from continuing
operations (EPS)
(1)(2)
EPS is a standard measure of corporate profitability.
Adjusted EPS is used to measure the Group’s underlying
performance against its strategic financial framework.
Group adjusted basic EPS was up 751%, reflecting the
increased operating profit and lower effective tax rate
dueto the profit tax.
Group free cash flow from continuing operations (£m)
(1)(2)
Free cash flow from continuing operations is the Group’s
primary measure of cash flow. It reflects the cash generation
of the business after taking into account the need to continue
to invest.
Free cash flow increased by 112% predominantly as a result
of the increased operating profit in the Upstream segment
and the acceleration of cashflows in British Gas Energy from
government support schemes.
Group adjusted operating profit from continuing operations
is one of our fundamental financial measures.
Group adjusted operating profit was up 249%
predominantly reflecting increased profit in Upstream
andEnergy, Marketing & Trading.
Group adjusted operating profit from continuing
operations (£m)
(1)(2)
+ Read more about Our Group Priorities on our website centrica.com
+ Read more about adjusted performance measures on pages 253 to 257
(1) Excludes Direct Energy which was classified as a discontinued operation in 2021.
(2) See notes 2, 4 and 10 to the Financial Statements for definition and reconciliation
of these measures.
In 2022, metrics across this section have been updated to better
reflect the lead KPIs that are now employed to track performance
across our key focus areas. This means that we are no longer
reporting total shareholder return, aggregated Brand Net Promoter
Score (NPS), aggregated complaints and process safety incident
frequency rate (Tier 1 and 2) in this section, although performance
is available elsewhere in the report. In particular, customer
complaints and NPS are particularly important to our business
and are tracked by business unit in the Business Review section.
Our Group Priorities
Operational
Excellence
Customer
Obsession
Most Competitive
Provider
Empowered
Colleagues
Cash Flow
Growth
Safety, Compliance
and Conduct
Foundation
Link to Group Priorities
2022
34.9p
2021
4.1p
2020
2.8p
Link to Group Priorities
2022
2,487
2021
1,174
2020
685
O
2022
3,308
2021
948
2020
447
Link to Group Priorities
O
O
M
CO
O
CFG
ES
26 Strategic report | Centrica plc Annual Report and Accounts 2022
Total customers (m)
(ii)(iii)
Total customer numbers increased year-over-year, reflecting
both organic growth and the addition of customers from
failed suppliers in British Gas Energy and Bord Gáis Energy.
This more than offset customer losses in British Gas
Services & Solutions.
Total greenhouse gas (GHG) emissions – 40% reduction
by 2034 & net zero by 2045 (2019 base year)
(ii)(iv)
With Whitegate power station resuming normal operations
following an outage in 2021, savings dropped from the 53%
temporary reduction achieved that year to a 6%
†
reduction.
Overall, we are making positive progress against our long-
term goal to be a net zero business by 2045 (see page 43).
British Gas Services & Solutions – Services Engineer
Net Promoter Score (NPS)
(i)
Everything we do is focused on helping our customers live
sustainably, simply and affordably. Following the recruitment
of over 800 engineers coupled with a reduction in average
sickness rates, our capacity to serve customers improved
which led to our NPS rising by 4 points.
Colleague engagement
(ii)(vi)
Our success is reliant on having a motivated and engaged
team. Having focused on creating a more inclusive and
supportive place to work whilst connecting colleagues with
our Purpose and leaders, engagement improved by 18%
to73% favourable.
Total recordable injury frequency rate (TRIFR)
(ii)
We want to keep our colleagues and customers safe, so
we work hard to maintain a strong safety culture. Although
we made good progress in some areas, our TRIFR per
200,000 hours rose by 5% and was largely due to an
increase in slips, trips and musculoskeletal injuries.
† Included in DNV Business Assurance Services UK Limited (DNV)’s independent
limited assurance engagement. See page 258 or centrica.com/assurance
formore.
(i) Measured independently, through individual questionnaires, the customer’s
willingness to recommend British Gas following an engineer visit. KPI moved
from the previously reported aggregated Brand NPS to more transparently track
and share performance in this key part of our customer-facing services business.
For wider business unit NPS performance, see pages 22 to 24.
(ii) Excludes Direct Energy which was classified as a discontinued operation in 2021.
(iii) Includes British Gas Energy, British Gas Services and Bord Gáis Energy
households and small and medium business customer sites in British Gas Energy
and Centrica Business Solutions.
(iv) Net zero goal measures scope 1 (direct) and 2 (indirect) GHG emissions based on
operator boundary, which now includes all emissions from our shipping activities
relating to Liquified Natural Gas (LNG) alongside the retained Spirit Energy assets
in the UK and the Netherlands. Non-operated nuclear emissions are excluded.
Target is normalised to reflect acquisitions and divestments in line with changes in
Group structure against a 2019 base year of 2,132,680mtCO
2
e. It’s also aligned to
the Paris Agreement and based on science to limit global warming, corresponding
to a well below 2°C pathway initially and 1.5°C by mid-century.
(v) Restated due to LNG shipping and Spirit Energy’s remaining assets moving
intoscope in 2022.
(vi) Measured through colleague responses to a survey asking them to rate how they
feel about the company. The survey moved from annual to quarterly in 2021.
+ Read more about our non-financial performance onpages 39 to 54
and 258 to 260.
2
022
10,259
2
021
10,067
2
020
9,794
Link to Group Priorities
CO
2022
73%
2021
55%
2020
41%
Link to Group Priorities
2
022
1.12
2
021
1.07
2
020
1.04
Link to Group Priorities
S
2022
-6%
†
2021
-53%
(v)
2020
-12%
(v)
Link to Group Priorities
E
Link to Group Priorities
2022
+64
2021
+60
2020
+66
CO
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27Strategic report | Centrica plc Annual Report and Accounts 2022
M
Our Principal Risks
and Uncertainties
We manage risks to support our
Groupstrategy
Risk management
In the following pages we set out an overview of Centrica’s risk
management framework. Our Principal Risks remain linked to
our Group Priorities and the Group’s risk appetite is expressed
in relation to our four categories of risk: Strategic, Operational,
Financial and Compliance.
Risk management and internal control
Centrica’s Group Enterprise Risk and Internal Controls Framework
remains a core element of the Group’s Governance Model which is
set out below.
The most significant Principal Risks to the Group are set out on
pages 30 to 33, in order of magnitude to the Group.
Risk appetite
The Board is ultimately responsible for aligning the risk appetite
of the Group with our long-term strategic objectives, taking
into account the emerging and Principal Risks. The Board has
determined the risk appetites for the categories of Strategic,
Operational, Financial and Compliance, and the key risks within
Centrica’s Risk Universe have been mapped into these categories.
Business Unit
risk owners
Quarterly Group
Enterprise Risk and
Controls review
Bi-annual review
of Principal Risks
Business Unit
risk assessment
and mitigation
update
Functional
advisory teams
Business
Unit Risk
and Controls
Committee
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Centrica
Leadership
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Risk deep
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ARC*
SESC**
Centrica Group’s Annual Risk Management Process
* Audit and Risk
Committee (ARC)
** Safety, Environment
and Sustainability
Committee (SESC)
Due to the industry and the nature of some of the markets in which
the Group operates, we have high to moderate risk appetites for
our strategic and operational risks. However, we have a minimal
risk appetite for operational safety risks and we continue to
strive for an incident free workplace. For financial risks we adopt
a conservative approach to manage our liquidity position and
balance sheet strength. However, due to the higher risks inherent
in managing the commodity and weather variables within our
energy supply businesses, we accept a higher appetite for those
elements offinancial market risk. We are committed to operating
our businesses in compliance with relevant laws and regulations.
Risks are identified and assessed at a Business Unit (BU) level to
determine impact and likelihood, with an appropriate risk response
subsequently evaluated and implemented. The different risk
responses are
• Terminate: cease the activity that creates the risk
• Transfer: pass the risk to another party
• Tolerate: accept a level of risk
• Treat: act to reduce the likelihood or impact of risk
During BU and Group risk reviews, the net residual risk scores
are compared to the Group risk appetite to review the adequacy
of existing mitigating actions/controls, with further action taken
tocontrol and monitor risks as required.
Risk framework
Day-to-day ownership of risk sits with business management under
the regular scrutiny of the Centrica Leadership Team (CLT) to whom
the Board has delegated principal responsibility for risk oversight.
The Group Principal Risks are those which could potentially impact
delivery of our strategic objectives over the medium to long term,
where medium term is up to three years, asdetermined through
our strategic planning process.
The annual risk management process is summarised in the
diagrambelow:
28 Strategic report | Centrica plc Annual Report and Accounts 2022
Quarterly Business Unit risk reviews
• Each BU is responsible for identifying and assessing its significant
risks with support from functional subject matter experts. Current
and emerging risks and issues are formally reviewed quarterly
bythe BU leadership teams.
• The finalised risk reporting and assessment of each BU’s control
environment is then formally discussed at a Group Risk and
Controls Review for each BU. The meetings are chaired by the
Chief Risk and Audit Officer.
• At these quarterly reviews, recent assurance reports and findings
from internal audits and other assurance reviews are discussed.
Actions from previous audits and assurance reviews are tracked
to ensure close out in line with agreed timescales.
Executive and Board Committee reviews
• Bi-annually the Group Principal Risks are presented to the CLT
for review and challenge.
• These include the aggregate risk assessments from the BU
‘bottom-up’ process and any Group-level risk assessments.
• The Group Principal Risk profile, as updated by the CLT,
ispresented to the ARC for review.
• Internal Audit presents quarterly to the ARC on any material
findings as a result of independent assurance work.
• Risk deep dives are undertaken by the ARC and SESC to review
high priority risks, ad-hoc topics and emerging matters.
In our assessment of viability, we consider the potential impact
of ‘severe but plausible’ risks and note linkages to the Group
Principal Risks as described on pages 30 to 33. The annual viability
assessmenthas been presented to and approved by the ARC.
Board
• The Board reviews risk as part of its strategy review process
and during the year conducted a robust assessment of the
Company’s emerging and Principal Risks.
• At the year-end the Board reviewed and approved the Principal
Risk and Uncertainties disclosure.
• We evaluate our System of Risk Management and Control
annually, which is supported by a certification of controls and
adherence to Group policies by senior management.
Changes in risk climate and emerging matters
BUs and Functions review their risks and report key changes
aspart of their Business Performance and Risk Reviews.
Majoremerging risks and issues are escalated immediately.
During 2022 a number of Group-level areas of risk were closely
monitored, and actions taken to mitigate their impact on the Group.
Inflation and cost of living
The cost of living crisis continued through 2022, with the UK
Consumer Price Inflation rate hitting a 41-year high of 11.1% in
October. This rate reflects the impact of rising energy and food
prices but has been limited by the Energy Price Guarantee (EPG)
which came into effect on 1 October. The EPG will be extended for
a further 12 months from April 2023 for qualifying households.
The Government has provided further support through the Energy
Bills Support Scheme, whereby all UK households will receive a
£400 non-repayable discount in six monthly instalments. More
targeted cost of living support will be provided beyond this to
vulnerable households. A reduced Energy Bills Discount Scheme
will replace the Energy Bill Relief Scheme (EBRS) discount for
businesses and non-domestic customers from 1 April 2023.
The impact of the Government support schemes is reflected in
theNew Accounting Policies (note 1) and bad debt provision and
isconsidered as part of the Going Concern review.
Energy market
Global wholesale energy prices have put pressure on the energy
market, with gas and electricity prices reaching record levels
duringthe year, exacerbated by the war in Ukraine and cessation
ofsupply to Europe from the Nord Stream 1 pipeline.
Higher price levels and extreme volatility severely increased the
Credit and Liquidity, Market and Weather risks within year, which
the Group manages through agile hedging policies, and effective
demand forecasting.
The reopening of the Rough gas storage facility will further
strengthen the UK’s energy resilience. The long-term aim is to
turn Rough into one of the world’s largest methane and hydrogen
storage facilities. The Group will reallocate capital investment to
bolster the UK’s energy security, decarbonise the UK’s industrial
clusters and help reinstate the UK as a net exporter of energy.
The transfer of Bulb Energy customers to Octopus Energy is now
subject to a judicial review as we are concerned that the structure
of the deal could lead to potential market distortion.
Government and regulatory intervention
In June 2022, the Government enacted the Energy Profits Levy
(EPL): a 25% surcharge on the extraordinary profits made by the
oil and gas sector. In the November 2022 Autumn Statement,
the Government announced this would increase to 35% from
1January 2023 to 31 December 2028. They also announced a
45% Electricity Generator Levy (EGL), which is expected to be
enacted following the Spring Finance Bill, on nuclear and renewable
electricity generation from 1 January 2023 to 31 March 2028.
The Autumn Statement also included the announcement of a
Vehicle Excise Duty on electric vehicles (EVs) starting in April 2025,
which could impact our EV charging point strategy as increased
taxes may make EV ownership less attractive.
We continue to sustain our focus on Environmental, Social and
Governance matters.
Compliance with the many requirements proposed in the
Government’s paper on Restoring Trust in Audit and Corporate
Governance is flagged as an emerging risk and there are projects
inprogress to understand, design and implement our responses.
Technology
We continue to automate and integrate our operations focusing on
streamlining our finance reporting systems and using automation
to replace manual controls. We actively monitor the changing
technology landscape to exploit opportunities.
Strategic replacement or integration of trading systems and ERP
systems is being planned in Energy Marketing & Trading, Centrica
Business Solutions, British Gas Services & Solutions and Group Tax
to drive efficiency, stability and improved end-to-end interfaces that
will reduce manual intervention, duplication and the risk of error or
omission. In British Gas Energy, the migration to the ENSEK digital
platform is strategically critical in achieving our Purpose. This has
not led to any changes in Principal Risk, but transformation risk
willbe monitored as these changes are delivered.
Supply chain
Supply chain issues arising from inflationary pressures and
component shortages, specifically electronic chips in boilers and
smart meters, have been managed by securing alternative supply
routes and challenging price increases directly with suppliers to
minimise the impact. In 2023, we will monitor China’s economic
outlook amid the growing tensions with Taiwan and the impact on
Northern Ireland (NI) border checks if Article 16 of the NI protocol
isimplemented on our supply chain.
29Strategic report | Centrica plc Annual Report and Accounts 2022
Principal Risks
The following Principal Risks
were adopted by the Board in
2022 and reflect the position
of the Group at the point of
signing the accounts. Some
prior year Principal Risks have
been either split into component
parts, merged or updated
to more clearly articulate
the nature and drivers of the
risks. These are referenced
as appropriate in the table
below. The risks are presented
in order of magnitude to the
Group based on net residual
risk, after mitigations. The Risk
Climate is the expected change
in the risk landscape from the
previous risk review, based on
the environment and controls
in place.
Overview
Credit and Liquidity Risk Market Risk
Risk Category:Financial Risk Category:Financial
FY21:Commodity Risk FY21:Commodity Risk
Group Priority
Risk Climate
Deteriorated
Group Priority
Risk Climate
Deteriorated
Risk of financial loss due to counterparty
default, volatile commodity markets or a credit
event limiting the availability of financial facilities
or unsecured credit lines
• Hedging commodity price risk in the markets
exposes Centrica to (i) credit risk, which is
the risk of a loss if a counterparty fails to
perform on its obligations or (ii) liquidity risk
when trades on exchange or with margining
agreements result in collateral postings
• Trending directional price moves can lead to
a build-up of mark to market positions which
is a key component of credit and liquidity risk
• Volatile commodity markets can also
increase cash and working capital
requirements for both ourselves and our
counterparties (with the latter increasing the
risk that one of our counterparties fails to
perform and consequently increases the risk
of contagion). Further information is included
in the S3: Financial risk management section
within the Supplementary Information to the
Financial Statements
Risk of financial loss due to trends and volatilities
in commodity prices
• Commodity exposure arises within the
trading businesses, which provide a route to
market for Centrica’s upstream and power
generation operations, sourcing of electricity
and gas for the Group’s energy supply
businesses and proprietary trading activities.
We also have commodity exposures driven
by our LNG portfolio, in particular the
Cheniere contract
• Material movements in commodity prices can
impact in-year P&L through revenue on sale
of asset production, and impact on the long-
term valuation of asset portfolios
• Hedging commodity price risk in the markets
exposes Centrica to supply shock, an
unexpected event that changes the supply of
a commodity, resulting in a sudden change
in price
• Changes in our customer demand
requirements can result in a commodity
exposure as we balance our established
hedges at market prices
Mitigations
• Review of hedging policies at least annually
in Group Risk Hedging Policy Committee
meetings
• Financial risks reviewed regularly in dedicated
Risk Committee forums
• Credit risk teams actively manage and
reduce credit exposures, taking account of
liquidity considerations
• Energy Marketing & Trading and Group
Treasury work closely to monitor liquidity
requirements under normal and stressed
market conditions
• Review of hedging policies at least annually
in Group Risk Hedging Policy Committee
meetings
• Financial risks reviewed regularly in dedicated
Risk Committee forums
• The monthly Downstream Energy Margin
Meeting is a forum for all relevant parties to
review demand forecasting performance,
hedge positions, risk and P&L, with actions
recorded and tracked to completion
• Hedging decisions and risk are agenda items
at the monthly Finance Performance Reviews
across the Group
Developments
• Market prices rose to unprecedented levels
and credit exposures increased in line with
this to counterparties where we are net
buyers. As prices have started to decrease,
exposures are building to counterparties
where we are net sellers
• Business Unit credit limits have been
recalibrated using an expected loss
methodology with increased limits available
for better rated key counterparties
• To ensure there is sufficient liquidity
headroom for mark to market positions and
margin requirements in the event of another
price spike, Group Treasury approached
existing banks to extend cash and Letters
of Credit facilities
• Management of the balance sheet is being
improved to more effectively manage capital
allocation
• Extreme prices and volatility continue to be
affected by the ongoing Russian invasion of
Ukraine and sanctions in place
• Trading positions are scaled to operate within
market risk appetite
• The financial impact of outage risk associated
with the output of Upstream assets remains
high due to the higher price environment and
the ageing asset infrastructure
Customer Obsession
Operational Excellence
Most Competitive Provider
Cash Flow Growth
Empowered Colleagues
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CFG
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Safety, Compliance and
Conduct Foundation
Our Group Priorities
CFG CFG
30 Strategic report | Centrica plc Annual Report and Accounts 2022
Weather Risk Customer
Political, Legal, Regulatory or Ethical
Intervention/Compliance
Risk Category: Financial Risk Category:Operational/Strategic Risk Category: Compliance/Strategic
FY21:Political and Regulatory Intervention
Legal, Regulatory & Ethical Compliance
Group Priority
Risk Climate
Deteriorated
Group Priority
Risk Climate
New Principal Risk
Group Priority
Risk Climate
Deteriorated
The impact on present or future profitability resulting
from volume impacts as a result of deviation to
normal weather
• The impact is compounded by the application
of the price cap which limits recovery for unseen
demand
• In normal conditions, downstream is exposed
to revenue loss in warm weather which may be
compounded by selling hedges at a loss
• When commodity prices are higher than the cap
allowance and the risk exposure is primarily to cold
weather when additional volumes may be required
for downstream customers at a cost higher than
can be recharged
Failure to deliver satisfactory customer service leading
to complaints or loss of customers
• Cost of living and bad debt impacting customers’
ability to pay and management of warrant activity
to switch customers to prepayment meters
• Increased call volumes driven by commodity
prices, Ofgem Price Cap increases, and the
Government’s Energy Support Schemes
• Peak service demand exceeding engineer capacity
The risk of political or regulatory intervention and
changes, failure to comply with laws and regulations,
or greater regulatory scrutiny detecting unknown
areas of non-compliance
• Risk of further government intervention to support
vulnerable customers that may not be funded
through the price cap mechanism
• Increased focus on Environmental, Social and
Governance interventions and impact on investor
confidence in our responses
• Material or sustained non-compliance with legal
or regulatory obligations could lead to financial
penalties, reputational damage, customer churn
and/or legal and/or regulatory action
• Any material real or perceived failure to follow Our
Code would undermine trust in our business
• The monthly Downstream Energy Margin Meeting
is a forum for all relevant parties to review weather
impact and hedging proposals and performance,
with actions recorded and tracked to completion
• Options to mitigate weather risk in British Gas
Energy, to narrow the range of gross margin
outcomes, are reviewed ahead of winter seasons
with decision rights held by the Group Chief
Executive
• Regular reviews ensure there is adequate access
to liquidity in stressed cold weather scenarios
• Customer Conduct Board provides oversight
to minimise customer detriment, complaints
and regulatory action
• Customer-facing BUs continue to build delivery
capacity measures, including strengthening
demand forecasting methodologies, and winter
readiness planning activity
• Recruitment of frontline staff and expansion of web
chat services to meet customer demand
• Focused recruitment activity at a qualified and
apprentice level; use of temporary/contract
resources and geographical re-deployment of
engineer workforce to ‘hotspot’ demand areas
• Continuous engagement with policy makers
to help form future regulatory requirements
• Dedicated Corporate Affairs and Regulatory teams
which examine upcoming political and regulatory
changes and their impact and report to the
Leadership Team on an ongoing basis
• Understanding the expectations of stakeholders
through reputational surveys and review of media
sentiment
• The Board sets the tone from the top through
Our Code and leadership behaviours
• Regulatory compliance monitoring activities
performed by dedicated teams to drive Group-
wide consistency and quality
• Control frameworks in place to deliver customer
experience in line with requirements over
sales compliance, billing, retentions, customer
correspondence and complaints handling. These
are regularly reviewed by relevant leadership teams
through KPIs
• The Financial Crime Team monitors threats
throughout the business and adequacy of
response to the threat of bribery and corruption
• A global ‘Speak Up’ helpline exists to provide a
consistent Group-wide approach to reporting
unethical behaviour
• Continuous dialogue with Ofgem, consumer
groups and the FCA to influence the regulatory
environment
• Increased frequency of updated demand curves
which capture changes in demand driven by
deviations from seasonal normal weather
• Dynamic hedging strategy approved by the Group
Chief Executive, to reduce the exposure to high
price and cold weather risk
• The risk of a winter supply shock has eased
following mild December weather, and risk is
skewed to warm weather
• The cost of living crisis, high levels of inflation and
concerns over the continuity of energy supply
arising from the Ukraine conflict and the National
Grid’s Winter Outlook report driving unprecedented
levels of customer contact
• Suspension of all prepayment warrant activity at
least until the end of the winter and providing
£10 million to support prepayment customers
• We are working constructively with the wider
industry, the UK Government and the regulator
on the issue of prepayment warrant activity
• British Gas Energy and Bord Gáis Energy
committed to donate 10% of all profits for the
duration of the energy crisis. This contributed
to £50 million being donated in the UK and
€3.6 million in Ireland to help vulnerable customers
• Implementation of National Grid’s discount
scheme to manage peak demand and pilot of new
scheme to reward customers switching energy
usage to overnight
• Completing the migration to the ENSEK digital
platform is strategically critical to reduce our cost
to serve and deliver a quality service to customers
at a competitive price
• Keeping pace with the velocity, volume and
complexity of political and regulatory change has
proved challenging, notably timely implementation
of the various Government support packages
• We continue to note our concerns of potential
instability in the supply market given the lack
of additional regulation of suppliers to ensure
adequate capitalisation and customer protection
• The Group Ethics and Compliance team is
building capability in Energy Assurance to support
the business with meeting complex regulatory
requirements
• British Gas Energy has performed strongly in
recent Ofgem Market Compliance Reviews
(MCRs) of Direct Debit Assessments, Treatment of
Customers in Payment Difficulties and Treatment
of Vulnerable Customers
• We will continue to engage in consultation on
the security of energy supply and decarbonisation
of the UK retail energy market
• The roll-out and adoption of smart meters
continues to present challenges due to the
onboarding of c.700k SoLR customers
disproportionately increasing installation targets.
This has been exacerbated by supply chain
disruptions and discussions are ongoing with
Ofgem and Government
• The Our Code employee annual training for
2022 included expense fraud and information
security dilemmas as part of a campaign to raise
awareness of increased fraud risks
CFG
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31Strategic report | Centrica plc Annual Report and Accounts 2022
Overview
People Safety Cyber
Risk Category:Operational
Risk Category:Compliance/
Operational
Risk Category:Operational/
Compliance
FY21: Capability of People
FY21: Health, Safety and
Environment
Group Priority Risk Climate
Stable
Group Priority Risk Climate
Stable
Group Priority Risk Climate
Deteriorated
Risk of failure to attract, develop, engage and
retain key talent. Risk of deterioration to the
health and wellbeing of colleagues
• Failure to attract and retain key capabilities
and safeguard the health and wellbeing of
the workforce across the business could
have a detrimental impact on our ability
to meet our strategic objectives
• The cost of living crisis and inflation impact
on colleague mental health and wellbeing
• Labour market shortages for key skills
impacting retention in some business units
and locations
Risk of occupational, transportation,
customer/third-party fatality or injury due to
safety hazards
• Our operations have the potential to result
in personal harm
• Significant Health, Safety and Environment
(HSE) events could have regulatory,
financial or reputational repercussions that
would adversely affect some or all of our
brands and businesses
Risk of failure to prevent impacts from the
denial of service, cyber espionage and
the related theft/disclosure of confidential/
customer data leading to reputational,
regulatory and financial impacts
A cyber-attack presents a risk to Centrica
operations in the following ways:
• Confidentiality: leakage of customer or
company confidential data by threat actor,
third party, staff or system error, either
maliciously or by accident
• Integrity: accuracy of Centrica’s data due
to malicious or accidental alteration by
internal or external parties, or malicious
actor
• Availability: loss of assets, including data,
due to cyber compromise
Due to the diversity of Centrica’s technology,
the Company could suffer any or all of the
above which could lead to:
• Regulatory compliance impact or fines,
including but not limited to, General Data
Protection Regulations (GDPR), Payment
Card Industry Data Security Standard
(PCI), Financial Conduct Authority (FCA),
Prudential Regulation Authority (PRA) and
Smart Metering obligations (Ofgem)
• Financial impact of investigating and
recovering from a cyber-attack
• Impact of negative media coverage on
reputation and share price
Mitigations
• Quarterly Performance Conversations in
place as part of the Terms & Conditions
governance framework
• Monitoring of key metrics including the
Quarterly Employee Engagement index,
absence and attrition rates. Proactive
implementation of actions to support
colleagues
• Extensive focus on retention, building
capabilities and providing targeted learning
and development opportunities
• Design and implementation of appropriate
retention enhancement strategies
• Continuous focus on our Values and
culture aligned to our Purpose
• Greater focus on diversity and inclusion
at all levels of the organisation, and
open access to colleague-led employee
networks
• Continued investment in training to ensure
maintenance of safe operating practices
• HSE Management Systems are
established to include policies, standards
and procedures to protect employees,
third parties and our environment
• Assurance over our HSE processes and
controls provided by our in-house HSE
teams supported by external subject
matter experts, where needed
• Key senior HSE leaders to drive and
embed HSE culture and competency, and
continuous improvement in key metrics
• Our approach to customer visits is
continually reviewed to ensure that
employees are operating in line with
Government guidelines and that the
health and safety of employees and
customers is maintained
• Ongoing threat intelligence gathering,
collaboration and information sharing
with industry peers and National Cyber
Security Centre
• The Cyber Security Change Programme
builds security capabilities and
improvements in controls that increase
the difficulty of targeting Centrica and
being able to exploit weaknesses without
detection
• The Ransomware Minimal Viable
Company Programme which aims to
improve Centrica’s ability to recover
from a ransomware attack
• Training and awareness campaigns and
simulated phishing attacks in 2022 to raise
awareness and highlight responsibilities
in protecting data
• Cyber-attack simulations to identify control
gaps and undertake remediation activity
Developments
• New organisation structures have
largely embedded with some discrete
reorganisations in some business units
and a major reorganisation is in progress in
Spirit Energy as they prepare to repurpose
the business for energy transition
• FlexFirst successfully launched to combine
working from home with time on site
• Working groups established to help
understand how the cost of living crisis
is affecting colleagues. Resources and
discounts made available to all colleagues
are being actively promoted
• Externally, the union environment remains
challenging with trade unions focusing
their effort on pay increases and protecting
terms and conditions to support their
members with increased pressure from
the rising cost of living. Internally, we have
successfully negotiated the April 2023 pay
deal, which is now being implemented
• Shadow Board established and acting
as a forum to engage with the Centrica
Leadership Team (CLT) to influence
decisions, positively disrupt assumptions,
and challenge executives’ thinking
to support colleague-centred
decision-making
Management are enhancing existing HSE
frameworks to respond to changing risks
as the Group strategy evolves to include the
following activities:
• The reopening of Rough as a storage
facility
• The expansion of the services businesses
• The construction of two new gas-powered
peaking plants
• Construction of a battery storage project
at Brigg
• The injection of hydrogen into a gas
peaking plant at Brigg
• The Ukraine conflict has heightened the
external cyber threat landscape. Increased
cyber activity towards the oil and utilities
sectors has been reported
• The geopolitical situation and increased
connectivity of Operational Technology
(control systems used to manage
domestic, commercial and national
infrastructure) increases their vulnerability
to cyber-attack
• The volume, sophistication and velocity
of ransomware attacks has evolved, with
the most catastrophic bringing down IT
systems within very short timeframes,
and in some circumstances leading to
publication of the exfiltrated data
• The pursuit of our strategy into markets
such as EV charging and localised battery
storage will increase regulatory obligations
to maintain a secure cyber posture. The
anticipated increase in the scope of
regulations will have a broader impact
on Centrica requiring greater levels of
reporting and significant consequences
for non-compliance
SEO
SO
32 Strategic report | Centrica plc Annual Report and Accounts 2022
Operational Asset Integrity Climate Change
Risk Category:Operational/Compliance Risk Category:Strategic
FY21: Asset Production
Process Loss of Containment
Group Priority Risk Climate
Stable
Group Priority Risk Climate
Deteriorated
Risk that impaired structural or asset integrity,
resulting from any of a failure in design, failure in
appropriate maintenance & inspection, operating
outside of design conditions and/or human
error, leads to a major accident (such as loss of
containment of flammable/hazardous materials
or structural collapse) that could result in multiple
fatalities and/or major damage to the environment
• Failure to invest in the inspection, maintenance
and development of our assets could result in
significant safety issues, such as personal or
environmental harm, or asset underperformance
through unplanned outages
• Failure to capture adequate return on our 20%
nuclear investment due to operational issues or
early station closures suppressing earnings and
cash flows
Risk of market, regulatory and policy changes driven
by climate change affecting the ability of the Group to
execute its strategy
• Increased pressure from Government, investors
and customers to commit to meaningful carbon
reduction targets
• Execution of Centrica Business Solutions strategy
to realise opportunities from the energy transition
• Timing and execution of British Gas pivot to
decarbonised heating, power and transport
products and services
• Increased focus on ‘greenwashing and greater
rigour’ on Renewables Guarantee of Origin,
impacting renewable products and propositions
• The Group Annual Plan includes contingencies
to cover events such as unexpected outages
from assets
• Group-wide minimum operational and safety
standards are applied to all assets, whether
operated or non-operated, and adherence against
them is monitored and reported
• Maintenance activity and improvement
programmes are conducted across the asset
base to optimise effectiveness and maximise
production levels
• We use our presence on the Board of EDF Energy
Nuclear Generation Group Limited to monitor the
performance of the nuclear fleet
• Continued investment in training to ensure
maintenance of safe operating practices
• HSE Management Systems are established
to include policies, standards and procedures
to protect employees, third parties and our
environment
• Continuous engagement with regulatory agencies
such as the Environment Agency, Oil and Gas
Authority and UK Health and Safety Executive
• Assurance over our HSE processes and controls
provided by our in-house HSE teams supported
by external subject matter experts, where needed
• Monitoring of progress against People and Planet
targets including net zero targets for our business
and our customers
• Centrica’s Climate Transition Plan, which outlines
our approach to move to a low carbon future, was
subject to a shareholder advisory non-binding vote
at the 2022 AGM
• The SESC, which is chaired by an independent
non-executive director, typically reviews climate
change information and the Climate Transition
Dashboard three times a year. The SESC
additionally maintains oversight over material
climate-related matters
• Our Climate Transition Plan has been incorporated
into executive remuneration
• We have achieved full compliance in our
2022 Task Force on Climate-related Financial
Disclosures (TCFD) reporting, reflected in pages
46 to 54
• British Gas Services & Solutions has established
Net Zero Ventures to develop innovative and
competitive products and propositions to gain
a significant footprint in the growing low carbon
market
• As the Whitegate plant ages and we move to
more flexible generation, plant reliability and
safety risks will need to be carefully managed
through proactive management, maintenance and
investment
• We announced the reopening of the Rough gas
storage facility, having completed significant
engineering upgrades over the summer, and
increasing the level of ongoing maintenance.
The Group Insurance team continues to discuss
the cost and benefits of business interruption
cover with relevant business units
• The HSE Function works with the business to
ensure effective HSE resources and competency
operate consistently and effectively across the
business
• Completion of the sale of Spirit Energy Norwegian
assets, the majority of which were non-operated,
completed in May 2022. As the majority of the
assets were non-operated, there has been little
impact on this risk. Spirit Energy continues to
focus on maximising delivery of its gas production
for the UK, repurposing assets for the energy
transition and decommissioning activities
• Spirit Energy successfully decommissioned and
removed the Hummingbird Floating Production
System and Offloading vessel from the Chestnut
Field (the last oil producing asset), thereby
reducing the level of risk, particularly the risk
of an oil spill
• Continued geopolitical focus on COP27 and on
how corporations respond to climate change
• Completion of the sale of Spirit Energy Norway
assets in line with our decarbonisation strategy
• A court case ruling against the UK Government
applied pressure on them to develop and publish
coherent plans on how to achieve the Sixth
Carbon budget
• In the context of the cost of living and energy
security crisis, the Government is undertaking a
net zero review. The review will consider how to
deliver against targets. Centrica is actively engaged
and committed to influencing the shaping of the
approach to the green transition in the UK and
responds to Government consultations on related
policy
The Group will reallocate capital investment to realise
opportunities from moving to a low carbon future.
Examples of diversified projects to build low carbon
energy capability include:
• Solar farm at Codford
• Hydrogen initiatives including partnership with
HiiROC, testing injection at Brigg, and hydrogen
village trials in Whitby
• Battery storage development at Brigg
• Restarting gas storage at Rough, to meet short-
term needs for the security of gas supply. Further
investment could support potential repurposing
of the asset for hydrogen storage
• Transitional use of peaking plants to aid the use
of renewables in Ireland
• Launch of the inaugural Net Zero Index to
understand public sentiment on climate change
and any barriers to implementing changes that
will help British Gas Services & Solutions develop
relevant products and solutions. The availability
of the Index will further help Government and
other parties
SMS
CFG
33Strategic report | Centrica plc Annual Report and Accounts 2022
Assessment of Viability
Disclosure
Requirement
In accordance with provision 31 of the 2018 UK Corporate
Governance Code the Directors have assessed the prospects
andviability of the Group taking into account the business
model (as set out in the Strategic report on pages 8 to 9),
current position in the context of liquidity and credit metrics
of the Group, and principal risks.
Assessment of prospects
The assessment considers the current position of the Group, the
Group’s strategy, longer-term market trends and customer needs,
and the Group’s principal risks as well as forecast cash generation
against long-term obligations to repay debt and fund the defined
benefit pension schemes.
Our business model is designed to allow us to focus on meeting
the changing energy supply, services and solutions needs of our
customers, helping them transition to a lower carbon future while
positioning ourselves to deliver returns for shareholders and meet
our broader obligations to society over the long-term.
Key factors in assessing the long-term prospects of the Group
include the following:
1. The Group’s competitive position today
Centrica has strong brands with large customer bases as the
number one supplier in many of the markets in which it operates.
In its core markets: British Gas Energy and British Gas Services are
the largest residential energy supplier and home services provider
in the UK; Bord Gáis is the second largest residential energy
supplier in Ireland; and the Energy Marketing & Trading business is
a leading route to market services provider across Europe. Centrica
also has the largest heating engineer workforce in the country, who
are highly trusted by our customers, and are well positioned to
continue to support new fuels and technologies.
In assessing our prospects beyond the strategic planning period,
the Board considers how these strengths position the company
togrow long term shareholder value.
2. Market trends affecting future prospects
• commodity price volatility and its impact on the UK energy
supplymarket;
• cost of living crisis and its impact on our customers;
• increasing progress and Government support for net zero,
corporates committing to clear net zero targets;
• despite recent competitor supplier failures, competition may
remain intense with margins under pressure within our retail
business, and we expect that to remain the case as the market
emerges from the current crisis;
• falling costs for battery, solar and wind, electric vehicle (EV)
deployment accelerates, growing need for flexibility; and
• role of data analytics, artificial intelligence and automation
increasingly important.
3. Customer needs
• hassle-free, empathetic, personalised and safe service. Offering
solutions, not just products;
• responsible options (including green tariffs) and expert guidance
to help them achieve their net zero goals;
• trusted and credible counterparty; and
• lower costs and greater efficiency.
We put customers’ needs at the centre of everything we do and
this is the core part of our strategy, as set out in the People and
Planet and Strategic Report sections of this Annual Report on
pages 39 and 8 respectively.
4. The Group’s strategic objectives
The Group’s strategic Purpose is to help our customers live
sustainably, simply and affordably, as set out on page 7 of
this Annual Report. This supports the assessment of the
Group’sprospects.
5. Principal risks facing the Group, as set out on
pages 28 to 33
The risks we consider to be of greatest significance in assessing
our prospects include:
• further political or regulatory intervention, including increased
focus on Environment, Social and Governance interventions
andresponding to climate change;
• external risks associated with weather, commodity price
movements and the cost of living crisis;
• access to sufficient financial facilities to support margin
cashdemands;
• credit risk;
• compromised asset production and health & safety impacts
ofprocess loss of containment; and
• risks associated with the effectiveness of our internal control
environment in relation to cyber risk, data protection and
customer conduct.
Climate change is the most important driver guiding Centrica’s
prospects today and is a core part of our Purpose as reflected
bythe actions we’ve taken, which include:
• we’ve outlined our plans for how we intend to decarbonise
power, heat and transport through our Climate Transition Plan
published in October 2021;
• we will continue to build out our green supply and solutions
offerings for customers;
• we’re training the next generation of apprentices to deliver low
carbon technologies like heat pumps and EV chargers while
exploring the future of hydrogen; and
• we’re committed to creating additional green generation with
upto £500 million to deploy through Centrica Energy Assets
inlow carbon and transition assets by 2025.
Good progress has been made on managing the prospects
of the Group during 2022, including the completion of the
sale of Spirit Norway on 31 May 2022 and the reopening of
the Rough gas storage facility in September. We continue to
simplify our management structure, reducing management
layers and increasing the proportion of our colleagues who
interact directly with customers, enabling us to put customers
at the heart of everything we do. In addition, our balance sheet
is now muchstronger, with an adjusted net cash position as of
31December 2022.
The Board has confidence in the long term prospects of the
business. The Board believe that the strategic steps taken in 2022,
and the Group’s strategy and Purpose will set the Group up to be
successful in the long term as market trends continue to evolve
andkey risks are managed.
Assessment of viability
The assessment is based upon the Group Annual Plan for 2023
and the longer-term strategic forecast for 2024 and 2025 which
are approved annually by the Board. The Board continues to
34 Strategic report | Centrica plc Annual Report and Accounts 2022
believe that a three-year time horizon is the appropriate timeframe
to assess viability, and is also consistent with the Group’s planning
cycle and the period of reasonable visibility in the energy markets.
The Group’s focus on the energy supply and services businesses
means the most significant risks continue to be shorter-term in
nature including asset performance, commodity prices, weather
and margin cash requirements.
Important context to the viability assessment is the management
ofthe Group’s financing profile through accessing a diverse source
of term funding and maintaining access to carefully assessed
levels of standby liquidity which support the Group’s planned
financial commitments. As at 31 December 2022, the Group had
total committed credit facilities of £6.5 billion, of which £1.1 billion
are temporary facility extensions that expire in mid-2023, £0.2
billion expire in 2024 and the remaining £5.2 billion expire in 2025.
The undrawn committed facilities as at 31 December 2022 were
£4.0billion in addition to unrestricted cash and cash equivalents
of£3.7billion.
In the continuing environment of high and volatile commodity
prices, the Group’s portfolio provides increased opportunity for
value capture and outperformance, but with significantly wider
risk outcomes. The high price environment makes access to
sufficient financial facilities a key focus for trading entities due to
the requirement to hold sufficient collateral for mark to market
positions, significantly increasing pressure on liquidity.
In addition, the cost of living crisis continues. Inflation rose above
10% in H2 2022 and could be slow to fall due to underlying
pressures. As a result, the group is exposed to elevated levels
ofbad debt as customers struggle to pay their bills.
To reflect the current volatility of risk factors, Centrica has used
judgement to determine severe but plausible scenarios and have
modelled three versions of the viability assessment to give a high,
base and low curve scenario. These scenarios reflect a range of
reasonably possible increases or decreases in commodity prices
due to market conditions. The price curves used for the high and
low scenario are summarised in the following tables:
High curve 2023 2024 2025
NBP (p/th) 577 454 404
Baseload Power (£/Mwh) 504 339 254
Low curve 2023 2024 2025
NBP (p/th) 95 100 107
Baseload Power (£/Mwh) 146 148 127
Viability was initially assessed based on September prices.
However prices between September and December have fallen.
We have continued to monitor these price changes to ensure that
our base, high and low curves remain appropriate and specifically
whether our base assumptions remain within the high to low range.
As a result of this exercise, the high and base price scenarios were
not adjusted (as the base scenario remained within the high to
low range), but we adjusted our low curve for baseload power to
align to December prices, with a separate assessment performed
on whether the Group would remain viable in the event that both
NBPand baseload power fell further.
Note that the judgements within the financial statements, in
particular impairment, have been based on actual forecast prices
at the balance sheet date. Please see note 3 to the financial
statements for further information.
The three scenarios share the same risks but, where relevant, the
risks were flexed to reflect the Group’s exposure in each scenario.
We have modelled groups of risks within ‘clusters’. It is not
plausible that all risks would occur at the same time, and therefore
each of the clusters is considered as a plausible combination
of risks. The table below details the risk clustering and linkage
to principal risks. Each of the clusters includes common risks
throughout in addition to the risks associated with the cluster.
Therisks relating to commodity price, margin cash, bad debt,
credit risk and letters of credit were selected as constant events
inall three clusters.
Risk Cluster Risk description Links to Principal Risks Risk >5%
of opening
headroom?*
Commonrisks
Commodity price impacts on earnings of asset-
based businesses
• Financial Markets – Market Risk Yes
Increased margin cash requirements arising from
adverse market conditions***
• Financial Markets – Credit & Liquidity Risk
• Financial Markets – Market Risk
Yes
Higher bad debt due to cost of living crisis
• Financial Markets – Market Risk
• Financial Markets – Credit & Liquidity Risk
No
Credit Risk: risk of financial loss due
to counterparty default
• Financial Markets – Credit & Liquidity Risk No
Removal of 25% of drawn uncommitted Letters
of Credit
• Financial Markets – Credit & Liquidity Risk No
Cluster 1
Regulatory risks in relation to loss of sensitive data
• Political, Legal, Regulatory or Ethical Intervention/
Compliance
• Cyber
No
Operational impact of sustained employee
industrial action
• People
• Customer
No
Cluster 2
Significant disruption to the asset-based
businesses leading to loss of production
and earnings
• Operational Asset Integrity
• Safety
Yes
Cluster 3 Significant adverse weather event
• Financial Markets – Weather Risk Yes
See note below** Increased collateral requirements arising
from a single-notch credit rating downgrade
• Financial Markets – Credit & Liquidity Risk Ye s
* Headroom is calculated as undrawn committed facilities plus total liquid resources.
* * A credit rating downgrade risk has only been applied to scenarios where the stressed credit metrics indicate Centrica would be at significant risk of downgrade by the
agencies.
** * The largest margin outflow modelled in the scenarios is materially in excess of the £1.9bn margin cash position seen at the end of August 2022, and significantly higher
than that in 2021 and 2022.
35Strategic report | Centrica plc Annual Report and Accounts 2022
Group-wide assumptions include:
• No material acquisitions or disposals of Group business areas;
and
• Centrica has a long standing relationship bank group and
has recently received strong support from a number of the
relationship banks for a temporary increase in committed credit
facilities for the current winter period. As such, the Directors are
confident in the ability of Centrica to refinance appropriate credit
facilities and margin waiver facilities.
Liquidity requirements
Centrica has established enhanced processes in the trading
businesses and in respect of Upstream to plan for and manage
possible increased cash margin requirements. These processes
include:
• monitoring reasonably possible scenarios for increased liquidity
requirements as a result of changes in commodity prices and
market conditions; and
• ensuring Centrica has sufficient headroom to meet reasonably
possible liquidity requirements over the going concern period.
Centrica has also enhanced governance measures including
establishing a Liquidity Working Group to monitor market
conditions, trading activity, and the ability of counterparties to pay
margin calls to Centrica, and to take action where appropriate.
Centrica uses sophisticated modelling and analysis of the volatile
market conditions over the last two years and market forward
data to determine severe but plausible scenarios of the liquidity
requirements for the trading business and Upstream. These include
high and low price scenarios which are reflected in the viability
assessment. While these scenarios include assessing statistically
to a 95% confidence level the market conditions that may arise in
the future, they will not necessarily predict future conditions given
markets are volatile. Therefore, Centrica maintains and monitors
the liquidity requirements across the business to ensure sufficient
headroom is retained.
Regular assessments are performed of the credit worthiness and
liquidity of counterparties that Centrica trades with and pays and
receives cash margin calls from. These include assessing the level
of exposure to counterparties who are investment grade and non-
investment grade, monitoring and dynamically managing credit
limits and arranging credit enhancements such as requiring letters
of credit from financial institutions.
Outcome of viability assessment
The viability scenarios have been assessed to confirm whether
the Group would have sufficient liquidity available to meet its
future planned financial commitments, and that the credit metrics
calculated would not imply a sustained fall to below investment
grade credit ratings (S&P BB+ and Moody’s Ba1).
In order to reach a conclusion as to the Group’s viability,
theDirectors have considered the following:
• Whether any of the scenarios and clusters of risks noted above
breached the available headroom in the three-year period and
concluded that sufficient headroom was available in all scenarios.
• Whether any of the scenarios and risks noted above indicated
a deterioration in the credit rating metrics which would lead to a
two notch downgrade to sub-investment grade. They concluded
that the Group has a reasonable expectation that its net debt
ratios would continue to sustainably support investment grade
ratings (at least BBB- for S&P, and at least Baa3 for Moody’s)
forall scenarios.
While mitigations were not required in any of the above scenarios
to ensure the Group was viable, additional mitigations could be
deployed to increase headroom and reduce the risk of a credit
downgrade, including reductions in operational and capital
expenditure.
Reverse Stress Testing identified that there are some extreme
risks that could theoretically result in Centrica entering a position
whereby its financial resources were insufficient to meet its liabilities
as they fall due. However, given the current financial strength of
the company, the combination of events required to achieve this
scenario is extremely unlikely to occur. We therefore believe that
these risks do not represent a ‘severe but plausible’ threat to the
viability of the company.
Conclusion
The Directors have considered all the above factors in their
assessment of viability, including the availability of mitigating actions
within their control in the event that one of the scenarios above
materialises. We have performed sensitivity analysis that enables
the Directors to confirm that they have a reasonable expectation
ofthe Group’s ability to continue to operate and meet its liabilities,
as they fall due, over a period of at least three years.
36 Strategic report | Centrica plc Annual Report and Accounts 2022
2022 has been an extraordinary year for
Centrica. I am really proud of what all our
colleagues have achieved together to
support our customers, each other and
our Company throughout the year.
Amongst our many successes we’ve donated £4.5 million to
make a big difference to causes our colleagues are passionate
about in our local communities and we are helping colleagues and
customers as much as possible with ongoing energy and cost
of living issues. We restarted returns to shareholders which will
also benefit the majority of our colleagues who are or will become
shareholders due to our Global profit share award.
Our HR function has made a huge contribution to Centrica as we
have adapted to significant change in the business, supported
our businesses during the most challenging of times and flexed
with pace to meet unprecedented recruitment needs to ensure
we have sufficient colleagues to support our customers.
Health, safety and wellbeing
Health and wellbeing is part of everything we do and we are
building a supportive environment with an open and honest culture.
Our healthcare plan has been enhanced with additional wellbeing
benefits and continues to be available to all UK-based colleagues
and their dependants, giving peace of mind to colleagues and their
families. Our data-driven approach provides real insight into our
colleagues’ key health risks and drives our strategy: to improve
the health and wellbeing of all colleagues.
We utilise and leverage technology, have a 100-strong network
ofmental health first aiders across the UK business and provide
a24/7 emotional support line. Mental health training programmes
are in place to support leaders and colleagues.
Through our wellbeing programme we are able to raise awareness
of difficult and taboo subjects, such as the menopause, fertility,
cancer and mental health. Our regular events with external and
internal participants allow our colleagues to learn more and to
share their experiences.
Looking after our colleagues through the rising
cost of living
This year has presented many challenges and Centrica is
committed to supporting colleagues especially through the cost
of living crisis. We have set up a dedicated team to focus on
cost of living support. A number of financial and non-financial
initiatives have been implemented to support colleagues ranging
from £1lunches at all of our sites to providing additional mental
health and wellbeing assistance for customer-facing colleagues.
The team continues to monitor the external situation closely and
to recommend additional intervention and assistance where
necessary. In 2022 we made two separate cost of living payments
to the majority of our colleagues and in the UK we continue to
provide an allowance through payroll for all colleagues that are
British Gas customers, to help with managing rising energy bills.
Colleague engagement
I am delighted that colleague engagement has continued to
improve quarter on quarter throughout the year. In Q3 we exceeded
our internal target of 63% and the Q4 result was 10% higher
than our target at 73%. An engaged workforce ensures we are all
focused on our Purpose, helping our customers to live sustainably,
simply and affordably.
Jill Shedden
Group Chief
People Officer
Group Chief People
Officer’s Report
Colleague engagement
Q1
63%
Q2
58%
69%
Q3
XX.X
Q4
73%
Global profit share award
In 2022 we also granted our first global profit share award to all
colleagues, relating to our profits in 2021. The award was made
in shares as we want our colleagues to share in our success as
we continue to grow our business in the future. We will be making
a similar award in shares in 2023, relating to our 2022 profits and
this time, our improved absence performance across the business
has also boosted the profit share pool which will be shared with
allcolleagues.
Supporting our colleagues’ journey to net zero
Centrica is helping colleagues on the journey to cleaner and
greener transportation, by leveraging Centrica products and
services including a salary sacrifice scheme for electric vehicle (EV)
leasing. This offers savings for both Centrica and our colleagues
and it’s a great opportunity for UK colleagues to access ‘green’
electric cars to support our commitment to net zero, reducing
thecarbon footprint of our fleet over time.
37Strategic report | Centrica plc Annual Report and Accounts 2022
Colleague headcount full-time equivalent (FTE)
2022
19,743
2021
19,783
21,239
2020
XX.X
Listening to our people
We have put in place a Shadow Board which is a unique
partnership with the Centrica Leadership Team to provide impartial
insight, review and assurance on strategic topics relating to
colleagues, customers and cash.
The role of the Shadow Board is to be a forum that the Group
Chief Executive and Centrica Leadership Team will engage with
to bring diverse perspectives from across the organisation into
key discussions to ensure our values and standards are upheld.
Through the Shadow Board, colleagues will be able to influence
decisions, positively disrupt assumptions, and challenge the
thinking of our leaders to support colleague-centred decision-
making. The Shadow Board consists of nine colleagues from
across Centrica.
Centrica stories
Jacqui’s reflections on the Shadow Board
Having left school with a few GCSEs many years
ago, I’ve had the opportunity to develop a wealth of
experience and skills at Centrica. So when I heard
they were creating a Shadow Board, I jumped at the
chance to become its Chair, because I wanted to give
something back.
The Shadow Board meets leaders regularly to share
diverse perspectives from across the business and
deliver colleague-centric decisions. And I’m incredibly
proud of how we’ve worked together during our first
year – from raising awareness and developing and
supporting solutions for the challenges our engineers
face, to strengthening our colleague engagement
survey and providing feedback on how to bring our
Purpose, Values and Strategy to life for colleagues.
In 2023, we’ll build on this with priorities that include
how to develop closer relationships with colleagues
overseas and better support managers to ensure
success. Following feedback, we will also run quarterly
diversity network sessions to ensure our engineers are
aware of, and have the same level of access to our
support groups as our office-based colleagues.
9
Diverse colleagues on the Shadow Board,
each serving an 18-month term
Developing our people
I am delighted that this year we recruited a further 367 apprentices,
continuing to create new, highly skilled and well-paid British jobs.
In addition to this we recruited 258 new employees via other
training opportunities, including newly qualified and trainee
pathways. 20% of our new colleagues were female via the
combined engineering entry routes. In addition, our Ex-Forces
programme got off to a strong start in 2022, hiring 143 former
service personnel, spouses or family members.
• 3,010 internal moves & promotions happened in 2022
• 3,700 new colleagues joined us across the Group including
51graduates, 57 summer placements and 15 Year in Industry
colleagues
Colleague networks
I am incredibly proud that we have a number of active colleague-led
networks that operate across Centrica. Our networks cover areas
such as gender/sexual orientation, family, disability and ethnicity.
I have highlighted someexamplesbelow.
Centrica Forces Network is a group of colleagues across all areas
of Centrica who have either served in, or are serving reservists in
the Armed Forces, or have an interest in being part of a community
that supports these groups of colleagues. The objective is to
createa diverse community that supports veterans and reservists
within Centrica ensuring that we become an employer of choice
for these groups.
Our Carers Network is a supportive group where colleagues are
able to connect with others (who may or may not be carers) who
can share ideas and information about any aspect of caring.
This year the network and Carers UK collected two trophies at
the Corporate Engagement Awards. Following the success of
our three-year strategic charity partnership with Carers UK, we
won bronze for Best Collaborative Approach and were highly
commended in the Best Charity, NGO or NFP category. The
partnership was recognised for itswork to bring about a step
change in the way that society recognises, values and supports
carers. Whilst our strategic charity partnership has now ended,
wecontinue to work closely together.
Jill Shedden, Group Chief People Officer
15 February 2023
38 Strategic report | Centrica plc Annual Report and Accounts 2022
Creating a more inclusive and
sustainable future that supports
communities, our planet and each other.
Our People & Planet Plan has five Group-wide goals that accelerate
action on issues that matter deeply to our business and society,
and where we’re well-placed to make a world of difference – from
achieving net zero
(1)
and creating the diverse and inclusive team
we need to get there, to contributing to the communities we’re all
partof.
Whilst we’ve made really positive progress towards the majority of
our goals, we’re behind on some of our shorter-term milestones
but are confident we’ll get back on track in the years ahead.
Unprecedented events including COVID-19, the collapse of failed
energy suppliers and the rising cost of energy during the energy
crisis, meant that we needed to shift our focus beyond the People
& Planet Plan, to provide the urgent help our customers and
communities need right now – including stepping up to give 10% of
our British Gas Energy and Bord Gáis Energy profits to help people
pay for the rising cost of energy.
People and Planet
+ Read moreabout our People & Planet Plan, Climate Transition Plan, SDGs
and SASB disclosure amongst others at centrica.com/peopleandplanet
+ Read more about our non-financial KPIs on pages 258 to 260
Over the next decade, we’ll continue to harness the expertise
of colleagues and collaborate with key stakeholders such as
government and local communities, to drive the necessary action
to deliver our People & Planet Plan and ensure we do business
responsibly across our wider activities.
Ultimately, this will enable us to deliver on ourPurpose of
helping our customers live sustainably, simply and affordably
whilst contributing positively to the United Nations Sustainable
Development Goals (SDGs).
* All company and senior leaders to reflect 2011 Census data for working populations. This means 47% women, 14% ethnically diverse, 15% disability, 3% LGBTQ+
and 3% ex-service by 2030 (30% women, 13% ethnically diverse, 4% disability, 3% LGBTQ+ and 3% ex-service by the end of 2022). See page 40 for more.
“2022 has been a year like no other and I’m really
proud of the way we’ve worked together and
with others, to provide the UK’s largest voluntary
support package for customers to help them with
their energy bills, whilst making strong progress on
our People & Planet Plan. We’ve a long way to go
to achieve the inclusive and sustainable world we
need, but I’m fully committed to making sure we
get there.”
Chris O’Shea, Group Chief Executive
Our People & Planet Plan
Supporting communities, our planet and each other
• Inspire colleagues to give 100,000 days to build inclusive communities by 2030 (20,000 days by the end of 2022)
Doing business responsibly
Underpinned by strong foundations to ensure we act fairly and ethically – from customer service to human rights
We want to:
• Create a more engaged and inclusive team that reflects the
full diversity of the communities we serve by 2030*
• Recruit 3,500 apprentices and provide career development
opportunities for under-represented groups by 2030
(1,000 apprentices by the end of 2022)
We want to:
• Help our customers be net zero by 2050
(28% carbon intensity reduction by the end of 2030)
• Be a net zero business by 2045
(40% carbon reduction by the end of 2034)
People
Supporting every colleague to be themselves
to better serve our customers and
communities
Planet
Supporting every customer to live more
sustainably
(1) Net zero is the point at which there is a balance between human-related carbon
dioxide (CO
2
) being emitted into the atmosphere and the CO
2
taken out.
39Strategic report | Centrica plc Annual Report and Accounts 2022
Providing urgent help during the energy crisis
In 2022, the war in Ukraine led to global energy supplies
constricting further and the cost of energy rising. Amidst the
wider cost of living challenges, more and more people found it
challenging to pay for their energy. With the duration of the energy
crisis unknown, we urgently shifted our focus to do what we could
to help. In the UK for example, we invested £25 million in customer
service to handle a 50% increase in calls by hiring 700 additional
UK-based customer service agents. We also committed £50million
to help homes and businesses with their energy bills, either
through British Gas or via the British Gas Energy Trust which is an
independent charity funded solely by British Gas, and helps anyone
in need of assistance. As a result, we created the largest voluntary
energy support fund for customers and our support will grow with
our promise to voluntarily donate 10% of British Gas Energy’s
profit for the duration of the energy crisis. This is in addition to
our mandated funding of the Warm Home Discount and Energy
Company Obligation (ECO).
2022 Progress:
To build a more sustainable future, we need the best team – a
diverse mix of people and skills, where different ideas can grow,
and where everyone can succeed.
Our goal to reflect the full diversity of our communities is therefore
essential but ambitious. Boosting the representation of women will
be particularly challenging given our large engineering team reflects
the male-dominated market, so it’ll take time to tackle this sector-
wide issue and build a more diverse talent pipeline through our
apprenticeship programme (see Goal 2). In 2022 we did, however,
make good progress by attracting, promoting and retaining more
diverse talent. For example, the proportion of women across the
company and among our senior leaders improved for the first
time in a long time and we’re now on track. And if we remove
our engineering team from the data, our overall gender balance
improves even further. Although we achieved gains across our
ethnicity, disability, LGBTQ+ and ex-service representation in 2022,
opportunities remain for improvement including through building on
the success of our #ThisIsMe campaign to drive self-declaration
in 2023, which will help us better understand who’s working for
usand where we need to focus action.
With our leadership team sharing an open letter to colleagues that
set out our diversity and inclusion (D&I) action plan in 2021, we
took important steps to deliver progress in 2022. This included:
• embedding tailored D&I dashboards alongside business unit
action plans that are reviewed quarterly by leaders, and will
helpdrive continuous improvement;
• confirming that FlexFirst was here to stay which enables
colleagues to choose when they want to work from home, come
into the office, or flex their hours. Around 90% of colleagues
said it’s helped provide the right work-life balance and has given
parents, carers and those living in different regions, the chance to
pursue development opportunities that otherwise wouldn’t have
been possible; and
• rolling out allyship training to leaders and mandating anti-racism
training for all colleagues, to help continuously upskill and
educate.
Through these activities and more, we’ve received external
recognition for our efforts including earning a place in The Times
Top 50 Employers for Women. In 2023, we’ll refresh our goals in
line with 2021 Census data for working populations and advance
progress by continuing to embed our action plan whilst acting on
colleague feedback.
People
Supporting every colleague to be
themselves to better serve our customers
and communities
Goal 1
By 2030, we want to:
Create an engaged team that reflects the full diversity of
the communities we serve – this means all company and
senior leaders to be 47% women, 14% ethnically diverse,
15% disability, 3% LGBTQ+ and 3% ex-service
(1)
In Ireland during 2022, we similarly committed to donate 10%
of Bord Gáis Energy’s profit for the duration of the energy crisis.
This equated to €3.6 million to support vulnerable customers with
their energy bills. We also continued to work closely with charity
partner, Focus Ireland, to support those at risk of or experiencing
homelessness.
In total during 2022, we spent nearly £290 million helping
vulnerable people with their energy
(1)
through expert advice,
grants and energy efficiency measures.
(1) Comprises of £243.8million in mandatory and £45.1 million in voluntary
contributions, mainly through the Warm Home Discount, ECO and British Gas
Energy Trust.
+ Read more about our support during the energy crisis on pages 12 and 68
(1) Towards this, our milestone goal was to be 30% women, 13% ethnically diverse,
4% disability, 3% LGBTQ+ and 3% ex-service by the end of 2022. Our 2030
goal was based on 2011 Census data for working populations and beyond
gender, 2022 progress was based on 70% of colleagues disclosing their diversity.
For 2023 annual reporting onwards, our 2030 goal will be re-aligned to the
recently released 2021 Census data for working populations with 48% women,
18%ethnically diverse, 20% disability, 3% LGBTQ+ and 4% ex-service.
(2) Senior leaders include colleagues above general management and spans
seniorleaders, the Centrica Leadership Team and the Board.
All company Senior leaders
(2)
Women
30%
33%
– Excluding field engineers
41%
32%
Ethnically
diverse
14%
9%
Disability
3%
3%
LGBTQ+
3
%
0%
Ex-service
2%
3%
Progress against goals:
On track
Behind
40 Strategic report | Centrica plc Annual Report and Accounts 2022
2022 Progress:
(3) Base year 2021.
To get to net zero and satisfy the wider needs of our customers, we
need to create thousands of high-quality jobs – from Smart Energy
Apprentices to customer service agents. To fill these roles, there’s a
huge opportunity to tap into the talent of under-represented groups
to deliver a greener and more inclusive future. Towards this, we’re
recruiting 3,500 apprenticeships which is the equivalent of hiring
one apprentice every day over the next decade. And by the end
of 2022, we were on track with the goal having recruited 1,033
apprentices, whilst helping over 700 trainees professionally qualify
in areas like gas and whitegoods.
In particular, our Ex-Forces programme got off to a great start in
2022, hiring 143 former service personnel and we’re aiming to
recruit 500 veterans, reservists, spouses and partners by the end
of 2023. Meanwhile, following a targeted campaign aimed at
women looking for a career change during COVID-19, progress
against our ambition for 50% of our Smart Energy Apprentices
to be women declined from 30% in 2021, to 20% in 2022.
Whilst this remains higher than the gas engineer average of 0.2%
women, the drop is disappointing so we’re strengthening branding
and marketing campaigns to continue to break down gender
stereotypes and inspire more women into engineering.
Alongside this, we’re working to encourage more young people
to choose a career in energy by supporting Tech She Can’s
educational programme, Tech We Can, which has directly
reached over 18,000 students.
Goal 2
By 2030, we want to:
Recruit 3,500 apprentices and provide career
development opportunities for under-represented groups
(1,000 apprentices by the end of 2022)
(3)
3,500
Apprentices to be recruited with the ambition
for50% of recruits to be women by 2030
Our wider diversity headcount
Gender
(1)
Ethnically diverse
(1)(2)
2022 2021 2022 2021
Women Men Women Men Ethnically diverse Ethnically diverse
Board
4 (44%) 5 (56%)
4 (50%) 4 (50%)
1 (11%)
1 (13%)
Senior executives and direct reports 24 (33%) 49 (67%) 29 (32%) 61 (68%) 6 (8%) 6 (7%)
Senior leaders 117 (33%) 243 (67%) 99 (28%) 254 (72%) 32 (9%) 31 (9%)
All employees 5,938 (30%) 14,190 (70%) 5,421 (28%) 13,832 (72%) 2,761 (14%) 2,251 (12%)
(1) Headcount as at 31 December and based on overall headcount rather than headcount based on their full-time equivalent, to more accurately reflect the full diversity of our
workforce. Read more about Board diversity on page 61.
(2) Based on 65% of colleagues in 2021 and 70% of colleagues in 2022, who voluntarily disclosed that they were from a Black, Asian, Mixed/Multiple or other ethnic group
across the UK, Ireland and North America.
Chelsea’s apprenticeship
As my son grew older, the time felt right to increase my
work hours and find a new career. When I came across
the Smart Energy Apprenticeship, it appealed to my
love of science and learning but I wasn’t sure if I’d fit in.
Then I saw that British Gas were specifically targeting
women, so I decided to give it a go.
I’m so glad I did! The team are really supportive, and
I get treated just the same as everyone else. No two
days are the same which I enjoy and it’s really rewarding
to leave customers with a smile on their face. I also
flex my hours for the school run in the morning which
makes life that little bit easier.
Having got a distinction in my apprenticeship, I’m
really proud of all I’ve learnt and that I’ve now got a
solid trade. And in the future, I’m sure there will be
opportunities to cross-skill into electric vehicle (EV)
charging or management. If more young girls see
engineers like me, I hope they’ll think it’s a career
they could do too.
Centrica stories
Apprentices
1,033
Progress against goals:
On track
Behind
41Strategic report | Centrica plc Annual Report and Accounts 2022
(1) Base year 2019.
We’re harnessing the passion of our people to build inclusive
communities because strong communities are central to a more
sustainable future. It’s also a great way to help colleagues develop
skills and improve engagement.
In 2022, we significantly ramped up volunteering and fundraising
efforts with 2,098 days donated to help our local communities. This
is a massive 600% increase from 2021 and brings our cumulative
total to 12,987 days since 2019. Gains were made possible with
the launch of ‘The Big Difference’ initiative which nearly 5,000
colleagues voted on and marks the move from a national to local
approach that’s mobilising everyone to get involved in local causes
they care passionately about.
Goal 3
By 2030, we want to:
Give 100,000 days to build inclusive communities
(20,000 days by the end of 2022)
(1)
2022 Progress:
Despite this improvement, we missed our 2022 milestone due to
COVID-19 limiting volunteering opportunities in previous years and
our need to focus on providing the urgent support our customers
have needed over the last two years with the collapse of failed
energy suppliers and the energy crisis. But we’ll get back on track
as we work towards 4,000 volunteering days with 1 in 6 colleagues
volunteering in 2023, and build to 1 in 3 colleagues by 2030.
Around 90% of our total GHG emissions (scope 1, 2 and 3),
comefrom the sale of gas and electricity to customers (scope 3).
So the biggest thing we can do to fight climate change, is to help
our customers use energy more sustainably.
Towards this in 2022, we provided energy, services and solutions
that enabled the GHG intensity of our customers’ energy use
to reduce by 6% against our 2019 base year, which was mainly
driven by renewable and low carbon energy tariffs alongside energy
efficiency and optimisation solutions. This was down from 17%
(3)
in2021 following the reintroduction of fossil fuels into our electricity
mix due to the escalating cost of green energy certification and the
need to keep costs down for customers during the energy crisis.
The zero-carbon content of our reported electricity fuel mix did,
however, remain high at 75% versus the 55% UK average and
is only slightly behind the glidepath for our long-term goal. We’re
exploring all options to decarbonise our electricity supply in an
affordable way, which is key to delivering on our goal and ensuring
a fair transition to net zero for our customers.
(3) Restated due to availability of improved data.
Planet
Supporting every customer to
live more sustainably
Goal 4
By 2050, we want to:
Help our customers be net zero
(28% reduction by the end of 2030)
(2)
(2) Net zero goal measures the greenhouse gas (GHG) intensity of our customers’
energy use including electricity and gas with a 2019 base year of 183gCO
2
e/kWh,
normalised to reflect acquisitions and divestments in line with changes in Group
customer base. Target aligned to the Paris Agreement and based on science to
limit global warming, corresponding to a well below 2°C pathway initially and
1.5°C by mid-century.
2022 Progress:
630,000 homes
The equivalent annual emissions we’ve saved
through our energy, services and solutions
Making a big difference in 2022:
400
Local and national charities supported – from Little
Village in London and LOROS Hospice in Leicester,
to the Trussell Trust, Age UK and Focus Ireland
7
New community organisations were awarded funding
to progress their journey to net zero via our Energy
for Tomorrow social impact fund, which has an
annual budget of up to £600,000
£4.5m
Donated and fundraised for local communities, with
over £1 million also supporting the crisis in Ukraine
through theDisaster Emergency Committee
Days
12,987
Progress against goals:
On track
Behind
Reduction
6%
Progress against goals:
On track
Behind
42 Strategic report | Centrica plc Annual Report and Accounts 2022
In 2022, we helped our customers advance towards net zero by
supporting them with measures to decarbonise power, heat and
transport by:
• launching British Gas Net Zero Ventures, a new business whose
sole mission is to support customers with their journey to net
zero by helping them adopt key technologies – from heat pumps
to EV charging;
• installing over 2,300 heat pumps to date which is more than any
other UK company, and we expect to ramp this up significantly
with our market-leading price guarantee launched at the start of
2023;
• supporting growth in the take-up of EVs having installed nearly
28,000 charging points so far; and
• completing the Energy Company Obligation Phase 3 2019-22,
providing energy efficiency measures to 150,000 homes, which is
estimated to save around £2 billion on energy bills and 2mtCO
2
e
across the measures’ lifetime – that’s equivalent to avoiding
seven billion miles being driven in a combustion engine car.
Goal 5
By 2045, we want to:
Be a net zero business
(40% reduction by the end of 2034)
(1)
2022 Progress:
In 2022, we continued to make progress against our net zero target
with our total GHG emissions decreasing by 6%
†
against the 2019
base year. With our Whitegate power station resuming normal
operations to play an important role in boosting energy security
and providing a stable baseload power for intermittent renewables
following an outage in 2021, savings were down from the 53%
(2)
temporary reduction achieved that year. Overall, we remain on track
with our long-term goal.
The main driver of reductions in 2022 from the 2019 base year,
arose from our oil and gas operations, which included closing
our Hummingbird oil production offshore facility in the UK North
Sea which is our last remaining oil production facility. Sustainable
savings were also secured via our low carbon fleet initiatives such
as rolling out EVs, delivering property efficiencies across lighting,
heating and cooling systems, alongside property rationalisation and
lowering occupancy as a result of FlexFirst which lets colleagues
choose when they want to come into the office to connect and
collaborate or work from home (see page 40).
(1) Net zero goal measures scope 1 (direct) and 2 (indirect) GHG emissions based on
operator boundary, which now includes all emissions from our shipping activities
relating to Liquified Natural Gas (LNG) alongside the retained Spirit Energy assets
in the UK and Netherlands. Non-operated nuclear emissions are excluded. Target
is normalised to reflect acquisitions and divestments in line with changes in
Group structure against a 2019 base year of 2,132,680mtCO
2
e. It’s also aligned to
the Paris Agreement and based on science to limit global warming, corresponding
to a well below 2°C pathway initially and 1.5°C by mid-century.
† Included in DNV Business Assurance Services UK Limited (DNV)’s independent
limited assurance engagement using the International Standard on Assurance
Engagements (ISAE) 3000 (Revised): ‘Assurance Engagements Other
Than Audits or Reviews of Historical Financial Information’. See page 258
or centrica.com/assurance for more.
11.6GW
Route-to-market for renewables under our
management, which can power around
10 million homes
As set out in our Climate Transition Plan, we’ll continue to
cut emissions by focusing on delivering energy efficiency and
optimisation services, alongside low carbon technologies and
cleaner energy (see page 51).
70%
Our GHG emission reduction over the last decade
following our strategic transformation away from
most of our carbon intensive operations, to provide
low carbon services and solutions for customers
11.5m
Electric miles driven by our British Gas fleet in 2022 –
equivalent to driving around the world more than
460 times
To get to net zero, we remain committed to driving emissions
out of our own activities and identifying opportunities wherever
possible to support the adoption of lower carbon energy for our
customers. This involves securing up to 800MW of low carbon and
transition assets by 2025 that drive the transition forward including
solar, flexible generation and battery storage, whilst exploring the
conversion of our Rough gas storage facility to store hydrogen
inthe long term (see page 51).
It is, however, becoming increasingly clear that the path to
achieving net zero by 2050 is unlikely to be linear in the context of
a challenging geopolitical environment, where security of supply is
a real risk for consumers in the markets in which we operate. We
know that some investment decisions specifically geared towards
enabling the energy transition and supporting energy consumers,
may make our own path to net zero by 2045 more challenging in
the short term, such as the development of two new flexible gas-
fired generation plants in Ireland alongside our LNG activities (see
pages 23 to 24). However, we see these investments as being in
line with the view of policymakers that gas will be a key transition
fuel
(3)
and as such, critical to support energy security until the
issue of intermittency in renewable energy is addressed during the
transition. Equally, national infrastructure that we depend upon to
deliver our targets remains very much in its infancy – for example,
plans to fully electrify our own fleet of vehicles by 2025, has
been materially hampered by the UK’s failure to develop a public
charging network at scale over the past two years. We’ll therefore
continue to play our full part in the policy debate to secure a
framework that facilitates the adoption of greener forms of energy.
(2) Restated due to LNG shipping and Spirit Energy’s remaining assets moving into
scope in 2022.
(3) British Energy Security Strategy, April 2022.
Reduction
6%
†
Progress against goals:
On track
Behind
43Strategic report | Centrica plc Annual Report and Accounts 2022
Our Foundations
Our People & Planet Plan is underpinned
by strong foundations that ensure we act
fairly and ethically.
Customers
We’ve been making big investments to deliver a better service
for customers. Towards this in the UK, we recruited around 800
engineers to rebuild capacity and hired 700 additional UK-based
call service agents. As a result in 2022, British Gas Services &
Solutions Engineer Net Promoter Score (NPS) improved by four
points to +64, whilst our British Gas Energy Touchpoint NPS
rose by two points to +13 despite the challenging operating
environment. In both the UK and Ireland, we’ve seen complaints
increase which broadly reflects the significant rise in global
wholesale and commodity prices impacting customer bills
(seepages 22 to 24).
Colleagues
We want our people to feel safe, engaged and rewarded. Tragically,
we experienced our first work-related fatality in six years when
a British Gas engineer lost their life after being involved in a
road traffic collision. And whilst our Tier 1 and 2 process safety
incident frequency rate improved to zero with no events occurring
compared to three Tier 2 events in 2021, our total recordable injury
frequency rate rose by 5% to 1.12 per 200,000 hours (see page 27).
Safety remains front-of-mind, with the need to continually reinforce
a strong safety culture and advance controls and monitoring. In
particular, with the majority of incidents occurring in British Gas
Services & Solutions due to the size of the business and nature
of work delivered, we’ll enhance new starter safety training and
aim to further embed procedures in 2023. Alongside physical
health, we’re mindful of the impact that the cost of living crisis may
have on colleague wellbeing. So we provided two cost of living
payments to colleagues and ran campaigns that talked about the
importance of being open about mental health whilst encouraging
use of our suite of support which includes a company-funded
benefit healthcare plan for all, a wellbeing app, and our 100-strong
network of mental health first aiders (see page 37).
Support like this as well as an improvement in trust in senior
leaders amongst other things, has helped improve our engagement
score by 18% to 73% favourable in 2022. This surpasses our goal
of 70% by the end of 2023. With engagement being key to having
a happy and productive team, we’ll build on this with our continued
focus on providing a more inclusive and supportive place to work.
As a responsible employer, we also reward our people fairly.
This includes paying at least the Real Living Wage in the UK and
upholding equal pay. In 2022, our gender pay gap reduced by 7%
to 23% median and is driven by more men working in higher paid
roles like engineering, with more women in valued but lower paid
jobs like customer service. We’re one of few companies to have
voluntarily published our ethnicity pay gap which is driven by similar
factors as gender, and likewise improved by 3% to 10% median.
Tackling the pay gap won’t be quick or easy, but we hope to
continue to help transform our business, sector and society as our
People & Planet Plan gets fully underway (see pages 40 to 41).
Communities and ethics
Our Code and Our Values help us operate in a way that’s beneficial
to communities by setting out the high standards we expect.
For example, Our Code includes our commitment to uphold
and protect human rights. We therefore take action to ensure
colleagues and workers in our supply chain are safeguarded from
abuses through activities such as risk-based training, reviewing
social and environmental standards via ongoing due diligence, and
monitoring of supplier selection and renewal. If suppliers receive
a high-risk rating relating to the country where they operate or
the products and/or services provided, we consider appropriate
action which may involve conducting a third-party audit to better
understand the level of risk or ending our relationship and reporting
the abuse. In 2022, we rolled out on-the-ground audits to nine
sites and issued 7,245 remote worker surveys spanning garment
manufacturing and electrical products across Bangladesh,
Cambodia, China, Hong Kong, Pakistan and the UK. Whilst we
identified no serious non-conformance, we agreed 61 improvement
opportunities with suppliers to continuously help make a positive
contribution in raising standards on labour as well as health and
safety. The majority of actions have now been completed subject
to sign off by the auditor, with the rest due to be completed in
2023. To date, we’ve found no instances of modern slavery but
weremain vigilant.
Our Code also provides clear guidance on bribery and corruption.
We prohibit any improper payments, including facilitation payments
regardless of value or jurisdiction, and exchange gifts and
hospitality responsibly, declaring them on a register. Anti-bribery
training is also provided for higher risk roles and our Financial Crime
team run third-party risk management screening. Due diligence
and monitoring is additionally undertaken across supplier selection
and contract renewals including compliance with sanctions
on Russia. A register is used to record and manage potential
or actual conflicts of interest.
During 2022, 98% of colleagues completed refresher training on
Our Code and confirmed they’d uphold its principles. If anyone
has concerns about Our Code being contravened, they can raise
them via our confidential Speak Up helpline. We had 1.5 reports
of concern per 100 employees in 2022 which largely aligns with
the external benchmark of 1.3, and illustrates that colleagues
feel safe to speak up. Reports are investigated by the Ethics
and Compliance team, with quarterly monitoring via the Safety,
Environment and Sustainability Committee as well as the Audit
andRisk Committee, with matters brought to the attention
of the Board as appropriate.
+ Read more in our Modern Slavery Statement at
centrica.com/modernslavery
Environment
Monitoring and managing our wider environmental impact is really
important. During 2022, our water consumption increased by 30%
to 317,760m
3
whilst waste also rose by 3% to 18,686 tonnes. This
was largely due to Whitegate resuming normal operations following
an outage in 2021 and more colleagues choosing to work from the
office compared to the previous year.
Top 3
Our leadership position in the CCLA Mental Health
Benchmark for the UK
44 Strategic report | Centrica plc Annual Report and Accounts 2022
Non-Financial Information Statement
In line with the Non-Financial Reporting Directive, we have set
out where the relevant information we need to report against
can be found.
Reporting requirement
Section
Business model
Our Strategy & Business Model – pages 8 to 9
Reporting requirement
and policy position
Our Code sets out our position on key issues by providing a
high-level summary of key policies that form the foundation
for how we do business.
Due diligence and outcome
+ Read more atcentrica.com/ourcode
Colleagues
Our policy states that we work collaboratively to create a
workplace that has a respectful and inclusive culture whilst
offering fair reward and recognition. We’re also committed
to working safely and provide proactive support to ensure
colleagues’ health and wellbeing.
• Stakeholder Engagement – page 13
• Principal Risks and Uncertainties: People, Safety and Operational Asset Integrity
– pages 32 to 33
• Group Chief People Officer’s Report – pages 37 to 38
• People and Planet – pages 40 to 42 and 44
• Key Performance Indicators (KPIs) – pages 27, 40 to 42, 44 and 258 to 259
Environmental matters
This policy sets out that we endeavour to understand, manage
and reduce our environmental impact. Towards this,we will play
our part in the transition to net zero.
• Chairman’s Statement – page 3
• Group Chief Executive’s Statement – page 5
• Macro Trends – page 10
• Stakeholder Engagement – pages 12 to 13
• Business Review – pages 23 to 25
• Principal Risks and Uncertainties: Energy market, Government and regulatory
intervention, Political, Legal, Regulatory or Ethical Intervention/Compliance,
Operational Asset Integrity and Climate Change – pages 29, 31 and 33
• People and Planet – pages 42 to 54
• KPIs – pages 27, 42 to 44, 52 to 53, 258 and 260
Social matters
Our policy states that we will treat all of our customers fairly.
As part of this, we strive to provide services and solutions that
meet their needs as well as care for customers who need extra
support. We also want to make a difference and help create
more inclusive communities. We partner with community and
charity organisations on key issues and inspire colleagues to
volunteer and fundraise.
• Chairman’s Statement – page 2
• Group Chief Executive's Statement – pages 4 and 6
• Market Changes – page 11
• Stakeholder Engagement – pages 12 to 13
• Business Review – pages 22 to 24
• Principal Risks and Uncertainties: Inflation and cost of living, Supply chain, Customer,
Political, Legal, Regulatory or Ethical Intervention/Compliance and Safety – pages 29
and 31 to 32
• People and Planet – pages 40, 42 and 51
• KPIs – pages 27, 22 to 24, 40, 42 and 258 to 260
Human rights
This policy commits that wherever we work in the world, we
respect and uphold the fundamental human rights and freedoms
of everyone who works for us or with us.
• Stakeholder Engagement – page 13
• Principal Risks and Uncertainties: Political, Legal, Regulatory or Ethical Intervention/
Compliance – page 31
• People and Planet – page 44
• KPIs – pages 44 and 260
Anti-bribery and corruption
Our policy commits us to working with integrity, within the
laws and regulations of all the countries in which we operate
and in accordance with recognised international standards.
This includes not offering or accepting bribes or other corrupt
practices. We will not tolerate any form of bribery orcorruption
from suppliers.
• Principal Risks and Uncertainties: Political, Legal, Regulatory or Ethical Intervention/
Compliance – page 31
• People and Planet – page 44
• Based on materiality, KPIs specific toanti-bribery and corruption are not
reported externally.
This includes an explanation of the relevant Group policies
whichrelate to the below matters and an overall summary
of their effectiveness, including specific examples of how these
policies are implemented, any due diligence processes conducted
and outcomes.
45Strategic report | Centrica plc Annual Report and Accounts 2022
Task Force on Climate-related
FinancialDisclosures
Climate change is one of the greatest
challenges facing society. As an energy
company, we play a pivotal role in
helping our customers, communities
andour business reach net zero.
We believe it’s therefore important to share our action and plans on
climate-related matters in a transparent and robust way. That’s why
across our business (see pages 8 to 9), we were early adopters of
the TCFD and why we’ve achieved full compliance forthe second
year running in our 2022 reporting.
Governance
Climate change is an increasingly important issue for the Board, so
its governance is embedded throughout the business – from our
Board, to colleagues in our business (see diagram on next page).
The Board, and in particular our Group Chief Executive, has regular
engagement with investors, government and regulators on climate
change – whether that’s on the technologies and incentives needed
for the UK to reach net zero, or understanding more about our
Climate Transition Plan (see page 51). It’s vital therefore that the
Board continuously strengthens capabilities on climate change
to ensure they’ve the wide range of skills needed across energy,
regulation, geopolitics and technology to reduce risk and maximise
opportunities.
With this in mind, management’s role in assessing and managing
climate-related matters was strengthened during 2022-23.
Thisincluded:
• ‘climate change and sustainability’ added as one of 11 criteria
used in the Skills Matrix to assess Board capability, spanning
a deep understanding of climate science, climate risk and
mitigation, alongside evolving stakeholder expectations. 50%
ofour Board were identified as having these competencies
when assessed in 2022, which we believe provides the
necessary capability to effectively govern climate matters;
• a deep-dive session on greenwashing of climate and
sustainability-related matters was run for the Board
by internal and external experts;
• climate risk and opportunities were further embedded into
strategic planning processes through updating and enhancing
our climate scenario analysis with the business unit strategy
teams, alongside the implementation of a new Group investment
framework containing a number of specific net zero tests; and
• progress against our Climate Transition Plan was incorporated
into the remuneration scheme for Executives. The ‘Restricted
Share Plan’ will vest every three years and is subject to an
underpin of the Remuneration Committee assessing performance
across a range of financial and non-financial KPIs which includes
our Climate Transition Dashboard, as well as any material risk
of regulatory failures (see page 95).
Our governance and disclosure is strongly influenced by the
materiality of Environmental, Social and Governance (ESG) matters,
including those that are climate-related. We identify issues and
assess materiality through a number of methods including direct
engagement with stakeholders such as investors and government,
customer surveys and our TCFD financial materiality thresholds.
Through identification of these issues together with associated
laws and regulations, management teams are able to focus on
what we need to measure and report. We know what’s important
will shift over time as stakeholder needs change and the regulatory
landscape evolves, so we’ll continue to assess and align our
approach in future years.
Listing Rule
Compliance
We’ve complied with the
requirements of LR 9.8.6R, by
including climate-related financial
disclosures that are consistent
with the four TCFD pillars and the
11 recommended disclosures that
are set out on page 54.
‘A’ grade leadership
rating for action and
disclosure on climate
change by CDP
Signatories of the TCFD
since 2020
46 Strategic report | Centrica plc Annual Report and Accounts 2022
DISCLOSURE INSIG HT ACTION
(1) Group Head of Environment develops and socialises climate change strategy and progress, whilst co-ordinating and influencing related activities. Director of Group
Strategy embeds climate change into our strategic planning and investment frameworks. Group Head of Enterprise Risk and Controls integrates climate risk and
opportunities into the Enterprise Risk Management (ERM) Framework. Head of Accounting Reporting and Tax supports the business to understand the financial
impacts of net zero. Group Head of Reward integrates ESG targets into remuneration frameworks.
The Board
Has ultimate responsibility for climate change and delegates authority to its Committees
Managers and teams – Operationalises climate change considerations in
line with Group strategy
Risk owners – Identifies, assesses and mitigates climate risks
and opportunities
Challenge
Challenge
Challenge
• Oversees People and Planet-related matters including climate
change, whilst prioritising material issues and setting strategy
• Challenges management on progress against climate targets and
ambitions as well as ensuring the Company maintains a robust risk
management framework, encompassing climate risks and opportunities
• Provides final sign-off on People and Planet annual reporting
Report
Report
Report
CLT – As frequently as needed at the eight meetings held each year and
chaired by the Group Chief Executive, the CLT monitors, assesses and
informs progress and plans relating to our net zero targets and
Climate Transition Dashboard alongside Principal Risks and opportunities,
whilst reviewing Group-wide investment opportunities which considers the
potential impact on delivering net zero as part of the investment framework
Business units
Follow and feedback on climate strategy
Sub-groups and sub-Committees
Support leadership on integrating climate change into strategy
TCFD working group – Ongoing engagement led by Group Environment
with Strategy, Risk, Finance and Reward, to fulfil mandated requirements
and embed climate strategy Group-wide
(1)
Group Risk & Controls Committee – Chaired by the Chief Risk and Audit
Officer with business unit Managing Directors and Chief Financial Officers in
attendance; risks and opportunities alongside controls to manage Principal
Risks are evaluated quarterly (see page 28)
A diagram of our climate governance
• Reviews strategic and financial planning to ensure the full integration
of climate considerations, and that opportunities to transition to net
zero are maximised
• Chaired by Scott Wheway with attendance including the Group Chief
Executive, who has overall accountability for climate change and regularly
attends Committee meetings as well as chairing the CLT
+ Read more about our pages 56 to 67
Remuneration Committee
• Meets at least four times a year
• Ensures that Executive Directors
are appropriately rewarded, with
climate change considered as part
of remuneration arrangements
• Chaired by Carol Arrowsmith,
Independent Non-Executive Director
+ Read more
on pages 84 to 103
Challenge
Report
Report
Our Committees
Receive regular updates from senior leaders to ensure robust challenge and review, whilst outputs are shared with the Board
Safety, Environment and Sustainability Committee (SESC)
• Primarily responsible for supporting the Board in overseeing
climate change, which is a standing item at each of the three
annual meetings
• Assesses and approves proposals relating to net zero targets
and the Climate Transition Plan, whilst monitoring progress,
risks and opportunities
• Reviews annual reporting and associated requirements like TCFD
• Monitors stakeholder views including on climate change
• Oversees climate-related issues at the CLT
• Chaired by Heidi Mottram, Independent Non-Executive Director
+ Read moreon pages 82 to 83
Audit and Risk Committee (ARC)
• Meets quarterly
• Reviews mitigations related to Principal
Risks and opportunities for climate change
• Oversees and informs Group audits,
financial statements and non-financial
disclosures
• Manages effectiveness of whistleblowing
• Oversees audit and risk at the CLT
• Chaired by Kevin O’Byrne, Independent
Non-Executive Director
+ Read more
on pages 72 to 79
Centrica Leadership Team (CLT)
Provide ongoing oversight and challenge on climate strategy
47Strategic report | Centrica plc Annual Report and Accounts 2022
Strategy
In 2022, we assessed our strategic resilience to climate change
using 10 independent climate scenarios that are most relevant to
our business and national climate targets, within our key markets
of the UK and Ireland. These were the same scenarios used in
2021 but updated to the most recent versions. This allows us
to robustly test the implications on each Centrica business of
various plausible pathways relating to global warming ranging
between 1.5°C to 4°C
(1)
. We did this using our in-house scenario
analysis model, which assesses the potential positive and negative
implications of each climate scenario on our gross margin (GM)
for key services and solutions alongside asset valuations over the
short, medium and long term, corresponding to 2025, 2035 and
2050. We consider this time horizon appropriate as it aligns with
our net zero targets as well as our Climate Transition Plan, and
encompasses the expected lifetime of the vast majority of our
assets as well as the materialisation of key potential transitional
risks and opportunities across the Group. We also recognise
that scenarios extending this far out into the future are subject to
significant uncertainties and carry material dependencies which
should be considered when seeking insights.
Our scenario analysis showed that based on our strategic plans
and capabilities, we remain well positioned to mitigate the risks
and seize the opportunities related to climate change. Whilst
some areas of our business will inevitably face greater disruption
than others as the world increasingly decarbonises, our modelling
suggests an overall net financial benefit for the Group across
all scenarios as we continue to evolve in line with the needs of
the energy transition and progress our Climate Transition Plan
ambitions (see page 51), to ensure that we deliver on our Purpose
of helping our customers live sustainably, simply and affordably.
As set out in the table on the next page, parts of our business are
exposed to potential transitional risks and opportunities such as
those relating to policy and regulatory changes which range from
‘low’ to ‘high’ in significance over the longer term. We recognise
that the potential for risks to manifest in any given scenario is
subject to uncertainty, as are the adjacent opportunities and
our ability to pivot effectively and secure the value they offer.
We therefore fully consider this uncertainty when assessing our
strategic resilience to decarbonisation. For example, the key risk for
businesses like British Gas and Bord Gáis Energy primarily relate
to the gradual phase-out of natural gas in heating, which although
an essential transition fuel inthe mid-term, could require a shift
in the range of services and solutions offered to our customers
in the future. We believe we’re well positioned to pursue the
opportunities created by this shift, given our trusted brands have
all the necessary systems and capabilities in place to adjust from
the trading and sale of gas and electricity to a system more heavily
dependent on electricity and hydrogen. Similarly our market-leading
engineering teams primarily install gas heating solutions today,
but can be upskilled via our world-class training facilities. And
we’re already enhancing our strategic resilience by establishing
positions in low carbon solutions like heat pumps, EV charging and
hydrogen, which will become an increasingly important focus now
that we’ve launched British Gas Net Zero Ventures. Meanwhile,
whilst Centrica Business Solutions provide some fossil fuel-based
solutions to customers, the business was created to help drive the
energy transition forward and over the last couple of years, we’ve
increasingly ramped up investment in renewable and low carbon
asset development such as solar and battery storage, and are
helping more and more companies with bespoke action plans to
get to net zero. All growth plans relevant to these key opportunities,
are incorporated into budgets and business plans, with appropriate
metrics and targets to monitor progress (see pages 52 to 53). They
are also considered and factored into accounting assumptions,
where relevant and in accordance with the specific accounting
requirements (see note 3 to the financial statements).
(1) Climate scenario global warming measured out to 2100.
Net financial benefit
Our modelling suggests an overall net financial
benefit for the Group across all climate scenarios
and time periods assessed
Scenarios we’ve used:
• Transitional impacts are assessed using the National
Grid Future Energy Scenarios comprising of four different
pathways for the future of energy out to 2050, where
assumptions onenergy demand, production and use
cases are adjusted. This allows detailed modelling of the
potential impacts of the energy transition in the UK and
Ireland at the individual product and commodity level,
such as the demand for natural gas, electricity, hydrogen
and the adoption of technologies like heat pumps, EVs
and insulation. Where necessary, we adapt the scenarios
to better reflect the Irish context including the higher
proportion of off-grid consumers.
• Physical impacts areassessed using three different
scenarios based on the Intergovernmental Panel on
Climate Change Representative Concentration Pathways.
The scenarios allow physical climate attributes to be
modelled such as temperature and sea level rise as well
as flooding and extreme weather, across differing average
temperature rises resulting from varying radiative forces.
• To assess asset impairment, we use the International
Energy Agency Net Zero Emissions scenario and Aurora
Net Zero Mixed & High RES scenarios, which model
1.5˚C pathways to net zero for the energy sector. This
allows us to model the potential impact on global and
regional demand for different energy sources responding
to drivers such as carbon pricing. This in turn affects
commodity prices and the potential implications for the
valuation of gas and power assets.
48 Strategic report | Centrica plc Annual Report and Accounts 2022
Summary of our most material risks and opportunities
(1)
Impact on gross margin (GM)
0-5% GM 5-10% GM >10% GM
TFCD
category
Climate
related trend
Potential financial
impact
Potential materiality Strategic response
and resilience
2025
(short
term)
2035
(medium
term)
2050
(long
term)
Transition: Policy,
Markets and
Technology
Transition away
from fossil
fuelled heating
Risk: Reduced GM from the
sale and servicing of natural
gas residential boilers and
commercial Combined Heat
and Power (CHP)
• Strategic aim to remain the market
leader in heating solutions in the UK
and Ireland (UK&I), whilst growing
market share in heating installs
• Installation of hydrogen-ready boilers
and CHP
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
Opportunity: Increased sales
and servicing of electric and
hydrogen fuelled heating
systems
• Heat pump business launched with
material growth plans, aiming for
20,000 installs a year by 2025 and build
fromthere
• Partnering in UK hydrogen use trials
and research and development into
low carbon CHP to grow adoption and
capability
Transition: Policy,
Markets and
Technology
Transition away
from natural gas
Risk: Reduced GM from the
sale of natural gas and energy
efficiency
• Strategic aim to grow customer
numbers in UK&I energy supply
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
Opportunity: Increased sales of
electricity and green/low carbon
hydrogen
• Systems and capabilities in place
to pivot towards trading and selling
hydrogen
• Partnering in hydrogen production
and use trials to grow capability and
adoption
Transition:
Markets
Growth of EV
transport market
Opportunity: Access to new
and growing value pools
related to EV charging installs,
operation and maintenance
(O&M), and energy supply
• British Gas Net Zero Ventures launched
with aim to become a leader in EV
charging infrastructure installs and O&M
• Ambition to install up to 100,000 EV
charging points per annum by 2025
Transition:
Energy Source
Growth in
demand for
renewable
energy
Opportunity: Strong growth
in the market for low carbon
and transition assets driven by
decarbonisation
• Strategy to invest up to £100 million
each year by 2025 to build a low carbon
and transition asset portfolio of more
than 800MW
• Value derived from install, O&M and
asset ownership
Physical: Chronic Rising mean
temperatures
Risk: Reduced sales of natural
gas and electricity for heat
• Strategic aim to grow customer
numbers in UK&I energy supply
• Heat pump business launched with
material growth plans – can also provide
cooling
Net Impact for
Group
• Analysis suggests an overall net
financial benefit for the Group across all
scenarios, based on our strategic plans,
portfolios and capabilities
(1) Materiality is based on Group GM for Centrica plc 2021. A well-below and well-above 2°C scenario for global warming has been used to best demonstrate the spectrum of
proactive and inactive progress on climate change in our key markets, and the impact this may have on our business. In the analysis which spans over 95% of the Group,
this table includes our most material risks and opportunities together with the inclusion of our most material physical risk because whilst its less material than all other key
risks in the long term, it’s important to transparently show the net impact of physical risk on GM. The table concludes by showing an overall net financial benefit for the
Group across all climate scenarios and time periods assessed.
1.5°C
>2°C
1.5°C
>2°C
1.5°C
>2°C
1.5°C
>2°C
1.5°C
>2°C
1.5°C
>2°C
1.6°C
4.3°C
+ +
+ + +
+
1.5°C
>2°C
49Strategic report | Centrica plc Annual Report and Accounts 2022
Moreover, not only do most modelled opportunities exist within
markets that we’re already well established in, but they’re also
associated with relatively mature technologies such as EVs, electric
heat pumps, battery storage and solar. The only high-impact
opportunity identified that’s reliant on more nascent technology
is the use of clean hydrogen for heating. We’ve therefore been
proactive in getting involved in research and development
opportunities within the UK, as demonstrated by our role in the
hydrogen village trials in Whitby and our investment in early-stage
hydrogen production technology with HiiROC.
In terms of our physical risks, such as those associated with
extreme weather in the UK and Ireland where we have material
operations, we enhanced our assessment in 2022. This included
testing existing analysis with additional modelling sources and
assessing the risk of increased wave height to our offshore assets.
Similar to 2021, our analysis confirmed that our asset businesses
which consists of Centrica Storage Limited and Spirit Energy, are
exposed to risks that are ‘low’ in significance over the near and
longer term. This is because the remaining lifespan of these assets
meant that modelled extremes had limited impact. However, having
enhanced our assessment of the potential impact from a rise in
mean temperature, we identified a potential ‘medium’ risk by 2050
in an extreme >4°C warming future, due to a reduction in energy
demand for heating. This risk will be partially offset by an increase
in cooling demand and is countervailing to many of the transition
risks, providing a natural hedge for the Group.
We also assessed the risk of asset impairment based on price
forecasts aligned with a 1.5°C scenario, whereby our most
exposed assets were our gas production fields alongside our
investment in nuclear. We found that the impact on the value of
our gas assets was relatively ‘low’ due to existing impairment
headroom, whilst our investment in nuclear would be impaired
by around £100 million, as baseload power price scenarios are
lower under net zero price forecasts (see note 7 to the financial
statements). Further details on how the Directors’ have considered
the impact of climate risk and opportunities on the wider financial
reporting judgements and estimates are provided in note 3 to the
financial statements.
In 2022, we deepened our assessment of the potential impact
climate change could have on our supply chain. Through our
Responsible Procurement framework, we identified all strategic
suppliers who provide vital products that we need to run and grow
our business, as well as our ‘bottleneck’ suppliers who provide
us with products that are only available through a small number
of companies, and assessed the potential of their operations
relevant to our business being exposed to climate change risks.
We identified one boiler assembly site located in an area of the UK
with a potential risk of flooding, however, the risk was assessed as
‘low’ even in the most extreme warming scenario. We additionally
looked at our energy supply chain and concluded the risk is ‘low’
in significance over the near and longer term, with risk effectively
managed through defined hedging strategies and collaboration
withcounterparties. As with all risks identified, we’ll continue to
monitor these risks so that we can act if the level of anticipated
impact rises.
All modelled scenarios contain significant disruption to our markets
as the energy strategy evolves and we’ll need to adapt accordingly.
Our assessment of the capital expenditure required to manage
potential risks and opportunities required by decarbonisation,
remains in line with current plans and balance sheet. Moreover,
we’ve identified numerous opportunities for capital investment
into new and existing assets and technologies required by
decarbonisation. For example, we’re investing up to £100 million in
low carbon and transition assets annually from 2020 to 2025
(1)
, and
we’re exploring investing up to £3 billion in the mid-term to convert
assets that’ll play an important role in the transition to net zero,
including carbon capture and storage as well as hydrogen storage
(see page 51).
Our assessment of how climate-related issues might affect our
business were integrated into our annual strategic and financial
planning process. In 2022, we again addressed net zero and
the energy transition in all business unit strategic plans, which
underpins how we are pivoting our organisation towards a lower
carbon future and shapes our decisions on assets, supply, services
and solutions as summarised in our Climate Transition Plan. This
process includes growth plans for key opportunities identified, with
metrics and targets to determine whether performance is on track
(see pages 52 to 53).
(1) A mixed portfolio of solar, battery and gas-fired peaking assets, all enabling the
grid to decarbonise.
Some investments we’re making for a greener future:
18MW solar farm
Construction fully completed at our very first
Centrica-owned solar farm at Codford, which can
power 5,000 homes
50MW battery
Transforming our old gas-fired power station at Brigg
to store energy from 40 wind farms, capable of
supplying 11,000 homes
Hydrogen
Trial announced with the Net Zero Technology Centre
to inject hydrogen using HiiROC technology into our
gas-fired peaking plant at Brigg
+ Read moreabout our financial planning process in our CDP 2022
disclosure at centrica.com/CDP22
50 Strategic report | Centrica plc Annual Report and Accounts 2022
Risk management
In 2022, transitional and physical climate risks were predominantly
managed via our ERM Framework alongside other risks. This
enables us to effectively identify, assess and manage risks in
aconsistent way across the Group. Our ERM Framework uses
atime horizon of 0–3 years toassess Principal Risks, alongside a
longer timeframe of 3–20 years to assess Emerging Risks. Through
this process, climate change was made a Principal Risk in 2021
and 2022.
As part of our wider strategic planning process, Group Strategy
and Environment run the climate scenario analysis to identify and
assess risks and opportunities across a range of plausible future
scenarios. They then work closely with the Group Enterprise Risk
and Control team, to ensure full consideration of potential financial
impacts across time horizons, alongside integration within the
ERMFramework, the Group Principal Risks table, and business
unit risk registers.
As set out on page 47, to ensure appropriate Board oversight,
climate change risks are considered along with other business
unit risks at the Group Risk and Control Committee, with the
most material Principal Risks reported to the CLT and then to
the ARC. This rigour is complemented by a more detailed report
on climate change strategy, progress, risk and opportunities,
presented to the SESC by the Group Head of Environment.
The Board Annual Planning Conference subsequently examines
the external landscape and strategic plans, which includes risk
relating to market, competition, technology and policy that are all
influencedby climate change, and with this context, they are
able to review robustness of the business’s strategic proposals
and transition plans.
+ Read moreabout risk on pages 28 to 33
Metrics and targets
We were early adopters of best practice reporting of GHG
emissions and have a strong track record in setting and achieving
climate-related targets. We therefore have targets, ambitions and
metrics in place to help us manage our impact on climate change,
respond to its risks and opportunities, and ultimately achieve net
zero. Having fully considered the TCFD recommendations for all-
sector and sector-specific metrics and targets, we report those that
are most relevant and material to our business operations, and are
most decision-useful for stakeholders.
Our Climate Transition Plan
In 2021, we set out our plan for how we intend to deliver our
net zero targets whilst ensuring a fair and affordable transition
for all.
To help our customers be net zero by 2050, we’ve set
ambitions to:
• double the number of Hive customers to 2.5 million by
2025;
• achieve annual installs of up to 100,000 EV charging points
and 20,000 heat pumps by 2025; and
• invest up to £100 million in low carbon and transition assets
each year from 2020 to 2025
(1)
.
And to be a net zero business by 2045, our ambitions
are to:
• build azero-emission road fleet in the UK by 2025;
• cutour UK property emissions by a further 50% by 2030;
• progress our strategic transformation to exit remaining
activities in oil and gas exploration and production
with our intention to run-off remaining fields and meet
decommissioning obligations substantively by the early
2030s, whilst stopping any further investment in exploring
new oil and gas fields; and
• redirect investment into assets thatdrive the transition
forward – from securing up to 800MW of low carbon and
transition assets including solar, peaking generation and
battery storage by 2025, toexploring theconversion of
our Rough gasstorage facility to store hydrogen in time
to help deliver a net zero electricity system by 2035, and
decarbonise the Humber industrial cluster by 2040.
Centrica stories
Although these ambitions are aspirational, they are baked
into our business unit growth plans and will ensure that we
aim high to deliver the necessary momentum to drive the
transition forward. Whilst they provide great opportunities
forour customers and our business, we know they’ll be
challenging with many factors beyond our control. It’ll also
require customers, government and others, to play their
part as we play ours. Key to this is continuing to maintain
an open dialogue with stakeholders, and specifically working
to achieve the positive policy and regulatory support to make
it possible.
And for the transition to be a success, we must ensure that
we don’t leave anyone behind. We’ll therefore endeavour
to champion the needs of our customers and support those
who struggle with their energy bills, create thousands of high-
quality inclusive green jobs, back sustainable initiatives in
communities and collaborate for a low carbon supply chain.
At the AGM in 2022, our Climate Transition Plan went for a
shareholder advisory vote that achieved 79.96% approval
(see page 70).
(1) A mixed portfolio of solar, battery and gas-fired peaking assets, all
enabling the grid to decarbonise.
+ Read moreabout how our ambitions are progressing on page53
+ Read more at
centrica.com/climatetransition
+ Read more
about climate engagement with trade associations at
centrica.com/tradeassociations
51Strategic report | Centrica plc Annual Report and Accounts 2022
Our energy use and GHG emissions
2022 2021
GHG emissions (scope 1 and 2)
(1)
2,007,655tCO
2
e
†(2)
1,032,807tCO
2
e
(3)(4)
Scope 1 GHG emissions 1,994,153tCO
2
e
†(5)
1,018,888tCO
2
e
(4)(6)
Scope 2 GHG emissions 13,502tCO
2
e
†(7)
13,919tCO
2
e
(4)(8)
Scope 3 GHG emissions
(9)
24,330,208tCO
2
e 22,812,989tCO
2
e
(10)
Total GHG intensity by revenue
(11)
85tCO
2
e/£m
(12)
70tCO
2
e/£m
(4)(13)
Total energy use 9,047,097,047kWh
†(14)
3,561,052,815kWh
(4)(15)
Our energy and GHG emissions set out above and on pages 42 to 43, constitute our most material areas of environmental impact. Further metrics on energy and carbon
as well as our wider environmental metrics, can be found on pages 44 and 260. Reporting practices are drawn from the WRI/WBCSD Greenhouse Gas Protocol and
Defra’s Environmental Reporting Guidelines. Reporting is additionally based on operator boundary which is the more commonly used approach set out by the WRI/WBCSD
Greenhouse Gas Protocol, and now includes all emissions from our shipping activities relating to LNG alongside the retained Spirit Energy assets in the UK and Netherlands.
Non-operated nuclear emissions are excluded.
† Included in DNV’s independent limited assurance report. See page 258 or centrica.com/assurance for more.
(1) Comprises scope 1 and scope 2 emissions as defined by the Greenhouse Gas Protocol.
(2) Comprises UK 737,725tCO
2
e and non-UK 1,269,930tCO
2
e.
(3) Comprises UK 757,518tCO
2
e and non-UK 275,289tCO
2
e.
(4) Restated due to LNG shipping and the retained Spirit Energy assets in the UK and Netherlands moving into scope following the transition to become a fully operated
joint venture in 2022.
(5) Comprises UK 725,422tCO
2
e and non-UK 1,268,731tCO
2
e.
(6) Comprises UK 746,243tCO
2
e and non-UK 272,645tCO
2
e.
(7) Market-based. Location-based is 16,261tCO
2
e. Comprises UK 12,302tCO
2
e and non-UK 1,200tCO
2
e.
(8) Market-based. Location-based is 19,592tCO
2
e. Comprises UK 11,276tCO
2
e and non-UK 2,643tCO
2
e.
(9) Includes emissions from the following scope 3 categories defined by the Greenhouse Gas Protocol: purchased goods and services, capital goods, fuel and
energy-related activities, waste generated in operations, business travel, employee commuting, upstream and downstream transportation and distribution, use of
sold product and investments. All emissions are calculated in line with the methodologies set out by the Greenhouse Gas Protocol’s technical guidance, apart from
working from home emissions which are based on methodology set out in EcoAct’s homeworking emissions whitepaper. Other categories spanning upstream leased
assets, processing of sold products, end-of-life treatment of sold product, downstream leased assets and franchises, are not included because they are not relevant
to our business.
(10) Restated due to availability of improved data.
(11) Carbon intensity of revenue is employed as our intensity measure because it is the most meaningful intensity measure for our diverse business and is the most widely
used and understood measure for climate-related stakeholders such as CDP. Based on statutory revenue.
(12) Comprises UK 42tCO
2
e/£m and non-UK 203tCO
2
e/£m.
(13) Comprises UK 70tCO
2
e/£m and non-UK 71tCO
2
e/£m.
(14) Comprises UK & Offshore 2,394,832,533kWh and non-UK energy use 6,652,264,514kWh.
(15) Comprises UK & Offshore2,263,144,251kWh and non-UK energy use 1,297,908,564kWh.
For example, we monitor and report:
• our energy consumption and global scope 1, 2 and 3 emissions
(see emissions table below). The majority of these metrics have
undergone limited external assurance
†
every year since 2012. In
2021-22, our emissions roughly doubled and was largely due to
Whitegate power station coming back online to play its important
role in boosting energy security and providing a stable baseload
power to back up intermittent renewables, following an outage
the previous year;
• our People & Planet Plan targets include being a net zero
business by 2045 and helping our customers be net zero by
2050 at the latest (see Dashboard on the next page). These
targets are aligned to the Paris Agreement and based on
science, corresponding to a well below 2°C pathway initially
and 1.5°C by mid-century. We are, however, currently unable
to progress our validation by the Science Based Target initiative
(SBTi) due to the delayed Oil and Gas guidance which they
believe will apply to us. In line with best practice, the vast majority
of our targets will be delivered through carbon abatement rather
than offsetting. We anticipate having hard to remove residual
emissions during the 2040s, and consequently intend to use
our in-house carbon trading team to engage high-quality carbon
removal projects like tree planting, to capture carbon and achieve
net zero in a credible way. Our targets receive limited external
assurance
†
on a rotational basis every three years. Key drivers of
performance are outlined on pages 42 to 43; and
• our Climate Transition ambitions (see Dashboard on the next
page) were introduced as part of our Climate Transition Plan.
The ambitions support our net zero targets and are incorporated
into budgets, business plans and accounting assumptions. They
enable us to track progress on our strategic response to climate-
related risks and opportunities, by ramping-up key capabilities,
services and solutions that’ll help us achieve our net zero targets
and secure a more sustainable future for all. We’re on track
with most of our ambitions but some areas are challenging with
significant dependencies beyond our control. For example, our
EV fleet roll-out has been impacted by van availability and viable
charging solutions for some of our engineers who don’t have
driveways, but we’re expecting the final delivery from our order of
3,000 vans made in 2021-22, to now be delivered during 2023
and we’re trialling new charging solutions. Moreover, whilst EV
charging point installation and heat pumps have received lower
demand than expected, we’re now seeing a more positive take-
up of EV charging, whilst our British Gas Net Zero Ventures has
secured a strong sales pipeline for heat pumps which has been
partly aided by our market-leading price guarantee in 2023. See
more about our performance on pages 42 to 43.
The Dashboard, which includes our net zero targets and Climate
Transition ambitions, has been incorporated within arrangements
for Executive remuneration (see page 95).
We expect this set of metrics, targets and ambitions to evolve as
we keep pace with best practice and respond to the changing
world around us.
52 Strategic report | Centrica plc Annual Report and Accounts 2022
Target date 2022 2021
Customer GHG emissions – 28% intensity reduction
(2)
(net zero by 2050)
2030
6% reduction
17% reduction
(3)
Hive Active Heating – 2.5 million customers
(units sold to date)
2025
2.0m
1.6m
Smart meters – 6 million additional
installed
(from 2020)
2025
2.3m
1.5m
EV charging points – 100,000 in year
(annual units installed)
2025
7.4k
2.4k
Heat pumps – 20,000 in year
(annual units installed)
2025
200
500
Centrica GHG emissions – 40% reduction
(2)
(net zero by 2045)
2034
6% reduction
†
53% reduction
(4)
Low carbon and transition assets – 800MW installed
(5)
(from 2020)
2025
101MW
101MW
Fleet – 100% EV roll-out – Vans (total EVs) 2025
23%
12%
– 100% EV roll-out – Cars (total EVs)
43% 9%
Property – 50% reduction in UK emissions
(6)
(from 2019)
2030
63%
33%
Progress against goals:
On track
Behind
Our Climate Transition Dashboard
(1)
Includes our net zero targets, supported by our Climate Transition ambitions
† Included in DNV’s independent limited assurance report. See page 258 or centrica.com/assurance for more.
(1) Glidepath trajectory for Climate Transition ambitions is not linear. Demand is expected to gradually grow, resulting in increased delivery against the target as we approach
the target date.
(2) Base year 2019. See pages 42 to 43 for key drivers of performance.
(3) Restated due to availability of improved data.
(4) Restated due to LNG shipping and Spirit Energy’s remaining assets moving into scope in 2022.
(5) A mixed portfolio of solar, battery and gas-fired peaking assets, all enabling the grid to decarbonise.
(6) Spans scope 1 and 2 emissions.
+ Read more about our data trends in our Data centre at centrica.com/datacentre
53Strategic report | Centrica plc Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures
The table below sets out the 11 TCFD recommendations and where the related information can be found.
Recommendation
Recommended disclosure Pages
Governance
a) Describe the Board’s oversight of climate-related
risks and opportunities
• Pages 46 to 47 and 56 to 67
b) Describe management’s role in assessing and
managing climate-related risks and opportunities
• Pages 46 to 47, 51, 72 to 79 and
82 to 103
Strategy
a) Describe the climate-related risks and
opportunities the organisation has identified over
the short, medium, and long term
• Pages 48 to 51, 133 to 136 and
146 to 150
b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning
• Pages 48 to 51, 133 to 136 and 146
to 150
• CDP 2022 submission
centrica.com/CDP22
c) Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario
• Pages 48 to 51
Risk management
a) Describe the organisation’s processes for
identifying and assessing climate-related risks
• Pages 28 to 29, 47 and 51
b) Describe the organisation’s processes
for managing climate-related risks
• Pages 28 to 29, 31, 33, 47 and 51
c) Describe how processes for identifying, assessing,
and managing climate-related risks are integrated
into the organisation’s overall risk management
• Pages 28 to 29, 47 and 51
Metrics and targets
a) Disclose the metrics used by the organisation
to assess climate-related risks and opportunities
in line with its strategy and risk management
process
• Pages 51 to 53
• Data centre at centrica.com/datacentre
b) Disclose Scope 1, Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG) emissions,
and the related risks
• Page 52
c) Describe the targets used by the organisation to
manage climate-related risks and opportunities
and performance against targets
• Pages 42 to 43 and 51 to 53
• Climate Transition Plan at
centrica.com/climatetransition
The Strategic Report, which has been prepared in accordance
with the requirements of the Companies Act 2006, has been
approved by the Board and signed on its behalf by:
Raj Roy
Group General Counsel
& Company Secretary
15 February 2023
54 Strategic report | Centrica plc Annual Report and Accounts 2022
Governance
56 Directors’ and Corporate Governance Report
58
Corporate Governance Statement
– Board of Directors
72 Committee Reports:
– Audit and Risk Committee
– Nominations Committee
– Safety, Environment and Sustainability Committee
– Remuneration Committee
104 Other Statutory Information
55Governance | Centrica plc Annual Report and Accounts 2022
Directors’ and Corporate Governance Report
Dear Shareholder
I am pleased to introduce the Directors’ and Corporate
Governance Report for 2022.
This report describes: the activities of the Board during the
year; Centrica’s governance arrangements; the composition
and operation of the Board and its Committees; and how
the Board discharged its responsibilities, including the
application of the relevant provisions of the UK Corporate
Governance Code 2018 (UK Code) (details of our application
of the UK Code can be found on page 58).
The year in review
2022 was an incredibly testing year for the energy sector and our
customers in light of the extremely volatile global commodity markets,
which drove significant increases in the cost of energy.
As the UK and Ireland’s largest energy services and solutions
company, supporting our customers through the energy crisis whilst
playing an important role in the UK and Ireland’s energy security
became core priorities for the Board. The Board held several
discussions in relation to the business response to the unprecedented
increase in energy prices and geopolitical events surrounding the
Russian invasion of Ukraine.
We were particularly pleased to announce on 28 October 2022 the
reopening of the Rough gas storage facility, which will strengthen the
UK’s energy security of supply at a time when gas will play a critical
role as a transition fuel on the path to a net zero energy sector. The
Board ensured that the Company continued to focus on the energy
transition so as to generate value for stakeholders and deliver net zero
for our customers and stakeholders by 2050, at the latest, through
our Climate Transition Plan. Our Climate Transition Plan, available at
centrica.com/climatetransition, describes the progress made so far.
Creating value for shareholders and wider stakeholders in a
sustainable way is a top priority of the Board. Following significant
progress made in the implementation of the Group’s strategy, the
Board decided in July 2022 to reinstate a progressive dividend with
a 2022 interim dividend of 1.0 pence per share, enabling us to
return capital to our shareholders. The Company announced on
15November 2022 the commencement of a share repurchase
programme which would be conducted over up to 6.5 months to
buy back ordinary shares of 6
14
/
81
pence each up to an aggregate
of up to £250,000,000 (exclusive of associated fees, expenses and
stamp duty), representing an amount equal to the aggregate value of
approximately 5% of the Company’s issued share capital at the date
of the announcement.
Culture
Centrica’s Values are Care, Delivery, Agility, Collaboration and Courage,
which are central to the Group’s organisational culture. That culture
is underpinned by Our Code, which establishes our basic standards
for all individuals with whom we engage or collaborate. It serves as
a guide for making excellent decisions and symbolises our dedication
to doing the right thing and acting with integrity. Information about
Our Code can be found on our website centrica.com/ourcode
or on page 44 of our People and Planet section.
The Board closely observes, and supports, the Centrica Leadership
Team’s various initiatives to further enhance and develop the
Company’s values and culture (details can be found on page 7 of the
Strategic Report). The Group Chief Executive reports to the Board
on employee engagement-related matters at each scheduled Board
meeting. Additionally, the findings of the quarterly “Our Voice”
employee engagement survey provide the Board with valuable insight
into the culture’s tone. Page 37 includes further information regarding
the survey and the increase in colleague engagement. To ensure
Centrica is prepared for the future, the Board will continue to focus
on the growth of the Company’s culture, which includes people
development and digital enablement.
Board meetings
At Board meetings, the Board is dedicated to enabling strong
corporate governance and compliance standards. These practices
are critical to the Company’s long-term performance and the creation
of value for our stakeholders. Our Board meetings were mainly held
in person. Hybrid or virtual meetings were held where restrictions
on freedom of movement in response to an increase in COVID-19
infection rates remained in place in the early part of 2022. The Board
continues to operate effectively in this way. Our commitment to
supporting high standards of corporate governance and our strong
governance framework enabled the Board to adjust its focus and
priorities and take some important decisions to strengthen our balance
sheet and protect the Company from the difficult market environment
arising from the energy crisis. Examples of principal decisions taken
by the Board can be found inthe Section 172 statement on pages 68
to 69.
Board composition
During the year, we welcomed three new Non-Executive Directors
to the Board. On 10 January 2022, the Company appointed Amber
Rudd as a Non-Executive Director. Following that, Nathan Bostock
was appointed to the Board on 9 May 2022 and then Chanderpreet
(CP) Duggal was appointed to the Board on 16 December 2022.
Each of these Directors brings diversity of background, experience
and insight to steer the Company with the development and
implementation of the Group strategy. Biographies for Amber,
Nathan and CP, including the Board Committees on which they
serve, are given on pages 63 and 64. These appointments stem
from the detailed assessments made by the Nominations Committee
of the Board’s needs and the Group’s strategy.
Stephen Hester and Pam Kaur both stepped down from the Board at
the conclusion of the 2022 AGM on 7 June 2022 having served for six
years and just over three years respectively on the Company’s Board.
The Board would like to take this opportunity to express its gratitude
to Stephen and Pam and wish them all the best for their future
endeavours. In addition, I want to particularly thank Stephen for
all the support he has provided as Senior Independent Director.
Kevin O’Byrne succeeded Stephen as the Senior Independent
Director from 1 June 2022.
On 12 January 2023, we announced that Russell O’Brien will be
appointed Group Chief Financial Officer (CFO) and an Executive
Director on 1 March 2023. Kate Ringrose will step down as CFO and
an Executive Director on 28 February 2023 and is expected to leave
Centrica towards the end of 2023 after an orderly transition. On behalf
of the Board, I want to pay tribute to Kate’s achievements during
56 Governance | Centrica plc Annual Report and Accounts 2022
almost 20 years at Centrica and to thank her for her significant
contribution to the Company, including steering it through a
challenging external landscape.
Further information about the Board composition is provided
on pages 62 to 65.
Diversity and inclusion
Diversity and inclusion continues to be a top priority of the Board given
it is inherent to the success of the Group. We continue to take steps
to ensure that the diversity of the communities in which we operate
is reflected in the Company and senior leaders.
We endeavour to establish a culture where everyone can be
themselves and realise their full potential irrespective of age, gender,
culture, race, religion, sexual orientation, disability or background. We
also keep striving for greater representation targeted across gender,
ethnicity, disability, and sexuality that is more in line with Census data
for working populations.
The Company operates a diversity and inclusion policy at Board
level and a Group Diversity, Respect & Inclusion Policy which applies
to the Remuneration, Audit and Risk, Nominations and Safety,
Environment and Sustainability Committees as well as the Company’s
administrative, management and supervisory bodies. Further
information, including how each policy is implemented, can be
found at centrica.com/policies.
We have made improvements in the business recruitment,
advancement and development of diverse personnel, and we continue
to do so. We are still dedicated to letting you know how we’re doing,
especially on pay discrepancies based on gender and race. Along
with maintaining our current focus on any gender and ethnicity pay
discrepancies, we will continue to report on the diversity of all of our
employees. For more details regarding our diversity programmes
and how we are doing with our objectives, see page 40.
Board and Committee evaluation and
effectiveness
The Board recognises that it continually needs to monitor and improve
its performance, including through the annual evaluation process.
In accordance with the UK Code, Centrica’s annual evaluation
of Board effectiveness is facilitated by an independent third party
at least once every three years.
During 2022, the opportunities for improvement identified from the
2021 evaluation were progressed through various actions including:
expanding the Board through the recruitment of three new Non-
Executive Directors; development of an agreed set of Board priorities
subject to two annual reviews; improvements to the Non-Executive
Director induction process and associated enhancements; teach-in
sessions being held with the Board on strategically important topics;
invitations to any induction site-visits being undertaken by new
Non-Executive Directors being extended to all Non-Executive
Directors; and an expanded set of opportunities for contact between
the Board and members of the wider management team.
For the 2022 Board evaluation, a self-evaluation of the effectiveness
of the Company’s Board and Committees was facilitated by an
external provider, Lintstock Limited. Lintstock generated a tailored
report, drawing on the input of all Board members, which was
reviewed in a meeting of all Members of the Board in November 2022.
The Directors concluded that the Board and Committees continue to
operate effectively, whilst agreeing on actions relating to succession
planning; enhanced oversight of the Company’s key suppliers and
Board training.
I held performance meetings with each Director to discuss their
individual contribution and performance over the year and their training
and development needs. Following these meetings, I confirmed that
each Director continued to make an effective contribution to the Board
and the Company.
The Senior Independent Director, Kevin O’Byrne, conducted the
evaluation of my performance through discussions with Directors and
Senior Executives and concluded that I continue to make an effective
contribution to the Board and the Company.
Engagement with our stakeholders
Stakeholder views are gathered through an extensive network of
strategic engagement to help grow the business and deliver
improvements for our customers, colleagues and society over the long
term. During 2022, representatives from the Board also met with major
shareholders from time to time in order to obtain their perspectives on
a range of matters including the Company’s performance and strategy
and Environmental, Social and Governance matters.
The Board’s approach to colleague engagement is one of shared
responsibility amongst Board members, given the benefits that arise
from all Board members gaining insight from meeting with a wide
range of colleagues on a regular basis. This approach to colleague
engagement will be subject to regular review to ensure that it is
effective.
During the year, Non-Executive Directors travelled across our offices
to understand the operational environment and speak with employees
on the experience of their working environment and any other matters
of importance to them. Engagement sessions included a Board site
visit to the British Gas Energy contact centre in Leicester in June,
where the Board met with customer-facing colleagues to gain an
understanding of their perspectives, and a Board site visit to Bord Gáis
Energy in Dublin in October, where the Board met with the local
management team and various representatives from across the
Irish business. Board Members undertook different engagement
opportunities with customers including accompanying British Gas
Services and Solutions engineers on customer visits.
Further details of our methods of engagement with our colleagues,
including how the Shadow Board helps to bring the views of
colleagues into the Boardroom are provided on page 38. Details of
how the Board has sought to discharge its duties under Section 172
of the Companies Act 2006 during the year can be found in our
Section 172 statement and Stakeholder Engagement section
on pages 12 and 68 to 69.
Conclusion
The Board’s priorities remain consistent, with a continuous emphasis
on the Group’s strategy, culture, succession planning and oversight
of the Company’s management of principal risks. The Board is well
positioned to carry out its stewardship responsibility in order to
guarantee that the Company continues to achieve long-term
sustainable prosperity. The Board will continue to refine its approach
in order to promote and protect the interests of the Company,
its shareholders and other stakeholders.
The Directors’ and Corporate Governance Report which follows
has been prepared to provide stakeholders with a comprehensive
explanation of the Company’s governance framework consistent
with the UKCode, the Companies Act 2006, the UK Listing Rules
and the Disclosure Guidance and Transparency Rules.
Scott Wheway, Chairman
15 February 2023
57Governance | Centrica plc Annual Report and Accounts 2022
Corporate Governance Statement
The Board is committed to high standards of corporate governance
and is pleased to confirm that throughout the year ended
31December 2022, the Company complied with all relevant
provisions of the UK Corporate Governance Code (UK Code) apart
from Provisions 40 and 41. An explanation of the non-compliance can
be found in the Remuneration Committee Report on page 102.
Ourapplication of the UK Code is set out below.
The UK Code and associated guidance are available on the Financial
Reporting Council’s website at frc.org.uk. The index on page 104 sets
out where to find each of the required disclosures in respect of Listing
Rule 9.8.4 and Disclosure Guidance and Transparency Rules 4.1.5 R
and 7.2.1.
Section 1. Board Leadership and Company Purpose
Principles A, B, C,
D, E
The Corporate Governance statement (CG Statement) on pages 56 to 103 gives information on the Group’s
compliance with the principles relating to the Board’s Leadership and Company Purpose. More detailed
information on:
• the Group’s statement of purpose can be found on page 7;
• the Group’s strategy, resources and the indicators it uses to measure performance can be found on pages 8
to 9 and 26 to 27 respectively;
• the Group’s engagement with stakeholders and the Group’s Section 172(1) Statement is contained in the
Section 172(1) Statement and Stakeholder Engagement section on pages 12 to 13 and 68 to 69; and
• the Group’s approach to workforce matters can be found in the Group Chief People Officer’s report and
in ‘Our people’ within our People and Planet section on pages 37 to 44. Last year, we reported that the
Board had established a Shadow Board in collaboration with the Centrica Leadership Team (CLT), with
the aim of providing impartial and diverse feedback, review, and assurance on crucial topics concerning
colleagues, customers, and cash. The Shadow Board gives colleagues the power to impact decisions,
disrupt assumptions, and strengthen customer-focused and colleague-centred choices in the Boardroom.
Information on the Shadow Board’s activity during the year in review is contained in the Group Chief People
Officer’s report on page 38.
Details of the Group’s framework of controls is contained in the Audit and Risk Committee report on pages 73 to 74
of the CG Statement and in the Principal Risk and Viability Disclosure section on pages 28 to 36.
Section 2. Division of Responsibilities
Principles F, G, H, I The CG Statement describes the structure and operation of the Board. In the CG statement, we describe on page 57
the process the Company conducts to evaluate the Board, to ensure that it continues to operate effectively, that
individual Directors’ contributions are appropriate and that the oversight of the Chairman promotes a culture of
openness and constructive yet challenging debate. The policies and processes which support the Board to function
effectively and efficiently can be found on our website centrica.com/board.
Section 3. Composition, Succession and Evaluation
Principles J, K, L Details of the skills, experience and knowledge of the existing Board members can be found in the Board biographies
contained on pages 62 to 65. Information on the Board’s appointment process and approach to succession planning
is contained in the Nomination Committee report on page 80. Information on the Board evaluation process can be
found on page 57.
Section 4. Audit, Risk and Internal Control
Principles M, N, O Information on the policies and procedures the Group has in place to monitor the effectiveness of the Group’s Internal
and External Audit functions, and the integrity of the Group’s financial statements is contained in the Audit and Risk
Committee report on pages 72 to 79 of the CG Statement, along with an overview of the procedures in place to
manage risk and oversee the internal control framework. Further information on the Group’s approach to risk
management is contained in the Principal Risk and Viability Disclosure section of the Strategic Review on pages 28
to 36. The Board believes the 2022 Annual Report to be a fair, balanced and understandable assessment of the
Company’s position and prospects. A description of the Audit and Risk Committee’s work in enabling the Board
to reach this conclusion is contained in the Audit and Risk Committee report on page 73.
Section 5. Remuneration
Principles P, Q, R The Directors’ Remuneration Report section of the CG Statement describes the Group’s approach to Directors’
remuneration, including the procedure for developing policy and the Remuneration Committee’s discretion for
authorising remuneration outcomes. Details of linkage of the Directors’ Remuneration Policy with long-term strategy
is contained on pages 96 and 103.
58 Governance | Centrica plc Annual Report and Accounts 2022
The Centrica Board is collectively responsible for corporate governance, developing strategy and major policies, reviewing management
performance, approving financials and providing entrepreneurial leadership to the Company within a framework of prudent and effective
controls which enable risk to be assessed and managed. It is also responsible for setting the Company’s culture, values and the
behaviours it wishes to promote in conducting its business. The Board’s role and responsibilities are reviewed against the UK Code
to ensure that it is meeting all of its responsibilities.
The Chairman is responsible for the leadership and management
of the Board. In doing so, he is responsible for promoting high
ethical standards, ensuring the effective contribution of all Directors
and, with support from the Group General Counsel & Company
Secretary, ensuring best practice in corporate governance and the
timely distribution of accurate and clear information to Directors.
Independent Non-Executive
Directors are responsible for
contributing sound judgement
and objectivity to the Board’s
deliberations and overall
decision-making process,
providing constructive
challenge, and monitoring the
Executive Directors’ delivery
of the strategy within the
Board’s risk and governance
structure.
The Group Chief Financial
Officer is responsible for
providing strategic financial
leadership to the Company
and for the day-to-day
management of the finance
function.
The Senior Independent
Director acts as a sounding
board for the Chairman
and serves as a trusted
intermediary for the other
Directors, as well as
shareholders, as required.
The Group General Counsel &
Company Secretary advises
the Chairman on governance,
together with updates on
regulatory and compliance
matters; supports the Board
agenda with clear information
flow; and acts as a link
between the Board and its
Committees, and between
Non-Executive Directors
and senior management.
The Group Chief Executive is responsible for the executive
leadership and day-to-day management of the Company,
to ensure the delivery of the strategy agreed by the Board.
The Board
The Chairman
Independent
Non-Executive Directors
Group Chief
Financial Officer
Senior Independent Director Group General Counsel
&Company Secretary
The Group Chief Executive
Governance framework
The Board is responsible for leading the Group in an efficient manner,
establishing the Group’s Purpose, Values and Strategy and satisfying
itself that these and the Group’s culture are aligned. It focuses primarily
on strategic and policy issues and is responsible for developing the
long-term sustainable value for stakeholders. It is responsible for
ensuring there are effective risk assessment and management
processes, setting the Group’s strategy, overseeing the allocation
of resources and monitoring the performance of the Group. The
framework to enable this is set out in a schedule of matters reserved
for the Board. In order to allow the Board to focus on its priorities,
a number of its oversight responsibilities have been delegated to four
principal Committees. These responsibilities are set out in the terms
of reference for each Committee. The Board regularly reviews
the remit, authority, composition and terms of reference of each
Committee. In performance of these duties, the Board has regard
to the interests of the Group’s key stakeholders and the potential
impact of the decisions it makes on wider society.
Matters reserved exclusively for the Board
There are certain key responsibilities that the Board does not
delegate, and which are reserved for its consideration. The Board’s
responsibilities include: the development of strategy; acquisition
and divestment policy; the approval of major capital expenditure;
the Group’s capital structure; the consideration of significant financing
matters; and oversight and independent assurance of policies and
procedures. The full schedule of matters reserved is available on the
governance page of our website centrica.com.
Our Board
The Board comprises the Non-Executive Chairman (independent
on appointment), two Executive Directors (Group Chief Executive
and Group Chief Financial Officer), and six independent Non-Executive
Directors. There is a clear division of responsibilities between the
Chairman and Group Chief Executive, reflected in the schedule
of matters reserved for the Board.
Board Committees
In keeping with best practice, our Board oversees the Group’s
operations through a unitary Board and four separate principal
Committees – Audit and Risk Committee, Nominations Committee,
Remuneration Committee, and Safety, Environment and Sustainability
Committee (SESC).
The terms of reference of these Committees can be found on our
website centrica.com/TOR. The Committee reports can be found
on pages 72 to 103. Attendance at Committee meetings in 2022
can be found on page66.
Board appointments
The report of the Nominations Committee on pages 80 to 81
describes the work of the Committee in relation to Board
appointments. All Directors are subject to election or re-election
at each AGM. The Board sets out in the Notice of Annual General
Meeting the specific reasons why each Director’s contribution is,
and continues to be, valuable to the Company’s long-term
sustainable success.
59Governance | Centrica plc Annual Report and Accounts 2022
Evaluation and effectiveness of the Board,
Committees and the Directors
To ensure that the Board and its Committees continue to operate
effectively, a performance evaluation of the Board and its principal
committees is undertaken annually. We have used the services of
external advisors, Lintstock Limited, to support the internal evaluation
process (most recently in 2020 and 2022), which year on year has built
on the priorities identified in the previous years. The outcome of this
year’s evaluation demonstrated that the Board continued to operate
effectively. Details of this year’s evaluation can be found on page 57.
Training and development for Directors
It is important to ensure that Directors’ skills and knowledge are
refreshed and updated regularly, given the dynamic business and
regulatory environment in which the Company operates. The
Chairman, supported by the Group General Counsel & Company
Secretary and the Secretariat team, is responsible for the ongoing
development of all Directors and discusses with each Director any
individual training and development needs, such as formal and
informal briefings, meetings with management and visits to the
Group’s operations. During 2022, the Directors received deep dives
and training on various matters including trading & downstream
commodity risk management and growth options, LNG strategy, cyber
security risk management, and energy infrastructure. In addition, the
Directors have full access to the advice and services of the Group
General Counsel & Company Secretary, who is responsible for
advising the Board, through the Chairman, on corporate governance
matters. Directors are also able to seek independent professional
advice at the Company’s expense in respect of their duties.
Directors’ independence and conflicts
All our Non-Executive Directors are considered to be independent
against the criteria in the UK Code, and free from any business interest
which could materially interfere with the exercise of their independent
judgement. In addition, the Board is satisfied that each Non-Executive
Director is able to dedicate the necessary amount of time to the
Company’s affairs.
The Non-Executive Directors’ Letters of Appointment state that they
must inform the Group General Counsel & Company Secretary of any
other businesses, directorships, appointments, advisory roles, or other
relevant connections (including any relevant changes, and a broad
indication of the time involved). Directors also confirm that they will
inform the Board of any subsequent changes to their circumstances
which may affect the time they can commit to their duties. The
agreement of the Chairman must be obtained before accepting
additional commitments that might affect the time Non-Executive
Directors are able to devote to their appointment.
Director induction – Amber Rudd, Nathan Bostock,
CP Duggal and Russell O’Brien
Following appointment, all Directors receive a comprehensive
and tailored induction programme. This is designed through
discussion with the Chairman and the Group General Counsel
and Company Secretary and considers existing expertise and
any prospective Board or Board Committee roles.
The induction plans for Amber Rudd and Nathan Bostock
comprised a combination of in-person and virtual sessions with
both internal functions and external advisors over an initial period
of six months. This was structured to ensure that information
material to the Non-Executive Director role was delivered in the
early stages of the programme.
These briefings provided an initial opportunity to meet senior
leaders and were supported by site visits to provide on-the-
ground understanding of business units and working
environments.
The induction for CP Duggal, who joined the Board on
16December 2022 has begun. Russell O’Brien’s induction
will commence when he joins the Board on 1 March 2023.
An update on their respective inductions will be provided
in the 2023 Annual Report.
Areas covered during induction Sessions covered by
Centrica’s purpose, strategic priorities and business unit operations Group Chief Executive and Managing Directors of each
Business Unit
Financial position, performance, investment and funding, including
credit ratings
Group Chief Financial Officer, Group Financial Controller
and the Company’s brokers
External assurance External auditors
Energy sector and trends, energy markets Group Strategy Director, Group Regulatory Affairs Director,
Group Head of M&A, Group Head of Investor Relations
Net zero, sustainability Group Strategy Director, Group Head of Environment
Stakeholder communication and engagement Group General Counsel & Company Secretary
and Group Corporate Affairs Director
Corporate governance and Board operations Chairman of the Board, Group General Counsel & Company
Secretary and Head of Secretariat
Shareholder and investment perspectives Group Head of Investor Relations and the Company’s brokers
Legal and regulatory landscape Group General Counsel & Company Secretary,
Director of Regulatory Affairs and Policy
Centrica’s risk profile Chief Risk and Audit Officer
Safety, Health and Environment, people and culture Group General Counsel & Company Secretary,
Group Chief People Officer
In accordance with the Companies Act 2006 and the Company’s
Articles of Association, Directors are required to report actual or
potential conflicts of interest to the Board for consideration and,
if required, authorisation. If such conflicts exist, Directors recuse
themselves from consideration of the relevant subject matter.
The Company maintains a schedule of authorised conflicts
of interest which is regularly reviewed by the Board.
The Company’s Articles of Association provide how Directors are
appointed, retired and replaced. These can be found on our website.
Directors’ induction
The Board has in place processes for the Directors’ induction and
ongoing training. The Directors’ induction programme is led by the
Chairman and supported by the Group General Counsel & Company
Secretary and the Secretariat team. It is tailored to meet the individual’s
needs, providing all the information and support required in a
structured way to allow them to be effective in their role. Directors
are asked to provide input on how their induction should be tailored,
in relation to both content and delivery, with the opportunity for
periodic subsequent review with the Chairman.
60 Governance | Centrica plc Annual Report and Accounts 2022
Board Diversity
Sex/gender representation
Number of
Board members
Percentage
of the Board
Number of senior
positions on the
Board*
Number in
executive
management
Percentage of
executive
management
Men 5
55.6%
3
6
60%
Women 4 44.4% 1 4 40%
Other/not specified — — — — —
Prefer not to say — — — — —
*(Group Chief Executive, Group Chief Financial Officer, Chairman and Senior Independent Director)
Ethnicity representation
Number of
Board members
Percentage
of the Board
Number of senior
positions on the
Board*
Number in
executive
management
Percentage of
executive
management
White British or other White 8
88.9%
4
7
70%
Mixed/Multiple Ethnic Groups — — — — —
Asian/Asian British 1 11.1% — 2 20%
Black/African/Caribbean/Black British — — — — —
Other ethnic group, including Arab — — — — —
Not specified/prefer not to say — — — 1 10%
*(Group Chief Executive, Group Chief Financial Officer, Chairman and Senior Independent Director)
By nationality
Number of
Board members
Percentage
of the Board
British
6
67%
Irish 1 13%
South African 1 13%
American 1 11%
Board tenure
Number of
Board members
Percentage
of the Board
0-3 years
7
78%
4-6 years 2 22%
As at the reference date of 31 December 2022, the Company met or exceeded all the Board diversity targets set out in Listing Rule 9.8.6(9):
(i) at least 40% female representation on the Board (44%); (ii) at least one senior position held by a woman (Group Chief Financial Officer)
(1)
and (iii) at least one Director being from a minority ethnic background
(2)
.
Whilst this recently introduced Listing Rule only applies to companies that have a financial year beginning on or after 1 April 2022 and therefore
the Company is not obliged to report this year as its financial year began prior to this date, the Board has chosen to report voluntarily in respect
of 2022 as it recognises the importance of such disclosures and fully supports the drive to increase gender and ethnic diversity amongst the
boards and executive management of premium and standard listed companies.
Our diversity data is collated through our HR management system. We encourage all to self-report information such as gender, gender identity,
ethnicity, age, sexual orientation, disability and military background, and include the option to ‘prefer not to say’. In 2022, the Group proactively
launched the #ThisIsMe campaign to encourage colleagues to self-report their diversity information, which enables us to better understand the
demographic of the Group to ensure we have a workforce that reflects the full diversity of our communities.
(1) As announced on 12 January 2023, Kate Ringrose will step down as Group Chief Financial Officer on 28 February 2023 and Russell O’Brien will become
Group Chief Financial Officer from 1 March 2023.
(2) The Company temporarily did not meet the target between 7 June 2022 and 16 December 2022.
61Governance | Centrica plc Annual Report and Accounts 2022
C
SC DC DC
NC
Board of Directors*
Scott joined the Board on 1 May 2016
and became Chairman of the Board on
17March 2020.
Chris joined Centrica in 2018 as Group
Chief Financial Officer and was appointed
as Group Chief Executive in 2020. Chris is
also Chair of the Disclosure Committee and
Chair of Spirit Energy.
Kate joined Centrica in 2005 andwas
appointed as Group ChiefFinancial Officer
on 18 January 2021.
Scott Wheway
Chairman
Kate Ringrose
Group Chief
Financial
Officer
Chris O’Shea
Group Chief
Executive
Relevant skills and experience
Scott has a wealth of experience as a senior
customer-facing business leader with a mix of
deep retail and consumer expertise. He has
considerable knowledge gained in both the
retail and insurance sectors, together with
a strong understanding of operating within
highly regulated businesses.
Previous experience
Scott worked in retail for 27 years both in the
UK and internationally. His prior roles include
chair of AXA UK plc from December 2017
until June 2022, seven years on the board of
Santander UK plc, where he was the senior
independent director, and non-executive
director of Aviva plc between 2007 and 2016.
He is the former chief executive officer of Best
Buy Europe (retail services), director of The
Boots Company plc, managing director and
retail director of Boots the Chemist at Alliance
Boots plc and a director of the British Retail
Consortium. He formerly held a number
of senior executive positions at Tesco plc
(retail services), including chief executive
of Tesco in Japan.
External appointments
Non-executive director of Lloyds Banking
Group plc and Chair of Scottish
Widows Group.
Relevant skills and experience
Chris has wide-ranging experience across
the entire energy value chain together with
recognised experience in transforming
business and financial performance. He has
considerable knowledge of working in highly
regulated industries and in complex,
multi-national organisations, not only in the
energy sector but also in technology-led
engineeringandservices industries.
Previous experience
Chris was appointed Group Chief Executive in
early 2020 having previously been Group
Chief Financial Officer. Prior to joining
Centrica, Chris wasgroup chief financial
officer ofUK listed Smiths Group plc and
Vesuvius plc, and a non-executive director of
Indian listed Foseco India Ltd. From 2006 to
2012 Chris held various senior finance roles
with BG Group plc, including chief financial
officer of Africa Middle East & Asia and
Europe & Central Asia, prior to which he held
a number of senior roles with Shell, living and
working in the UK, the US and Nigeria, and
with Ernst & Young. Chris studied Accounting
and Finance at the University of Glasgow,
is a Chartered Accountant, and holds an
MBA from the Fuqua School ofBusiness
at Duke University.
External appointments
None.
Relevant skills and experience
Kate’s most recent role was Group Financial
Controller, and she has also held a wide
variety of positions across the Group,
including in Centrica’s energy supply, services,
solutions and trading businesses, and in
finance operations.
Previous experience
Prior to joining Centrica, Kate qualified as
a chartered accountant with KPMG South
Africa, before moving to the UK, and rejoining
the KPMG London office. Kate was also
non-executive director of EDF Energy
Nuclear Generation Group Limited
(representing Centrica).
External appointments
None.
Kate will step down as CFO and an
Executive Director on 28 February 2023
and is expected to leave Centrica towards
the end of 2023 after an orderly transition.
62 Governance | Centrica plc Annual Report and Accounts 2022
AC NC AC NC SC AC NC RC
RC
Carol joined the Board on 11 June
2020 and is Chair of the Remuneration
Committee.
Nathan joined the Board on 9 May 2022.
Nathan
Bostock
Non-Executive
Director
Carol
Arrowsmith
Non-Executive
Director
Relevant skills and experience
Carol brings extensive advisory experience,
especially of advising boards on executive
remuneration across a range of sectors,
and is a Fellow of the Chartered Institute
of Personnel and Development.
Previous experience
Carol is a former deputy chair and senior
partner of Deloitte LLP. She was a member
of the Advisory Group for Spencer Stuart,
global partner of Arthur Andersen, managing
director of New Bridge Street Consultants
and non-executive director of Vivo Energy Plc.
External appointments
Non-executive director of Compass Group plc
and director and trustee of Northern
Ballet Limited.
Relevant skills and experience
Nathan has worked in financial services since
the mid-1980s and brings a wealth of
financial, commercial, risk and compliance
expertise, particularly in large-scale
customer-facing businesses.
Previous experience
Nathan was chief executive officer of
Santander UK from 2014 until 2022. He
joined Santander from The Royal Bank
of Scotland plc (RBS), where he was an
Executive Director and Group Finance
Director. He previously held the post of Group
chief risk officer, having joined RBS in 2009.
Nathan served on the Board of Abbey
National plc (now Santander UK) as an
executive director, from 2005 until 2009.
He joined Abbey National plc in 2001, holding
a number of senior positions including chief
financial officer and executive director of
Finance, Markets and Human Resources.
Nathan is a chartered accountant and holds
a BSc (Hons) in Mathematics.
External appointments
Head of Investment Platforms,
BancoSantander.
CP joined the Board on
16 December 2022.
Chanderpreet
(CP) Duggal
Non-Executive
Director
Relevant skills and experience
CP brings valuable expertise of digital
technology and the use of data and analytics
in large customer-facing businesses.
Previous experience
CP worked for 20 years at American Express
in various senior roles, including leading
the company-wide digital and analytics
organisation. His digital experience includes
managing demand generation (paid media,
referral marketing, etc.), customer onboarding,
membership and servicing journeys with
best-in-class mobile app and web and email
experiences, as well as customer marketing,
loyalty, accounts receivables, etc. platforms.
His data and analytics experience includes
managing insights and modelling for a
range of marketing channels, accelerating
personalisation, leading AI labs, etc. CP started
the data office organisation for American
Express, managed the first line of defence
operational excellence teams for global
consumer business and led the global
fraud risk management department.
In his most recent role, CP was the chief
digital and analytics officer for Burberry plc
and a member of its executive committee.
He was responsible for transforming
e-commerce and omni-channel strategy
globally, accelerating customer relationship
management focus, defining metaverse
strategy and leveraging analytics across
the company.
External appointments
Advisor, Burberry plc.
63Governance | Centrica plc Annual Report and Accounts 2022
NC RC AC NC
SC
Heidi joined the Board on 1 January 2020
and is Chair of the Safety, Environment and
Sustainability Committee.
Kevin joined the Board on 13 May 2019
and became Senior Independent Director
from 1 June 2022. He is Chair of the Audit
Committee.
Amber joined the Board on 10 January
2022.
RC SCNC
Kevin O’Byrne
Senior
Independent
Director
Heidi Mottram
Non-Executive
Director
Relevant skills and experience
Heidi brings considerable relevant strategic
and operational experience acquired in her
current and previous roles. Her deep
understanding of the importance of customer
service, delivered in complex, multi-
stakeholder environments with a high public
profile, is particularly pertinent to the
Company at this time, as it focuses on the
delivery of its customer-centric strategy.
Previous experience
Heidi began her career with British Rail in
the mid-1980s. She held a number of roles
in GNER, before joining Midland Mainline
in 1999 as operations director. She was
commercial director for Arriva Trains Northern
from January 2004, becoming managing
director of Northern Rail Limited, the UK’s
largest rail franchise.
External appointments
CEO of Northumbrian Water Limited and
Northumbrian Water Group Limited,
vice-chair of the North East Local Enterprise
Partnership, member of the board of The
Great British Railways Transition Team and
vice-chair of Newcastle University Council.
Relevant skills and experience
Kevin brings extensive retail and finance
experience to the Board, having occupied
senior roles in a number of leading UK and
international retailers. The Board considers
that Kevin has recent and relevant
financial experience.
Previous experience
Kevin was previously chief executive officer
of Poundland Group plc, and held executive
roles at Kingfisher plc, including divisional
director UK, China and Turkey, chief executive
officer ofB&Q UK & Ireland and group finance
director. Prior to that he was finance director
of Dixons Retail plc. From 2008 to 2017
hewas a non-executive director and
chairman of the audit committee of Land
Securities Group plc where he was also
senior independent director from 2012
to 2016.
External appointments
Group chief financial officer of JSainsbury
plc
until March 2023 when he retires from
the role.
Relevant skills and experience
Amber brings a wealth of real-world
experience in energy, policy and business.
Previous experience
After around 20 years working in business,
Amber served as a Member of Parliament
between 2010 and 2019. In addition to
holding the roles of Home Secretary,
Secretary of State for Work and Pensions and
Minister for Women and Equalities, Amber
served as Secretary of State for Energy and
Climate Change from 2015 to 2016 after
having been Parliamentary Under Secretary
of State at the Department of Energy and
Climate Change from July 2014 until May
2015. Amber led the UK team to the
successful completion of the Paris Climate
Change Agreement. This UN sponsored 2015
Conference of the Parties (COP21) achieved
a landmark global commitment to reduce
national carbon emissions.
External appointments
Amber is a non-executive director of
Pinwheel. Amber also acts as an advisor to
businesses including Energy 1, Equinor,
Darktrace, Finsbury Glover Hering,
Centreview Partners and Phoenix Group.
Amber is a trustee of The Climate Group,
RUSI and Action Against Gambling Harms.
Rt Hon. Amber
Rudd
Non-Executive
Director
64 Governance | Centrica plc Annual Report and Accounts 2022
DC
Raj was appointed Group General Counsel
& Company Secretary on 3 March 2021,
having been appointed Interim Group
General Counsel & Company Secretary
with effect from 1 October 2020.
Relevant skills and experience
Russell brings broad experience
from across the energy value chain.
He spent 25 years with Shell plc in
a variety of roles and geographies.
His roles included global Chief
Financial Officer for both Shell’s
Integrated Gas and Retail businesses
and most recently Group Treasurer.
Previous experience
Russell was Group Treasurer at Shell plc.
Prior to this he has held a number of
senior Chief Financial Officer roles
at Shell plc. He is a Management
Accountant who graduated from
St. Andrews University in 1995.
External appointments
None.
Raj Roy
Group General
Counsel &
Company
Secretary
Russell O’Brien
Appointed
Group Chief
Financial Officer
with effect from
1 March 2023
Consumer Services
Energy Sector
Engineering/Safety
Finance/M&A
Financial Services
Government/Regulatory
Technology
Committee membership key
Skills and experience key
Denotes Committee Chair
Disclosure Committee
Chairman of the Board
Nominations Committee
Audit and Risk Committee
Remuneration Committee
Safety, Environment and
Sustainability Committee
Relevant skills and experience
Raj has overall responsibility for legal,
regulatory, compliance and secretariat
activities across the Group, the effective
operating of Centrica plc’s Board and advising
on key issues of corporate governance and
compliance. Raj joined Centrica in 2014 as
the Legal Director for Residential Energy,
before becoming General Counsel for the UK
and Ireland region in 2017. He has led legal,
regulatory and compliance teams at Centrica
in various formations across the UK and
Ireland region and the Consumer division.
Previous experience
Prior to joining Centrica, Raj spent nine years
at Vodafone, holding a number of senior
in-house legal roles in the Group and UK legal
functions. Raj started his career in private
practice, qualifying as a solicitor at Slaughter
and May in London and subsequently
working for Freshfields in Brussels.
External appointments
Member of the Board of Energy UK
(representing Centrica).
*as at 15 February 2023
The Board considers that each
of the Directors continues to
contribute effectively to the work and
deliberations of the Board.
Reasons for the (re-)election of each of our
Directors at the forthcoming AGM can be
found within the Centrica plc Notice of Annual
General Meeting 2023 which will be made
available on our website centrica.com/agm23.
Full biographies can be found at centrica.com/board
DC
C
NC
AC
RC
SC
65Governance | Centrica plc Annual Report and Accounts 2022
Board meetings
The Board held eight formal meetings in 2022. In addition,
supplementary meetings were called for specific approvals. The table
showing the attendance of Directors at Board meetings in 2022 can
be found below. If Directors are unable to attend a meeting, they have
the opportunity beforehand to discuss any agenda items with the
Chairman. The agendas for Board meetings are agreed in advance by
the Chairman, Group Chief Executive and Group General Counsel &
Company Secretary. The agenda typically consists of regular standing
items, such as reports on financial performance, and in-depth
examination or analysis of a topic, facilitating exchanges of views
and robust debate.
Number of Board and Committee meeting attended during 2022
(1)
:
Name Role
Joined the
Board Tenure
(2)
Board AC NC RC SC
Scott Wheway Chairman 01/05/2016 6 years, 7 months 8/8 N/A 4/4 N/A 3/3
Chris O’Shea Group Chief Executive 01/11/2018 4 years, 1 month 8/8 N/A N/A N/A N/A
Kate Ringrose
(6)
Group Chief Financial Officer 18/01/2021 1 year, 11 months 8/8 N/A N/A N/A N/A
Carol Arrowsmith Independent Non-Executive Director 11/06/2020 2 years, 6 months 8/8 4/4 4/4 5/5 N/A
Nathan Bostock Independent Non-Executive Director 09/05/2022 0 years, 7 months 5/8 3/4 3/4 N/A 3/3
Stephen Hester
(3)
Senior Independent Non-Executive Director 01/06/2016 6 years, 5 months 3/8 1/4 1/4 3/5 N/A
CP Duggal Independent Non-Executive Director 16/12/2022 0 years, 1 month — — — — N/A
Pam Kaur
(4)
Independent Non-Executive Director 01/02/2019 3 years, 9 months 3/8 1/4 1/4 N/A 1/3
Heidi Mottram Independent Non-Executive Director 01/01/2020 2 years, 11 months 8/8 N/A 4/4 5/5 3/3
Kevin O’Byrne Senior Independent Non-Executive Director 13/05/2019 3 years, 7 months 8/8 4/4 4/4 N/A N/A
Amber Rudd
(5)
Independent Non-Executive Director 10/01/2022 0 years, 11 months 8/8 N/A 3/4
(5)
5/5 3/3
(1) Any Director who is unable to attend a Boardmeeting provides feedback to the Chairman on the matters to be discussed in advance of the meeting.
(2) Data as at 31 December 2022.
(3) Stephen Hester stood down from the Centrica plc Board at the conclusion of Centrica’s 2022 Annual General Meeting. Kevin O’Byrne succeeded him
as Senior Independent Director, with effect from 1 June 2022.
(4) Pam Kaur stood down from the Centrica plc Board at the conclusion of Centrica’s 2022 Annual General Meeting.
(5) Amber Rudd joined the Nominations Committee with effect from 9 March 2022.
(6) On 12 January 2023, we announced that Kate Ringrose will step down as Group Chief Financial Officer and an Executive Director on 28 February 2023 and is expected to
leave Centrica towards the end of 2023 after an orderly transition. Russell O’Brien will be appointed Group Chief Financial Officer and an Executive Director
on 1 March 2023.
Board activity including Section 172(1) considerations
As stewards of the Company, the Board recognises that being aware
of the needs and expectations of stakeholders is crucial, as it ensures
that the Company is well-positioned to achieve long-term sustainable
success and deliver value for all our different but interrelated
stakeholder groups and society as a whole.
During the year, the Board considers a comprehensive programme
of regular matters covering operational and financial performance
reporting, strategic reviews and updates, and various governance
reports and approvals. In addition, Board meetings regularly feature
Section 172 Evidence
The likely consequences of any decision in the long term Please see page 7 to 9, 12 to 13, 39 to 54 and 66 to 69
The interests of our colleagues Please see page 12 to 13, 37 to 38, 39 to 42, 66 to 69 and 71
The need to foster relationships with suppliers, customers and others Please see page 12 to 13 and 82 to 83
The impact of the Company’s operations on the community
and the environment
Please see pages 39 to 45 and 82 to 83
The desirability of the Company maintaining a reputation
for high standards of business conduct
Please see pages 44, 71 and 82 to 83, and visit our
website centrica.com
The need to act fairly between members of the Company Please see pages 67 to 69
During the year, the Non-Executive Directors, including the Chairman,
met frequently without management present.
Site visits
The Directors recognise the importance of, and benefits gained by,
visiting the Group’s operations and endeavour to make a couple of
visits to Centrica sites each year. The Board undertook site visits
to the British Gas sites at Spinneyside in Leicester, to meet with our
Leicester-based call handlers, who are focused on ‘Changing the way
Customer Services serve our Customers’. The Board also visited
Dublin and met with the Bord Gáis Energy management team
and various colleagues from across the Irish business.
in-depth reviews of specific topics. The Directors confirm that the
deliberations of the Board, which underpin its decisions, incorporated
appropriate consideration with due regard to the matters detailed
in Section 172 of the Companies Act 2006.
The outcome from the key engagements, stated above, are fed back
to the Board through the appropriate forum.
Woven throughout this report and on our website are further examples
and evidence of how the Directors have performed their fiduciary duty
under Section 172.
66 Governance | Centrica plc Annual Report and Accounts 2022
Board discussions held during the year included:
Strategy and business plan
The Board considered and oversaw the delivery of the strategic
initiatives for the benefit of our stakeholders, including customers.
The Board also considered the following matters:
• Strategic reviews, updates, and stress testing under a range
of scenarios
• 2021 final dividend
• 2022 interim dividend
• Group Annual Plan 2022
• The Group’s strategic plan
• The Energy Supply Market
• The Climate Transition Plan
• Return of surplus capital to shareholders
• Energy transition investment opportunities
• LNG growth opportunities
• Responsible Sourcing strategy
Stakeholders considered:
Governance
The Board receives regular reports from the Group General Counsel &
Company Secretary on governance and regulatory matters, as well
as regular updates and insights on market trends from the Investor
Relations function. During the year, the Board took time to consider
or oversee the following key governance activities/matters:
• 2021 Annual Report and Accounts
• General Meetings
• Sale of Spirit Energy Norway and Statfjord UK
• Non-Executive Director search
• Board evaluation
• Succession planning for the Board
• Committee composition
• Reports from Committee Chairs
• Conflicts of interest reviews
• Terms of reference reviews
• Director skillset and Director training requirements
• Director independence
• Workforce engagement
• All-Employee Share Plan
• Dividend policy
• AvantiGas acquisition
Stakeholders considered:
Political and regulatory environment
During the year, the Board considered the following matters:
• Macro/geopolitical developments
• Reform of energy markets
• Sanctions
• Modern Slavery Act
• TCFD disclosure
• Government intervention initiatives
• UK and Ireland energy security
Stakeholders considered:
Performance and risk
Financial performance and Risks, as well as risk controls and processes
are regularly reported to the Board and to the Audit and Risk
Committee. Risks are also brought to the attention of the Board through
reports from the Group Chief Executive, Group Chief Financial Officer,
heads of business and functional subject matter experts.
• Health and safety performance and Process Safety risk
• Group Performance Reports
• 2021 Preliminary results statement
• Group credit exposure and liquidity
• Business reviews, including operational performance
• Periodic results
• Cyber security risk management
• Commodity price movements
• Climate Transition Plan performance
• People & Planet Plan performance
• Going concern and viability statements
• Audit fees
• Internal Audit review
• Annual tax update
• Treasury risk management annual update
• Insurance update
Stakeholders considered:
Culture and stakeholders
The Board recognises that understanding the views and interests
of the Company’s diverse community of stakeholders, including
customers, is important.
The views and interests of stakeholders are considered in the
development, delivery and oversight of the Group’s business model,
strategy and culture. During the year, the Board considered the
following matters:
• Cost of living crisis and the impact on customers
• Colleague engagement
• Pensions
• Company culture
• Investor updates and feedback
• Voice of the Customer
• Diversity & Inclusion Strategy
Stakeholders considered:
Government
and Regulators
Stakeholders key
Customers
Colleagues
Investors
Communities
and NGOs
Suppliers
67Governance | Centrica plc Annual Report and Accounts 2022
Stated below are some examples of the decision-making of the Board during the year demonstrating key stakeholders and their interests, and
how our Section 172 duties influenced the matters considered by, and the decision-making of, the Board during the year.
Supporting customers and colleagues in relation to the cost of living crisis
Consideration of stakeholders Outcomes
Recognising and balancing the interests and perspectives of the different stakeholders,
a wide range of measures were implemented in the Company’s core markets of the UK
and Ireland, including:
UK:
• providing £50 million of funding to help UK customers struggling with their energy
bills, establishing the UK’s largest voluntary customer support package. The Company
announced on 26 January 2023 that it was committing £10 million of this funding to
helping British Gas prepayment and vulnerable customers;
• investing over £25 million in 2022 in customer service, support and pricing in the UK,
including the recruitment of an additional 700 UK-based customer service roles in
British Gas Energy to handle a 50% increase in call volumes and help ensure we can be
there when our customers need us; and
• partnering with the Post Office and British Gas Energy Trust funded organisations to
deliver over 100 Post Office ‘Pop-ups’ in over 50 locations, ensuring people can access
the help they need with their energy bills.
In 2022, we worked more closely with our local communities having moved from a national
to local charity approach which included volunteering 2,098 days, a 600% increase
compared to last year.
Ireland:
• investing €3.8 million to help vulnerable customers with our commitment to contribute
10% of Bord Gáis Energy’s operating profits for the duration of the energy crisis; and
• we agreed a new pay deal in 2022 which takes current inflationary pressures in
theUKinto account.
In early 2022, Bord Gáis Energy announced an extension of its partnership with homeless
charity Focus Ireland for a further five years. Since the partnership was established
in 2015, Bord Gáis Energy has committed over €4.4 million to help those experiencing
homelessness and in 2022 alone, Bord Gáis Energy supported services assisted 1,869
Focus Ireland customers.
For colleagues, we provided a one-off cost of living payment in December 2022 to more
than 19,000 employees to help them manage rising household prices. We also introduced
a number of other financial and non-financial initiatives for our employees including an
energy allowance for all employees who are British Gas customers and reduced price
lunches at all our sites, and we have launched a number of new programmes aimed at
supporting the mental health of our employees, particularly those that work in our call
centres helping our customers who are struggling with rising household bills.
Customers:
• recognising the difficult environment many
customers faced due to rising energy bills
and wider inflationary impacts
• supporting customers impacted by the
energy suppliers that ceased to trade
Communities and NGOs:
• using our resources and reach to make
a big difference in our local communities,
from helping people with their energy bills,
to supporting local charities
Colleagues:
• recognising the impact of the cost of living
crisis on colleagues
• providing resources and wellbeing support
for customer-facing colleagues assisting
customers
Investors:
• identifying and managing the commercial
and financial considerations arising from
the energy crisis, including ensuring the
strength and resilience of the Company’s
balance sheet
Suppliers:
• ensuring we pay suppliers fairly
Supporting energy security in our coremarkets in response to the global energy crisis
Outcomes
The Company played an active role in furthering energy security in its core markets of the
UK and Ireland, including through:
• recruitment of over 1,000 new apprentices across 2021 and 2022, creating skilled,
well-paid British jobs to play an important role in the drive for net zero in the UK;
• taking on another 176,000 customers in 2022 (taking the total over 2021 and 2022
to 700,000 customers) through Ofgem’s SoLR processes, ensuring they received
an uninterrupted supply of gas and electricity;
• securing increased volumes of gas and renewable energy to improve the UK and
Europe’s security of supply, including an agreement with Equinor to bring an additional
1 billion cubic metres of gas to the UK for each of the next three winters;
• re-opening Rough as a gas storage facility contributing to strengthening the UK and
Ireland’ssecurity of supply with the potential transition to hydrogen storage in future;
• announcing plans to convert a decommissioned gas-fired power station at Brigg into
a 50MW/100MWh battery storage facility capable of supplying the equivalent of a full
day’s energy consumption for 11,000 households;
• recognising the role of natural gas as a transition fuel, whilst assessing any impact
on climate transition objectives; and
• collaboration with suppliers to embed high standards from our Responsible
Sourcing Policy and undertaking audits with suppliers to verify that they uphold
our commitments.
Consideration of stakeholders
Government and Regulators:
• acting as a Supplier of Last Resort (SoLR)
• supporting and implementing Government
initiatives, including the UK Energy Price
Guarantee and UK Energy Bills Support
Scheme
• supporting and enabling Government
management of energy security
Customers:
• improving UK security of supply to ensure
energy remains reliable and affordable
for customers
Investors:
• realising commercial strengths available
from the Company’s assets and enabling the
transition to net zero, including through a
potential future pathway to hydrogen storage
and associated market opportunities
Suppliers:
• targeting high standards of business conduct,
which in turn brings benefits to communities
and the environment
Consideration of stakeholders and outcomes:
68 Governance | Centrica plc Annual Report and Accounts 2022
Reintroduction of the dividend
Consideration of stakeholders Outcomes
Following the actions taken by the Company in 2020, 2021 and 2022 to
strengthen the Company’s balance sheet, the Company was well placed
to reintroduce the dividend to shareholders.
On 28 July 2022 the Company announced the reinstatement of an ordinary
dividend via declaration of a 2022 interim dividend per share of 1.0 pence, the
first dividend to be paid since 2019, paid on 17 November 2022 to shareholders
on the register on 7 October 2022.
The Directors’ propose a 2022 final dividend per share of 2.0 pence for the year
ended 31 December 2022, consistent with our historic policy of paying roughly
a third of the full year dividend as an interim.
We expect the dividend to be progressive and dividend cover from earnings to
move to around two times over time, recognising the ratio is likely to vary each
year dependent on the business cycle.
Investors:
• recognising the importance of the dividend
to shareholders and of the impact on
shareholders by the decision taken by the
Board to cancel the 2019 final dividend
payment amidst the COVID-19 pandemic
and that no dividend was declared by the
Company in respect of 2020 or 2021 due
to the ongoing COVID-19 pandemic
• strengthening the Group’s balance sheet
• ensuring the delivery of strong free cash
flow generation
Customers and colleagues:
• providing support for customers
and colleagues in the context of the
macroeconomic environment
Government and Regulators:
• taking steps to repayCOVID-19 furlough
monies received from the UK Government
prior to the declaration of a dividend
Pensions:
• ensuring the interests of the Company’s
pension schemes were properly reviewed
to ensure that they were protected prior
to declaring a dividend
Launching the share repurchase programme
Consideration of stakeholders Outcomes
Given the Company’s financial performance, balance sheet strength and liquidity
position, the Company announced, on 10 November 2022, plans to commence
a share repurchase programme of up to 5% of its issued share capital. On 15
November 2022, the Company announced the commencement of the share
buyback programme to be conducted over a period of up to 6.5 months to buy
back shares up to an aggregate price of up to £250,000,000, representing an
amount equal to the aggregate value of approximately 5% of the Company’s
issued share capital at the share price on that date.
Investors:
• ensuring the Company considers the potential
return of any surplus structural capital to
shareholders
Customers:
• ensuring the provision, in parallel, of additional
funding to support customers facing difficulties
with bills during the ongoing energy and cost
of living crisis
Colleagues:
• ensuring steps could be taken in parallel to
deliver an appropriate pay settlement for
colleagues amidst the cost of living crisis
Pensions:
• ensuring that the funding required to be
provided by the Company to the schemes
was costed and built into the Company’s
future financial plans
69Governance | Centrica plc Annual Report and Accounts 2022
Relations with our stakeholders
Shareholder engagement
The Board is committed to maintaining open channels of
communication with all of the Company’s stakeholders. An important
part of this is providing a clear explanation of the Company’s strategy
and objectives, and ensuring feedback is acknowledged, considered
and, where appropriate, acted upon.
Meetings, roadshows and conferences
The Company reports its financial results to shareholders twice a year,
with the publication of its annual and half-year results. The Group Chief
Executive and Group Chief Financial Officer typically meet with our
major institutional shareholders twice a year, following the Company’s
Preliminary and Interim results, which provides an opportunity for a
review of the Company’s strategy and performance. In addition,
management and/or Investor Relations attend a number of investor
conferences throughout the year, giving shareholders further
opportunity to meet and receive updates directly from Company
representatives, while senior management are also available to meet
on an ad-hoc basis with major shareholders if requested.
Engagement themes with our institutional shareholders
During the year, engagement themes included:
• Centrica’s strategic refresh;
• Full year and interim results;
• the Rough storage facility;
• UK energy security;
• dividends and shareholder returns;
• the regulatory and political environment for UK energy;
• impact of rising commodity prices;
• energy transition investment opportunities;
• Board succession;
• liquidity and result of stress tests; and
• Environmental, Social and Governance (ESG) matters.
General Meetings
The Board is committed to communicating with shareholders and
other stakeholders in a clear and open manner and seeks to ensure
effective engagement through the Company’s regular communications,
the AGM and other investor relations activities. During 2022, the
Company undertook an ongoing programme of meetings with
investors (in person and virtually). The majority of these meetings were
led by the Group Chief Executive and Group Chief Financial Officer.
The Company holds an Annual General Meeting (AGM) each year and,
as required, holds General Meetings. At the AGM, the Chairman gives
his thoughts on governance aspects of the preceding year and the
Group Chief Executive reviews the performance of the Group over the
last year. In advance of each AGM, we write to our largest
shareholders inviting discussion on any questions they might like to
raise and making the Chairs of the Board, the Audit Committee and
the Remuneration Committee available to meet shareholders should
they so wish. In addition, the Company engaged with its largest
shareholders and key governance agencies in early 2022, on the
Directors’ Remuneration Policy and the Centrica plc’s Climate
Transition Plan resolution proposals. Feedback was received from
major shareholders and governance agencies and dialogue entered
into with a number of shareholders regarding the proposals.
The 2022 AGM was held as a hybrid meeting, giving shareholders
the opportunity to participate (including voting) in person or virtually via
an online platform (Lumi). Shareholders are encouraged to participate
in these meetings and to ask questions at, or in advance of, these
meetings. All shareholders were encouraged to exercise their votes by
submitting their proxy forms either electronically or by post. We also
invited shareholders to submit their questions in advance of the AGM
via a dedicated question facility on our website and where appropriate
the answers were published on our website. Shareholders were also
able to ask questions at the AGM in person or virtually via Lumi.
Our 2022 AGM was well supported with voting in favour of the
resolutions ranging from 79% to 99% and with 63% of issued share
capital voted. Resolution 17, on approving our Climate Transition Plan,
was supported by the overwhelming majority ofshareholders
(79.96%). However, we recognise that some shareholders (20.04%)
chose not to support this resolution. Inaccordance with the UK Code,
we made a note when we published the AGM result on 7 June 2022
and we published a follow up update on this engagement on
2 December 2022. As a final update on this matter, the feedback
received from those shareholders who chose not to support will be
considered in future actions as set out in the SESC report on pages 82
to 83 and the Company confirms it still intends to hold the next
advisory non-binding vote in 2025 (as set out in the 2022 AGM notice).
Information about the 2023 AGM will be provided in the Notice of
Meeting. Further information pertaining to the 2023 AGM will in due
course be available at centrica.com/agm23. Voting on the resolutions
will generally be conducted by a poll and the voting results will be
announced through the Regulatory News Service of the London Stock
Exchange and also made available on the Company’s website.
Centrica.com
Our website centrica.com, contains up-to-date information for
shareholders and other interested parties including Annual Reports,
shareholder circulars, share price information, news releases,
presentations to the investment community and information on
shareholder services.
70 Governance | Centrica plc Annual Report and Accounts 2022
Workforce
Workforce engagement
Responsibility for workforce engagement is shared amongst Board
members. As well as this approach of shared responsibility being one
of the recognised approaches to colleague engagement that boards
may pursue, the Board considered that there is benefit from all of the
Board being involved in colleague engagement activities.
During the year, the Chairman and Non-Executive Directors engaged
with members of the workforce in various ways, including meeting with
call handlers, engineers and business unit leaders during the site visits
and regular Board engagement sessions with business colleagues
held in person immediately prior to selected Board meetings in 2022.
These engagements undertaken by the Board during the year
contributed to some of the decision-making of the Board. Further
information on the decision-making of the Board can be found on
pages 68 to 69.
The Executive Directors and senior leadership team dedicated
significant time and focus on meeting with and listening to the views of
colleagues, which included regular meetings with the Shadow Board.
The work undertaken is set out in the Group Chief People Officer’s
Report on pages 37 to 38.
Further information, including why the Board believe that these
methods of engagement are effective, can also be found on pages
12 to 13, 27, 32, 37 to 38, 44 and 56 to 57.
Employee involvement
Employee involvement is one of our core commitments. By
understanding what our colleagues think and feel, we can take
account of their views in decision-making. This will help ensure that
Centrica is a place where everyone feels supported and able to deliver
for our customers. Colleagues are therefore invited to ask questions
and provide feedback throughout the year on a range of matters
including our financial performance and business strategy at dedicated
town halls, meetings and written communications like emails and
articles from the Group Chief Executive, Group Chief Finance Officer
and members of the Centrica Leadership team. This provides
employees systematically with information on matters of concern to
them as employees and achieves awareness among employees of
factors affecting the performance of the Company. We also seek
colleague feedback on a broader range of topics through methods like
leader-led listening sessions and engagement surveys, as well as our
employee-led Networks and our Shadow Board (see page 38).
Equal opportunities
The Group is committed to and has an active equal opportunities
policy which includes, but is not limited to, recruitment and selection,
training, career development, performance reviews and promotion to
retirement. Our culture is to create an environment free from
discrimination, harassment and victimisation. Our policies are in place
to ensure everyone receives equal treatment regardless of gender,
identity, race, ethnic or national origin, disability, age, marital status,
sexual orientation or religion or any other characteristic protected by
applicable laws.
We have created channels for colleagues to voice concerns
confidentially, through a Speak Up support service, a confidential
and anonymous helpline operated by an independent company.
All decisions relating to employment practices will be objective, free
from bias and based solely upon work criteria and individual merit.
Employees with disabilities
It is our policy that current and prospective colleagues with a disability
have the same right to access and develop their careers as anyone
else. For example, colleagues with a disability receive full and fair
consideration when applying for all vacancies and we interview
thosewho meet the minimum criteria required. We also provide
training, career development and promotion from which all of our
colleagues can benefit and are continuously working to develop
initiatives to support everyone to reach their full potential. We also
endeavour to retain colleagues in the workforce if they become
disabled during employment.
To support this approach, in 2017 we launched Diverse-Ability, a
network that celebrates physiological and neurological diversity and
abilities amongst our colleagues and helps them access the support
they need to thrive at work. Diverse-Ability was re-launched earlier
in2021, with an increased emphasis on neurodiversity. Additionally,
weare proud to support The Valuable 500 initiative and champion
disability inclusion throughout Centrica. Launched at the World
Economic Forum’s Annual Summit in 2020, The Valuable 500 seeks
500 global businesses to place disability inclusion on their board
agendas as the first step to full inclusion for disabled people in
business. We are members of the Business Disability Forum, which
offers support, toolkits and advice to businesses around disability
matters. We also partner with Scope and in 2022 we renewed our
level 2 Disability Confident status.
Human rights
We are fully committed to upholding the fundamental human rights
and freedoms of everyone who works for us, with us, or lives in the
communities where we operate. We uphold the UN Guiding Principles
on Business and Human Rights and are signatories of the United
Nations Global Compact. As set out in Our Code, we therefore take
steps to ensure that we never knowingly cause or contribute to human
rights abuses through activities like employment checks and supplier
due diligence. We also aim to contribute positively to global efforts
to ensure human rights are understood and observed. Further
information about our efforts can be found in our People and Planet
section on page 44, as well as in our Modern Slavery Statement and
Our Code available on our website centrica.com.
+ Read morein our Modern Slavery Statement atcentrica.com/modernslavery
71Governance | Centrica plc Annual Report and Accounts 2022
Audit and Risk Committee
Membership, meeting
attendance and key focus
Dear Shareholder
I am pleased to present the Audit and Risk Committee’s
report for the year ended 31 December 2022, which provides
an overview of the work carried out by the Committee to
ensure the integrity of the Group’s published financial
information and the effectiveness of the Group’s risk
management and internal controls framework in a year of
exceptional market volatility.
This report should be read in conjunction with our UK
Corporate Governance Code application section on page 58,
Our Principal Risks and Uncertainties on pages 28 to 33
and our Viability Statement on pages 34 to 36.
Committee overview
The Committee has a yearly agenda which is linked to the Company’s
financial calendar. The agenda is flexible, enabling in-depth reviews of
topics of particular importance to the Committee.
The core responsibilities of the Committee are to:
• monitor and review the adequacy and effectiveness of the
governance and oversight of the Company’s financial processing
and reporting, internal controls and risk management;
• provide advice and assurance to the Board on whether it
has discharged its duties and whether the Annual Report
and Accounts, when taken as a whole, is fair, balanced and
understandable and provides all the necessary information for
shareholders and other stakeholders to assess the Company’s
position, performance, business model and strategy;
• monitor and review the operation and effectiveness of the
Group’s Internal Audit function, including its independence,
strategic focus, activities, plans and resources;
• supervise the appointment of the Group Chief Risk & Audit
Officer;
• manage the relationship with the Group’s external auditors on
behalf of the Board (including appointment, independence,
effectiveness and remuneration);
• conduct a tender for the external audit contract at least every
10years and make appointment recommendations to the Board;
• review the Company’s arrangements for its workforce/
stakeholders to raise concerns in confidence about possible
improprieties in financial reporting or other matters; and
• consider and review material legal and regulatory policy
compliance issues or risks, and maintain oversight of the
arrangements in place for the management of statutory and
regulatory compliance in areas such as financial crime.
Committee members
Kevin O’Byrne (Chair)
Carol Arrowsmith
(1)
Nathan Bostock (with effect from 9 May 2022)
CP Duggal (with effect from 16 December 2022)
Pam Kaur and Stephen Hester retired as members of
the Committee on 7 June 2022.
Biographical details of the Committee Chair and
members can be found on pages 62 to 65. Meeting
attendance of the Committee members can be found
on page 66.
Meeting attendees by invitation
Chair of the Board
Amber Rudd
Heidi Mottram
Group Chief Executive
Group Chief Financial Officer
Group General Counsel & Company Secretary
Group Financial Controller
Group Head of Accounting, Reporting and Tax
Group Chief Risk & Audit Officer
External auditors
Focus areas in 2022
• The Group’s published financial information;
• the effectiveness of the Group’s risk management
and internal controls framework;
• the Enterprise Risk and Control Framework
including risks managed by the other Board
committees;
• the management of cyber risks; and
• ethical, legal and regulatory matters.
(1) Carol Arrowsmith is connected to Deloitte LLP (‘the Firm’) as,
historically, she was a partner there but she had left the Firm
prior to their appointment as the Group’s external auditors. In
addition to this, the Firm provides her with services in a personal
capacity. The Committee deems that this does not affect the
independence and judgement of the Firm nor the Committee’s
oversight of the Firm’s performance.
72 Governance | Centrica plc Annual Report and Accounts 2022
Main activities during 2022
During the year, the Committee met four times and considered a broad
range of topics, our key highlights are disclosed below:
• reviewed business risk areas, accounting judgements and
effectiveness of the finance function and control environment.
Details of key judgements and financial reporting matters in 2022
are set out on pages 75 to 79;
• reviewed accounting judgements, in particular those relating to
the accounting for the c.700k customers acquired by British Gas
Energy through Supplier of Last Resort processes, the sale of
Spirit Energy’s Norwegian assets and interests in the Statfjord
field, the calculation of the onerous supply contract provision, the
impairment write-back for our Nuclear asset and the downstream
supply bad debt provision assessment;
• reviewed the Viability and Going Concern assessments and
associated disclosures;
• reviewed the 2021 financial results, 2021 Annual Report and
Accounts, 2022 Interim results and following year end, the 2022
financial results, having regard to any matters that may have
been communicated by Deloitte;
• considered the effectiveness of the external audit process and
Internal Audit function;
• continued oversight of the maintenance and development of the
control environment and finance systems, particularly in the
context of the ongoing migration of British Gas Energy customers
to the ENSEK platform;
• reviewed the approach taken to assess credit risk exposure
amidst exceptionally volatile commodity prices, as well as
reviewing the wider impact of a high commodity price
environment;
• reviewed matters relating to the Group’s pension schemes,
including the triennial review and the impact of changes in gilt
yields (see note 22);
• monitored information systems security and data security risk
management, particularly in view of geopolitical developments
during the year;
• received updates on legal, regulatory and ethical compliance,
particularly in respect of energy trading and the sale and delivery
of FCA regulated products and services as well as the operation
of Our Code and the Speak Up helpline;
• reviewed the Company’s preparedness for forthcoming legal and
regulatory changes, including reform of the UK corporate
governance regime;
• reviewed regular reports and recommendations from Internal and
External Audit on risk, assurance and controls; and
• carried out in-depth reviews of the risks and controls environment
for British Gas Energy, British Gas Services & Solutions, Centrica
Business Solutions, Bord Gáis Energy and Energy Marketing
& Trading, as well as the Group-wide financial risk and Group
definitions of capital employed.
Risk management and internal controls
Internal Audit
The Committee is responsible for monitoring and reviewing the
operation and effectiveness of the Group’s Internal Audit function,
including its independence, strategic focus, activities, plans and
resources. The Chief Risk & Audit Officer has direct access to the
Chairman of the Board and to the Committee Chair, and is
accountable to the Committee.
The Committee reviewed and approved the Group’s annual Internal
Audit plan (‘the plan’). The plan is designed with reference to the
Group’s Principal Risks, which regularly evolve. Further information on
the Principal Risks is available on pages 28 to 33. During the year, the
Committee received regular updates on the Internal Audit team’s
findings and reviewed progress against follow-up actions implemented
by the business units.
During the year, the Committee reviewed an annual internal
assessment of the independence, objectivity and effectiveness of the
Internal Audit function. This assessment demonstrated that the
maturity of the Internal Audit function had continued to improve since
the External Quality Assessment carried in 2021 and the previous
internal assessment in 2020. The Committee remains satisfied that the
Internal Audit function has the necessary integrity, objectivity and
competency to fulfil its mandate. It has also satisfied itself that the
Internal Audit function has adequate standing and is free from
management or other restrictions.
Review of the system of risk management
andinternalcontrols
Our risk management and internal controls, including compliance with
Our Code, and policies are assessed through a self-certification
process. We also have a programme to assess the Group’s Entity
Level Controls. The results of the annual process, together with the
conclusions of the internal reviews by Internal Audit and the in-depth
reviews of business unit control frameworks undertaken by the
Committee, enable the Committee, on behalf of the Board, to form
and report their view on the effectiveness of risk management and
internal controls. During 2022, the Committee oversaw the work of
Internal Audit and the functional support teams, alongside the
management teams. As part of its oversight, the Committee received
verbal and written reports on movements in the Group Principal Risks,
as well as updates on other Group frameworks such as legal and
regulatory compliance. The Committee has confidence in its ability to
identify issues that arise and the business units’ ability to remediate
control gaps in the business, where necessary, in line with our risk
appetite. The Committee noted the risk management process and
internal controls have been in place throughout the year and remain
effective, though we recognise the need for ongoing and continuous
review or, where necessary, improvement. Examples of continuous
improvement derived actions taken during 2022 were the
implementation of:
(i) automation enhancements to Entity Level Controls attestation; and
(ii) a new quality assurance methodology to assure the effectiveness of
the independent Group-level Controls and IT General Controls testing.
Fair, balanced and understandable
In line with the UK Code, the Committee, on behalf of the Board,
reviews the Annual Report, to determine if, when taken as a whole, it is
fair, balanced and understandable and provides the information
necessary for shareholders and stakeholders to assess the Company’s
position and performance, culture, business model and strategy.
Additionally, the Committee considers the processes and controls
involved in the production of the Annual Report, as well as the financial
responsibilities of the Directors. There is a robust governance
framework around the production of the Annual Report which ensures
it is critically reviewed and signed off by the key teams in the relevant
businesses and functions.
External auditors
The Committee manages the relationship with the Group’s external
auditors on behalf of the Board. The Committee considers annually the
scope, fee, audit plan, performance objectivity and independence of
the external auditors.
To ensure objectivity, key members of the external audit team rotate off
the Company’s audit. To safeguard the independence of the
Company’s external auditors and the integrity of the audit process, the
recruitment of senior colleagues from the Company’s auditors is not
permitted for a period of at least two years after they cease to be
involved in the provision of services to the Company.
73Governance | Centrica plc Annual Report and Accounts 2022
Following a competitive external audit process in 2016, Deloitte were
appointed as the Company’s auditors at the beginning of 2017 and will
this year perform their sixth full audit. Consistent with auditing
requirements, Jane Boardman took over from James Leigh as
Deloitte’s lead audit partner following conclusion of the 2021 audit.
In accordance with the CMA order on Statutory Audit Services for
large companies, the Committee has considered the appropriate time
to put the audit out to competitive tender. Given the complexity of the
business it remains important to balance the benefits of a fresh
perspective from a new audit firm, with the negative effects of the
disruption and educational time requirements from both tendering and
onboarding. The recent Deloitte lead audit partner rotation has
provided a fresh perspective and accordingly, as shared last year, the
Committee considers it is in the best interests of shareholders for the
Company to continue to plan for a competitive audit tender in 2026
(the 10-year legal threshold) with the successful firm taking over for the
2027 financial year. The re-appointment of Deloitte as auditors for the
2022 financial year was approved by shareholders at the AGM in June
2022 and Deloitte has been recommended for re-appointment again
in 2023. The Committee confirms that this recommendation is free
from influence by any third party and no contractual term of the kind
mentioned in Article 16(6) of the Audit Regulation has been imposed
on the Company.
The Company has complied with the Statutory Audit Services Order
2014 for the financial year under review.
Effectiveness of the external audit process and the
independence and objectivity of the external auditors
To assess the effectiveness of the external audit process and the
independence and objectivity of the external auditors, the Committee
carried out an assessment, as in prior years, primarily looking at the
key areas of:
• robustness of the audit process;
• quality of people and service;
• quality of delivery;
• independence and objectivity; and
• value added advice.
This assessment included an internal questionnaire, which was
completed by the Chairman of the Board, Committee members and
senior members of management on their views of Deloitte’s
performance. The questionnaire covered a review of the audit partner
and team, the audit scope and approach, audit plan execution, auditor
independence and objectivity and robustness of challenge of
management. Separately, Deloitte also provided an assessment, via an
internal management questionnaire, of management’s controls,
judgements and engagement throughout the audit process. The
feedback was reviewed by management and reported to the
Committee. The Committee and the Board confirm that they have
taken all the necessary steps to become aware of any relevant audit
information and to pass that information onto Deloitte. The Committee
was satisfied with the external auditors’ commitment to audit quality,
the robust and professional working relationship with management
and demonstration of strong technical knowledge and professional
scepticism. In addition, to ensure the independence of the external
auditors, and in accordance with International Standards on Auditing
(UK & Ireland) 260 and Ethical Standard 2019 issued by the
Accounting Practices Board and as a matter of best practice, Deloitte
have confirmed their independence as auditors of the Company. On
the basis of Deloitte’s confirmation and report on their approach to
audit quality and transparency, the Committee concluded that: Deloitte
possesses the appropriate qualifications and expertise; remains
independent of the Group; and, coupled with effective management
engagement, that the audit process was effective.
Corporate Reporting Review
The Audit and Risk Committee assists the Board in fulfilling its
oversight responsibilities by reviewing and monitoring the integrity of
the financial information provided to shareholders and other
stakeholders. The Committee oversees financial reporting and related
risks and internal controls, and also has a role in overseeing the
internal and external auditors, as well as interacting with other
members of management and external stakeholders as required.
During the year, the ‘TCFD’ disclosures and the disclosures related to
climate in the Group’s 2021 Annual Report and Accounts were
reviewed by the Corporate Reporting Review (CRR) team of the
Financial Reporting Council (FRC). As a result, the Group received a
small number of queries and subsequently committed to supplement
existing disclosures and clarify certain climate ambitions. The
Committee was pleased that the responses provided to the CRR dealt
with the matters raised and the enhancements to the disclosures have
been made in this 2022 Annual Report and Accounts. The Committee
does note however that the review conducted by the FRC was based
solely on the Group’s published Annual Report and Accounts and
does not provide assurance that it is correct in all material respects.
Non-audit fees
To safeguard the objectivity and independence of the external auditors,
the Committee is responsible for the policy on the award of non-audit
services to the external auditors. A copy of this policy is available on
our website centrica.com. The Chair of the Committee must approve
all requests to utilise Deloitte for non-audit services. There is an annual
cap on non-audit work during the ordinary course of business of
£1million, which is assessed each year for appropriateness in the
context of external guidance and regulation.
Overall total non-audit fees incurred in 2022 were £0.9 million (2021:
£1.7 million), including £0.5 million for the review of the interim results
and £0.3 million for the audit of the Ofgem consolidated segmental
statements. In line with the non-audit fees policy, approval for this
expenditure was sought and received from the Committee in advance
of the work commencing. The amount incurred in the year is well
below the legal cap of 70% of non-audit fees (for services not required
by regulation) compared to the three-year average of statutory audit
fees, amounting to approximately 7%.
In normal circumstances, all significant non-audit work is put out to
tender and Deloitte are only ever appointed if their experience and
knowledge makes them the most appropriate supplier and it is clear
another firm could not undertake the work without adversely impacting
the business.
Committee effectiveness
The Committee undertakes an annual review of its terms of reference
to ensure that it accurately reflects the role carried out by the
Committee, taking into account any new internal and external
developments and responsibilities. The Committee’s terms of reference
are available on our website centrica.com.
The Committee considers that it has continued to discharge its
oversight role effectively in an area where expectations and
requirements are constantly evolving with insightful and regular
engagement and support from management. Read more about the
Committee’s effectiveness on page 57.
Kevin O’Byrne
on behalf of the Audit and Risk Committee
15 February 2023
74 Governance | Centrica plc Annual Report and Accounts 2022
Key judgements and financial reporting matters in 2022 Audit and Risk Committee reviews and conclusions
Determination of forecast commodity prices and
their use in valuing long-lived assets and derivative contracts
Commodity price forecasts are a key assumption in the valuation of the
Group’s long-lived assets and derivative contracts. For short-term
commodity prices over the next four years, observable liquid market
prices (as at 31 December 2022) are taken as the best view of expected
price. For the longer-term period thereafter, the Group uses a ‘P50’
median price curve, derived from a collection of third-party forecasts.
This approach is deemed to align to pricing that a reasonable market
participant would use. The Group has used these price curves in its
asset impairment testing and contract valuations.
The Group has also obtained commodity price forecasts which are
intended to be consistent with net zero by 2050. These are lower than
the ‘P50’ curves the Group has adopted for NBP Gas and for baseload
power. The Group has shown the impact of such price forecasts on the
gas assets and Nuclear assets in note 7 of the financial statements.
The Committee noted the extreme volatility in short-term commodity
prices during the year, with very significant rises seen earlier in the year
before then falling back towards the year-end – although prices still
remained well above 2021 levels. The Committee understood that this
dynamic had a critical impact on many of the other judgements listed
below.
The Committee reconfirmed continued support for the longer-term ‘P50’
median curve (derived from third parties) approach. It noted that the
‘P50’ long-term commodity price forecasts were broadly similar
year-on-year for all commodities and that these prices were dwarfed by
the near-term increases.
As a result of the above, the Committee was comfortable the curves
were reasonable.
Sensitivities of the asset impairment tests to changes in price forecasts
are provided in note 7 on page 146 to 150.
The Committee noted the use of a price curve intended to be consistent
with net zero by 2050 in the impairment sensitivities and believed the
output provided useful information to readers of the accounts.
The Committee also noted and welcomed the inclusion of a Climate
Change accounting considerations section in note 3.
Energy derivatives – classification and valuation
The Group enters into numerous commodity contracts in its ordinary
course of business. This can be to procure load for its downstream
business, sell output from its upstream assets, to trade around its other
commodity exposures or to make money from proprietary activities.
Onentering into these contracts, the business assesses each of the
individual trades and classifies them as either:
(i) Out of scope of IFRS 9:
For ‘own use’ contracts (i.e. customer contracts, contracts to take
delivery and meet customer demand or sell upstream output) and
contracts that cannot be net settled.
(ii) In scope of IFRS 9:
Contracts for commodities which have the ability to be and practice of
being net settled.
Energy contracts outside the scope of IFRS 9 are accruals accounted.
Those contracts considered to be within the scope of IFRS 9 are treated
as derivatives and are marked-to-market (fair valued). If the derivatives
are for proprietary energy trading, they are recorded in the business
performance column of the Group Income Statement. If they are entered
into to protect and optimise the value of underlying assets/contracts or
to meet the future downstream demand needs, they are recorded as
certain re-measurements.
The fair-value of derivatives are estimated by reference to published
liquid price quotations for the relevant commodity. Where the derivative
extends into illiquid periods, the valuation typically uses the ‘P50’
median price curves (see Determination of long-term commodity prices
and their use valuing long-lived assets).
Judgement is required in all aspects of both the classifications and
valuations.
One of the Group’s critical accounting judgements is that its LNG
contracts are outside the scope of IFRS 9 because they are entered into
for its own purchase and sale requirements (‘own use’).
The Committee noted that the Group’s policy and methodologies in
classifying and valuing energy derivatives were unchanged from
previous periods.
The Committee also reviewed and understood the breakdown by
business of the movement in IFRS 9 energy derivative valuations in the
Group Income Statement.
They reflected on the fact the Group is generally a net buyer of
commodity and that the certain re-measurement derivative net loss of
£5.2 billion (being £6.4 billion loss for UK Supply book trades, offset by
£1.2 billion gain for Upstream, EM&T and other books) was
predominantly as a result of the extreme volatility in short-term
commodity prices during the year. As prices rose significantly and then
fell back, the timing of entering into the hedge trades was important.
The Committee noted the link between the derivative certain
re-measurements for the UK supply books and the onerous supply
contract provision for certain re-measurements, as discussed below.
Further detail is provided in notes 2 and 7 on pages 128 to 129and 146
to 150.
The Committee noted and continued to concur with the specific
judgement around LNG contract own use classifications.
75Governance | Centrica plc Annual Report and Accounts 2022
Key judgements and financial reporting matters in 2022 Audit and Risk Committee reviews and conclusions
Onerous energy supply contract provision
The Group’s residential and business energy supply contracts are
accruals accounted. The Group operates and manages a hedging
strategy to ensure that the future costs of supplying these customer
portfolios are appropriately managed.
These hedges are generally in the scope of IFRS 9 and are measured at
fair value (see ‘Energy Derivatives – classification and valuation’ above).
They are recognised as certain re-measurements in the Group’s income
statement until the point at which the related costs to purchase
electricity and gas are incurred.
In 2021, following a substantial increase in near-term commodity prices,
significant gains arose on these procurement hedges as they are
marked-to-market. This moved both the residential and business supply
hedges to being significantly in-the-money. Because of this hedge value
recognition, the assessment of whether the supply contracts were
onerous had to be calculated based on the cost of fulfilling these
arrangements, including the reversal of previous mark-to-market gains.
Accordingly, the Group determined that at 31 December 2021, the
future costs to fulfil customer contracts including marked-to-market
reversals would exceed the charges recovered from customers because
the associated hedging gains had already been recognised in the
Income Statement. The Group therefore recognised an onerous supply
contract provision of £2.5 billion at that date.
In 2022, following the significant losses on procurement hedges (see
‘Energy Derivatives – classification and valuation’ above), the residential
element of the supply book had moved to an overall out-of-the-money
position, whilst the business element remained in-the-money
(predominantly because a different hedging strategy is employed).
Consequently, for residential, the costs to fulfil the customer contract
including marked-to-market reversals no longer exceed the charges
expected to be recovered from customer. Therefore, no onerous supply
contract provision is required for this element and the previous provision
has been reversed.
Conversely, for business, the future costs to fulfil customer contracts
including marked-to-market reversals is still expected to exceed
the charges recovered from customers and accordingly an onerous
provision of circa £1 billion is required for this element.
This has been calculated by estimating the expected margins from
business energy supply customers, and deducting from this margin the
expected costs to fulfil those arrangements, including energy purchase
costs reflecting the historic mark to market gains (as the hedge book
remains in-the-money), and directly attributable overhead costs.
For customers where this results in a loss, an onerous contract
provision is recorded.
The movement in the onerous provision has been reflected as a certain
re-measurement in the Income Statement because these supply
contracts are economically related to the fair value movements on
the hedges. (Note that the Income Statement movement is £1.8 billion,
because a £0.3 billion onerous provision was acquired as part of the
AvantiGas purchase – see note 12.)
The Committee reviewed the change in the underlying derivative
hedge values of the residential and business books and therefore
the movement in the onerous energy supply contract provision.
The Committee noted that this movement is mainly driven by the
change in energy prices and that whilst the Company would expect
the remaining onerous provision to predominantly unwind in 2023,
this is dependent on market movements.
The Committee observed that the residential onerous provision could
come back in 2023 if derivative hedges moved back into the money
but this is dependent on energy prices and the hedged position.
The Committee reviewed the key assumptions used in the onerous
provision calculation and noted the reduced sensitivity to margin
and customer churn assumptions. It noted the disclosures included
in the financial statements to highlight this area.
The Committee held discussions with the external auditors to confirm
the appropriateness of the accounting treatment and to confirm their
views of the assumptions used.
Further detail is provided in notes 2, 3 and 7 on pages 128 to 136
and 146 to 150.
76 Governance | Centrica plc Annual Report and Accounts 2022
Key judgements and financial reporting matters in 2022 Audit and Risk Committee reviews and conclusions
Impairment reversals of long-lived assets
The Group makes judgements and estimates in considering whether
the carrying amounts of its assets are recoverable:
Upstream (Power assets and Gas assets)
For Upstream assets, discounted cash flows are prepared from
projected production profiles of each field or power asset, taking into
account forecast future commodity prices, to assess their recoverable
amount. When deriving forecast cash flows, market prices are used
for the period when a commodity is liquid. For the longer-term illiquid
period, the ‘P50’ median price curve is used (see ‘Determination
of forecast commodity prices and their use valuing long-lived assets
and derivatives’, above).
Judgement is also required around production volumes. For Nuclear,
individual station information and recent availability data is factored in
to the overall asset valuation. The expected operating life of Sizewell
has continued to be reflected to 2055 in the modelling, beyond the
original design life. For Gas assets, each field has specific reservoir
and field characteristics and is modelled independently.
During 2022, new taxes have also been announced and these have
been included in the discounted cash flow modelling. For Nuclear,
the Electricity Generator Levy applies a tax rate of 45% on revenues
exceeding a benchmark price of £75/MWh and will apply from
1 January 2023 to 31 March 2028.For Gas assets, the Energy Profits
Levy will increase to 35% (bringing the headline rate on gas asset
profits to 75% from 65%) from 1 January 2023 and continue until
31 March 2028.
Despite the implementation of these new taxes, the year-on-year
increase in forecast commodity prices has more than offset their impact.
As a result, an exceptional impairment reversal of £195 million has been
booked in relation to the Nuclear investment.
For Gas assets, significant impairment headroom remains. Because the
field carrying values have generally already been written back to their
depreciated historic cost, no further write-back is allowed.
Sensitivity analysis has been provided in the financial statements
to show the impact if there was a 50% reduction in short-term liquid
prices (see note 7).
The Committee challenged management and the external auditors on
the key inputs to the impairment models including price, outage rates,
assumed lives, tax and discount rates, and were comfortable with the
conclusions reached.
The Committee reviewed the Nuclear investment write-back and noted
that the increase in near-term commodity prices had more than offset
the cost of the Electricity Generator Levy.
The Committee noted that price sensitivity disclosures have been
included in the financial statements.
Further detail on impairment write-back and the assumptions used
in determining the recoverable amounts is provided in notes 7
and S2 on pages 146 to 150 and 187 to 199.
Credit provisions for trade and other receivables
The IFRS 9 impairment model requires credit provisions (‘bad debt’)
for trade and other receivables to be based on an expected credit loss
model, as opposed to an incurred loss basis. The economic effects of
the inflationary pressures on household income, not least energy prices,
and the wider cost of living crisis will likely impact the ability of the
Group’s customers to pay amounts due. Accordingly, there is significant
judgement around the levels of forecast bad debt and the provisioning
required at the year-end.
The Group’s residential and business energy supply customers account
for the majority of Group’s credit exposure (with balances associated
with our trading business generally received within 30 days). Expected
default rates in these areas are calculated initially on a matrix basis
by considering recent historical loss experience, the nature of the
customer, payment method selected and, where relevant, the sector
in which they operate. Management has then also factored in forward-
looking economic assumptions, taking into account inflation and
affordability forecasts.
In the prior year a high-level macroeconomic provision of £30 million
was maintained to cover inflationary concerns. In 2022, the deemed
quality and relative ageing of the Group’s debt has improved compared
with last year, reducing the underlying modelled provision output
(on a % basis). However, given the economic environment the high
level macroeconomic provisions has been increased by £95 million
(to £125million) to cover the inflationary and cost of living concerns.
For UK Downstream energy supply, the bad debt charge as a
percentage of revenue increased to 2.1% (2021: 1.1%). The closing
bad debt provision moved to 26% (2021: 29%) of UK energy supply
gross receivables.
Due to the significant estimation uncertainty in this area, management
continues to provide detailed analysis and sensitivities in note 17 to the
Financial Statements.
The Committee reviewed management’s groupings of receivables by
the key factors affecting recoverability (e.g. payment method, nature
of customers) and considered the levels of provisions booked against
each grouping, at the year-end.
The Committee discussed the approach with the external auditors.
The Committee was comfortable with the provisions booked, including
the increase in the macroeconomic provisions, whilst noting the
significant estimation uncertainty in this area.
The Committee noted the continued enhanced disclosure in note 17,
setting out the judgemental nature of the provisioning and the sensitivity
analysis to allow users of the accounts to model different outcome
scenarios.
77Governance | Centrica plc Annual Report and Accounts 2022
Key judgements and financial reporting matters in 2022 Audit and Risk Committee reviews and conclusions
Classification and presentation of exceptional items and certain
re-measurements
The Group reflects its underlying financial results in the business
performance column of the Group Income Statement. To be able to
provide this in a clear and consistent presentation, the effects of certain
re-measurements of financial instruments and onerous supply contract
provisions, and exceptional items are reported separately in a different
column in the Group Income Statement.
The classification of items as exceptional and specific trades as certain
re-measurements (see ‘Onerous energy supply contract provision’ and
‘Energy Derivatives – classification and valuation’ sections above) are
subject to defined Group policies. These policies are reviewed annually
by management.
At the year-end, exceptional items included the Nuclear impairment
reversal and loss on disposal from the sale of Spirit Energy’s Norwegian
and Statfjord fields noted above. Also included is a write-back of
£12million predominantly associated with a gas engine in Centrica
Business Solutions.
Certain re-measurements totalled an overall circa £3.4 billion loss –
being £5.2 billion loss from derivatives and £1.8 billion gain from the
onerous supply contract provision movement.
The Committee noted that the policy on certain re-measurements
and exceptional items remains unchanged from prior year.
The Committee had formally reviewed and approved the Group’s policy
on exceptional items in previous years and, in the current year, it used
this policy to help inform the appropriateness of the proposed
classifications. It challenged the items classified as exceptional items,
considering their size, nature and incidence and in the context of the
Group policy. The Committee concluded that separate disclosure of
these items as exceptional was appropriate in the Financial Statements.
The Committee ultimately agreed that presenting certain re-measurements
and exceptional items separately continues to allow underlying
performance to be reflected on a consistent and comparable basis.
Further detail is provided in notes 2, 3 and 7 on pages 128 to 136and
146 to 150.
Supplier of Last Resort (SoLR) Accounting
Following the unprecedented rise in commodity prices in the second
half of 2021, a number of UK energy suppliers were unable to continue
trading and the Group was appointed as the Supplier of Last Resort
for the customers of nine suppliers.
Under Ofgem’s licence conditions, the Group is entitled to make
a Last Resort Supplier Payment claim for the shortfall between costs
reasonably incurred in supplying gas and electricity to premises under
the Last Resort Supply Direction, and the charges recovered from
customers (which are limited by the tariff cap).
The Group submitted an initial claim in 2021, covering a six-month
period from the date of appointment, and received confirmation of
Ofgem’s acceptance in December 2021. The claim primarily covered
incremental commodity costs, incurred as a result of procuring gas and
electricity to supply affected customers. The initial claim is currently
being settled in 12 monthly instalments ending in April 2023 and a total
of £258 million has been received during 2022. The Group submitted
a second claim to Ofgem in Autumn 2022, recognising both actual
commodity costs incurred and additional costs which were not included
in the initial claim. This includes the recovery of customer credit
balances, where the Group had not waived the right to do so. The
second claim was accepted by Ofgem in December 2022 and will be
settled between April 2023 and April 2024. The value recognised for
the SoLR receivable at 31 December 2022 is £275 million (31 December
2021: £234 million), offsetting cumulative costs incurred of £426 million
(31December 2021: £185 million) and cumulative customer credit
balances of £107million (31 December 2021: £49 million).
The Group judges that the Last Resort Supplier Payment process
represents an Ofgem support mechanism, enabling energy suppliers
to provide stability to the customers of failed suppliers. The Group
determines this is within the scope of IAS 20 ‘Government Grants’
and amounts receivable under the mechanism are deemed virtually
certain and are recognised as the related expenses are incurred
or liabilities recognised.
The Committee has considered the judgement made by the Group and
concurs that the recognition of the SoLR receivable continues to be
appropriate and matches the costs and liabilities incurred or recognised
by the Group during the year.
The Committee held discussions with the external auditors to verify the
approach being taken and noted that the accounting treatment aligns
with industry practice.
Further detail is provided in note 1 on pages 126 to 127.
Assets held for sale and discontinued operations
The Group announced on 8 December 2021 that it had agreed to
dispose of the Spirit Energy Norwegian and Statfjord fields to Sval
Energi and Equinor respectively, and treated the assets and liabilities
as a disposal group held for sale from that point.
The Group judged that this disposal group did not represent a separate
major line of business or geographical operations, because the
Upstream segment retained other European producing fields, and
hence the Group concluded that the disposal group did not constitute
a discontinued operation.
The transaction completed on 31 May 2022, resulting in an exceptional
loss on disposal of £362 million (including recycling of historic foreign
currency translation losses). The assets contributed £120 million of the
Group’s profit after tax, prior to the completion date.
The Committee noted that it had previously concurred that classification
of the disposal group as a discontinued operation was not appropriate
because the Group retains the Spirit Energy UK and Netherlands
business, post-completion.
The Committee held discussions with the auditors on the appropriateness
and consequences of this conclusion. It was re-assured by those
discussions and noted the extensive disclosures included in the
Financial Statements on this area.
Further detail on this disposal is provided in note 12 on pages 156
to 158.
78 Governance | Centrica plc Annual Report and Accounts 2022
Key judgements and financial reporting matters in 2022 Audit and Risk Committee reviews and conclusions
Energy supply revenue recognition
The Group’s revenue for energy supply activities includes an estimate
of energy supplied to customers between the date of the last meter
reading and an estimated year-end position. This is estimated through
the billing systems, using historical consumption patterns, on a
customer-by-customer basis, taking into account weather patterns,
load forecasts and the differences between actual meter readings being
returned and system estimates. An assessment is also made of any
factors that are likely to materially affect the ultimate economic benefits
which will flow to the Group, including bill cancellation and re-bill rates.
To the extent that the economic benefits are not expected to flow to the
Group, revenue is not recognised.
At the year-end, unread energy income for the continuing supply
businesses was £2.9 billion (2021: £1.7 billion).
The Group’s revenue was also impacted by the UK Government’s
customer support schemes. These schemes have been accounted
for under IFRS 15: ‘Revenue from Contracts with Customers’. Revenue
of circa £1.75 billion has been recognised from Government from both
the Energy Price Guarantee and the Energy Bill Relief Scheme.
The Committee has reviewed the level of unread revenue and unbilled
accrual made during the year and discussed with management and
the external auditors.
The Committee noted that the ENSEK has had a different process
on unbilled accrual but had followed the same estimation process
as in previous years, for customers on the existing SAP platform,
and a similar process for the new energy platform and that the external
auditors had independently reperformed this calculation to within
an immaterial difference.
It discussed the accounting treatment for the customer support
schemes with management and the Group’s auditors and was
comfortable with the treatment adopted.
More details of the customer support schemes are provided in note 1
on pages 126 to 127, on unread energy income are provided in note 3
on page 132 and on unbilled energy income in note 17 on page 171.
Pensions
The assets and liabilities, and the cost associated with providing
benefits under defined benefit schemes is determined separately for
each of the Group’s schemes. Judgement is required in setting the
key assumptions used for the actuarial valuation which determines
the ultimate cost of providing post-employment benefits, especially
given the length of the Group’s expected liabilities.
The net Group pension asset position was £40 million (2021: £nil).
The UK defined benefit schemes used a nominal discount rate of 4.7%
(2021: 1.8%) and inflation of 3.0% (2021: 3.1%)
Following the Liability Driven Investment (LDI) crisis in the pensions
arena in late 2022, the Group provided a £400 million interest-bearing
loan to the UK Registered Pension Schemes to ensure the schemes
could maintain a high level of interest and inflation hedging and meet
any collateral requirements.
The Group judged that this should be accounted for as a loan (within
Securities) in the books of the Group and as a reduction in scheme
assets for the Pension Schemes.
As a consequence of the LDI issues, the pension scheme now has a
greater proportion of unquoted assets in its asset portfolio. As a result
the Group undertakes more detailed reviews of these valuations, whilst
acknowledging the inherent uncertainty compared with quoted assets.
The Committee noted the key pension assumptions and disclosures
in the Financial Statements.
It noted that these assumptions were derived on a consistent basis
to previous periods.
The Committee recognised the role of the independent actuary, who is
consulted on the appropriateness of the assumptions, and discussions
were also held with the external auditors.
The Committee also understood the issues that arose from the LDI crisis
and the need to provide extra funding to the schemes to ensure they
remained appropriately hedged. It also discussed the accounting
treatment with the auditors and ultimately concurred with this
judgement.
It also noted the greater proportion of unquoted assets in the scheme
portfolio and welcomed the greater scrutiny on these valuations.
Further details on pensions are set out in notes 1 and 22 on pages 127
and 175 to 179.
Fair, balanced and understandable
The Board is required to confirm that the Annual Report and Financial
Statements are fair, balanced and understandable. To enable the Board
to make this declaration, there is a year-end review process to ensure
that the Committee and the Board have access to all relevant
information, including management’s papers on significant issues.
The Committee reviewed the key factors considered in determining
whether the Annual Report is fair, balanced and understandable.
The Committee and all Board members received a draft of the Annual
Report and Financial Statements in sufficient time to review and
challenge the disclosures therein. In addition, the Committee took
into consideration the external auditors’ reviews of the consistency
between the reporting narrative of the Annual Report and the Financial
Statements.
Ofgem Consolidated Segmental Statement
The Group is required to prepare an annual regulatory statement
(Consolidated Segmental Statement (CSS)) for Ofgem which breaks
down our licensed activities for the financial year into a generation,
domestic and non-domestic and electricity and gas result.
The CSS is reconciled to our externally reported International Financial
Reporting Standards Annual Report and Accounts. The Group publishes
the CSS at the same time as the full-year Annual Report and Accounts
and the CSS is independently audited.
In preparing the CSS, judgement is required in the allocation of non-
specific costs between domestic and non-domestic and electricity and
gas, and the distinction between licensed and non-licensed activities.
The Committee reviewed the Ofgem CSS and the key judgements
and disclosures made in its preparation.
The external auditors also provided a report on the work on the CSS
and held discussions with the Committee.
The full CSS and the independent audit opinion are set out on pages
239 to 251.
79Governance | Centrica plc Annual Report and Accounts 2022
Nominations Committee
Membership, meeting
attendance and key focus
Dear Shareholder
On behalf of the Board, I am pleased to present the
Nominations Committee report for 2022 which explains
theCommittee’s focus and activities during the year.
Committee overview
The Nominations Committee is responsible for ensuring that the Board
and its Committees have the appropriate balance of skills, knowledge,
and experience to effectively lead the Company both now and in
the future. This is achieved through a formal procedure for the
appointment of new Directors to the Board, an effective succession
planning process, reviewing Board composition and Board skills
and assessing Board training requirements.
Main activities during 2022
Board succession planning and Board skills
The Committee is responsible for leading the succession planning
process and making recommendations to the Board. The Committee
takes a long-term view to succession planning, regularly reviewing
Board tenure, Board diversity (particularly diversity of gender, cultural
background and experience) and assessing the skills required by
the Board to best support the Company’s strategy on a multi-year
lookahead as well as in the near term. Details of the wide range of
skills possessed by the Board today can be found on pages 62 to 65.
The Committee’s work on succession planning directly informed
recruitment in 2022. A focus area for the Committee in 2023 will
remain ensuring the Company continues to have appropriate
succession plans for different time horizons.
Non-Executive Director recruitment
A primary focus area for the Committee in 2022 was Non-Executive
Director recruitment.
Centrica has a thorough and robust search process for the selection of
new Non-Executive Directors. In identifying and nominating candidates
to fill Board vacancies, the Committee considers candidates from a
wide range of backgrounds, assessing them on merit against objective
criteria and with due regard for the benefits of diversity on the Board.
The Committee therefore takes particular interest in the recruitment
process of its independent search firms to ensure that a diverse pool
of candidates is considered for any vacancy.
A shortlist of candidates is shared with the Committee, meetings are
scheduled with Directors and members of management, and then
once the candidates have been identified, and their ability to meet the
necessary time commitment is confirmed, a recommendation is made
to the Board.
Committee members
Scott Wheway (Chair)
Carol Arrowsmith
Nathan Bostock (with effect from 9 May 2022)
CP Duggal (with effect from 16 December 2022)
Heidi Mottram
Kevin O’Byrne
Amber Rudd (with effect from 10 January 2022)
Stephen Hester and Pam Kaur retired as members of
the Committee on 7 June 2022.
Biographical details of the Committee Chair and
members can be found on pages 62 to 65.Meeting
attendance of the Committee members can be found
on page 66.
Meeting attendees by invitation
Group Chief Executive Officer
Group General Counsel & Company Secretary
Group Chief People Officer
Focus areas in 2022
• Board skills;
• Board diversity;
• Non-Executive Director succession planning;
• Executive Director succession planning;
• Board Committee composition;
• Non-Executive Director recruitment;
• Senior Independent Director succession;
• approach to workforce engagement;
• Board training requirements;
• election and re-election of Directors at the 2022
AGM; and
• approach to, and findings arising from, an annual
Board effectiveness assessment (see page 57).
80 Governance | Centrica plc Annual Report and Accounts 2022
Spencer Stuart supported the search processes that led to appointing
Amber Rudd, Nathan Bostock and Chanderpreet (CP) Duggal as
Non-Executive Directors in 2022. Although Carol Arrowsmith was
a member of its Advisory Group during 2021 and early 2022, there
are no other connections between Spencer Stuart, the Company and
its individual Directors. There were no changes in Executive Directors
during 2022.
Executive Director succession
On 12 January 2023, we announced that Russell O’Brien will be
appointed Group Chief Financial Officer (CFO) and an Executive
Director on 1 March 2023. Kate Ringrose will step down as CFO and
an Executive Director on 28 February 2023 and will leave Centrica at
the end of 2023 following an orderly transition. Russell brings broad
experience across the energy value chain, including roles as global
CFO for both Shell’s Integrated Gas and Retail businesses.
Board training
The Committee reviewed the training received by the Board during
2022 as well as the training requirements for the Board in 2023.
In doing so, the Committee sought to ensure the Board remained
equipped with the latest knowledge and understanding to support
effective decision-making. Board training in 2022 included sessions
on cyber security, energy market trends and wholesale energy trading.
The Committee also identified further areas of training directly linked
to Centrica’s strategy that will inform the Board’s training programme
in 2023.Details of the induction for all new Directors are on page 60.
Oversight of Director external appointments
To ensure that Directors will continue to have sufficient time to commit
to their Centrica responsibilities, any additional external appointments
taken up require advance approval by the Board. This included
the other members of the Board considering and approving my
appointment as a Non-Executive Director of Lloyds Banking Group
and as Chair of Scottish Widows Group, following my retirement
from the role of Chair of AXA UK plc.
A focus on diversity and inclusion
We operate in increasingly diverse communities and this diversity
is evident in our workforce and our customers, suppliers and other
stakeholders. As set out in our Board Diversity Policy adopted in
July 2019 we know that being inclusive of the diversity we have in
our business will give us a competitive advantage. The Committee
therefore continues to embrace the strategic importance of diversity
and inclusion, including as part of the Board’s own succession
planning.
As at 31 December 2022, 44.4% of the Board and 50% of
independent Non-Executive Directors (excluding the Chairman of the
Board) were women, exceeding the target in Listing Rule 9.8.6(9).
As at 31 December 2022, the Board composition met, and continues
to meet, the target ethnic minority representation in Listing Rule
9.8.6(9), except for the specific period following the resignation of Pam
Kaur and appointment of CP Duggal. The Board comprises nationals
of four different countries (the UK, Ireland, USA and South Africa),
with a wide range of backgrounds and experience.
Having met or exceeded all applicable diversity targets for listed
company boards in the past two years, following recent directorate
changes with Kate Ringrose stepping down as the Group Chief
Financial Officer in 2023, we recognise the need for the Board’s
diversity to remain consistent with or exceed these requirements
in future. The Board is fully committed to securing this outcome at
the earliest next opportunity and the Committee will ensure that these
requirements inform and assume the necessary priority in the Board’s
succession planning in 2023.
Further information on the steps that the Company is taking to create
a diverse and inclusive workplace is on pages 40 to 41.
Workforce engagement
The Committee reviewed the Board’s approach to workforce
engagement pursuant to the expectations of Section 5 of the UK
Code, ultimately adopting a collective approach to workforce
engagement involving all Non-Executive Directors leveraging a
combination of different types of engagement, including: listening
sessions with colleagues; meetings with senior leaders and future
talent; and dedicated engagement sessions with the Chairs of the
employee-led colleague networks.
Committee effectiveness
The Committee undertakes an annual review of its terms of reference
to ensure that they accurately reflect the role carried out by the
Committee, taking into account any new internal and external
developments and responsibilities. The Committee’s terms of reference
are available on our website centrica.com/TOR.
The Committee considers that it has continued to discharge
its oversight role effectively in an area whereexpectations and
requirements are constantly evolving with insightful and regular
engagement and support from management. Read more about
the Committee’s effectiveness on page 57.
Scott Wheway
on behalf of the Nominations Committee
15 February 2023
81Governance | Centrica plc Annual Report and Accounts 2022
Dear Shareholder
On behalf of the Board, I am pleased to present the Safety,
Environment and Sustainability Committee (SESC) report
for the year ended 31 December 2022 which explains the
Committee’s focus on, and activities relating to, health
and safety (H&S), environment and responsible business
matters during the year.
Committee overview
The Committee’s role and responsibilities, on behalf of the Board,
are to review and monitor the culture, practices, risks and performance
of Centrica with respect to H&S, ESG (Environmental, Social and
Governance) and broader responsible business matters. This is
achieved through a rigorous review of performance data, the
Company’s commitments and targets and activities, programmes
and initiatives which relate to Centrica’s H&S, social and sustainability
priorities and values. As part of its focus, the Committee also provides
input to, and review of, the Company’s ESG annual reporting
disclosure requirements.
Main activities during 2022
The Committee considered a broad range of topics and the key
highlights are disclosed below.
Health and Safety
As a standing item on the agenda, the Committee maintained its
regular focus on H&S performance metrics, assurance activity and
material developments. The Committee reviewed risk identification and
controls and considered that the Group had appropriate capabilities,
correct processes and engaged culture in H&S. A focus area for the
Committee was ensuring that any learnings from any H&S incidents
were properly reviewed and, where appropriate, the relevant actions
taken to mitigate the possibility of reoccurrence.
At each meeting, the Committee invited management from specific
Business Units to discuss occupational and process safety reviews,
outcomes and improvements derived from targeted interventions
and future action plans.
Environment
The Committee provided oversight of the Company’s continued
commitment to, and role in, the drive to net zero, including the review
of a scorecard that reported progress to date against the Company’s
People & Planet Plan and the Climate Transition Plan, as well as the
impact of the Company’s operations on the environment and the
Company’s green credentials.
Safety, Environment and Sustainability Committee
Membership, meeting
attendance and key focus
Committee members
Heidi Mottram (Chair)
Nathan Bostock (with effect from 28 July 2022)
Amber Rudd (with effect from 10 January 2022)
Scott Wheway
Pam Kaur retired as a member of the Committee
on 7June 2022.
Biographical details of the Committee Chair and
members can be found on pages 62 to 65. Meeting
attendance of the Committee members can be found
on page 66.
Meeting attendees by invitation
Kevin O’Byrne
Carol Arrowsmith
CP Duggal (with effect from 16 December 2022)
Group Chief Executive
Group General Counsel & Company Secretary
Group Chief People Officer
Focus areas in 2022
• Health and Safety
• Environment
• Responsible business
• Governance
82 Governance | Centrica plc Annual Report and Accounts 2022
The Climate Transition Plan first published in November 2021 was
updated on 29 April 2022 to take into account retained Spirit Energy
assets and published on the Company’s website. At the 2022 AGM,
the Climate Transition Plan, through an advisory non-binding vote,
was supported by the overwhelming majority of shareholders (79.96%
of votes received). In accordance with the UK Corporate Governance
Code 2018, Centrica consulted some of the shareholders who did
not support the resolution in order to understand the reasons behind
their decision. The Committee reflected upon the feedback, and will
oversee that these constructive views, together with overall investor
expectations relating to ESG factors, are continually taken into account
when developing the Climate Transition Plan and other environmental
plans in the future.
The Committee investigated and assessed the impact on the Climate
Transition Plan of major investment decisions taken by the Group,
satisfying itself that the Group was striking the balance between
discharging its obligation to support security of energy supply in the
short term through investments in activities such as gas-fired peakers
in Ireland, whilst still ensuring that the Group continued to focus on
opportunities to deliver the targets in its Climate Transition Plan in the
longer term. The Committee will continue to provide oversight and
scrutiny of the Company’s decarbonisation plans.
Responsible business
The Committee reviewed and endorsed Centrica’s new approach to
charity partnerships in the UK being locally focused, noting the high
level of colleague support and engagement that the new approach
generated. The Committee was also pleased to continue to support
Bord Gáis’s successful long-term relationship with Focus Ireland.
The Committee had specific sessions in the year to discuss modern
slavery reporting practices and the robust management of modern
slavery risk in the supply chain. This included the recommendation
to the Board to adopt the Company’s 2021 Modern Slavery Act
Statement, which was in line with UK Home Office requirements
and industry guidance.
Centrica works with suppliers seeking to continuously raise standards
through its responsible sourcing assurance activity. The Committee
reviews this activity on an annual basis, evaluating the progress made
and providing feedback on any specific issues identified. In addition,
the Committee approved the audit plan for 2023 and considered
the external perceptions of Centrica’s reputation.
Governance
In addition to the above, the Committee had opportunities to receive
relevant training on matters specific to the Committee’s remit.
The Committee also reviewed corporate governance developments,
ESG expectations and behaviours including key changes in law and
regulation as well as examples of best practice.
Committee effectiveness
The Committee undertakes an annual review of its terms of reference
to ensure that it accurately reflects the role carried out by the
Committee, taking into account any new internal and external
developments and responsibilities. The Committee’s terms
of reference are available on our website centrica.com/TOR.
The Committee considers that it has continued to discharge
its oversight role effectively in an area where expectations and
requirements are constantly evolving with insightful and regular
engagement and support from management. Read more about
the Committee’s effectiveness on page 57.
Heidi Mottram
on behalf of the Safety, Environment and Sustainability Committee
15 February 2023
+ Read more about our People & Planet Plan onpages 39 to 44
83Governance | Centrica plc Annual Report and Accounts 2022
Remuneration Committee
Dear Shareholder
On behalf of the Board I present the Remuneration Report
for the year ended 31 December 2022.
The past two years have been a challenging time for our industry.
We have faced the biggest energy crisis since the 1970’s, huge
instability in our markets together with an unprecedented round of
energy company failures leaving stranded customers. Never has
stability and the importance of being able to respond to our
customers’ needs been greater. The leadership team at Centrica
has worked tirelessly to ensure that our business navigated these
challenges and continued on our journey to improve our customer
experience. We have work to do but believe that 2022 has been a
turning point.
As the Remuneration Committee we have focused on balancing the
views and experiences of our stakeholders with our responsibility to
pay our leaders fairly in that context.
At our last AGM we proposed a new Remuneration Policy. Our aim
was to design a remuneration structure that would support our
strategic direction, enable us to engage our leadership team in the
continuing transformation of Centrica and support our requirement
for a team capable of making those changes, whilst addressing the
challenges our Company and industry faces going forward. We
introduced a new framework for annual bonus to allow us to
incorporate judgement on our operational performance whilst
retaining a strong focus on financial achievement. We replaced the
long term incentive plan with a restricted share plan and thereby
reduced the maximum share award from 3 times salary to a
maximum of 1.5 times salary. During that review I spoke with many
of our largest shareholders and as part of that process I received
strong support for our leadership team and genuine interest in
ouraims.
I am pleased to say that we received support in favour of the new
Policy at our AGM in June. This indicated that our shareholders
understood and supported the rationale for moving to a new
long-term incentive structure. We believe this will provide a stronger
and more stable link with the long-term performance of our
business so enabling us to attract people capable of leading
Centrica which remains a complex business. We granted the first
Restricted Share Plan (RSP) awards to our Executives shortly after
the AGM.
Throughout my conversations with shareholders, I heard many of
you expressing your strong support for the management team and
the progress that was being made to simplify and stabilise
ourcompany.
Performance of our Executive team
Our Group Chief Executive, Chris O’Shea, has continued to show
outstanding leadership, drive and determination to turn around the
company for our 10 million customers, 20,000 colleagues and our
many shareholders. Stability is vitally important to continue our
transformation and for our customers, our colleagues and our
shareholders who need us to retain a strong leadership team
todeliver on our commitments.
We are investing in the future of UK energy and we have an
ambitious investment pipeline of net zero aligned options. We have
also re-opened our gas storage facility, Rough, to improve UK
energy security.
Membership, meeting
attendance and key focus
Committee members
Carol Arrowsmith (Chair)
CP Duggal (with effect from 16 December 2022)
Heidi Mottram
Amber Rudd (with effect from 10 January 2022)
Stephen Hester retired as a member of the
Committee on 7 June 2022
Biographical details of the Committee Chair and
members can be found on pages 62 to 65. Meeting
attendance of the Committee members can be found
on page 66.
Meeting attendees by invitation
Chairman of the Board
Group Chief Executive
Group Chief People Officer
Group Head of Reward
Focus areas in 2022
• Approval of new Remuneration Policy
• Executive Director salary reviews
• Review of pay issues across the wider workforce
• Cost of living support for colleagues
• Gender and ethnicity pay gap report
• Review and approval of 2022 financial and
business targets and individual objectives
• Review and approval of Directors’ expenses
• Executive shareholding update
• Review and approval of remuneration package for
Group Chief Financial Officer (CFO)
84 Governance | Centrica plc Annual Report and Accounts 2022
The COVID-19 pandemic and the energy crisis, which saw the
collapse of several energy suppliers, have demonstrated the need for
well-funded, well-run energy companies. We have taken a responsible
approach by safeguarding customer deposits and stepped in to help
more than 700,000 customers that were left without a supplier.
Our financial resilience has allowed us to support customers through
the energy crisis includingdonating £50 million to help vulnerable
customers. Our donations will continue to grow with our commitment
to give 10% of British Gas Energy and Bord Gáis Energy profits.
This has enabled us to create the largest package of voluntary energy
support for customers in the UK.
This financial resilience has also meant that we can support our
people. In 2022 we provided two significant cost of living payments to
colleagues to help them to manage rising household costs. We have
introduced a number of other financial and non-financial initiatives for
our colleagues including an energy allowance for all colleagues who
are British Gas customers and reduced priced meals at all our sites.
We have launched a number of new programmes aimed at supporting
the mental health of our colleagues, particularly those that are
providing vital support to our customers every day. In addition, we
have invested £25m in customer service with the recruitment of 700
additional UK-based agents to allow us to manage the increase in
demand from our customers. More information on our support to
colleagues is set out in the Group Chief People Officer report on
pages 37 to 38.
Our financial stability has also enabled us to fulfil our commitment
to shareholders with the announcement in 2022 of the reinstatement
of our dividends and the £250 million share repurchase programme
which is well underway.
Financial performance outcomes for the year
As set out earlier in this report, the wider Centrica business has
delivered exceptionally strong financial performance. Our portfolio
has been simplified and our balance sheet strengthened.
Within our portfolio, our businesses are linked and well-positioned
for growth. Our strong asset-backed balance sheet and our liquidity
allows us to manage volatile markets effectively.
In my letter to shareholders last year, I explained that Chris O’Shea
had elected not to accept his 2021 annual bonus payment due to the
hardships faced by our customers. This decision was made after Chris
had not received a bonus payment for the previous two financial years.
I made it clear in my letter that if performance in 2022 justified a bonus,
it was our intention to pay that bonus because we cannot expect
to attract and retain leaders in the future if we do not meet our
commitment to recognise and reward the performance and talent
of our people.
It is the opinion of the Committee that the exceptional financial
performance against the stretching targets that were set for 2022
does justify a bonus payment for both the Group Chief Executive
(CEO) and the Group Chief Financial Officer (CFO).
Annual Incentive Plan
The assessment of annual performance for the Centrica leadership
team is 75% based on business performance and the remaining 25%
based on individual performance against strategic objectives.
The business performance element for the year was split equally
between a financial measure, earnings per share (EPS), and the
outcome of a balanced scorecard of financial and operational
measures that were critical to the success of the organisation in 2022.
Balanced scorecard measures included key Group financial
performance measures as well as important business unit measures
such as the cost to serve for our customer-facing businesses and a
cost:income ratio for our Trading business (see page 89 for details).
The adjusted EPS measure had defined threshold, target and
maximum levels. Exceptional overall business performance in 2022
resulted in our EPS outcome being well above the maximum level
that had been set. The Committee reviewed the impact of commodity
prices on the outcome and noted that, excluding this impact, the
outcome would remain above maximum.
The Committee carefully considered the impact of this year’s
exceptional movement in commodity prices on performance
compared to the targets set at the start of the year. Even after
excluding the positive impact of commodity prices this year, the
underlying financial performance was still above the maximum level
for the Annual Incentive Plan (AIP).
Strong performance in various areas across the Group also meant
that the majority of the balanced scorecard measures and targets
were met in full. This included measures that reflect the capacity we
have to deliver for our customers, strong free cash flow generation,
the material improvement in the cost:income ratio in EM&T and
progress against our long-term climate-related targets. In addition,
whilst we continued to invest to improve our customer complaints
taskforce and frontline resource, complaint volumes were above
the prior year, partly due to pricing and cost of living concerns in
the general economy. As a consequence, our cost to serve under
some bases was above plan. Overall, this resulted in a score of 80%
against the balanced scorecard.
With regards to individual performance, the Committee reviewed Chris
O’Shea’s contribution to, and leadership of the business, and agreed
that he has performed exceptionally well throughout 2022. Highlights
include step changes in customer outcomes, focus on instilling a
culture of delivery and operational excellence and significant long-term
improvement in colleague engagement scores. The Committee
determined that an outcome of above target, at 88% of maximum,
under this element of the annual bonus was appropriate.
For Kate Ringrose, the Committee determined that an outcome at
62.5% of maximum, under the personal objectives element of the
annual bonus was appropriate based on her performance in the year,
particularly in respect of her leadership and management during the
recent commodity price environment and work in building the asset
portfolio.
This results in bonuses of 89.5% of maximum (179% of salary)
for Chris O’Shea and 83% of maximum (125% of salary) for
Kate Ringrose.
Long Term Incentive Plan
In 2020 the Committee approved a Long Term Incentive Plan (LTIP)
award for Chris O’Shea relating to the performance period 2020-2022.
This was in line with our previous
Remuneration Policy.
The performance targets for the LTIP award included Total Shareholder
Return (TSR), Economic Profit (EP), Underlying Adjusted Operating
Cash Flow growth (UAOCF) and key performance indicators (KPIs)
focused on safety, customer and colleague engagement.
TSR performance over the three-year period has been strong against
peers and resulted in an outcome of 62.4% of the maximum for this
metric. Performance against the other financial measures exceeded
the three-year targets set by the Committee at the start of the
performance period in 2020 and has therefore resulted in maximum
outcomes under these metrics. The Committee considered
performance under the non-financial KPIs including the process
safety outcome, achieved at maximum, and NPS, achieved between
threshold and maximum, and taking the measures together
determined an outcome under this element of 50% of maximum.
85Governance | Centrica plc Annual Report and Accounts 2022
This results in an overall vesting outcome of 76% of maximum for the
2020 LTIP.
For various reasons, including the Board’s involvement in the planned
divestment of Direct Energy, the grant of the 2020 LTIP was delayed
until May 2021. This award will therefore not vest until 2024, and the
shares will be released in 2026, following the mandatory two-year
holding period.
As the performance period for the award ended on 31 December
2022, the estimated value of the vested award has been included in
the single figure for total remuneration table on page 88. In addition,
the Committee felt it was appropriate at this point to review whether
the CEO (the only recipient of a 2020 LTIP award) could benefit from
windfall gains over the period. The Committee looked at a number of
factors, including the share price of the award at grant and the strong
performance of Centrica compared with that of our direct peers and
the wider market over the three-year performance period. Following
this review, the Committee concluded that as a result of the following
actions already taken, the risk of a windfall gain has been sufficiently
mitigated:
• The Committee reduced the award level to 250% of salary at grant
compared to the maximum of 300% of salary to reflect historic
share price performance (a reduction of 17%).
• The later grant date in 2021 resulted in a share price on grant of
55 pence, compared to if the award had been granted at the normal
time (which would have been shortly after the onset of COVID-19)
at a price of circa 37 pence (a further reduction of 33%).
Therefore, given the reduction of award on grant and the delay in
vesting, the Committee concluded that no further adjustment for
windfall gains was necessary to the vesting outturn of 76%
of maximum.
Further details are set out on pages 90 to 91.
CEO salary review
We considered carefully the pay arrangements for the wider workforce
when we debated the salary adjustment for the CEO. Typically, our pay
arrangements take effect from 1 April. This year we accelerated the
timing so that the pay rises became effective 1 January for the wider
workforce. These arrangements were negotiated and communicated
with support from our trade unions for which we are appreciative. For
the majority of colleagues, the pay deal in total was worth more than
10% of salary. This included base salary increases of at least 5% and a
package of additional financial support, including lump sum payments,
to recognise the continuing challenge from the rising cost of living.
A salary increase of 2.6% will be awarded to the CEO effective 1April
2023 taking his salary from £794,375 to £815,000. This increase is
below the average base pay increase provided to the wider workforce
of 5%. Further details are provided on page 89.
Director changes
We announced in January that Russell O’Brien will be appointed
Group CFO on 1 March 2023. The Committee considered carefully
the salary that should be offered to Russell O’Brien in his new role. In
particular, we took account of his considerable relevant experience
and previous finance and treasurer roles at Shell. We also were aware
of the competitive landscape for other similar senior and complex roles
as well as salaries within the ranges paid by the companies which the
Committee believe are appropriate comparators for the Group. As a
result, the new CFO’s salary will be £540,000. Other elements of his
package will be fully in line with the approved Remuneration Policy.
Kate Ringrose will step down as CFO and an Executive Director on
28 February 2023 and is expected to leave Centrica towards the end
of 2023 after an orderly transition. The Committee agreed that Kate
will be treated as a good leaver for the purposes of her outstanding
long-term incentive awards, which will be pro-rated to her termination
date.
We have deliberated over these individual decisions, and in particular
the pay outcomes for our CEO in respect of the year ending
December 2022 and firmly believe that the Remuneration Committee
must be willing to pay the CEO against his contract for delivering
exceptional personal leadership of the business in very challenging
times. We believe that the decisions taken by Chris and his team have
substantially and positively impacted the business and its ability to
serve customers and contributed to greater energy stability in
the market.
The Committee is dedicated to an open and transparent dialogue
with our shareholders and therefore I welcome views on any part
of our remuneration arrangements.
Carol Arrowsmith
on behalf of the Remuneration Committee
15 February 2023
86 Governance | Centrica plc Annual Report and Accounts 2022
At a Glance
Annual Incentive Plan (AIP)
Long Term Incentive Plan (LTIP)
Chris O’Shea CEO Kate Ringrose CFO
Relative TSR
UAOCF
EP
KPIs
33.33% 62.4%
22.22% 100%
22.22% 100%
22.22% 50%
Achieved
Weighting
Not achieved
Outturn
EPS
Balanced Scorecard
Personal
37.50%
37.50%
25%
Achieved
Weighting
Not achieved
Read more on pages 90 to 91
Read more on pages 89 to 90
Customers
Colleagues
Shareholders
£50m
Support to help customers during
the energy crisis
10%
Of British Gas and Bord Gáis profits
to be donated until current crisis is over
£25m
Invested in customer service
2
Significant cost of living payments
made
18ppt
Increase in colleague engagement
3700
New colleagues joined us
£250m
Share repurchase programme
launched
3p
Full year dividend per share
How we’ve supported our stakeholders in 2022
Overall
outturn 89.5%
Overall
outturn 83%
Weighting
Relative TSR
Outturn
33.33%
62.4% 100% 100% 50%
22.22% 22.22% 22.22%
UAOCF EP KPIs
87Governance | Centrica plc Annual Report and Accounts 2022
Directors’ Annual Remuneration Report
Single figure for total remuneration (audited)
Executives
£000
Salary/
fees
Bonus
(cash)
Bonus
(deferred)
(1)
Benefits
(2)
LTIPs
(3)
Pension
(4)(5)
Total
Total fixed
remuneration
Total variable
remuneration
2022
Chris O’Shea
790 711 711 16 2,262 — 4,490 806 3,684
Kate Ringrose
459 288 288 16 — 33 1,084 508 576
Total 1,249 999 999 32 2,262 33 5,574 1,314 4,260
2021
Chris O’Shea
775 — — 18 — 82 875 875 —
Kate Ringrose
(6)
432 243 243 15 — 44 977 491 486
Total 1,207 243 243 33 — 126 1,852 1,366 486
(1) In accordance with the Remuneration Policy, 50% of the bonus is deferred into shares which are held for three years.
(2) Taxable benefits include car allowance, health and medical benefits. Non-taxable benefits include matching shares received under the Share Incentive Plan (SIP).
Bothtaxable and non-taxable benefits are included in the table.
(3) The estimated value of the LTIP award that was granted in respect of the 2020-22 performance period is included in the table above, based on a share price of 83.65
pence (the 3 month average share price for the period ending 31 December 2022). The award will vest in May 2024 and the shares will then be subject to an additional
two-year holding period. Further details of the performance outcomes are set out on page 90. £766K of the estimated value of the LTIP is attributed to share price growth.
Dividend equivalents of £22K have been included.
(4) Notional contributions to the Centrica Unapproved Pension Scheme defined contribution section (CUPS DC) for Chris O’Shea and Kate Ringrose have been included
in this table as if CUPS DC was a cash balance scheme. This includes a deduction in respect of an allowance for CPI inflation on the opening balances of 4.1% in 2022
(0.7% in 2021).
(5) For Chris O’Shea, the high CPI inflation (4.1%) that was applied to the CUPS DC fund value at the start of the year has offset the poor investment returns achieved over
the year. Therefore, when comparing the start of year fund value to the year-end value the result is negative which is reflected as zero in the table above.
(6) Kate Ringrose was appointed to the Board on 18 January 2021
Single figure for total remuneration (audited)
Non-Executives
Salary/fees Total
£000 2022 2021 2022 2021
Scott Wheway
410
410
410
410
Carol Arrowsmith
93 93 93 93
Nathan Bostock
(1)
47 47
CP Duggal
(2)
3 3
Stephen Hester
(3)
40 93 40 93
Pam Kaur
(4)
32 73 32 73
Heidi Mottram
93 93 93 93
Kevin O’Byrne
109 98 109 98
Amber Rudd
(5)
71 71
Total 898 860 898 860
(1) Nathan Bostock joined the Board on 9 May 2022
(2) CP Duggal joined the Board on 16 December 2022
(3) Stephen Hester stepped down from the Board on 7 June 2022
(4) Pam Kaur stepped down from the Board on 7 June 2022
(5) Amber Rudd joined the Board on 10 January 2022
Directors’ remuneration in 2022
This report sets out information on the remuneration of the Directors for the financial year ended 31 December 2022.
88 Governance | Centrica plc Annual Report and Accounts 2022
Base salary/fees
Pay across the wider workforce
Following a period of negotiation and consultation with our trade
unions, a pay deal was agreed in December 2022, to apply to UK
colleagues in 2023. For the majority of colleagues, the pay deal in total
was worth 10% of salary. This included base salary increases of at
least 5% and a package of additional financial support, to recognise
the continuing challenge from the rising cost of living. The additional
support comprised non-consolidated lump sum payments and the
backdating of pay increases. This means that our lower paid
colleagues will receive a total pay increase of 12-13%, and all our
customer-facing colleagues will receive a total pay increase of at least
10%, in 2023.
Pay for our Executive and Non-Executive Directors
The base salary for the Group Chief Executive (CEO) and the
Chairman of the Board were reviewed by the Committee in January
2023. Taking into consideration the increases across the wider
workforce, and salary benchmarking data for similar roles
commensurate in size and complexity with Centrica, the Committee
determined that the salary for the CEO would be increased by 2.6% to
£815,000 and the salary for the Chairman of the Board would be
increased by 2.6% to £420,500.
Non-Executive Director (NED) fee levels were reviewed in December
2022 and it was agreed the base fees would be increased by 4.8%
to£76,000. This increase was recommended in order to align the fees
with the market rate for the FTSE 100, to ensure Centrica is able to
attract and retain NEDs with sufficient skills, knowledge and
experience. The increase of 4.8% is below the average increase
across the wider UK workforce.
The previous base fee for NEDs had been in place since 2016
andalthough fees have been reviewed each year, no increase
hasbeen applied for the past seven years.
Bonus – Annual Incentive Plan (AIP)
In line with the Remuneration Policy, in 2022 75% of the award
wasbased on a mix of financial and business measures based
onCentrica’s priorities for 2022 and 25% was based on individual
personal objectives.
The Committee agreed that half of the financial/business performance
measures for 2022 would be based on an Earnings per Share (EPS)
target with a defined threshold, target and maximum, as follows:
Threshold Target Max Outcome
Adjusted EPS 3.6p 6.1p 8.6p 34.9p
The EPS outcome was 34.9 pence which was significantly above the
level for maximum achievement set by the Committee.
In addition, the Committee determined a balanced scorecard for the
remaining financial and business elements of the AIP. It was agreed
that there would be no formula to translate the scorecard to a bonus
outcome and no formal weighting of individual measures. Instead, the
Committee would discuss performance and consider the overall
outcome against the balanced scorecard.
The balanced scorecard of measures, targets and outcomes was
asfollows:
Measure Target Outcome
Group
Adjusted
Operating Profit
£642m £2,823m
Free Cash Flow £468m £2,487m
Net (Debt)/Cash £12m £1,199m
BG Energy
Complaints 8% 14.4%
BG S&S
Complaints 7% 12.6%
BG S&S
Reschedules 8.5% 6.2%
Bord Gáis
Cost to serve €88.9 per
customer
€108.9 per
customer
BG Energy
Cost to serve
(1)
£92 per
customer
£112 per
customer
CBS
Order Intake £428m £212m
EM&T
Opex: GM Ratio 51% 21%
Customer
numbers
10,186,000
unique
customers
10,258,000
unique
customers
Colleague
engagement
63% 73%
Progress towards
climate transition
plan
Make good
progress against
the interim
climate targets of
Centrica’s People
& Planet Plan,
including input
measures tracked
on the Climate
Transition Plan
dashboard
Achieved
Customers on
Ensek
2m 2m
(1) British Gas Energy cost to serve per customer excluding bad debt was £83,
against a target of £83
The Committee carefully considered the outcomes against the EPS
target and the balanced scorecard measures, determining an outcome
of 100% against the EPS target and 80% against the balanced
scorecard. Achievement against the overall financial and business
targets therefore was at 180% of target.
Each Executive had a set of stretching personal objectives which
included key non-financial performance indicators (KPIs) that were
important to thesuccess of the business in 2022. The KPIs were
cascaded to business and functional leaders to ensure a strong line of
sight to key priorities through the organisation.
Chris O’Shea’s objectives for 2022 included delivering against
significant operational improvements as well as agreeing the longer
term energy transition plan to deliver a compelling strategic narrative.
The Committee believes that these objectives were met in full with the
operational improvements in the Services business, the launch of a
new business division focused on net zero ventures and the re-
opening of the Rough storage facility. Chris successfully navigated
challenging regulatory and political issues, continuing to build capability
and promote a performance and delivery culture whilst delivering
shareholder value through new investment opportunities and portfolio
shaping. Based on an assessment of achievement against strategic
and personal objectives during the year the Committee determined
that an outcome of above target, at 88% of maximum, against the
personal objectives element of the annual bonus was appropriate. The
overall bonus outcome for the CEO was therefore a payment of
£1,421,931.
89Governance | Centrica plc Annual Report and Accounts 2022
Kate Ringrose’s objectives for 2022 included improving key capability and cultural structures in the finance and Digital Technology Services
functions to ensure delivery of the longer-term plan and enabling the Group to deliver the strategy presented to the market. She supported the
company to navigate the complex challenges and risks of the volatile commodity price environment. Kate made key changes to strengthen her
leadership teams to ensure reporting and monitoring was more robust. Based on an assessment of achievement against strategic and personal
objectives during the year, the Committee determined that an outcome of above target, at 62.5% of maximum under the personal objectives
element of the annual bonus was appropriate. The overall bonus outcome for the CFO was therefore a payment of £575,121.
Long-term incentive awards relating to the performance period 2020-22
Performance conditions
The performance conditions relating to the three-year period ending in 2022 are set out below, together with the achievement against these
performance conditions. Vesting between stated points is on a straight-line basis.
Financial targets and outcomes
Targets
Measures Weightings Threshold (25%) Maximum (100%) Outcomes
Relative Total Shareholder Return (TSR)
0.333 FTSE 100
median
FTSE 100
upper quartile
62.4%
Underlying adjusted operated cash flow (UAOCF) growth
0.222 CAGR 2%
(1)
CAGR 5%
(1)
55.8%
Absolute aggregate Economic Profit (EP)
0.222 1,357m £1,797m £2,638m
Non-financial KPI improvement 0.222 See below See below 50%
(1) Compound annual growth rate.
Centrica’s TSR during the three-year performance period was 10.3%, compared with the required threshold level of -1.1%, therefore the TSR
portion of the LTIP will vest at 62.4%.
Financial performance across the three-year performance period was strong, resulting in an above maximum outcome against the UAOCF target
(an outcome of 55.8%) and the absolute aggregate EP target (an outcome of £2,638m).
Non-financial KPI targets and outcomes
KPI improvement relates to closure of the gap between performance at the start of the period (baseline performance) and our long-term
aspirational goals which are generally aligned with upper quartile market performance.
Threshold
vesting
Maximum
vesting
KPI
Long-term goalBaseline performance
We expect the KPI performance gap to close by25% for threshold vesting and 50% for maximum vesting. The KPI measures, targets and
outcomes for the 2020-22 cycle were:
Targets
Baseline
performance Threshold Maximum Long-term goal Outcomes
Safety
Total recordable injury frequency rate (TRIFR)
(1)
1.06 0.86 0.45 0.25 1.12
Tier 1 and Tier 2 process safety event frequency rate
(1)
0.08 0.073 0.065 0.05 0.00
Customer satisfaction
Aggregate brand NPS across our customer businesses weighted by
customer numbers
12.95 13.61 14.26 16 14
Complaints per 100,000 customers across our customer businesses
weighted by customer accounts
3,879 3,449 3,019 2,159 6,552
Colleague engagement (percentage favourable) 43 51.5 60 77 73
(1) Per 200,000 hours worked.
Performance against the non-financial KPIs across the performance period was mixed, with colleague engagement and process safety
outcomes reaching the maximum level, NPS being 60% between threshold and max, and LTIFR and complaints outcomes not reaching
threshold. The Committee determined that the level of vesting for this portion of the award would be 50%, to reflect what it considered to be the
genuine performance of the Company over the performance period.
Overall performance outcome
The LTIP award was granted in May 2021 and therefore it will vest in May 2024, after which the shares are then subject to a mandatory holding
period of two years. Taking into account the achievement against the financial performance targets, and the agreed outcome against the
non-financial targets, the Committee approved the overall vesting outcome of 76%. The estimated value of the shares that will vest in respect of
the three-year performance period, which ended in December 2022, has been included in the single figure for total remuneration on page 88.
The shares will be released at the end of the holding period, in May 2026.
The Committee looked at a number of factors, including the share price of the award at grant and the strong performance of Centrica compared
with that of our direct peers and the wider market over the period. Following this review, the Committee concluded that as a result of the
following actions already taken, the risk of a windfall gain has been sufficiently mitigated:
90 Governance | Centrica plc Annual Report and Accounts 2022
• At grant, the award level had been reduced to 250% of salary compared to the maximum of 300% of salary to reflect historic share price
performance (a reduction of 17%).
• The delay of the grant as noted above resulted in a share price on grant of 55 pence, compared to if the award had been granted at the
normal time (which would have been shortly after the onset of COVID-19) at a price of circa 37 pence (a further reduction of 33%).
Assuming the Committee took no action at the time of grant (assumed to be 1 April 2020, in line with the historic grant date), the CEO would
have been granted 6,265,157 shares at a share price of 37 pence. However the percentage of salary reduction in combination with the delay of
grant (meaning the share price increased from 37 pence to 55 pence) resulted in a 44% reduction in the number of shares granted to the CEO
(to 3,522,471).
Pension
In 2020, it was agreed that the pension contributions for the new and existing Executive Directors would be 10% of base salary to align them
with the wider UK workforce. In 2022 the pension contribution rate across the UK workforce was 10-14%.
Chris O’Shea and Kate Ringrose participated in the Centrica Unapproved Pension Scheme Defined Contribution section (CUPS DC).
Notional contributions to the CUPS DC scheme have been included in the single figure for total remuneration table as if it was a cash balance
scheme and therefore notional investment returns for the year have also been included. The notional pension fund balances for each Executive
are disclosed below:
CUPS DC Scheme
(1)
Total notional
pension fund as at
31 December 2022
£
Total notional
pension fund as at
31 December 2021
£
Chris O’Shea
(1)
319,407 312,710
Kate Ringrose
(1)(2)
78,761 43,670
(1) The retirement age for the CUPS DC scheme is 62.
(2) Kate Ringrose was appointed to the Board on 18 January 2021
Directors’ interests in shares (number of shares) (audited)
The table below shows the interests in the ordinary shares of the Company for all Directors who served on the Board during 2022.
For the Group Chief Executive the minimum shareholding requirement is 300% of base salary and for the Group Chief Financial Officer
the minimum shareholding requirement is 200% of base salary. The achievement against the requirement is shown below.
Executive Directors have a period of five years from appointment to the Board, or from any material change in the minimum shareholding
requirement, to build up the required shareholding. Given the remuneration decisions that have been taken over the past three years,
the Committee recognises that achieving the level of shareholding is challenging.
The Committee continues to keep both the shareholding requirement, and achievement against the shareholding requirement, under review
and will take appropriate action should they feel it necessary.
A post-cessation shareholding requirement of 100% of the in-employment shareholding requirement (or full actual holding if lower) is applicable
for two years post-cessation.
Beneficially owned
(1)
Shares subject
to performance
conditions
Shares vested but
unexercised
Shares subject to
continued service
only
(2)
Shares
exercised
in the year
Shareholding
requirement
(% of salary)
Current
shareholding
(% of salary)
(3)
Executives
Chris O’Shea
(4)(5)
598,827 7,954,419 — 1,497,593 68,689 300 69
Kate Ringrose
(5)
550,579 1,501,143 — 725,290 379,134 200 110
Non-Executives
Carol Arrowsmith
49,286 — — — — — —
Nathan Bostock
27,000 — — — — — —
CP Duggal
— — — — — — —
Stephen Hester
20,700 — — — — — —
Pam Kaur
— — — — — — —
Heidi Mottram
10,000 — — — — — —
Kevin O’Byrne
40,000 — — — — — —
Amber Rudd
(6)
23,204 — — — — — —
Scott Wheway 110,187 — — — — — —
(1) These shares are owned by the Director or a connected person and they are not, save for exceptional circumstances, subject to continued service or the achievement
of performance conditions. They include for Executives shares purchased in April 2022 with deferred AIP funds which have mandatory holding periods of three years
and which will be subject to tax at the end of the holding periods.
(2) Shares owned subject to continued service include RSP shares awarded in 2022 and SIP free and matching shares that have not yet been held for the three-year
holdingperiod.
(3) The share price used to calculate the achievement against the guideline was 91.94 pence, the price on 31 December 2022.
(4) Chris O’Shea purchased 44,475 shares during the year. Due to LTIP awards granted in 2018 and 2019 not vesting, and the fact that Chris O’Shea has not received
an Annual Incentive Plan payment with a corresponding deferred bonus award for the last three years, his shareholding is below the projected level. However, he will
receive shares from the 2022 deferred bonus plan in March 2023, which will increase his achievement against the guideline to 159% of salary.
(5) During the period from 1 January 2023 to 15 February 2023 both Chris O’Shea and Kate Ringrose acquired 361 shares through the SIP.
(6) During the period from 1 January 2023 to 15 February 2023 Amber Rudd acquired 2,058 shares through the NED Share Purchase Agreement.
91Governance | Centrica plc Annual Report and Accounts 2022
Share awards granted in 2022 (audited)
Set out below are details of share awards granted in 2022 to Executive Directors.
2022 RSP
Plan Award Type
Number
of shares
(1)
Basis of
award
% of salary
Face value
of award
£
Vesting
date
Release
date
Chris O’Shea
RSP Conditional 1,496,336 150% 1,191,563 June 2025 June 2027
Kate Ringrose RSP Conditional 724,033 125% 576,563 June 2025 June 2027
(1) The number of shares awarded under the RSP was calculated by reference to a price of 79.6 pence, being the average of the Company’s share price over the five trading
days immediately preceding the date of grant of 23 June 2022.
The RSP award is measured against an underpin. If the Committee is not satisfied the underpin has been met, the Committee may scale back
the awards (including to zero). In assessing the underpin, the Committee will consider the Company’s overall performance, including financial and
non-financial performance measures over the course of the vesting period, as well as any identified material risk or regulatory failures. Financial
performance will include elements such as revenue, profitability, shareholder experience and return on capital. Non-financial performance will
include a range of operational and strategic measures critical to the Company’s long-term sustainable success.
For the 2022 award, the factors that the Committee will consider include, but are not limited to the following:
• a review of overall financial performance over the three-year vesting period;
• whether there have been any sanctions or fines issued by a Regulatory Body (participant responsibility may be allocated collectively or
individually);
• whether a major safety incident has occurred which may or may not have consequences for shareholders;
• whether there has been material damage to the reputation of the Company (participant responsibility may be allocated collectively or
individually);
• whether there has been failure to make appropriate progress against our Climate Transition Plan which sets out our ambition to be a net
zero business by 2045 and help our customers be net zero by 2050;
• return on capital with reference to the cost of capital;
• TSR performance over the vesting period, including with reference to the wider energy sector;
• management of customer numbers over the vesting period; and
• progress against broader ESG commitments.
2022 Deferred AIP
The 2022 AIP award was delivered 50% in cash and 50% in deferred shares, which were awarded on 1 April 2022. The face value of the award
is based on the share price on the date of award, which was 79.65 pence. Deferred shares are not subject to further performance conditions
and vest following a three-year holding period.
Plan Award Type
Number
of shares
Face value
of award
£000
Vesting
date
Kate Ringrose AIP Deferred shares 304,549 242,579 April 2025
92 Governance | Centrica plc Annual Report and Accounts 2022
2022 cash flow distribution to stakeholders
The Committee monitors the relationship between the Directors’ total remuneration and cash outflows to other stakeholders. Asdemonstrated
bythe chart, the Directors’ aggregate total remuneration for the year equates to 0.04% (2021: 0.05%) oftheGroup’soperating cash flow.
To staff 33%
To Directors 0.05%
To government 17%
To shareholders 0%
Investing activities 50%
2021
To staff 27%
To Directors 0.04%
To government 23%
To shareholders 2%
Investing activities 48%
2022
Annual percentage change in remuneration of Directors and colleagues
The table below shows the percentage changes (on a full-time equivalent basis) in the Executive and Non-Executive Directors’ remuneration
over the last three financial years compared to the amounts for full-time colleagues of the Group for each of the following elements of pay:
Percentage change from 2019 to 2020 Percentage change from 2020 to 2021 Percentage change from 2021 to 2022
Executive Directors Salary/fees Benefits Bonus Salary/fees Benefits Bonus Salary/fees Benefits Bonus
Chris O’Shea
(1)(2)(3)
6.3 — — — -28 — 2.5 -11.11 100
Kate Ringrose
(3)
— — — — — — 2.5 6.67 18.72
Non-Executive Directors
Scott Wheway
268.8 — — — — — — — —
Carol Arrowsmith
— — — — — — — — —
Nathan Bostock
(4)
— — — — — — — — —
CP Duggal
(5)
— — — — — — — — —
Heidi Mottram
— — — 27.8 — — — — —
Kevin O’Byrne
(6)
— — — — — — 20.51 — —
Amber Rudd
(7)
— — — — — — — — —
Average per colleague
(excluding Directors)
(3)
— 1.1 236.4 1.77 -10.27 16.25 1.89 — 17.82
(1) Chris O’Shea was appointed to the Centrica Board as Group Chief Financial Officer on 1 November 2018 and became interim Group Chief Executive with effect from
17 March 2020. He was appointed as Group Chief Executive on 14 April 2020. From 17 March until 31 December 2020, he elected to waive £100,000 of his salary.
(2) Chris O’Shea has not been paid a bonus since this disclosure has been included and therefore the payment of a bonus shows the percentage change of 100%.
(3) The comparator group includes all management and technical or specialist colleagues based in the UK in Level 2 to Level 6 (where Level 1 is the Executive and Non-
Executive Directors). There are insufficient colleagues in the Centrica plc employing entity to provide a meaningful comparison. The colleagues selected have been
employed in their role for full years to give meaningful comparison. The group has been chosen because the colleagues have a remuneration package with a similar
structure to the Executive Directors, including base salary, benefits and annual bonus. The bonus number relating to 2022 colleagues is an estimate of the payments
due to be made in March/April 2023.
(4) Nathan Bostock was appointed to the Board on 9 May 2022.
(5) CP Duggal was appointed to the Board on 16 December 2022.
(6) Kevin O’Byrne took on the role of Senior Independent Director from 1 June 2022.
(7) Amber Rudd was appointed to the Board on 10 January 2022.
93Governance | Centrica plc Annual Report and Accounts 2022
The chart below shows the ratio of remuneration of the CEO to the
average UK colleague of the Group.
CEO pay ratio
25th
percentile
50th
percentile
75th
percentile
2022 Option B 128:1 77:1 70:1
2021 Option B 29:1 24:1 15:1
2020
Option B 32:1 15:1 14:1
2019
Option B 34:1 29:1 22:1
2018 Option B 72:1 59:1 44:1
For 2020 the CEO total remuneration figure includes the single figure chart combined
earnings of both Iain Conn and Chris O’Shea for the period that they were in the
CEO role during2020.
2022 Salary Total pay and benefits
CEO remuneration
790,000 4,490,000
Colleague 25th percentile
25,709 35,073
Colleague 50th percentile
39,984 57,939
Colleague 75th percentile 41,124 63,705
The Company has used its gender pay gap data (Option B in the
Directors’ Reporting Regulations) to determine the colleagues whose
remuneration packages sit at the lower, median and upper quartile
positions across the UK workforce. This is deemed the most
appropriate methodology for Centrica given the different pension
and benefit arrangements across the diverse UK workforce.
To ensure this data accurately reflects individuals at each quartile
position, a sensitivity analysis has been performed. The approach
has been to review the total pay and benefits for a number of
colleagues immediately above and below the identified colleague
ateach quartile within the gender pay gap analysis.
The annual remuneration for the three identified colleagues has been
calculated on the same basis as the CEO’s total remuneration for the
same period in the single figure table on page 88 to produce the ratios.
The ratio of CEO pay compared with the pay for the average colleague
has increased in 2022 due to the disclosure of an annual bonus and
an LTIP award for the CEO. The CEO has not received any payment
from a long-term award since joining Centrica, nor an annual bonus
since 2018.In 2022, a large proportion of CEO remuneration was
delivered through the LTIP which was measured over a three-year
performance period, from 2020-2022. The LTIP will be released in
shares in 2026. In future, long-term incentives will be delivered to the
CEO through the Restricted Share Plan which has a lower overall
quantum, at 50% of the previous LTIP. The Company believes the
ratios are appropriate given financial and business performance
outcomes in 2022, and the size and complexity of the business.
The performance graph below shows Centrica’s TSR performance
against the performance of the FTSE 100 Index over the 10-year
period to 31 December 2022. The FTSE 100 Index has been chosen
as it is an index of similar-sized companies and Centrica has been
aconstituent member throughout the majority of the period.
201820172016201520142012 2013 2019 2020
2022
2021
0
50
100
150
200
Source: Datastream from Refinitiv
Centrica Total return index
FTSE 100 Total return index
Pay for performance
The table below shows the CEO’s total remuneration over the last 10
years and the achieved annual short-term and long-term incentive pay
awards as a percentage of the plan maximum.
Chief Executive
single figure for total
remuneration £000
Annual short-term
incentive payout
against max
opportunity
%
Long-term incentive
vesting against max
opportunity
%
Chris O’Shea
2022 4,490 89.5 76
2021 875 0 0
2020
765 0 0
Iain Conn
2020
239 0 0
2019
1,186 0 0
2018
2,335 41 18
2017
1,678 0 26
2016
4,040 82 0
2015
3,025 63 0
Sam Laidlaw
2014
3,272 34 35
2013 2,235 50 0
For 2020 the single figure for total remuneration for both Iain Conn and Chris O’Shea
are shown. The total remuneration figure for Chris O’Shea includes his earnings
during 2020 asCFO and CEO.
Total return indices – Centrica and FTSE 100
Fees received for external appointments
ofExecutive Directors
There were no fees received for external appointments. Kate Ringrose
represented Centrica as a non-executive director of EDF Energy
Nuclear Generation Group Limited and Lake Acquisitions Limited.
Shereceived no fees or remuneration relating to these external
appointments in 2022.
94 Governance | Centrica plc Annual Report and Accounts 2022
Relative importance of spend on pay
The table below shows the percentage change in total remuneration
paid to all colleagues compared to expenditure on dividends and share
buyback for the years ended 31 December 2021 and 2022.
2022
£m
2021
£m
%
Change
Share repurchase
(1)
43 0 N/A
Dividends
59 0 N/A
Staff and employee costs
(2)
1,440 1,247 15
(1) 47,201,133 shares were purchased during 2022 as part of the share buyback
arrangement
(2) Staff and employee costs are as per note 5 in the notes to the Financial
Statements.
Payments to past Directors (audited)
During 2022, no payments were made to past Directors with the
exception of the payments disclosed in the single figure for total
remuneration table on page 88.
Payments for loss of office (audited)
No payments for loss of office were made in 2022.
Advice to the Remuneration Committee
Following a competitive tender process, PwC was appointed as
independent external advisor to the Committee in May 2017.
PwC also provided advice to Centrica globally during 2022 in the areas
of employment taxes, regulatory risk and compliance issues and
additional consultancy services.
PwC’s fees for advice to the Committee during 2022 amounted
to £132,900 which included the preparation for and attendance
atCommittee meetings. The fees were charged on a time spent
basis in delivering advice that materially assisted the Committee in
its consideration of matters relating to executive remuneration.
The Committee takes into account the Remuneration Consultants
Group’s (RCG) Code of Conduct when dealing with its advisors. PwC
is a member of the RCG and the Committee is satisfied thatthe advice
it received during the year was objective and independent and that the
provision of any other services by PwC in no way compromises
their independence.
Statement of voting
Shareholder voting on the resolutions to approve the Directors’
Remuneration Policy, and the Directors’ Remuneration Report,
put to the 2022 AGM, was as follows:
Directors’ Remuneration Policy
Votes for % Votes against %
3,132,342,144 83.48 619,903,528 16.52
1,275,033 votes were withheld.
Directors’ Remuneration Report
Votes for % Votes against %
3,628,823,825 96.71 123,420,614 3.29
1,247,419 votes were withheld.
Implementation in the next financial year
Base salaries for Executive Directors were reviewed in January 2023
and the Committee determined that increases would be applied to
the salary of the CEO and the Chairman of the Board. Salaries for the
Non-Executive Directors were approved by the Board in December
2022 and the base fee was increased with effect from 1 January 2023.
See further detail on page 89.
AIP awards will be in line with the limits set out in the Remuneration
Policy table, not exceeding 200% of base salary. At least 75% of the
award will be based on a mix of financial and business measures
based on Centrica’s priorities for the forthcoming year and up to 25%
will be based on strategic and personal objectives. The financial
targets will align with the Group Annual Plan.
The Committee carefully considered the impact of this year’s
exceptional movement in commodity prices on performance
compared to the targets set at the start of the year. Even after
excluding the positive impact of commodity prices on our infrastructure
businesses this year, the underlying financial performance was still
above the maximum level for the AIP. We intend to continue to exclude
the impact of commodity prices on our infrastructure in future years.
The targets are considered commercially sensitive until the end of the
financial year and will therefore be disclosed retrospectively in the
Remuneration Report for 2023.
Restricted Share Plan (RSP) awards will be granted to the Executives.
In line with the previous year the awards will be 150% of salary for the
CEO and 125% of salary for the Group Chief Financial Officer.
The RSP awards will vest after three years, subject to a performance
underpin, with an additional two-year post-vesting holding period.
In line with the Remuneration Policy, vesting will be contingent
on the satisfaction of a discretionary underpin, assessed over
a three-year period.
In assessing the underpin, the Committee will consider the Company’s
overall performance, including financial and non-financial performance
measures over the course of the vesting period, as well as any material
risk or regulatory failures identified. Financial performance will include
elements such as revenue, profitability, shareholder experience and
return on capital. Non-financial performance will include a range of
operational and strategic measures critical to the Company’s long-term
sustainable success.
For the 2023 award, the factors that the Committee will consider
include, but are not limited to the following:
• a review of overall financial performance over the three-year
vesting period;
• whether there have been any sanctions or fines issued by a
Regulatory Body (participant responsibility may be allocated
collectively or individually);
• whether a major safety incident has occurred which may or may
not have consequences for shareholders;
• whether there has been material damage to the reputation of the
Company (participant responsibility may be allocated collectively
or individually);
• whether there has been failure to make appropriate progress
against our Climate Transition Plan which sets out our ambition
to be a net zero business by 2045 and help our customers
be net zero by 2050;
• return on capital with reference to the cost of capital;
• TSR performance over the vesting period, including with
reference to the wider energy sector;
• management of customer numbers over the vesting period; and
• progress against broader ESG commitments including customer
service, colleague engagement and our transition to net zero.
The Remuneration Report has been approved by the Board
ofDirectors and signed on its behalf by:
Raj Roy
Group General Counsel & Company Secretary
15 February 2023
95Governance | Centrica plc Annual Report and Accounts 2022
Directors’ Remuneration Policy
The Remuneration Policy was approved by shareholders at the AGM
on 7 June 2022.
This section contains a summary of Centrica’s Directors’ Remuneration
Policy (Policy) that will govern and guide the Group’s future
remuneration payments. The full version can be found on our website
at centrica.com.
The Policy operated as intended in 2022.
Summary of Policy design
Objectives of the Policy
The Policy aims to deliver remuneration arrangements that:
• attract and retain high-calibre Executives in a challenging and
competitive global business environment;
• place strong emphasis on both short-term and long-term
performance;
• are strongly aligned to the achievement of strategic objectives
and the delivery of sustainable long-term shareholder value
through returns and growth; and
• seek to avoid creating excessive risks in the achievement of
performance targets.
How the Policy links to our Strategy
At Centrica we are strongly led by our Purpose – “to help customers
live sustainably, simply and affordably”. Our Strategy is driven by our
Purpose and our enduring Values at Centrica underpin our delivery
and culture. Whilst we have evolved our Strategy to help meet the
challenges of today and prepare us for a net zero future, our Values
remain firmly embedded in who we are and give direction to everything
we do.
Further information on our Purpose and Values is set out on page 7.
We need to engage our leadership team to fulfil our Purpose and to
ensure Centrica is focused on delivery and positioned for growth.
The AIP focuses the Executives on the delivery of our near-term
objectives, with at least 75% of the award based on a mix of financial
and business measures based on Centrica’s priorities for the
forthcoming year and up to 25% based on individual strategic and
personal objectives for the year. All targets align with the Group
Annual Plan.
An RSP is the most appropriate long-term incentive vehicle for our
Executives as it reduces the upper limit of payment and is aligned
with our goal to simplify all aspects of our business. Potential payouts
from restricted shares are far less variable than conventional
long-term incentives.
The RSP has a three-year vesting period and the Committee will
consider the Company’s overall financial and non-financial
performance during this period. Consideration will be given to
elements such as revenue, profitability, shareholder experience and
Centrica’s progress towards a net zero future.
As we continue to restore shareholder value, the RSP will ensure a
large proportion of our Executives’ pay is based on direct and
uninhibited share price movement.
We operate an RSP for leaders below the most senior management
and this approach therefore creates alignment between our Executives
and our senior colleagues.
Summary of Policy design
Pension
Benefits
Base
pay
Malus and clawback
Annual Incentive Plan (AIP)
50% of award deferred into
shares for three years
Mix of financial, business and strategic measures
Three-year performance period followed
by two-year holding period
Underpin aligned to strategic priorities
Restricted Share Plan (RSP)Fixed remuneration
96 Governance | Centrica plc Annual Report and Accounts 2022
Policy table for Executives
The following table summarises each element of the Policy for the Executives.
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Base pay/salary
Reflects the scope and
responsibility of the role
and the skills and
experience of the
individual.
Salaries are set at a level
sufficient for the Group to
compete for international
talent and to attract and
retain Executives of the
calibre required to
develop and deliver our
Strategy.
Base salaries are reviewed annually
taking into account individual and
business performance, market
conditions and pay in the Group
as a whole.
When determining base salary levels,
the Committee will consider factors
including:
• remuneration practices within
the Group;
• change in scope, role and
responsibilities;
• the performance of the Group;
• experience of the Executive;
• the economic environment; and
• when the Committee determines
a benchmarking exercise is
appropriate, salaries within the ranges
paid by the companies which the
Committee believe are appropriate
comparators for the Group.
Usually, base salary increases in
percentage terms will be within the
range of increases awarded to other
employees of the Group.
Increases may be made above this
level to take account of individual
circumstances such as a change in
responsibility, progression/development
in the role or a significant increase
in the scale or size of the role.
Not applicable.
Annual Incentive Plan (AIP)
Designed to incentivise and
reward the performance of
individuals in the delivery of
short-term financial and
non-financial metrics.
Performance measures
are linked to the delivery
of the Group’s long-term
financial goals and key
Group priorities.
In line with the Group’s annual
performance management process,
each Executive has an agreed set
of stretching individual objectives
for each financial year.
Following the end of the financial year,
to the extent that performance criteria
have been met, up to half ofthe AIP
award is paid in cash.
To further align the interests of
Executives with the long-term interests
of shareholders, the remainder is paid
in deferred shares which are held for
three years. No further performance
conditions will apply to the deferred
element of the AIPaward.
Dividend equivalents may be paid
as additional shares or cash.
Malus and clawback apply to the cash
and share awards.
Maximum of 200% of base salary
earned during the financial year.
For threshold performance, up to 25%
of the maximum opportunity will pay
out. For on-target performance, 50% of
the maximum opportunity will pay out.
At least 75% based on a mix
of financial performance and
business measures aligned
to Centrica’s priorities for the
forthcoming financial year and
up to 25% based on individual
objectives aligned to the
Group’s priorities and strategy.
Performance is assessed over
one financial year.
97Governance | Centrica plc Annual Report and Accounts 2022
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Restricted share plan (RSP)
Designed to reward and
incentivise the delivery of
long-term performance
and shareholder value
creation.
RSP awards granted to Executives will
normally vest after three years subject
to the achievement of an underpin, and
are subject to a two-year post-vesting
holding period during which the
Executives may not normally dispose
of their vested shares except as is
necessary to pay tax and social security
contributions arising in respect of their
RSP awards.
Dividend equivalents are accrued
during the vesting period and calculated
on vesting on any RSP share awards.
Dividend equivalents are paid as
additional shares or as cash.
Malus and clawback apply to the
awards.
The maximum opportunity for RSP
awards will be 150% of salary earned
during the financial year for Executives.
The RSP will be subject to
an underpin framework.
In assessing the underpin,
the Committee will consider
the Company’s overall
performance, including
financial and non-financial
performance measures over
the course of the vesting
period as well as any material
risk or regulatory failures
identified.
Financial performance can
include elements such
as revenue, profitability,
shareholder experience and
return on capital. Non-financial
performance can include a
range of operational and
strategic measures critical
to the Company’s long-term
sustainable success.
The Committee may scale
back the awards (including
to zero) if it is not satisfied
the underpin has been met.
Pensions
Positioned to provide
a market competitive
post-retirement benefit,
in a way that manages
the overall cost to the
Company.
Executives are entitled to participate in
a Company money purchase pension
arrangement or to take a fixed salary
supplement (calculated as a percentage
of base salary, which is excluded from
any AIP calculation) in lieu of pension
entitlement.
The Group’s policy is not to offer
defined benefit arrangements to new
employees at any level, unless this
is specifically required by applicable
legislation or an existing contractual
agreement.
The maximum benefit for Executives is
10% of base salary earned during the
financial year. This compares with the
average pension benefit across the
wider UK workforce, currently 10-14%
of salary.
Not applicable.
Benefits
Positioned to support
health and wellbeing and
to provide a competitive
package of benefits that
is aligned with market
practice.
The Group offers Executives a range of
benefits including (but not limited to):
• a company-provided car and fuel,
or a cash allowance in lieu;
• life assurance and personal accident
insurance;
• health and medical insurance for the
Executive and their dependants; and
• health screening and wellbeing services.
Cash allowance in lieu of company
car – currently £15,120 per annum.
The benefit in kind value of other
benefits will not exceed 5%
of base salary.
Not applicable.
All-employee share plans
Provides an opportunity
for employees to
voluntarily invest in the
Company.
Executives are entitled to participate in
all-employee share plans on the same
terms as all other eligible employees.
Maximum contribution limits are set
by legislation or by the rules of each
plan. Levels of participation apply
equally to all participants.
Not applicable.
98 Governance | Centrica plc Annual Report and Accounts 2022
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Shareholding requirements
To align the interests
of Executives with
shareholders over
a long-term period
including after departure
from the Group.
In-employment requirement
During employment, the CEO and CFO
are required to build and maintain a
minimum shareholding of 300% and
200% of their base salary respectively.
Executives must also hold 100% of
vested incentive shares (net of tax) until
the shareholding requirement is met.
Post-employment requirement
Executives are required to hold shares
after cessation of employment to the full
value of the shareholding requirement
(or the existing shareholding if lower at
the time) for a period of two years.
Shares purchased by Executives with
their own monies are excluded from the
post-employment requirement.
In-employment requirement
The current shareholding requirement is
maintained at 300% of base salary for
the CEO and 200% of base salary for
the CFO.
Post-employment requirement
Executive Directors will be expected to
retain the lower of the shares held at
cessation of employment and shares to
the value of 300% of base salary for the
CEO and 200% of base salary for the
CFO for a period of two years.
Only shares earned from vested
incentives will be included within the
post-employment shareholding
requirement.
Not applicable.
Notes to the Policy table
The Committee reserves the right to make any remuneration payments
and payments for loss of office, notwithstanding that they are not in
line with the Policy set out on pages 96 to 103, where the terms of
the payment were agreed before the Policy came into effect, at a time
when the relevant individual was not an Executive of the Company or,
in the opinion of the Committee, the payment was not in consideration
for the individual becoming an Executive of the Company. For these
purposes payments include the amounts paid in order to satisfy
awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are agreed at the time the award is
granted. This includes satisfying LTIP awards granted in accordance
with historic remuneration policies.
The Committee may make minor amendments to the Policy (for
regulatory, exchange control, tax or administrative purposes or to take
account of a change in legislation) without obtaining shareholder
approval for that amendment.
Malus and clawback
In line with UK corporate governance best practice, the Committee
can apply malus (that is reduce the number of shares in respect
of which an award vests) or delay the vesting of awards. In addition,
where an award has vested, the resulting shares will generally be
held for a period during which they may be subject to clawback.
The following provisions apply:
• AIP – cash awards: malus will apply up to the payment of the
cash AIP award and clawback will apply for a period of three
years after the cash AIP payment;
• AIP – deferred shares: clawback will apply during the vesting
period of three years following the payment of the cash AIP
award to which the deferred shares relate;
• historic LTIP awards: malus will apply during the vesting period
and up to the date of vesting and clawback will apply for a period
of two years post-vesting; and
• RSP awards: malus will apply during the vesting period and
up to the date of vesting and clawback will apply for a period
of two years post-vesting.
Legacy awards are governed by the malus and clawback provisions
within the respective policy and plan rules. For awards granted under
the Policy malus and clawback provisions may be applied in the
following circumstances:
• material financial misstatement;
• where an award was granted, or performance was assessed,
based on an error or inaccurate or misleading information;
• action or conduct of a participant amounts to fraud or gross
misconduct;
• events or the behaviour of a participant have led to censure
of the Company or Group by a regulatory authority or cause
significant detrimental reputational damage;
• material failure of risk management; or
• corporate failure.
Pension arrangements applying to Executives
All registered scheme benefits are subject to HMRC guidelines
and the Lifetime Allowance.
The Centrica Unapproved Pension Scheme (CUPS) defined
contribution (DC) section provides benefits for individuals not eligible
to join the CUPS defined benefit (DB) section and for whom registered
scheme benefits are expected to exceed the Lifetime Allowance.
The CUPS DC section is offered as a direct alternative to a cash
salary supplement.
CUPS is unfunded but the benefits are secured by a charge over
certain Centrica assets. An appropriate provision in respect of the
accrued value of these benefits has been made in the Company’s
balance sheet.
The Centrica Pension Plan (CPP) is a registered defined benefit plan
which is closed to new members.
99Governance | Centrica plc Annual Report and Accounts 2022
Discretion and judgement
It is important that the Committee maintains the flexibility to apply
discretion and judgement to achieve fair outcomes as no remuneration
policy and framework, however carefully designed and implemented,
can pre-empt every possible scenario. The Committee needs to be
able to exercise appropriate discretion to determine whether
mechanistic or formulaic outcomes are fair, in context and can be
applied in an upward or downward manner when required.
Judgement is applied appropriately by the Committee, for example
when considering the political and social pressures on the business,
the impact of significant movements in external factors such as
commodity prices, in setting and evaluating delivery against individual
and non-financial performance targets to ensure they are considered
sufficiently stretching and that the maximum and minimum levels are
appropriate and fair.
The Committee has absolute discretion to decide who receives
awards, the level of the awards under the incentive plans and the
timing, within the parameters set in the rules and the limits in the
Policy table.
Recruitment Policy
The Committee will apply the same Policy during the policy period
as that which applies to existing Executives when considering
the recruitment of a new Executive in respect of all elements
of remuneration as set out in the Policy table.
Whilst the maximum level of remuneration which may be granted
would be within plan rules and ordinarily subject to the maximum
opportunity set out in the Policy table, in certain circumstances,
an arrangement may be established specifically to facilitate recruitment
of a particular individual up to 25% above the maximum opportunity,
albeit that any such arrangement would be made within the context
of minimising the cost to the Company.
The policy for the recruitment of Executives during the policy period
includes the opportunity to provide a level of compensation for
forfeiture of annual bonus entitlements and/or unvested long-term
incentive awards (at a value no greater than what is forfeit) from an
existing employer, if any, and the additional provision of benefits in
kind, pensions and other allowances, as may be required in order to
achieve a successful recruitment. The Company has a clear
preference to use shares wherever possible and will apply timescales
at least as long as previous awards.
Details of the relocation and expatriate assistance that may be available as part of the recruitment process can be found in the table below.
Relocation and expatriate assistance
Purpose and link to strategy Enables the Group to recruit or promote the appropriate individual into a
role, to retain key skills and to provide career opportunities.
Operation and clawback Assistance may include (but is not limited to) removal and other relocation
costs, housing or temporary accommodation, education, home leave,
repatriation and tax equalisation.
Maximum opportunity Maximum of 100% of base salary.
Performance measures Not applicable.
Changes No changes.
Service contracts
Service contracts provide that either the Executive or the Company may terminate the employment by giving one year’s written notice. The
Committee retains a level of flexibility, as permitted by the UK Corporate Governance Code 2018, in order to attract and retain suitable
candidates. It reserves the right to offer contracts which contain an initial notice period in excess of one year, provided that at the end of the first
such period the notice period reduces to one year. All Executive and Non-Executive Directors are required to be re-elected at each AGM.
Executive Director Date of appointment to role Date of current contract Notice from the Company Notice from the individual
Chris O’Shea 1 November 2018 10 December 2020 12 months 12 months
Kate Ringrose 18 January 2021 17 January 2021 12 months 12 months
100 Governance | Centrica plc Annual Report and Accounts 2022
Termination policy
The Committee carefully considers compensation commitments in the event of an Executive’s termination. The aim is to avoid rewarding poor
performance and to reduce compensation to reflect the departing Executive’s obligations and to mitigate losses.
Remuneration element Scenario Payment
Base salary, pension
andother benefits
Dismissal with cause No further payments made except those that an individual may be contractually entitled
to.
All other scenarios Either continue to provide base salary, pension and other benefits for any unworked
period of notice or, at the option of the Company, to make a payment in lieu of notice.
Typically any payment in lieu of notice will be made in monthly instalments and reduce,
or cease completely, in the event that remuneration from new employment is received.
AIP Dismissal with cause AIP award and any deferred awards will be forfeit.
Resignation Executives leaving as a result of resignation will forfeit any potential AIP award for the
performance year in which the resignation occurs.
Change of control The AIP award will be pro-rated for time (based on the proportion of the AIP period
elapsed at the date of change of control).
The Committee has discretion to determine that the AIP does not pay out on change
of control and will continue under the terms of the acquiring entity.
The Committee has discretion to dis-apply pro-rating in exceptional circumstances.
Deferred awards may vest immediately or be exchanged for new equivalent awards
in the acquirer where appropriate.
Exceptions* An AIP award for the year in which the termination occurs may be made following the
normal year-end assessment process, subject to achievement of the agreed performance
measures and time apportioned for the period worked.
Any award would normally be payable at the normal time with a 50% deferral in line with
the Policy table.
The Committee has discretion to accelerate the vesting of deferred awards.
LTIP and RSP Dismissal with cause or
resignation
All unvested awards will lapse.
Change of control Existing awards will be exchanged on similar terms or vest to the extent that the
performance conditions have been met at the date of the event and be time-apportioned
to the date of the event or the vesting date, subject to the overriding discretion of the
Committee.
Exceptions* Any outstanding awards will normally be pro-rated for time based on the proportion
of the performance and/or vesting period elapsed.
Performance will be measured at the end of the performance period.
On death, awards may vest earlier than the normal date.
The Committee has the discretion to dis-apply pro-rating or accelerate testing
of performance conditions in exceptional circumstances.
* Exceptions are defined by the plan rules and include those leaving due to the following reasons: ill health, disability, redundancy, retirement (with agreement from the
Company), death, or any other reason that the Committee determines appropriate.
Following termination, awards continue to be subject to malus and clawback provisions in line with those set out in the rules and the Policy.
Pay fairness across the Group
The Group operates in a number of different environments and has many employees who carry out a range of diverse roles across a number
of countries. In consideration of pay fairness across the Group, the Committee believes that ratios related to market competitive pay for each
role profile in each distinct geography are the most helpful.
The ratios of salary to the relevant market median are compared for all permanent employees across the Group and are updated using salary
survey benchmarking data on an annual basis.
Unlike the significant majority of the workforce who receive largely fixed remuneration, mainly in the form of salary, the most significant
component of Executive compensation is variable and dependent on performance. As such, the Committee reviews total compensation
for Executives against benchmarks rather than salary alone.
A number of performance-related incentive schemes are operated across the Group which differ in terms of structure and metrics from those
applying to Executives.
The Group also offers a number of all-employee share schemes and Executives participate on the same basis as other eligible employees.
Performance measures applying to Executives are cascaded down through the organisation. Group employment conditions include high
standards of health and safety and employee wellbeing initiatives.
External appointments of Executives
It is the Company’s policy to allow each Executive to accept one non-executive directorship of another company, although the Board retains
the discretion to vary this policy. Fees received in respect of external appointments are retained by the individual Executive and are set out
in the Directors’ Annual Remuneration Report each year.
101Governance | Centrica plc Annual Report and Accounts 2022
Consideration of the UK Corporate Governance Code
As part of its review of the Policy, the Committee has considered the factors set out in provision 40 and provision 41 of the UK Corporate
Governance Code 2018 (Code). In the Committee’s view, the proposed Policy addresses those factors as set out below:
Principles of the Code How the Policy aligns
Clarity
Remuneration arrangements should be transparent and promote effective
engagement with shareholders and the workforce
The Policy is simple and designed to support long-term, sustainable performance.
Shareholders were extensively consulted in the design of the Policy, and the key
rationale for the changes that were made. The Policy received shareholder approval
at the AGM in June 2022.The Committee proactively seeks engagement with
shareholders on remuneration matters on an ongoing basis.
During the year, consultation took place with recognised trade unions on pay
across the wider workforce. No direct engagement with the workforce occurred
on executive remuneration.
In order to enhance the level of engagement with our employees going forward, a
Shadow Board, comprising colleagues across the business and in different locations,
has been launched. Through the Shadow Board, colleagues will be able to discuss
and share views on executive pay. During 2022, the Shadow Board was focused on
establishing itself and beginning to engage with the Centrica Leadership Team and
the Senior Leadership Team, although executive pay was not discussed. Details of
how the Shadow Board engaged in discussions on executive pay will be disclosed in
next year’s Directors’ Remuneration Report and on an ongoing basis.
Simplicity
Remuneration structures should avoid complexity and their rationale and operation
should be easy to understand
The latest Policy results in a clear simplification of remuneration arrangements
through the replacement of a performance share plan, with a simpler restricted
share plan.
We further operate an annual incentive (the AIP) with a straightforward deferral
structure to allow it to be easily understood.
The performance conditions for variable elements are clearly communicated to,
and understood by, participants and aligned with strategy.
Risk
Remuneration arrangements should ensure reputational and other risks from
excessive rewards, and behavioural risks that can arise from target-based incentive
plans, are identified and mitigated
The majority of the Executives’ total remuneration is weighted towards variable
pay (and provided in shares).
The arrangements result in a reduced risk of excessive reward, through lower
quantum for the Executive team alongside an increased discouragement of
excessive risk-taking behaviour through the use of a post-employment shareholding
requirement.
The Committee also retains discretion to override formulaic outcomes for incentive
plans. Malus and clawback provisions mitigate behavioural risks by enabling
payments to be reduced or reclaimed in specific circumstances.
Predictability
The range of possible values of rewards to individual directors and any other limits
or discretions should be identified and explained at the time of approving the Policy
The Policy sets out the maximum potential value for each element of remuneration
subject to the achievement of performance conditions.
The potential total remuneration outcomes are easily quantifiable and are set out in
the illustrations provided in the Policy.
As highlighted in Risk, the Committee has discretion to override formulaic outcomes
if they were deemed to be inappropriate.
Proportionality
The link between individual awards, the delivery of strategy and the long-term
performance of the Group should be clear. Outcomes should not reward poor
performance
Remuneration is appropriately balanced between fixed and variable pay.
Short-term performance targets are linked to the Group’s strategy and the use of
deferral in the AIP ensures a link to long-term performance through this element.
The introduction of an RSP ensures a strong link to long-term performance as
executive reward is directly linked to the share price of the Company.
Alignment to culture
Incentive schemes should drive behaviours consistent with the Group’s purpose,
values and strategy
The short-term incentive plans are measured against performance measures which
underpin the Group’s culture and strategy.
The incentive structure is cascaded through the top six levels of the organisation
ensuring that it drives the same behaviours across the Group.
102 Governance | Centrica plc Annual Report and Accounts 2022
Non-Executive Directors’ remuneration
Remuneration Policy
Centrica’s policy on Non-Executive Directors’ (Non-Executives) fees takes into account the need to attract high-calibre individuals required
to support the delivery of our strategy.
Remuneration Policy table
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Chairman and Non-Executive Director Fees
Sufficient level to secure
the services of
individuals possessing
the skills, knowledge
and experience to
support and oversee the
Executive Directors in
their execution of the
Board’s approved
strategies and
operational plans.
Fees reflect market
practice as well as the
responsibilities and time
commitment required by
our Non-Executives.
The fee levels for the Chairman are
reviewed every two years by the
Remuneration Committee.
The fee levels of the Non-Executives are
reviewed at least every two years.
Non-Executives are paid a base fee for
their services. Where individuals serve as
Chair of a Committee of the Board,
additional fees are payable. The Senior
Independent Director also receives an
additional fee.
The Company reserves the right to pay a
Committee membership fee in addition
to the base fees.
The maximum level of fees payable to
Non-Executives, in aggregate, is set out
in the Articles of Association.
Not applicable.
Current fee levels (applying from 1 January 2023)
(1)
:
Chairman of the Board up to £495,000
Basic fee for Non-Executives £76,000
Additional fees
Chair of Audit and Risk Committee £25,000
Chair of Remuneration Committee £20,000
Chair of Safety, Environment and Sustainability Committee £20,000
Senior Independent Director £20,000
Employee Champion £20,000
(1) Non-Executive Director (NED) fee levels were reviewed in December 2022 and it was agreed the base fees would be increased by 4.8%. Further details can be found
on page 89.
Recruitment policy
The policy on the recruitment of new Non-Executives during the policy period would be to apply the same remuneration elements as for the
existing Non-Executives. It is not intended that variable pay, day rates or benefits in kind be offered, although in exceptional circumstances such
remuneration may be required in currently unforeseen circumstances. The Committee will include in future Remuneration Reports details of the
implementation of the policy as utilised during the policy period in respect of any such recruitment to the Board.
Terms of appointment
Non-Executives, including the Chairman, do not have service contracts. Their appointments are subject to Letters of Appointment and the
Articles of Association. All Non-Executives are required to be re-elected at each AGM. The date of appointment and the most recent re-
appointment and the length of service for each NED are shown in the table below:
Non-Executive Director Date of appointment to role Date of re-appointment Notice from the Company Notice from the individual
Scott Wheway 1 May 2016 7 June 2022 6 months 6 months
Carol Arrowsmith 11 June 2020 7 June 2022 3 months 3 months
Stephen Hester 1 June 2016 7 June 2022 3 months 3 months
Pam Kaur 1 February 2019 7 June 2022 3 months 3 months
Amber Rudd 10 January 2022 7 June 2022 3 months 3 months
Nathan Bostock 9 May 2022 7 June 2022 3 months 3 months
CP Duggal 16 December 2022 – 3 months 3 months
Heidi Mottram 1 January 2020 7 June 2022 3 months 3 months
Kevin O’Byrne 13 May 2019 7 June 2022 3 months 3 months
103Governance | Centrica plc Annual Report and Accounts 2022
Other Statutory Information
Index to Directors’ Report and other disclosures
70 Annual General Meeting (AGM)
104 Articles of Association
108 to 120 Audit Information
62 to 65 Board of Directors
8 to 9 Business Model
52 and 260 Greenhouse Gas (GHG) Emissions
60 Conflicts of Interest
105 Directors’ indemnities and insurance
103 Directors’ service contracts and letters
of appointment
91 Directors’ share interests
105 Disclosure required under Listing Rule
9.8.4 R
40 and 258 Diversity
Note 11
Page 155
Dividends
Note 26
Page 186
Events after the balance sheet date
Notes 19, S2 and
S6 on pages 172,
188 to 199, 210
to 213
Financial instruments
2 to 54 Future developments
71 Human rights
73 Internal control over financial reporting
104 Material shareholdings
37 to 42 People
105 Political donations and expenditure
Note S8
Page 215
Related party transactions
10 to 44 Research and development activities
1 Results
28 to 33 Risk management
66 to 69 Section 172(1) statement (Director’s Duty)
105 Share capital
44 and 71 Speak Up
12 to 13 Stakeholder engagement (including
employees, suppliers and customers)
39 to 43 Sustainability
46 to 54 TCFD
8, 13, 37 to 38,
44, 45, 57, 71, 84,
89, 101 and 105
The Company’s approach to investing in
and rewarding its workforce
The Directors submit their Annual Report and Accounts for Centrica
plc, together with the consolidated Financial Statements of the
Centrica group of companies, for the year ended 31 December 2022.
The Directors’ Report required under the Companies Act 2006 (the
‘Act’) comprises this Directors’ and Corporate Governance Report
(pages 56 to 106) including the TCFD section for disclosure of our
greenhouse gas (GHG) emissions in the Strategic Report (page 52).
The management report required under Disclosure Guidance and
Transparency Rule 4.1.5 R comprises the Strategic Report (pages 2
to 54) (which includes the risks relating to our business), Shareholder
Information (page 252) and details of acquisitions and disposals made
by the Group during the year in note 12 (pages 156 to 158). The
Strategic Report on pages 2 to 54 fulfils the requirements set out in
Section 414 of the Act. This Directors’ and Corporate Governance
Report fulfils the requirements of the corporate governance statement
required under Disclosure Guidance and Transparency Rule 7.2.1.
Articles of Association (‘Articles’)
The Company’s Articles were adopted at the 2019 Annual General
Meeting (AGM) and may only be amended by a special resolution of
the shareholders. The Articles include various rules outlining the
running and governing of the Company, for example rules relating to
the appointment and removal of the Directors and how the Directors
can use all of the Company’s powers (except where the Articles or
legislation says otherwise), for example in relation to issuing and buying
back shares. The Articles can be found on our website centrica.com.
The Company proposes to put amended Articles to its shareholders at
the 2023 AGM. Further information on the changes will be published in
the 2023 Notice of Meeting.
Centrica shares
Significant shareholdings
At 31 December 2022, Centrica had received notification of the
following interests in voting rights pursuant to the Disclosure and
Transparency Rules:
Date
notified
% of share
capital
(1)
BlackRock, Inc.
08.04.2022 5.25
Schroders Investment Management Limited
07.12.2022 5.00
Ameriprise Financial, Inc.
10.06.2022 <5%
Bank of America Corporation 22.11.2022 <5%
(1) Percentages are shown as a percentage of the Company’s issued share capital
when the Company was notified of the change in holding. As at 15 February
2023, the Company had received no further notifications. Copies of historic
notifications and any notifications received since 15 February 2023, can be found
on our website at centrica.com/rnsannouncements.
104 Governance | Centrica plc Annual Report and Accounts 2022
Share capital
The Company has a single share class which is divided into ordinary
shares of 6
14
/
81
pence each. The Company was authorised at the
2022 AGM to allot up to 1,969,096,844 ordinary shares as permitted
by the Act. A renewal of a similar authority will be proposed at the
2023 AGM. The Company’s issued share capital as at 31 December
2022, together with details of shares issued during the year, is set
out in note 25to the Financial Statements on page 186.
Rights attaching to shares
Each ordinary share of the Company carries one vote. Further
information on the voting and other rights of shareholders is set
out in the Articles and in explanatory notes which accompany
notices of general meetings, all of which are available on our website
centrica.com. There are no shareholder agreements or restrictions
in 2022.
Purchase of shares
As permitted by the Articles, the Company obtained shareholder
authority at the 2022 AGM to purchase its own shares up to a
maximum of 590,729,053 ordinary shares of 6
14
/
81
pence each.
The Company commenced a share repurchase programme on
15November 2022. As at 31 December 2022, 47,201,133 shares
had been purchased under this authority (of which 45,714,883 shares
had been settled) and 47,171,692 shares were held as treasury shares
(of which 45,685,442 shares had settled). The shares purchased
represent approximately 0.8% of the issued ordinary share capital
at an aggregate cost of approximately £44 million (£43 million in
respect of settled shares). Dividends are waived in respect of shares
held in the treasury share account. Further details are set out in note
S4 to the Financial Statements on page 208.
Shares held in employee benefit trusts
The Centrica plc Employee Benefit Trust (EBT) is used to purchase
shares on behalf of the Company for the benefit of employees, in
connection with the Restricted Share Scheme. The Centrica plc Share
Incentive Plan Trust (SIP Trust) is used to purchase shares on behalf of
the Company for the benefit of employees, in connection with the SIP.
Both the Trustees of the EBT and the SIP Trust, in accordance with
best practice, have agreed not to vote any unallocated shares held in
the EBT or SIP Trust at any general meeting and dividends are waived
in respect of these shares. Inrespect of allocated shares in both
the EBT and the SIP Trust, theTrustees shall vote in accordance
with participants’ instructions. In the absence of any instruction,
the Trustees shall not vote.
Employee participation in share schemes
The Company’s all-employee share schemes are a long-established
and successful part of our total reward package, encouraging the
involvement of UK employees in the Company’s performance through
employee share ownership. We operate tax-advantaged Sharesave
(SAYE) schemes in the UK and Ireland, and a Share Incentive Plan
(SIP) in the UK, with good levels of take-up for all share plans across
the Group. Currently, 14% of eligible employees participate in
Sharesave and 32%of eligible employees participate in the SIP.
In 2022 all eligible employees globally were awarded a Profit Share
award under the SIP.
Other information
Directors’ indemnities and insurance
In accordance with the Articles, the Company has granted a deed
of indemnity, to the extent permitted by law, to the Directors of the
Company. Qualifying third-party indemnity provisions (as defined
by Section 234 of the Act) were in force during the year ended
31December 2022 and remain in force. The Company also maintains
directors’ and officers’ liability insurance for its Directors and officers.
The Company has granted qualifying pension scheme indemnities
in the form permitted by the Companies Act 2006 to the directors of
Centrica Pension Plan Trustees Limited, Centrica Engineers Pension
Trustees Limited and Centrica Pension Trustees Limited, that act as
trustees of the Company’s UK pension schemes.
Political donations
The Company operates on a politically neutral basis. No political
donations were made by the Group for political purposes during
the year.
Payments policy
We recognise the importance of good supplier relationships to the
overall success of our business. We manage dealings with suppliers
in a fair, consistent and transparent manner.
Significant agreements – change of control
There are a number of agreements to which the Company is party
that take effect, alter or terminate upon a change of control of the
Company following a takeover bid.
The significant agreements of this kind include:
• those that relate to 2009, when the Company entered into
certain transactions with EDF Group in relation to an investment
in the former British Energy Group, which owned and operated
a fleet of nuclear power stations in the UK. The transactions
include rights for EDF Group and the Company to offtake power
from these nuclear power stations. As part of the arrangements,
on a change of control of the Company, the Group loses its
right to participate on the boards of the companies in which it
has invested. Furthermore, where the acquirer is not located in
certain specified countries, EDF Group is able to require Centrica
to sell out its investments to EDF Group; and
• committed facility agreements, subordinated fixed rate notes
and bonds issued under the Company’s medium-term note
programme.
The Remuneration Policy sets out on page 101 details on the
treatment of the Executive Directors’ pay arrangements, including the
treatment of share schemes in the event of a change of control.
Disclosures required under Listing Rule 9.8.4 R
The Company is required to disclose certain information under Listing
Rule 9.8.4 R in the Directors’ Report or advise where such relevant
information is contained. All such disclosures are included in this
Directors’ and Corporate Governance Report, other than the following
sections of the 2022 Annual Report and Accounts:
Information Location in Annual Report Page(s)
Capitalised interest
(borrowing costs)
Financial Statements
150, note 8
Details of long-term
incentive schemes
Remuneration Report
85 and 90
105Governance | Centrica plc Annual Report and Accounts 2022
Directors’ statements
Accounting standards require that Directors satisfy themselves that it is
reasonable for them to conclude whether it is appropriate to prepare
the Financial Statements on a going concern basis. The Group’s
business activities, together with factors that are likely to affect its
future development and position, are set out in the Group Chief
Executive’s Statement on pages 4 to 6and the Business Reviews on
pages 22 to 25. After making enquiries, the Board has a reasonable
expectation that Centrica and the Group as a whole have adequate
resources to continue in operational existence and meet their liabilities
as they fall due, for the foreseeable future.
For this reason, the Board continues to adopt the going concern basis
in preparing the Financial Statements.
Additionally, the Directors’ Viability Disclosure, which assesses the
prospects for the Group over a longer period than the 12 months
required for the going concern assessment, is set out on pages 34
to 36. Further details of the Group’s liquidity position are provided in
notes 24 and S3 to the Financial Statements on pages 182 to 185
and 200 to 206.
Directors’ responsibilities statement
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 are required
to prepare the Group financial statements in accordance with
international accounting standards, in conformity with the requirements
of the Companies Act 2006. The Directors have also chosen to
prepare the parent company financial statements in accordance with
Financial Reporting Standard 101 ‘Reduced Disclosure Framework’.
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 the parent company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether Financial Reporting Standard 101 ‘Reduced
Disclosure Framework’has 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.
In preparing the Group Financial Statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
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 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.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of Financial Statements may differ from legislation
in other jurisdictions.
Responsibility statement
Each of the Directors confirm that to the best of their knowledge:
• the Financial Statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation
taken as a whole;
• the Strategic Report 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; and
• the Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
The names of the Directors and their functions are listed on pages 62
and 64.
Information to the independent auditors
The Directors who held office at the date of this Report confirm that:
• they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditors are
aware of that information; and
• there is no relevant audit information of which Deloitte LLP are
unaware.
This confirmation is given and should be interpreted in accordance
with the provisions of Section 418 of the Companies Act 2006.
Deloitte LLP have expressed their willingness to continue in office as
auditors and a resolution to re-appoint them will be proposed at the
forthcoming AGM.
By order of the Board
Raj Roy
Group General Counsel & Company Secretary
15 February 2023
106 Governance | Centrica plc Annual Report and Accounts 2022
Financial
Statements
108 Independent Auditor’s Report
121 Group Income Statement
122 Group Statement of Comprehensive Income
123 Group Statement of Changes in Equity
124 Group Balance Sheet
125 Group Cash Flow Statement
126 Notes to the Financial Statements
225 Company Financial Statements
237 Gas and Liquids Reserves (Unaudited)
238 Five Year Summary (Unaudited)
239 Ofgem Consolidated Segmental Statement
107Governance | Centrica plc Annual Report and Accounts 2022
Independent Auditor’s Report
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Centrica plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the
Group’s and of the Company’s affairs as at 31 December 2022 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting
standards;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the Group Income Statement;
• the Group Statement of Comprehensive Income;
• the Group and Company Statements of Changes in Equity;
• the Group and Company Balance Sheets;
• the Group Cash Flow Statement; and
• the related notes 1 to 26 and the supplementary notes S1 to S11 of the Group financial statements and notes I to XVI of the Company
financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and United
Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the
Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure
Framework’ (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to
the Group for the year are disclosed in note S9 to the financial statements. We confirm that we have not provided any non-audit services
prohibited by the FRC’s Ethical Standard to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
108 Financial Statements | Centrica plc Annual Report and Accounts 2022
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• judgements associated with accounting for energy supply arrangements to British Gas Energy and Centrica Business Solution
customers;
• impairment reversal in respect of the Group’s investment in Nuclear;
• valuation of complex energy derivative contracts; and
• judgements associated with going concern assumptions.
Energy supply arrangements
In the prior year, the key audit matter covered judgements associated with the supply of energy including the billed debt provision, the
risk of onerous supply contracts and accounting for transactions under the SoLR mechanism.
While commodity prices were consistently high for the majority of 2022, a significant drop towards the end of the year saw prices retreat
to lower levels, albeit more elevated than they had been in 2021. This drop meant that the derivative contracts to procure energy for
residential supply contracts were in a liability position at 31 December 2022. Given the expected gain on subsequent unwind of these
derivative liabilities, residential energy supply contracts were not considered onerous at year-end and thus the previously recorded
onerous contract provisions, which had totalled £0.9bn at 31 December 2021, were fully reversed during December 2022. The
remaining onerous contract provision of £1bn relates to the business energy supply contracts which are of a reduced level of judgement
and estimation uncertainty and accordingly not identified as a key audit matter.
Similarly, transfers of customers to British Gas Energy under the Supplier of Last Resort (‘SOLR’) mechanism during 2022 were less
material than those in 2021. Since the appropriate accounting for these was agreed in 2021 and remains consistent this year, we
removed accounting for transactions under the SoLR mechanism as a key audit matter.
In the current year this key audit matter includes judgements associated with determining expected credit losses in respect of customer
receivables as a result of the higher trend of commodity prices and the resultant price cap revisions during the year which have led to
increased levels of judgement around the recoverability of trade receivables given the inherent higher risk of customer defaults. In
addition, accounting considerations in relation to payments and vouchers to customers and credits to customers’ accounts in respect
of the UK government’s Energy Bill Relief Scheme (EBRS), Energy Bills Support Scheme (EBSS) and Energy Price Guarantee (EPG)
were also considered as a key audit matter. Given the material number of customers migrated onto the new Energy billing platform
(ENSEK) during the year and the developing nature of the controls environment, we also consider the accuracy and completeness of
consumption data and unbilled revenue methodology in relation to ENSEK to be a key audit matter.
Nuclear impairment reversal
Higher commodity prices in 2022 as explained above, coupled with the UK Government introducing the Electricity Generators Levy
(EGL), impacted the forecast future cashflows of the Group’s Nuclear assets. Whilst the recoverable amount was lower at year-end, the
carrying value of the Group’s investment was also adversely impacted due to a higher-than-expected defined benefit actuarial loss
allocation by EDF (Nuclear asset operator). As a result, primarily due to high commodity prices in 2022, the Group has recorded an
impairment reversal of £195m in the year. Given the significant impairment movement on the investment in Nuclear in the current year,
we identified a key audit matter around the valuation of these assets.
Complex energy derivative contracts valuation
For other own-use contracts, these contracts are not at risk of breaching the own-use designation. The reduced risk associated with
LNG and own-use contracts means that these were not identified as key audit matters in the current year.
The key audit matter in the current year is focused on valuation of complex energy derivative contracts. We have identified a fraud risk,
being the potential risk of management bias in the modelling of complex energy derivative contracts.
Going concern assumption
The going concern assumption, specifically margin liquidity risk, has been a source of significant audit effort this year driven by the high
price environment and volatility experienced in the year in liquidity demands on the business. Given that this required increased and
focused senior audit involvement, we have identified the audit of the going concern assumption as a key audit matter.
Other matters
The Group’s Exploration and Production (E&P) assets exhibited reduced impairment risk due to significant headroom and commodity
price rises over 2022 when compared to 2021, despite the impact of the Energy Price Levy (Group’s E&P business now taxed at 75%)
and the commodity price drop near the end of the year. Given the reduced risk of E&P asset impairment, the key audit matter for
impairment in the current year is solely focused on the judgements associated with the Nuclear asset impairment reversal.
The first half of 2022 witnessed the completion of the disposal of Spirit Energy’s Norwegian portfolio and Statfjord fields. We have
therefore removed the key audit matter for ‘Presentation and accounting for the planned disposal of Spirit Norway and Statfjord’.
Within this report, key audit matters are identified as follows:
!Newly identified
r Increased level of risk
vw Similar level of risk
s Decreased level of risk
Materiality
The materiality that we used for the audit of the Group financial statements is £158m (2021: £35m). This materiality was determined on
the basis of adjusted profit before tax. Adjusted profit before tax is the pre-tax business performance profit adjusted for the impact of
exceptional items and certain re-measurements. The significant increase in materiality in 2022 reflectshigher commodity prices
contributing to higher adjusted profit forthe Upstream and Trading segments.
The materiality of £158m represents 0.5% (2021: 0.2%) of business performance revenue, 0.5% (2021: 0.1%) of total assets, and 6.4%
(2021: 0.9%) of free cash flow.
Financial Statements | Centrica plc Annual Report and Accounts 2022 109
Scoping
All components of the Group were subject to a full scope audit other than those below which were subject to specified audit
procedures:
• Bord Gáis;
• non-regulated parts of British Gas Services and Solutions segment; and
• Centrica Storage (within the Upstream segment).
New Energy Services (within the Centrica Business Solutions segment) was subject to review procedures as compared to an audit of
specified account balances in the prior year given the current year qualitative and quantitative insignificance to the group.
Component materiality levels were set based on the size and audit risk associated with each component on a range of applicable
metrics. Our risk assessment procedures resulted in a reduction in the group reporting scope for British Gas Services and Solutions
given the limited volume of activities with limited profit compared to the Upstream (including Nuclear) and Trading segments which are
designated as full scope audits.
Significant changes
in our approach
Other than the changes in key audit matters discussed above, there were no other significant changes in our audit approach when
compared to 2021.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and Company’s ability to continue to adopt the going concern basis of
accounting is discussed in section 5.4.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s and Company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
110 Financial Statements | Centrica plc Annual Report and Accounts 2022
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit
and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
5.1 Judgements associated with accounting for energy supply arrangements to British Gas Energy and Centrica Business
Solutions customers s
Key audit matter
description
The Group supplies gas and power to residential and business customers in the UK through its British Gas Energy and Centrica
Business Solutions segments.
The impact of key events, including current macroeconomic factors, high commodity prices, the Ukraine-Russia conflict and the
resultant cost-of-living crisis has increased the level of judgement regarding recoverability of customer debt within the Group’s British
Gas and Centrica Business Solutions energy supply businesses, increasing the risk of material misstatement in the determination of
expected credit losses at 31 December 2022. Credit losses of £809m (2021: £584m) have been recognised on amounts due of
£3,106m (2021: £2,013m) from the supply of energy to customers, including £125m (2021: £30m) of additional provisions to reflect the
cost-of-living crisis. Further details on credit losses relating to trade receivables can be found in notes 3b and 17.
Recognising the growing pressure on the cost of living in form of higher energy and other household or business costs, the UK
Government introduced various schemes to provide support to customers as part of a suite of cost-of-living and business support
measures. These are EBRS, EBSS and EPG. The Group is the initial recipient of cash under these schemes. The Group recognised
£2,883m (2021: nil) of revenue and amounts received under various government support schemes with further details shown in notes
1b and 4b. At year-end, the Group held trade receivables in relation to government schemes of £284m as at 31 December 2022.
British Gas Energy continued the migration of customers onto its new digital energy platform (ENSEK) during the year. As at
31December 2022, £2.1bn of revenue (2021: £0.4bn) was recognised from customers on this platform. Revenue from customers
onthe ENSEK platform is presented within the overall revenue figure in note 4.
These matters are also considered by the Audit and Risk Committee in its report on pages 75 to 79.
Expected credit losses in respect of customer receivables
The key assumptions in the determination of expected credit losses in British Gas Energy and Centrica Business Solutions include the
methodology used to determine the impact that macroeconomic factors will have on the future cash collection and the resultant need to
record additional provisions, over and above the ‘business-as-usual’ provisions.
Given the level of judgement and the impact of provisioning on key performance indicators of the Group, we identified a risk of material
misstatement due to fraud in the recording of credit losses within British Gas Energy and Centrica Business Solutions.
Accounting for customer support schemes
Government support schemes include EBSS where residential customers have directly received a cash or credit amount, EPG which
protects residential customers from increases in energy costs by limiting the amount suppliers can charge per unit of energy used and
EBRS which protects business customers by capping the amount charged by energy suppliers for energy consumption. There is
judgement in determining whether this revenue meets the definition of revenue under IFRS 15 Revenue from contracts with customers.
ENSEK revenue
Customer migration to the ENSEK platform has continued throughout 2022. Given the significant quantum of revenue, the developing
controls environment and the difference from legacy SAP systems in the methodology used to derive unbilled revenue related to
customers on ENSEK, there is a risk, including a fraud risk over the accuracy and completeness of the revenue recognised.
Financial Statements | Centrica plc Annual Report and Accounts 2022 111
How the scope of
our audit responded
to the key audit
matter
Expected credit losses in respect of customer receivables
• We tested and relied upon controls relevant to the calculation of billed debt provisions, where applicable.
• With involvement of our IT and data analytics specialists, we tested the accuracy of the underlying debt books, including the age of
debt, and recalculated management’s provision rates based on historic cash collection.
• We assessed how amounts receivable at 31 December 2021 were collected over 2022 in order to estimate an expected profile of the
recovery of 31 December 2022 balances, on a ‘business as usual basis’. We applied this profile to 31 December 2022 debt and then
assessed:
– the impact and sensitivity of this profile based on external forecasts such as household disposable income and inflation forecasts
and the impact on billed debt provisions as the economic situation changes; and
– management’s accounting for the impact of these changes in the billed debt provision estimate.
• We considered the extent to which the provision on a ‘business as usual basis’ factors in the change the current macroeconomic
environment.
• We understood and challenged the methodology and relevant controls over the determination and recording of the additional
macroeconomic provision, with reference to available third-party analysis.
• Given the significant increase in provision (including an additional macroeconomic provision) in 2022 and considering that the
provision as a percentage of gross debt has reduced, we performed procedures to challenge the completeness and the
appropriateness of the provision.
• We assessed the appropriateness of the disclosures provided relating to this key source of estimation uncertainty, and the range of
sensitivities disclosed.
Accounting for customer support schemes
• We assessed whether the revenue recognised under EBSS, EBRS and EPG falls within the scope of IFRS 15 ‘Revenue from
Contracts with Customers’. This included assessing the reasonableness of the accounting treatment adopted including the
methodology and controls associated with recording the revenue.
• We evaluated the expected revenue under various government support schemes with the actual amounts recorded in the books of
accounts, investigating differences above a pre-determined threshold.
• We assessed the appropriateness of the disclosures and the presentation of the revenue recognised in the Group income statement
from the various government support schemes within the ‘Business performance group revenue’ line item of the Group income
statement.
ENSEK revenue
• We obtained an understanding of the relevant controls over the recognition of revenue from customers within the ENSEK system,
including those regarding the completeness and accuracy of consumption data within ENSEK.
• We understood and tested controls associated with the migration exercise, including validating the accuracy and completeness of
the balance migrated from the legacy SAP systems.
• We evaluated the accuracy of amounts recorded as revenue by testing the consumption data against supporting documentation.
• We challenged the methodology used to calculate the ENSEK unbilled revenue, through comparison with the legacy SAP approach
and calculating an expectation of unbilled revenue, investigating differences above a pre-determined threshold.
Key observations
We are satisfied that the Group’s billed debt provisions of £812m (2021: £587m), including £125m (2021: £30m) of additional provisions
to reflect macroeconomic uncertainty, and the associated methodology to calculate this adjustment, are appropriate. We consider the
additional manual provision recognised to be appropriate and close to the mid-point of a calculated reasonable range.
We are satisfied that the amounts recognised under various government schemes meet the definition of revenue under IFRS 15
‘Revenue from Contracts with Customers’ and are satisfied that the revenue has been appropriately presented within the ‘Business
performance group revenue’ line item of the Group income statement.
We are satisfied that the accuracy and completeness of the Group’s ENSEK energy revenue, including the methodology to generate
unbilled revenue is appropriate. Whilst improvements were made to controls during the year in relation to revenue recognition, they were
not yet at a stage where we were able to rely on them.
112 Financial Statements | Centrica plc Annual Report and Accounts 2022
5.2. Impairment reversal in the Group’s investment in Nuclear vw
Key audit matter
description
As highlighted in section 3 above, commodity prices were consistently high in 2022 before witnessing a significant drop towards the end
of the year, albeit higher than 2021 levels. The decrease in future forecast cashflows in the assessment of investment in Nuclear was
offset by the decrease in carrying value as a result of a pension actuarial loss allocated by the operator. The total pre-impairment book
value of the investment in Nuclear was £1,560m (2021: £1,625m) with a pre-tax impairment reversal of £195m (2021: £747m) recorded
as at 31 December 2022.
The details on the key sources of estimation uncertainty underpinning the impairment reversal for these assets can be found in note 3(b).
Details on the sensitivity of the above impairment reviews to changes in key assumptions such as commodity prices are disclosed in
note 7(c). This includes sensitivities associated with the Group’s commodity price curves if these curves were aligned with the net zero
scenario (‘net zero curve’) which assumes governmental policies are put in place to achieve the temperature and net zero goals by
2050. The matter is also considered by the Audit and Risk Committee in its report on page 77.
Given the significant impairment movement in the investment in Nuclear in the current year, we identified a key audit matter around the
valuation of these assets for impairment testing purposes. The underlying impairment reversal has been recorded within the exceptional
items and certain re-measurements column of the Group income statement.
The key assumptions and judgements underpinning the impairment testing of the investment in Nuclear include:
• forecast future commodity prices, including the likely impact of the Paris Accord and climate change on those prices;
• forecast future generation profiles of the assets;
• forecast future cash flows for the assets;
• availability forecasts in respect of the nuclear power stations;
• useful life estimates;
• impact of the Electricity Generator levy on the future forecast of cashflows; and
• the discount rate.
How the scope of
our audit responded
to the key audit
matter
Procedures on the overall impairment reversal review:
• We understood management’s process for identifying indicators of impairment and impairment reversal and for performing their
impairment assessment.
• We obtained an understanding of the relevant controls relating to the asset impairment models, the underlying forecasting process
and the impairment reviews performed.
• We evaluated and challenged the key assumptions and inputs into the impairment models, which included performing sensitivity
analysis, to evaluate the impact of selecting alternative assumptions. We evaluated changes in key assumptions and assessed
retrospectively whether prior year assumptions were appropriate.
• We involved our internal valuation specialists to evaluate management’s discount rates, which involved benchmarking against
available market views and analysis.
• We tested the arithmetical accuracy of the impairment models.
• We assessed the appropriateness of management’s disclosures of the key assumptions and sensitivities including the presentation of
the impairment reversals within the exceptional items and certain re-measurements column of the Group income statement.
Procedures relating to forecast future cash flows:
• We confirmed that forecast cash flows were consistent with the operator approved forecasts, where relevant, and analysed
reasonably possible downside sensitivities.
• We assessed the reasonableness of the plants’ forecast outage rates by looking at recent historic outage rates and sensitised the
impact of a change in assumptions on the overall impairment reversal.
• We evaluated the Group’s estimation of future commodity prices, benchmarked against externally available future commodity price
estimates and performed sensitivity analysis with alternative future prices. This includes a scenario which assumes governmental
policies are put in place to achieve the temperature and net zero goals by 2050. We recalculated management’s disclosures relating
to the sensitivity of the Group’s impairment tests to reduced commodity prices, including the net zero curves.
• We involved our tax specialist to adjudge the reasonableness of implementation of the Electricity Generators Levy and as a result,
aiding the audit team’s subsequent impact assessment on the forecasted future cash outflows.
Key observations
We are satisfied that the key assumptions used to determine the value in use of the Group’s investment in Nuclear is appropriate,
including production and availability forecasts. We are also satisfied that the Group’s discount rate assumptions are determined based
on acceptable valuation methodologies.
The Group’s future commodity price estimates are in the middle of the acceptable range of external sources, consistent with the prior
year. We observed that generally, the forecasts from acceptable external sources for gas and baseload prices were above the assumed
prices in the net zero scenario. We considered the sensitivity disclosures relating to the impact on the Group’s impairment reviews of
future commodity price estimates arising from climate change to be acceptable.
We are satisfied that the Group’s impairment reversal is appropriate and the presentation under the exceptional items and certain
re-measurements column of the Group income statement is consistent with Group policy.
Financial Statements | Centrica plc Annual Report and Accounts 2022 113
5.3. Valuation of complex energy derivative contracts r
Key audit matter
description
As disclosed in note 7 to the financial statements, a re-measurements loss of £5,160m (2021: gain of £1,289m) on energy derivative
contracts has been recognised in the year. Details on the Group’s energy contracts can be found in note 19 and note S3(a). The key
sources of estimation uncertainty associated with energy contracts can be found in note 3(b) with further details on the presentation of
certain re-measurement arising on derivatives disclosed in note 2(b). The matter is also considered by the Audit and Risk Committee in
its report on page 75.
The Group undertakes proprietary trading activities and also enters into forward commodity contracts to optimise the value of its
production and generation assets as well as to meet the future needs of its customers. Certain of these arrangements are accounted for
as derivative financial instruments and are recorded at fair value. We identified a key audit matter relating to valuation of complex
derivative trades performed internally by management’s valuation specialists. There is judgement required in valuing complex energy
derivative contracts, particularly where there is modelling complexity and bespoke contractual terms (level 3 in accordance with IFRS 13
‘Fair Value Measurement’). Given the judgement and potential of management bias in the modelling, we have identified a potential risk of
fraud. Whilst the value of complex energy derivative contracts increased through the year due to the significant rise in commodity prices,
the drop in prices in December 2022 has reduced the valuation to early 2022 levels. Given the continued and heightened level of risk as
well as the complexity associated with disclosures, the valuation of these contracts is identified as a key audit matter.
How the scope of
our audit responded
to the key audit
matter
• We understood the Group’s processes and tested controls, including the user access and segregation of duties controls, for
authorising and recording commodity trades.
• We have understood management’s process and tested the relevant controls relating to the valuation of complex energy derivatives
within the Group’s Energy, Marketing and Trading (‘EM&T’) business. We also assessed the competence, capability and objectivity of
management’s own internal valuation specialists.
• With involvement of financial instrument specialists, we assessed the value of material complex trades, either by creating an
independent valuation or by testing how management developed their estimate. Particular emphasis was made to assess any new
material models and material changes to relevant models including additional procedures to assess the reasonableness and
appropriateness of these.
• We assessed the movement in the fair values based on the change in significant inputs, while testing these inputs, where relevant.
• We considered the appropriateness of the relevant complex derivative energy contracts disclosure, including the key source of
estimation uncertainty disclosures.
Key observations
We are satisfied that complex derivative energy contracts are valued on an appropriate basis.
114 Financial Statements | Centrica plc Annual Report and Accounts 2022
5.4. Judgements associated with going concern assumption !
Key audit matter
description
During 2022, high and volatile commodity prices resulted in increased requirements for the Group and its counterparties to post and
receive more significant cash margin collateral than was historically the case. To respond to this increased liquidity risk, the Group
established enhanced processes in the trading businesses and in respect of Upstream to plan for and manage possible increased cash
margin requirements.
The enhanced governance processes included establishing a Liquidity Working Group to monitor and respond to volatile market
conditions, trading activity, and the ability of counterparties to pay margin calls. To monitor reasonably possible margin requirements,
the Group used modelling and analysis of the volatile market conditions over the last two years to determine severe but plausible
scenarios of the possible liquidity requirements. Additionally, the Group took active steps to both increase liquidity facilities available,
andto reduce and mitigate margin requirements as a result of trading activity. Further details in relation to the Group’s measures are
described in note 24(b) and the viability statement on pages 34 to 36. Given the impact of commodity price volatility on forecast liquidity
headroom in the current year, the directors calculated minimum headroom under high, low and base price case scenarios. As such,
thisrequired increased and focused senior audit involvement and has led to the audit of the going concern assumption being identified
as a key audit matter.
How the scope of
our audit responded
to the key audit
matter
The key procedures to evaluate the directors’ assessment of the Group’s and Company’s ability to continue to adopt the going concern
basis of accounting included:
• assessing the Group’s future cash flow forecasts, by considering actual cash flow performance in 2022, the volatile commodity price
environment, historical accuracy of the Group forecasts and key assumptions underpinning management’s going concern
assessment;
• agreeing the level of committed undrawn facilities of £4.0bn to signed facility agreements, along with support from our treasury
specialists, where relevant, to review the key terms of the facility agreements;
• testing the clerical accuracy of the model used to prepare the cash flow forecasts and assessing the sophistication of the model used
to prepare the forecasts;
• assessing the sensitivities run by the directors and the linkage of these sensitivities to the Group’s principal risks disclosed on pages
30 to 33 of the Annual Report & Accounts. These sensitivities include the impact of margin cash volatility, a reduction in the Group’s
credit rating, a reduction in commodity prices, or the risk of adverse weather and the resultant impact on cashflows; and
• assessing the appropriateness of management’s going concern disclosures in light of the above assessment.
Given the high degree of judgement required to determine appropriate scenarios, including the range of possible unanticipated volatility
in commodity prices, our audit response to this risk was focused on:
• understanding management’s process in determining the severe but plausible margin call scenarios and stressing the other drivers
ofliquidity demand in the trading businesses;
• challenging management’s assessment and rationale for each scenario, including the severity of the scenarios with respect to
historical commodity prices and the probabilistic assessments of how elevated commodity prices may become in the future;
• assessing the consistency of the margin call scenarios between the going concern model and that used to assess the viability of
theGroup;
• testing the assumptions and detailed model methodology underpinning the scenarios, including using the expertise of complex
modelling specialists; and
• assessing the reasonability of the margin liquidity scenarios, available mitigations and whether management’s approach of
incorporating these scenarios into the Group going concern and viability reasonable worst case analysis was appropriate.
Key observations
The Group’s key assumptions, methodology and the severity of the Group margin call scenarios were concluded to be appropriate in
the context of current market conditions. We observed that the scenarios included modelling market conditions which were significantly
more severe than were experienced in both 2021 and 2022. These scenarios included assessing statistically to a 95% confidence level
the market conditions that may arise in the future, however they are not necessarily a predictor of all future conditions given the volatility
of commodity markets.
We are satisfied the management’s disclosures regarding preparation of the financial statements on a going concern basis are
appropriate.
Financial Statements | Centrica plc Annual Report and Accounts 2022 115
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined the materiality of the financial statements as a whole as follows:
Group financial statements Company financial statements
Materiality
£158 million (2021: £35 million) £150 million (2021: £33 million)
Basis for
determining
materiality
We determined materiality on the basis of 5% of adjusted profit
before tax. Adjusted profit before tax is the pre-tax profit adjusted
for the impact of exceptional items and certain re-measurements.
The significant increase in materiality in 2022 reflectshigher
commodity prices contributing to higher adjusted profits forthe
Upstream and Trading segments.
The materiality of £158m represents 0.5% of business
performance revenue, 0.5% of total assets, and 6.4% of free cash
flow. In the prior year, materiality was based on a range of
applicable metrics including free cash flow, shareholders’ equity
and pre-tax profit adjusted for exceptional items and certain
re-measurements. This represented 4.6% of final adjusted profit
before tax.
We determined Company materiality based on 3.0% (2021: 1.0%)
of estimated net assets but capped materiality at 95% (2021: 95%)
of Group materiality. Our final materiality constituted 2.8% of net
assets (2021: 0.6% of net assets).
The percentage applied in determining Company materiality has
been adjusted in the current year to reflect our historical audit
experience.
Rationale for the
benchmark applied
We considered adjusted profit before tax to be the most
appropriate benchmark to measure the performance of the Group.
We consider it appropriate to adjust for exceptional items and
re-measurements as these items are volatile and not reflective
ofthe underlying performance of the Group.
We have reverted to this historical benchmark as it has become
amore stable measure of performance following the impact of
COVID-19 on pre-tax adjusted profit, which previously would
havereduced materiality to a level which would not have reflected
the size and scale of the Group. Notwithstanding the significant
increase in year-on-year materiality, we challenged the
appropriateness of using 5% of adjusted profit before tax for our
assessment of materiality by looking at a range of alternative
benchmarks. Given that the determined materiality was within
therange of alternative benchmarks, we have concluded it to be
appropriate.
We considered our established materiality against the final audit
results and considered that it remained appropriate in the context
of the financial statements as a whole.
We considered net assets to be the most appropriate benchmark
given the primary purpose of the Company is a holding company.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Company financial statements
Performance
materiality
70% (2021: 70%) of Group materiality 70% (2021: 70%) of Company materiality)
Basis and rationale
for determining
performance
materiality
The factors we considered in setting performance materiality at 70% of Group and Company materiality included:
• The overall quality of the control environment and that we were able to rely on controls in certain of the Group’s businesses.
• The nature, size and number of uncorrected misstatements identified in previous audits and management’s willingness to correct
those adjustments.
6.3 Error reporting threshold
The significant increase in materiality has led to an increase in the error reporting threshold, which stands at £7.9m (2021: £1.8m). We
have however, at the Audit and Risk Committee’s request continued to report individual audit differences in excess of £5m (2021: £5m),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also reported to the Audit and
Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
116 Financial Statements | Centrica plc Annual Report and Accounts 2022
7. An overview of the scope of our audit
7.1 Identification and scoping of components
The Group is organised into segments as outlined in note 4. These segments contain a number of individual businesses, and we use
thesebusinesses as the basis for identifying and scoping components. In the current year, Aalborg was identified as a component of
theGroupgiven the significant contribution to the Group’s adjusted profit before tax. Other changes in scoping have been outlined in
section3 above.
Our audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the
risks of material misstatement at the Group level. Having performed this assessment, we established the following audit scope for each of
the Group’s businesses.
Segment Business Audit scope
British Gas Energy British Gas Energy Full scope audit
British Gas Services and Solutions British Gas Services and Solutions Audit of specified account balances
Bord Gáis Energy Bord Gáis Energy Audit of specified account balances
Energy, Marketing & Trading Energy, Marketing & Trading (London) Full scope audit
Aalborg Full scope audit
Centrica Business Solutions New Energy Services Review procedures
Energy supply Full scope audit
Upstream Nuclear Full scope audit
Spirit Energy Full scope audit
Centrica Storage Audit of specified account balances
This scoping resulted in 99% of Group revenue, 100% of Group adjusted profit before tax and 89% of Group shareholders’ equity being
subject to audit excluding those where we performed review procedures. The equivalent figures in 2021 were 96% of Group revenue,
98% of final pre-tax profit adjusted for exceptional items and 92% of shareholders’ equity.
7.2. Our consideration of the control environment
• Our audit strategy is to rely on controls over certain processes within the more established businesses of the Group. These included
revenue within British Gas Energy, British Gas Services and Solutions, CBS Energy and Bord Gáis Energy; credit loss provisions in
British Gas; and the Group’s central payroll and expenditure processes.
• The use of data analytics in Energy, Marketing and Trading means the need for controls reliance is reduced as we are able to test close
to 100% of all transactions.
• Given the importance of IT to the recording of financial information and transactions, we assessed the design and implementation of
general IT controls, and placed reliance on those controls in certain areas. The key IT systems we included in scope include the Group’s
SAP general ledger and consolidation financial reporting systems, the SAP and ENSEK revenue reporting systems in British Gas Energy
and CBS Energy, the SAP reporting system in Bord Gáis Energy, the Endur trading system in Energy, Marketing and Trading, and
Workday which is used to manage the Group’s payroll processes.
• We adopted a non-controls reliance approach to test the ENSEK revenue given the dependency on manual checks and reviews.
7.3. Our consideration of climate-related risks
• Management has performed an assessment of the resilience of its annual strategic and financial planning process in the face of climate-
related issues. This included assessing the potential impact of the material risks and opportunities and its Climate Transition Plan on
both the current balance sheet position and its accounting policies.
• Management identified higher risks of material misstatement on the impact of the net zero price scenario on the non-current long-life
asset Upstream impairment tests. In response, management has performed further sensitivities based on forecast prices aligned to
netzero price curves. The net zero price curves for E&P and Nuclear consider prices from International Energy Agency and Aurora
respectively.
• We reviewed management’s climate change risk assessment and evaluated the completeness of the identified risks and impact on the
financial statements. We also considered climate change within our audit risk assessment process in conjunction with our assessment
of the balances.
• To mitigate the net zero price scenario risk for the Exploration and Production (E&P) assets and the Group’s investment in Nuclear,
weperformed the following procedures:
– Assessed the reasonableness of management’s net zero prices by comparing these to the market net zero prices.
– Engaged a financial advisory specialist to assess the appropriateness of the price providers utilised by the Group to assess whether
net zero price curves are representative of the market view.
– Verified the mathematical accuracy of the conversion to Nominal 2022 prices by adjusting the raw external price forecast data
forinflation.
• With the involvement of our climate specialists, we:
– evaluated the financial statement disclosures to assess whether climate risk assumptions underpinning specific account balances
were appropriately disclosed; and
– read the climate change-related statements (as disclosed in the People and Planet section in the Strategic Report) and considered
whether the information included in the narrative reporting is materially consistent with the financial statements and our knowledge
obtained in the audit.
Financial Statements | Centrica plc Annual Report and Accounts 2022 117
7.4. Working with other auditors
• All components except for Bord Gáis Energy and Aalborg are audited from the UK and we oversee all component audits through regular
meetings and direct supervision. Whilst we visited Aalborg during the year, the oversight procedures on Bord Gáis were performed
virtually.
• The Group audit team was directly involved in overseeing the component audit planning and execution, through frequent conversations,
virtual and in person meetings, debate, challenge and review of reporting and underlying work papers. We held a two-day planning
meeting with all component teams and specialists to discuss audit execution and our risk assessment, including risks of material
misstatement due to fraud. In addition to our direct interactions and detailed instructions to our component audit teams, Jane
Boardman has taken on the Lead Audit Partner and British Gas & Centrica Business Solutions Energy Supply partner roles. This
enables direct group supervision on two of the most significant components.
• We are satisfied that the level of involvement of the lead audit partner and Group audit team in the component audits has been
extensive and has enabled us to conclude that sufficient appropriate audit evidence has been obtained in support of our opinion on the
Group financial statements as a whole.
8. Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s report
thereon. This information comprises the Strategic report, the Directors’ and Corporate Governance report, the Committee reports, the
Remuneration Report and the Other Statutory Information. The directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the Directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when
itexists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit ofthe financial statements is located on the FRC’s website at
frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error including the Group’s fraud risk
programme;
• results of our enquiries of management, internal audit and the Audit and Risk Committee about their own identification and assessment
of the risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• the matters discussed among the audit engagement team including the component audit teams and relevant internal specialists,
including tax, valuations, pensions, climate change, treasury and IT, regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
118 Financial Statements | Centrica plc Annual Report and Accounts 2022
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas:
• the valuation of expected credit losses in respect of customer receivables;
• the accuracy and completeness of ENSEK revenue;
• the valuation of complex energy derivative contracts; and
• the valuation of decommissioning provisions.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management
override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those laws
and regulations that:
• had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations
we considered in this context included the UK Companies Act, the UK Listing Rules, pensions and tax legislation; and
• do not have a direct effect on the financial statements but compliance with which may be fundamental to the Group’s ability to operate
or to avoid a material penalty. These included the Office of Gas and Electricity Markets (Ofgem) and Regulations levied by the UK
Financial Conduct Authority and Prudential Regulatory Authority.
11.2. Audit response to risks identified
As a result of performing the above, we identified the following as key audit matters related to the potential risk of fraud: (1) valuation of
complex energy derivative contracts; (2) accuracy and completeness of ENSEK revenue; and (3) valuation of expected credit losses in
respect of customer receivables. The key audit matters section of our report explains the matters in more detail and also describes the
specific procedures we performed in response to those key audit matters.
Our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing the supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit and Risk Committee, in-house legal counsel and the Group’s ethics team concerning actual and
potential litigation and claims;
• reviewing the reporting to the Audit and Risk Committee, on matters relating to fraud and potential non-compliance with laws and
regulations including the Group’s whistleblowing programme;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC, Ofgem, the FCA and the PRA;
• in addressing the risk of fraud associated with decommissioning provisions, we used data analytics to identify the assumptions to which
the decommissioning model is most sensitive and performed focused audit procedures, including corroborating and benchmarking
these inputs to independent documentation (such as project management cost, wells cost and norms and rates) and external industry
reports; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating
the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and component audit teams, and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the Strategic report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit,
we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
Financial Statements | Centrica plc Annual Report and Accounts 2022 119
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 106;
• the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate set out on pages 34 to 36;
• the directors’ statement on fair, balanced and understandable set out on page 73;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 29;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
page 73; and
• the section describing the work of the Audit and Risk Committee set out on pages 72 to 79.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not
been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit and Risk Committee, we were reappointed by the shareholders on 10 June 2022 to audit
thefinancial statements for the year ending 31 December 2022 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is six years, covering the years ending 31 December 2017 to
31December 2022.
15.2. Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14 R, these financial
statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage
Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no
assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.
Jane Boardman FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
15 February 2023
120 Financial Statements | Centrica plc Annual Report and Accounts 2022
Group Income Statement
2022 2021
Business
performance
£m
Exceptional items
and certain re-
measurements
£m
Results for the
year
£m
Business
performance
£m
Exceptional items
and certain re-
measurements
£m
Results for the
year
£mYear ended 31 December Notes
Continuing operations
Group revenue
4,7
Cost of sales
(i)
5,7
(28,198 ) 14,986 (13,212 ) (15,430 ) 2,749 (12,681 )
Re-measurement and settlement of derivative
energy contracts
7
Gross profit
4,7
Operating costs before exceptional items and
credit losses on financial assets
5
(1,872 ) — (1,872 ) (1,703 ) — (1,703 )
Credit losses on financial assets
5,17
(351 ) — (351 ) (116 ) — (116 )
Exceptional items – net impairment reversals
7
Exceptional items – net loss on significant
disposals
7
Exceptional items – net restructuring cost
reversals
7
Operating costs
5
(2,223 ) (155 ) (2,378 ) (1,819 ) 1,247 (572 )
Share of profits/(losses) of joint ventures and
associates, net of interest and taxation
6
Group operating profit/(loss)
4
Net finance cost
8
(143 ) — (143 ) (187 )
(187 )
Profit/(loss) from continuing operations before
taxation
Taxation on profit/(loss) from continuing
operations
7,9
(1,046 ) 793 (253 ) (454 ) 236 (218 )
Profit/(loss) from continuing operations after
taxation
Discontinued operations
(ii)
7
Profit/(loss) for the year 2,119 (2,755 ) (636 ) 307 866 1,173
Attributable to:
Owners of the parent 2,050 (2,832 ) (782 ) 237 973 1,210
Non-controlling interests
Earnings per ordinary share
Pence Pence
From continuing and discontinued operations
Basic
10
(13.3 ) 20.7
Diluted
10
(13.3 ) 20.5
From continuing operations
Basic
10
(13.3 ) 10.0
Diluted
10
(13.3 ) 9.9
Interim dividend paid per ordinary share
11
Final dividend proposed per ordinary share
11
(i) Cost of sales includes a £1,766 million credit (2021: £2,530 million charge) relating to a reversal of the onerous energy supply contract provision within the certain
re-measurements column. See note 7.
(ii) Profit from the disposal of Direct Energy reflected in discontinued operations is entirely attributable to equity holders of the parent. See note 7.
The notes on pages 126 to 224 form part of these Financial Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2022 121
Group Statement of Comprehensive Income
2022
£m
2021
£mYear ended 31 December Notes
(Loss)/profit for the year (636 ) 1,173
Other comprehensive income
Items that will be or have been reclassified to the Group Income Statement:
Impact of cash flow hedging (net of taxation)
S4
(20 ) (6 )
Exchange differences on translation of foreign operations
(i)
S4
(90 )
(49 )
Exchange differences reclassified to Group Income Statement on disposal
(i)
12,S4
(20 )
Net investment hedging gains reclassified to Group Income Statement (net of taxation)
S4
Items that will not be reclassified to the Group Income Statement:
Net actuarial (losses)/gains on defined benefit pension schemes (net of taxation)
S4
(124 ) 144
Gains on revaluation of equity instruments measured at fair value through other comprehensive
income (net of taxation)
S4
Share of other comprehensive (loss)/income of associates, net of taxation
14,S4
(293 ) 152
Other comprehensive (loss)/income, net of taxation (255 ) 184
Total comprehensive (loss)/income for the year (891 ) 1,357
Attributable to:
Owners of the parent (1,042 ) 1,397
Non-controlling interests
S11
Total comprehensive (loss)/income attributable to owners of the parent arises from:
Continuing operations (1,042 ) 833
Discontinued operations — 564
(1,042 ) 1,397
(i) Exchange differences on translation of foreign operations includes £95 million (2021: £46 million) of losses attributable to the equity holders of the parent, and £5 million
ofgains (2021: £3 million of losses) attributable to non-controlling interests. Exchange differences reclassified to Group Income Statement on disposal includes a
£272million loss (2021: £20 million gain) attributable to the equity holders of the parent, and £nil (2021: £nil) attributable to non-controlling interests. See note S4.
The notes on pages 126 to 224 form part of these Financial Statements.
122 Financial Statements | Centrica plc Annual Report and Accounts 2022
Group Statement of Changes in Equity
Share
Capital
£m
Share
Premium
£m
Retained
Earnings
£m
Other
Equity
£m
Total
£m
Non-controlling
Interests
£m
Total
equity
£m
1 January 2021 361 2,347 (836 ) (915 ) 957 425 1,382
Profit/(loss) for the year — — 1,210 — 1,210 (37 ) 1,173
Other comprehensive income/(loss) — — — 187 187 (3 ) 184
Total comprehensive income/(loss) — — 1,210 187 1,397 (40 ) 1,357
Employee share schemes and other
sharetransactions 2 30 3 (24 ) 11 — 11
31 December 2021 363 2,377 377 (752 ) 2,365 385 2,750
(Loss)/profit for the year — — (782 ) — (782 ) 146 (636 )
Other comprehensive (loss)/income — — — (260 ) (260 ) 5 (255 )
Total comprehensive (loss)/income — — (782 ) (260 ) (1,042 ) 151 (891 )
Employee share schemes and other share
transactions 2 17 (2 ) (14 ) 3 — 3
Share buyback programme
(i)
Dividends paid to equity holders — — (59 ) — (59 ) — (59 )
Distributions to non-controlling interests (note 12) — — — — — (273 ) (273 )
31 December 2022 365 2,394 (466 ) (1,276 ) 1,017 263 1,280
(i) See note S4 for further details of the share buyback programme
The notes on pages 126 to 224 form part of these Financial Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2022 123
Group Balance Sheet
31 December
2022
£m
31 December
2021
£mNotes
Non-current assets
Property, plant and equipment
13
Interests in joint ventures and associates
14
Other intangible assets
15
Goodwill
15
Deferred tax assets
16
Trade and other receivables, and contract-related assets
17
Derivative financial instruments
19
Retirement benefit assets
22
Securities
24
Current assets
Trade and other receivables, and contract-related assets
17
Inventories
18
Derivative financial instruments
19
Current tax assets
Cash and cash equivalents
24
Assets of disposal groups classified as held for sale
Total assets
Current liabilities
Derivative financial instruments
19
(8,841 ) (4,929 )
Trade and other payables, and contract-related liabilities
20
(10,176 ) (7,513 )
Current tax liabilities
(472 ) (333 )
Provisions for other liabilities and charges
21
(1,213 ) (2,769 )
Bank overdrafts, loans and other borrowings
24
(1,009 ) (1,204 )
(21,711 ) (16,748 )
Liabilities of disposal groups classified as held for sale
(21,711 ) (17,976 )
Non-current liabilities
Deferred tax liabilities
16
(8 ) (36 )
Derivative financial instruments
19
(1,310 ) (1,080 )
Trade and other payables, and contract-related liabilities
20
(165 ) (120 )
Provisions for other liabilities and charges
21
(1,446 ) (1,454 )
Retirement benefit obligations
22
(110 ) (231 )
Bank loans and other borrowings
24
(3,008 ) (3,439 )
(6,047 ) (6,360 )
Total liabilities
(27,758 ) (24,336 )
Net assets
Share capital
25
Share premium
Retained earnings
(466 ) 377
Other equity
S4
(1,276 ) (752 )
Total shareholders’ equity
Non-controlling interests
S11
Total shareholders’ equity and non-controlling interests
The Financial Statements on pages 121 to 224, of which the notes on pages 126 to 224 form part, were approved and authorised for
issue by the Board of Directors on 15 February 2023 and were signed below on its behalf by:
Chris O’Shea Kate Ringrose
Group Chief Executive Group Chief Financial Officer
Centrica plc Registered No: 03033654
124 Financial Statements | Centrica plc Annual Report and Accounts 2022
Group Cash Flow Statement
Year ended 31 December Notes
2022
£m
2021
£m
Group operating (loss)/profit including share of results of joint ventures and associates (240 ) 954
(Deduct)/add back share of (profits)/losses of joint ventures and associates, net of interest and taxation
6
(93 ) 103
Group operating (loss)/profit before share of results of joint ventures and associates (333 ) 1,057
Add back/(deduct):
Depreciation and amortisation
13,15
Write-downs, impairments and write-backs
4,7
(99 ) (1,183 )
Loss on disposals
12
(Decrease)/increase in provisions (1,903 ) 2,434
Cash contributions to defined benefit schemes in excess of service cost income statement charge (184 ) (388 )
Employee share scheme costs 10 12
Unrealised losses/(gains) arising from re-measurement of energy contracts 4,095 (1,159 )
Exceptional charges reflected directly in operating profit — 12
Operating cash flows before movements in working capital relating to business performance and payments
relating to taxes and exceptional charges
Increase in inventories (593 ) (361 )
Increase in trade and other receivables and contract-related assets relating to business performance (2,302 ) (3,358 )
Increase in trade and other payables and contract-related liabilities relating to business performance 2,239 3,965
Operating cash flows before payments relating to taxes and exceptional charges 1,942 1,827
Taxes paid
9
(574 ) (140 )
Operating interest paid
8
(30 ) —
Payments relating to exceptional charges in operating costs
7
(24 ) (76 )
Net cash flow from operating activities 1,314 1,611
Continuing operations:
Purchase of businesses, net of cash acquired
12
Sale of businesses
12
Purchase of property, plant and equipment and intangible assets
4
(371 ) (420 )
Sale of property, plant and equipment and intangible assets 11 36
(Investments in)/disposal of joint ventures and associates
14
(18 ) 2
Dividends received from joint ventures and associates
14
Interest received 46 2
Settlement of securities
24
Purchase of securities
24
(548 ) (3 )
Net cash flow from continuing investing activities (566 ) (325 )
Net cash flow from discontinued investing activities — 2,588
Net cash flow from investing activities (566 ) 2,263
Payments for own shares
S4
(5 ) —
Share buyback programme
S4
(43 ) —
Cash inflow from short-term borrowings
24
Proceeds from sale of forfeited share capital — 1
Distributions to non-controlling interests
12
(273 ) —
Financing interest paid
24
(172 ) (233 )
Repayment of borrowings and capital element of leases
24
(1,585 ) (706 )
Equity dividends paid
11
(59 ) —
Net cash flow from financing activities (917 ) (938 )
Net (decrease)/increase in cash and cash equivalents (169 ) 2,936
Cash and cash equivalents including overdrafts, and cash classified as held for sale at 1 January 4,328 1,393
Effect of foreign exchange rate changes
24
Cash and cash equivalents including overdrafts at 31 December
24
Included in the following line of the Group Balance Sheet:
Cash and cash equivalents
24
Overdrafts included within current bank overdrafts, loans and other borrowings
24
(600 ) (750 )
Assets of disposal groups classified as held for sale — 18
The notes on pages 126 to 224 form part of these Financial Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2022 125
126 Financial Statements | Centrica plc Annual Report and Accounts 2022
Financial Statements | Centrica plc Annual Report and Accounts 2022 127
128 Financial Statements | Centrica plc Annual Report and Accounts 2022
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130 Financial Statements | Centrica plc Annual Report and Accounts 2022
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132 Financial Statements | Centrica plc Annual Report and Accounts 2022
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134 Financial Statements | Centrica plc Annual Report and Accounts 2022
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136 Financial Statements | Centrica plc Annual Report and Accounts 2022
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£mYear ended 31 December
£mYear ended 31 December
138 Financial Statements | Centrica plc Annual Report and Accounts 2022
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140 Financial Statements | Centrica plc Annual Report and Accounts 2022
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142 Financial Statements | Centrica plc Annual Report and Accounts 2022
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144 Financial Statements | Centrica plc Annual Report and Accounts 2022
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146 Financial Statements | Centrica plc Annual Report and Accounts 2022
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148 Financial Statements | Centrica plc Annual Report and Accounts 2022
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150 Financial Statements | Centrica plc Annual Report and Accounts 2022
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152 Financial Statements | Centrica plc Annual Report and Accounts 2022
£m Year ended 31 December
Financial Statements | Centrica plc Annual Report and Accounts 2022 153
154 Financial Statements | Centrica plc Annual Report and Accounts 2022
Financial Statements | Centrica plc Annual Report and Accounts 2022 155
156 Financial Statements | Centrica plc Annual Report and Accounts 2022
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158 Financial Statements | Centrica plc Annual Report and Accounts 2022
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160 Financial Statements | Centrica plc Annual Report and Accounts 2022
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162 Financial Statements | Centrica plc Annual Report and Accounts 2022
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164 Financial Statements | Centrica plc Annual Report and Accounts 2022
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166 Financial Statements | Centrica plc Annual Report and Accounts 2022
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20212022
168 Financial Statements | Centrica plc Annual Report and Accounts 2022
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170 Financial Statements | Centrica plc Annual Report and Accounts 2022
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172 Financial Statements | Centrica plc Annual Report and Accounts 2022
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174 Financial Statements | Centrica plc Annual Report and Accounts 2022
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176 Financial Statements | Centrica plc Annual Report and Accounts 2022
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178 Financial Statements | Centrica plc Annual Report and Accounts 2022
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180 Financial Statements | Centrica plc Annual Report and Accounts 2022
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182 Financial Statements | Centrica plc Annual Report and Accounts 2022
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186 Financial Statements | Centrica plc Annual Report and Accounts 2022
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188 Financial Statements | Centrica plc Annual Report and Accounts 2022
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190 Financial Statements | Centrica plc Annual Report and Accounts 2022
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192 Financial Statements | Centrica plc Annual Report and Accounts 2022
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194 Financial Statements | Centrica plc Annual Report and Accounts 2022
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196 Financial Statements | Centrica plc Annual Report and Accounts 2022
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198 Financial Statements | Centrica plc Annual Report and Accounts 2022
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200 Financial Statements | Centrica plc Annual Report and Accounts 2022
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202 Financial Statements | Centrica plc Annual Report and Accounts 2022
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204 Financial Statements | Centrica plc Annual Report and Accounts 2022
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206 Financial Statements | Centrica plc Annual Report and Accounts 2022
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208 Financial Statements | Centrica plc Annual Report and Accounts 2022
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210 Financial Statements | Centrica plc Annual Report and Accounts 2022
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212 Financial Statements | Centrica plc Annual Report and Accounts 2022
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214 Financial Statements | Centrica plc Annual Report and Accounts 2022
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216 Financial Statements | Centrica plc Annual Report and Accounts 2022
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218 Financial Statements | Centrica plc Annual Report and Accounts 2022
Financial Statements | Centrica plc Annual Report and Accounts 2022 219
220 Financial Statements | Centrica plc Annual Report and Accounts 2022
Financial Statements | Centrica plc Annual Report and Accounts 2022 221
222 Financial Statements | Centrica plc Annual Report and Accounts 2022
Financial Statements | Centrica plc Annual Report and Accounts 2022 223
224 Financial Statements | Centrica plc Annual Report and Accounts 2022
Company Statement of Changes in Equity
Share
capital
£m
Share
premium
£m
Retained
earnings
£m
Other
equity
(note II)
£m
Total
equity
£m
1 January 2021 361 2,347 1,611 (5) 4,314
Profit for the year — — 976 — 976
Other comprehensive income — — — 10 10
Total comprehensive income — — 976 10 986
Employee share schemes and other sharetransactions 2 30 3 (24) 11
31 December 2021 363 2,377 2,590 (19) 5,311
Profit for the year — — 719 — 719
Other comprehensive loss — — — (51) (51)
Total comprehensive income/(loss) — — 719 (51) 668
Employee share schemes and other share transactions 2 17 (2) (14) 3
Share buyback programme
(i)
— — — (250) (250)
Dividends paid to equity holders — — (59) — (59)
31 December 2022 365 2,394 3,248 (334) 5,673
(i) See note I and note S4 of the Group consolidated Financial Statements for further details of the share buyback programme.
As permitted by section 408(3) of the Companies Act 2006 no Income Statement or Statement of Comprehensive Income is presented.
The Directors propose a final dividend of 2.00 pence per ordinary share (totalling £118 million) for the year ended 31 December 2022.
Details of the interim dividends are provided in note 11 to the Group consolidated Financial Statements.
Details of the Company’s share capital are provided in the Group Statement of Changes in Equity and note 25 to the Group consolidated
Financial Statements.
The notes on pages 227 to 236 form part of these Financial Statements, along with note 25 to the Group consolidated Financial
Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2022 225
Company Balance Sheet
2022
£m
2021
(restated)
£m31 December Notes
Non-current assets
Property, plant and equipment
IV
11 5
Investments
V
949 1,100
Deferred tax assets
XII
1 —
Trade and other receivables
VI
13,089 12,809
Derivative financial instruments
VII
101 86
Retirement benefit assets
XIV
56 102
Securities
IX
498 110
14,705 14,212
Current assets
Trade and other receivables
VI
1,500 848
Derivative financial instruments
VII
217 87
Cash and cash equivalents 3,395 3,627
5,112 4,562
Total assets 19,817 18,774
Current liabilities
Derivative financial instruments
VII
(211) (73)
Current tax liabilities — (1)
Trade and other payables
XI
(9,883) (9,160)
Provisions for other liabilities and charges (1) (1)
Bank overdrafts, loans and other borrowings
XIII
(905) (810)
(11,000) (10,045)
Non-current liabilities
Deferred tax liabilities
XII
— (14)
Derivative financial instruments
VII
(271) (6)
Trade and other payables
XI
(45) (154)
Provisions for other liabilities and charges (1) (1)
Retirement benefit obligations
XIV
(49) (66)
Bank loans and other borrowings
XIII
(2,778) (3,177)
(3,144) (3,418)
Total liabilities (14,144) (13,463)
Net assets 5,673 5,311
Share capital 365 363
Share premium 2,394 2,377
Retained earnings
(i)
3,248 2,590
Other equity
(ii)
II
(334) (19)
Total shareholders’ equity 5,673 5,311
(i) Retained earnings includes a net profit after taxation of £719 million (2021: £976 million profit).
(ii) Capital redemption reserve of (£179) million (including opening balance of £28 million) has been merged within ‘Other equity’ to align with Group consolidated Financial
Statements presentation.
The prior year has been restated to reclassify £104 million of expected credit loss provision on financial guarantee contracts from current
receivables owed by Group undertakings to current payables and shown as a separate liability as they do not meet IFRS 7 ‘Financial
Instruments: Disclosures’ criteria for financial guarantee contracts. See note I for further details.
The Financial Statements on pages 225 to 236, of which the notes on pages 227 to 236 form part, along with note 25 to the Group
consolidated Financial Statements, were approved and authorised for issue by the Board of Directors on 15 February 2023 and were
signed on its behalf by:
Chris O’Shea Kate Ringrose
Group Chief Executive Group Chief Financial Officer
Centrica plc Registered No: 03033654
226 Financial Statements | Centrica plc Annual Report and Accounts 2022
Notes to the Company Financial Statements
I. General information and principal accounting policies of the Company
General information
The Company is a public company limited by shares, incorporated and domiciled in the UK, and registered in England and Wales.
The registered office is Millstream, Maidenhead Road, Windsor, Berkshire, SL4 5GD.
The Company Financial Statements are presented in pounds sterling with all values rounded to the nearest million pounds. Pounds sterling
isthe functional currency of the Company.
(a) Basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the
definition of a qualifying entity under FRS 100 ‘Application of Financial Reporting Requirements’ issued by the FRC. Accordingly, these
financial statements are prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’.
(b) New accounting policies, standards, amendments and interpretations effective or adopted in 2022
From 1 January 2022, the following standards and amendments are effective in the Company’s Financial Statements:
• Amendments to IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, costs of fulfilling a contract;
• Amendments to IAS 16 ‘Property, Plant and Equipment’, sale proceeds before intended use;
• Amendments to IFRS 3 ‘Business Combinations’, reference to the Conceptual Framework; and
• Annual improvements to IFRS 2018-2020.
These changes and other amendments effective during the year did not materially impact the Company’s Financial Statements.
Pension Scheme Loan Arrangement
As a result of the turbulence in longer-dated UK government debt during the second half of the year, the Company provided a loan facility
to the Company’s three defined benefit pension schemes. The facility amounted to £550 million, of which £400 million (2021: £nil)
remained outstanding at the reporting date. Interest on the loan is calculated based on the Bank of England base rate plus 1%; interest
accrues over the two-year term of the loan and is paid by the pension schemes at maturity. See note 22 of Group consolidated Financial
Statements for further details. The Company has recognised the loan as a financial asset under IFRS 9 ‘Financial Instruments’ measured
at amortised cost and classified the receivable within Securities on the Company’s balance sheet. Correspondingly, the loan liability
hasbeen deducted from planassets on the basis that the loan does not relate to employee benefits (scheme liabilities) in accordance
withIAS19.
(c) Standards and amendments that are issued but not yet applied by the Company
At the date of authorisation of these Company Financial Statements, the Company has not applied the following new and revised
standards and amendments that have been issued but are not yet effective:
The following standard has been issued, endorsed and will be applied to the Company in future periods:
• IFRS 17 ‘Insurance Contracts’, effective from 1 January 2023.
The following standards and amendments have been issued, endorsed and will be applied to the Company in future periods, subject
toUK endorsement:
• Amendments to IAS 1 ‘Presentation of Financial Statements’:
– Disclosure of accounting policies and materiality judgements, effective 1 January 2023;
– Classification of liabilities as current or non-current, effective 1 January 2024; and
– Non-current liabilities with covenants, effective 1 January 2024.
• Amendments to IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’; effective from 1 January 2023;
• Amendments to IAS 12 ‘Income Taxes’; effective from 1 January 2023; and
• Amendments to IFRS 16 ‘Leases’; effective from 1 January 2024.
Management does not expect other issued but not effective amendments or standards, or standards not discussed above to have
amaterial impact on the Company’s Financial Statements.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to:
• the requirements of IAS 7 ‘Statement of Cash Flows’;
• the statement of compliance with Adopted IFRS;
• the effects of new but not yet effective IFRS;
• prior year reconciliations for property, plant and equipment and intangible assets;
• the prior year reconciliation in the number of shares outstanding at the beginning and at the end of the year for share capital;
• disclosures in respect of related party transactions with wholly owned subsidiaries in a group;
• disclosures in respect of the compensation of key management personnel; and
• disclosures in respect of capital management.
As the Group consolidated Financial Statements of Centrica plc, which are available from the registered office, include the equivalent
disclosures, the Company has taken the exemptions available under FRS 101 in respect of certain disclosures required by IFRS 13
‘FairValue Measurement’ and the disclosures required by IFRS 7 ‘Financial Instruments: Disclosures’. These disclosures have not been
provided apart from those that are relevant for financial instruments held at fair value.
Financial Statements | Centrica plc Annual Report and Accounts 2022 227
I. General information and principal accounting policies of the Company
Re-presentation of expected credit losses on financial guarantee contracts
In 2022, the Company has presented expected credit losses on financial guarantee contracts of £159 million (2021: £104 million) as
separate liabilities under the requirements of IFRS 7 ‘Financial Instruments: Disclosures’. The Company had previously presented them
within receivables as amounts owed by Group undertakings and has restated the prior period accordingly, see notes VI and XI.
Measurement convention
The Company Financial Statements have been prepared on the historical cost basis except for: investments in subsidiaries that have been
recognised at deemed cost on transition to FRS 101; derivative financial instruments, financial instruments required to be measured at fair
value through profit or loss or other comprehensive income, and those financial assets so designated at initial recognition, and the assets
of the defined benefit pension schemes that have been measured at fair value; the liabilities of the defined benefit pension schemes that
have been measured using the projected unit credit valuation method; and the carrying values of recognised assets and liabilities qualifying
as hedged items in fair value hedges that have been adjusted from cost by the changes in the fair values attributable to the risks that are
being hedged.
Going concern
The accounts have been prepared on a going concern basis, as described in the Directors’ Report and note 24(b) of the Group
consolidated Financial Statements.
Critical accounting judgements – share buyback programme
On 10 November 2022, the Company announced an intention to undertake a share buyback of £250 million, expected to complete by
31May 2023. The Company entered into contracts with third parties to undertake this repurchase programme and, as at 31 December
2022, £43 million of shares had been purchased. The Company has recognised a financial liability on the basis that the terms and
conditions of the contracts mean that, as at the year-end, it was unable to cancel the remaining obligation during the period to the
Group’s Preliminary Announcement on 16 February 2023. Accordingly, the Company has recorded a financial liability of £207 million
forthis remaining obligation, in accordance with IFRS 9 ‘Financial Instruments’.
Key sources of estimation uncertainty – subsidiary investment valuation
The Company is subject to estimation uncertainty related to the valuation of its investments in subsidiaries. Based on an impairment
review conducted at 31 December 2022, the carrying value of its investments in Centrica Holdings Limited was in excess of the
estimatedrecoverable amount and as a result, £140 million (2021: £nil) of impairment charge has been reflected as disclosed in note V.
The impairment resulted from the payment of a dividend of £1.5 billion (2021: £1.25 billion) to the Company from its immediate subsidiary.
This has resulted in an increase in the net assets of the Company but a reduction in the overall value of the remainder of the Group.
Thekey assumption used in determining the recoverable amount of the Company’s investments in subsidiaries is the use of an average
ofthird-party analysts’ ‘sum of the parts’ valuations for the Group’s business units. For recoverable amount purposes, this valuation is
allocated toeach of the Company’s relevant investments in subsidiaries and then compared with the carrying value of both the investment
and any net intercompany receivable position. Where a shortfall exists, the investment carrying value is impaired first. The key source of
estimation uncertainty relates to the analysts’ ‘sum of the parts’ valuation of the Group’s business units.
Principal accounting policies
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Company
Financial Statements.
Employee share schemes
The Group has a number of employee share schemes under which it makes equity-settled share-based payments as detailed in the
Remuneration Report on pages 84 to 95 and in note S2 to the Group consolidated Financial Statements. Equity-settled share-based
payments are measured at fair value at the date of grant (excluding the effect of non-market-based vesting conditions). The fair value
determined at the grant date is expensed on a straight-line basis together with a corresponding increase in equity over the vesting period,
based on the Group’s estimate of the number of awards that will vest and adjusted for the effect of non-market-based vesting conditions.
The issue of share incentives by the Company to employees of its subsidiaries represents additional capital contributions. When these
costs are recharged to the subsidiary undertaking, the investment balance is reduced accordingly. Fair value is measured using methods
detailed in note S2 to the Group consolidated Financial Statements.
Foreign currencies
The Company’s functional and presentational currency is pounds sterling. Transactions in foreign currencies are translated at the rate of
exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into pounds
sterling at closing rates of exchange. Exchange differences on monetary assets and liabilities are taken to the Income Statement.
Property, plant and equipment
PP&E is included in the Balance Sheet at cost, less accumulated depreciation and any provisions for impairment. The initial cost of an
asset comprises purchase price and construction cost and any costs directly attributable to bringing the asset into operation. The
purchase price orconstruction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.
Depreciation is charged so as to write off the cost of assets over their estimated useful lives, on a straight-line basis, over a period of 3 to
10years.
228 Financial Statements | Centrica plc Annual Report and Accounts 2022
I. General information and principal accounting policies of the Company
Investments
Fixed asset investments in subsidiaries’ shares are held at deemed cost on transition to FRS 101 and at cost in accordance with IAS 27
‘Separate Financial Statements’, less any provision for impairment as necessary.
Impairment
Impairment of investments in subsidiaries and non-financial assets
The Company’s accounting policies in respect of impairment of property, plant and equipment, and intangible assets are consistent with
those of the Group.
The carrying values of investments in subsidiary undertakings are reviewed at each reporting date to determine whether there is any
indication ofimpairment. If any such indication exists, then the asset’s recoverable amount is estimated.
The recoverable amount of an investment in a subsidiary undertaking is the greater of its value in use and its fair value less cost of
disposal. Inassessing a fair value less cost of disposal, an average of third-party analysts’ ‘sum of the parts’ valuations for the Group’s
business units is taken and allocated to specific investments. This is then compared with the investment carrying value and net
intercompany receivable.
Refer to Critical accounting judgements and key sources of estimation uncertainty within note I and note V for more details on the
impairment charge on investments in subsidiaries recognised during the year.
Impairment of other financial assets and credit losses for financial guarantee contracts
The Company’s impairment policies in relation to financial assets are consistent with those of the Group, with additional consideration
given to amounts owed by Group undertakings. Except for certain loans due in greater than one year, all outstanding receivable balances
are repayable on demand and arise from funding provided by the Company to its subsidiaries. Where net receivers of funding are unable
to repay loan balances infull at maturity, or if the debt was otherwise called upon, the Company expects that in such circumstances the
counterparty would either negotiate extended credit terms with the Company or obtain external financing to repay the balance. As such,
this is considered a significant risk of causing material adjustment to the carrying amounts of financial assets within the next financial year.
A detailed review of the amounts owed by Group undertakings for the expected credit loss provision is carried out on an annual basis.
Themodel considers whether the receivable is repayable on demand within a 12-month period and the probability of default by the
counterparty. As at 31 December 2022, there was a cumulative provision for expected credit losses on current financial assets of
£15million (2021: £97 million) as disclosed in note VI (i) and on non-current financial assets of £872 million (2021:£640 million) as
disclosed in note VI (ii).
The Company has applied the impairment requirements of IFRS 9 to financial guarantees issued to its subsidiary undertakings. A financial
guarantee contract is measured at fair value at the reporting date and where the expected credit loss is higher than calculated on
recognition, an additional liability is recognised. Expected credit losses which arise on such arrangements have been calculated according
to the nature of the guarantee and the Company’s estimate of potential exposure at the balance sheet date. In 2022, there was a net
provision for expected credit losses on financial guarantees contracts of £159 million (2021: £104 million) as disclosed in note XI (iv). The
significant increase in the provision is due to the increased short-term derivative liabilities in the market-facing entities which actively trade
and are exposed to the risk of market price volatility during the year.
Pensions and other post-employment benefits
The Company’s employees participate in a number of the Group’s defined benefit pension schemes. The total Group cost of providing
benefits under defined benefit schemes is determined separately for each of the Group’s schemes under the projected unit credit actuarial
valuation method. Actuarial gains and losses are recognised in full in the period in which they occur. The key assumptions used for the
actuarial valuation are based on the Group’s best estimate of the variables that will determine the ultimate cost of providing post-
employment benefits, on which further detail is provided in notes 3(b) and 22 to the Group consolidated Financial Statements.
The Company’s share of the total Group surplus or deficit at the end of the reporting period for each scheme is calculated in proportion to
the Company’s share of ordinary employer contributions to that scheme during the year; ordinary employer contributions are determined
by the pensionable pay of the Company’s employees within the scheme and the cash contribution rates set by the scheme trustees. Note
that as a participant in these multi-employer schemes, the Company could be liable for other entities’ obligations (for example under
section 75 of the Pensions Act). See note 22 of the Group consolidated Financial Statements for details of the overall scheme obligations.
Current service cost iscalculated with reference to the pensionable pay of the Company’s employees. The Company’s share of the total
Group interest on scheme liabilities, expected return on scheme assets and actuarial gains or losses is calculated in proportion to ordinary
employer contributions in the prior accounting period. Changes in the surplus or deficit arising as a result of the changes in the Company’s
share of total ordinary employer contributions are also treated as actuarial gains or losses.
Financial Statements | Centrica plc Annual Report and Accounts 2022 229
I. General information and principal accounting policies of the Company
Taxation
Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences identified at the balance sheet date, except for differences arising on:
• the initial recognition of an asset or liability in a transaction which is not a business combination and which at the time of the transaction
affects neither accounting profit nor taxable profit; and
• investments in subsidiaries where the Company is able to control the timing of the reversal of the difference and it is probable that the
difference will not reverse in the foreseeable future.
Temporary differences are differences between the carrying amount of the Company’s assets and liabilities and their tax base.
Deferred tax assets and liabilities are offset when the Company has a legally enforceable right to offset current tax assets and liabilities and
the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
Deferred tax assets that are not eligible for offset against deferred tax liabilities are recognised only when, on the basis of all available
evidence, itcan be regarded as probable that there will be suitable taxable profits in the foreseeable future, against which the deductible
temporary difference can be utilised.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the asset is realised or the liability is
settled, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Measurement of
deferred tax liabilities and assets reflects the tax consequences expected from the manner in which the asset or liability is recovered
orsettled.
The tax expense for the year comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent that
itrelates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
Financial instruments
The Company’s accounting policies for financial instruments are consistent with those of the Group as disclosed in note S2 to the Group
consolidated Financial Statements. The Company’s financial risk management policies are consistent with those of the Group and are
described in the Strategic Report – Principal Risks and Uncertainties on pages 28 to 33 and in note S3 to the Group consolidated
Financial Statements.
Financial guarantees
Financial guarantees are contracts that require the Company to make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. The Company accounts
for financial guarantee contracts at fair value under IFRS 9.
Presentation of derivative financial instruments
In line with the Group’s accounting policy for derivative financial instruments, the Company has classified those derivatives held for the
purpose of treasury management as current or non-current, based on expected settlement dates.
230 Financial Statements | Centrica plc Annual Report and Accounts 2022
II. Other equity
Cash flow
hedging
reserve
£m
Actuarial gains
and losses
reserve
£m
Financial asset
at FVOCI
reserve
£m
Treasury and
own shares
reserve
£m
Share-based
payments
reserve
£m
Capital
redemption
reserve
(ii)
£m
Total
£m
1 January 2021 8 (96) 7 (31) 79 28 (5)
Gains on revaluation of equity investments
measured at fair value through other
comprehensive income — — 4 — — — 4
Actuarial gains — 11 — — — — 11
Employee share schemes:
Exercise of awards — — — 13 (49) — (36)
Value of services provided — — — — 12 — 12
Impact of cash flow hedging (1) — — — — — (1)
Taxation on above items (2) (2) — — — — (4)
31 December 2021 5 (87) 11 (18) 42 28 (19)
Actuarial losses — (44) — — — — (44)
Employee Share Schemes:
Exercise of awards — — — 10 (22) — (12)
Value of services provided — — — — 10 — 10
Purchase of own shares — — — (5) — — (5)
Issue of shares — — — (7) — — (7)
Share buyback programme:
(i)
Purchase of Treasury shares — — — (43) — — (43)
Accrual for committed share purchases — — — — — (207) (207)
Impact of cash flow hedging (26) — — — — — (26)
Taxation on above items 8 11 — — — — 19
31 December 2022
(13) (120) 11 (63) 30 (179) (334)
(i) See note I and Note S4 of the Group consolidated Financial Statement for further details of the share buyback programme.
(ii) Capital redemption reserve of £(179) million (including opening balance of £28 million) merged within ‘Other equity’ to align with Group consolidated Financial
Statementspresentation.
III. Directors and employees
Employee costs
Year ended 31 December
2022
£m
2021
£m
Wages and salaries (7) (7)
Other (8) (8)
(15) (15)
Average number of employees during the year
Year ended 31 December
2022
Number
2021
Number
Administration 138 107
Power 8 19
146 126
Financial Statements | Centrica plc Annual Report and Accounts 2022 231
IV. Property, plant and equipment
Plant,
equipment &
vehicles
2022
£m
Cost
1 January
31
Additions 12
Disposals/retirements (31)
31 December
12
Accumulated depreciation
1 January (26)
Charge for the year (6)
Disposals/retirements 31
31 December
(1)
NBV at 31 December
(i)
11
(i) Included within the above are right-of-use assets of £9 million relating to infrastructure services (2021: £5 million), the contract of which was renewed in September 2022,
and £2 million of staff salary sacrifice electric vehicles (2021: £nil).
V.
Investments in subsidiaries
2022 (i)
£m
2021 (i)
£m
Cost
1 January
2,273
2,290
Employee share scheme net capital movement
(ii)
(11)
(17)
31 December
2,262
2,273
Provision
1 January
(1,173)
(1,173)
Impairment provided in the year
(iii)
(140)
—
31 December
(1,313)
(1,173)
NBV at 31 December
949
1,100
(i) Direct investments are held in Centrica Holdings Limited, Centrica Trading Limited and Centrica Beta Holdings Limited, all of which are incorporated in England, and
Rhodes Holdings HK Limited, which is incorporated in Hong Kong and Centrica Ireland Holdings Limited, which was incorporated in Ireland in November 2022. Related
undertakings are listed in note S10 to the Group consolidated Financial Statements.
(ii) Employee share scheme movement is the net change in shares to be awarded under employee share schemes to employees of Group undertakings.
(iii) An impairment charge was recognised during the year, predominantly in relation to the investment in Centrica Holdings Limited.
The Directors believe that the carrying value of the investments is supported by their realisable value.
VI.
Trade and other receivables
2022 2021 (restated)
(iii)
31 December
Current
(i)
£m
Non-current
(ii)
£m
Current
(i)
£m
Non-current
(ii)
£m
Amounts owed by Group undertakings 1,496 13,085 645 12,804
Prepayments 4 4 203 5
1,500 13,089 848 12,809
(i) The amounts receivable by the Company includes a gross balance of £1,424 million (2021: £80 million) that bears interest at a quarterly rate determined by Group treasury
and linked to the Group cost of funds. The quarterly rates ranged between 0% and 4.1% per annum during 2022 (2021: 3% and 4.6%). The other amounts receivable
from Group undertakings are interest free. All amounts receivable from Group undertakings are unsecured and repayable on demand. Amounts receivable by the
Company are stated net of credit loss provisions of £15 million (Restated 2021: £97 million).
(ii) The amounts receivable by the Company includes a gross balance of £14,206 million (2021: £13,335 million) due after more than one year that bears interest at a quarterly
rate determined by Group treasury and linked to the Group cost of funds. The quarterly rates ranged between 0% and 4.1% per annum during 2022 (2021: 3% and
4.6%).The other amounts receivable from Group undertakings are interest-free. All amounts receivable from Group undertakings are unsecured and not expected to be
repayable within 12 months from the reporting date. Amounts receivable by the Company are stated net of credit loss provisions of £872 million (2021: £640 million).
(iii) The prior year has been restated to reclassify £104 million of expected credit losses on financial guarantee contracts from current receivables owed by Group
undertakings to current payables and shown as a separate liability. See note I for further details.
232 Financial Statements | Centrica plc Annual Report and Accounts 2022
VII.
Derivative financial instruments
2022 2021
31 December
Current
£m
Non-current
£m
Total
£m
Current
£m
Non-current
£m
Total
£m
Derivative financial assets
217 101 318
87 86 173
Derivative financial liabilities
(211) (271) (482)
(73) (6) (79)
VIII
Financial instruments
(a)
Determination of fair values
The Company’s policies for the classification and valuation of financial instruments carried at fair value are consistent with those of the
Group, asdetailed in note S6 to the Group consolidated Financial Statements.
(b) Financial instruments carried at fair value
2022 2021
31 December
Level 1
£m
Level 2
£m
Total
£m
Level 1
£m
Level 2
£m
Total
£m
Financial assets
Derivative financial assets held for trading:
Foreign exchange derivatives
— 243 243 — 70 70
Derivative financial assets in hedge accounting relationships:
Interest rate derivatives
— 37 37 — 71 71
Foreign exchange derivatives
— 38 38 — 32 32
Debt instruments
66 — 66 82 — 82
Equity instruments designated FVOCI
29 — 29 28 — 28
Cash and cash equivalents
— 2,809 2,809 — 3,485 3,485
Total financial assets at fair value
95 3,127 3,222 110 3,658 3,768
Financial liabilities
Derivative financial liabilities held for trading:
Foreign exchange derivatives
— (257) (257) — (74) (74)
Derivative financial liabilities in hedge accounting relationships:
Interest rate derivatives
— (221) (221) — — —
Foreign exchange derivatives
— (4) (4) — (5) (5)
Total financial liabilities at fair value
— (482) (482) — (79) (79)
IX. Securities
2022 2021
31 December £m £m
Debt instruments 66 82
Equity instruments 29 28
Other 403 —
498 110
£95 million (2021: £110 million) of investments were held in trust, on behalf of the Company, as security in respect of the Centrica
Unfunded Pension Scheme (refer to note XIV).
Other securities includes the pension scheme loan arrangement (including interest) of £403 million 2021: £nil) as disclosed in note I(b),
note XIV(f) and in note 22(b) to the Group consolidated Financial Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2022 233
X.
Lease liabilities maturity analysis
A maturity analysis of lease liabilities based on undiscounted gross cash flow is reported in the table below:
2022 2021
£m £m
Less than one year 4 5
2 years 4 —
3 years 3 —
Total lease liabilities (undiscounted) 11 5
Future finance charges are expected to be £0.5 million (2021: £0.02 million).
Analysed as:
Non-current 7 —
Current 4 5
11 5
XI. Trade and other payables
2022 2021(restated)
(iv)
31 December
Current
(i)
£m
Non-current
(ii)
£m
Current
(i)
£m
Non-current
(ii)
£m
Amounts owed by Group undertakings
(9,503) (45)
(9,044) (154)
Loss on financial guarantee contracts
(iv)
(159) — (104) —
Accruals and other creditors
(iii)
(221) —
(12) —
(9,883) (45)
(9,160) (154)
(i) The amounts payable by the Company include £8,577 million (2021: £7,658 million) that bears interest at a quarterly rate determined by Group treasury and linked to the
Group cost of funds. The quarterly rates ranged between 0% and 4.1% per annum during 2022 (2021: 3% and 4.6%). Other amounts payable by the Company are
interest free, unsecured and repayable on demand. Refer to note I for further details.
(ii) There were no amounts payable by the Company due after more than one year that bear interest at the prevailing SONIA rate less 0.05% (2021: £141 million). The 2021
£141 million loan was fully settled after the obligations to repay were discharged by Centrica Lake Limited in April 2022. Other amounts payable by the Company are
interest free, unsecured and repayable on demand.
(iii) During the year, the Company recognised a financial liability of £207 million (2021: £nil) relating to the share buyback programme. See note I and Own and treasury shares
reserve section in note S4 of the Group consolidated Financial Statements for more details.
(iv) The prior year has been restated to reclassify £104 million of expected credit losses on financial guarantee contracts from current receivables owed by Group
undertakings to current payables and shown as a separate liability. See note I for further details.
XII.
Deferred tax
Retirement
benefit
obligation
£m
Other
£m
Total
£m
1 January 2021 7 (9) (2)
Charge to income (7) (1) (8)
Charge to equity (2) (2) (4)
Deferred tax liabilities at 31 December 2021 (2) (12) (14)
(Charge)/credit to income (6) 2 (4)
Credit to equity 11 8 19
Deferred tax assets/(liabilities) at 31 December 2022 3 (2) 1
Other deferred tax liabilities primarily relate to other temporary differences. All deferred tax crystallises in over one year.
XIII. Bank overdrafts, loans and other borrowings
2022 2021
31 December
Current
£m
Non-current
£m
Current
£m
Non-current
£m
Bank loans and overdrafts (600) (143) (453) (137)
Bonds (246) (2,628) (284) (3,040)
Interest accruals (55) — (68) —
Lease obligations (4) (7) (5) —
(905) (2,778) (810) (3,177)
Disclosures in respect of the Group’s financial liabilities are provided in notes 24 and S3 to the Group consolidated Financial Statements.
With the exception of leases and overdrafts, materially all of the Group’s financing activity is carried out through the Company.
234 Financial Statements | Centrica plc Annual Report and Accounts 2022
XIV. Pensions
(a) Summary of main schemes
The Company’s employees participate in the following Group defined benefit pension schemes: Centrica Pension Plan (CPP), Centrica
Pension Scheme (CPS) and Centrica Unfunded Pension Scheme. Its employees also participate in the defined contribution section of the
Centrica Pension Scheme. Information on these schemes is provided in note 22 to the Group consolidated Financial Statements.
Together with the Centrica Engineers Pensions Scheme (CEPS), CPP and CPS form the significant majority of the Group’s and
Company’s defined benefit obligation and are referred to below and in the Group Financial Statements as the ‘Registered Pension
Schemes’.
(b) Accounting assumptions, risks and sensitivity analysis
The accounting assumptions, risks and sensitivity analysis for the Registered Pension Schemes are provided in note 22 to the Group
consolidated Financial Statements.
(c) Movements in the year
2022 2021
Pension liabilities
£m
Pension assets
£m
Pension liabilities
£m
Pension assets
£m
1 January (1,328) 1,364 (1,611) 1,583
Items included in the Company Income Statement:
Current service cost (6) — (5) —
Contributions by employer in respect of employee salary
sacrifice arrangements
(i)
(2) — (2) —
Total current service cost (8) — (7) —
Expected return on scheme assets — — — 26
Interest (expense)/income on scheme liabilities/assets (24) 27 (23) —
Termination benefit 1 — 4 —
Items included in the Company Statement of Comprehensive
Income:
Returns on plan assets, excluding interest income — (633) — (250)
Actuarial gain from changes to demographic assumptions 4 — — —
Actuarial gain from changes in financial assumptions 621 — 288 —
Actuarial loss from experience adjustments (36) — (27) —
Other movements:
Employer contributions — 17 — 52
Contributions by employer in respect of employee salary
sacrifice arrangements
— 2 — 1
Benefits paid from schemes 39 (39) 48 (48)
31 December (731) 738 (1,328) 1,364
(i) A salary sacrifice arrangement was introduced on 1 April 2013 for pension scheme members. The contributions paid via the salary sacrifice arrangement have been
treated as employer contributions and included within the current service cost, with a corresponding reduction in salary costs.
Presented in the Company Balance Sheet as:
31 December
2022
£m
2021
£m
Retirement benefit pension assets 56 102
Retirement benefit pension liabilities (49) (66)
The pension scheme liabilities relate to the Centrica Unfunded Pension Scheme.
Financial Statements | Centrica plc Annual Report and Accounts 2022 235
XIV. Pensions
(d) Analysis of the actuarial losses recognised in reserves
Year ended 31 December
2022
£m
2021
£m
Actuarial loss (actual return less expected return on pension scheme assets) (633) (250)
Experience loss arising on the scheme liabilities (36) (27)
Changes in assumptions underlying the present value of the schemes’ liabilities
625 288
Actuarial (loss)/gain recognised in reserves before adjustment for taxation (44) 11
Cumulative actuarial losses recognised in reserves at 1 January, before adjustment for taxation
(108) (119)
Cumulative actuarial losses recognised in reserves at 31 December, before adjustment for taxation (152) (108)
(e) Defined benefit pension scheme contributions
Note 22 to the Group consolidated Financial Statements provides details of the triennial review carried out at 31 March 2021 in respect of
the UK Registered Pension Schemes and the future pension scheme contributions, including asset-backed arrangements, agreed as part
of this review. Under IAS19, the Company’s contribution and trustee interest in the Scottish Limited Partnerships are recognised as
scheme assets.
The Company estimates that it will pay £54 million of employer contributions during 2023 for its defined benefit schemes, at an average
rate of 21% of pensionable pay, together with contributions via the salary sacrifice arrangement of £26 million.
For details of the weighted average duration of the liabilities of the Registered Pension Schemes see note 22 of the Group consolidated
Financial Statements.
(f) Pension scheme assets
2022 2021
31 December
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
Unquoted
£m
Total
£m
Equities 19 486 505 20 462 482
Corporate bonds 24 — 24 2,393 31 2,424
High-yield debt 106 1,331 1,437 2,720 1,197 3,917
Liability matching assets 2,835 1,343 4,178 1,963 1,356 3,319
Property — 366 366 — 439 439
Cash pending investment 205 — 205 85 — 85
Loan and interest — (403) (403) — — —
Asset-backed contribution assets — 527 527 — 600 600
Group pension scheme assets
(i)
3,189 3,650 6,839 7,181 4,085 11,266
2022
£m
2021
£m
Company share of the above 738 1,364
(i) Total pension scheme assets, including asset-backed contribution assets not recognised in the Group consolidated Financial Statements.
XV. Commitments
At 31 December 2022, the Company had commitments of £66 million (2021: £71 million) relating to contracts for outsourced services,
£177 million ( 2021: £59 million) relating to the contracts for information services centralised last year and £5 million (2021: £5 million)
relating tocontracts for property services.
The Company has provided guarantees and letters of credit relating to its subsidiaries’ trading activities and decommissioning obligations.
At31 December 2022, the Group has derivative liabilities of £10,151 million (2021: £6,009 million), and decommissioning liabilities of
£1,514million (2021: £1,521 million). See notes 19 and 21 to the Group consolidated Financial Statements for further information on
thesebalances.
XVI. Related parties
During the year the Company accepted cash deposits on behalf of the Spirit Energy group of companies giving rise to a Trade and other
payables balance of £1,091 million (2021: £1,161 million). Spirit Energy Limited is a subsidiary of the Company, held indirectly, that is not
wholly owned. See note 3 to the Group consolidated Financial Statements for more information.
236 Financial Statements | Centrica plc Annual Report and Accounts 2022
Gas and Liquids Reserves (Unaudited)
The Group’s estimates of reserves of gas and liquids are reviewed as part of the full year reporting process and updated accordingly.
A number of factors affect the volumes of gas and liquids reserves, including the available reservoir data, commodity prices and future
costs. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of reserves are subject to change as additional
information becomes available.
The Group discloses 2P gas and liquids reserves, representing the central estimate of future hydrocarbon recovery. Reserves for Centrica
operated fields are estimated by in-house technical teams composed of geoscientists and reservoir engineers. Reserves for non-operated
fields are estimated by the operator but are subject to internal review and challenge.
As part of the internal control process related to reserves estimation, an assessment of the reserves, including the application of the
reserves definitions, is undertaken by an independent technical auditor. An annual reserves assessment has been carried out by DeGolyer
& McNaughton for the Group’s global reserves. Reserves are estimated in accordance with a formal policy and procedure standard.
The Group has estimated 2P gas and liquids reserves in Europe.
The principal retained fields in Spirit Energy are Cygnus, South and North Morecambe, Rhyl and Chiswick. The principal non-Spirit Energy
field is Rough. The European reserves estimates are consistent with the guidelines and definitions of the Society of Petroleum Engineers,
the Society of Petroleum Evaluation Engineers and the World Petroleum Council’s Petroleum Resources Management System using
accepted principles.
Estimated net 2P reserves of gas
(billion cubic feet)
Spirit Energy –
Norway/Statfjord
(i)
Spirit Energy –
retained fields
(i)
Rough Total
1 January 2022 189 296 26 511
Revisions of previous estimates
(ii)
— 33 8 41
Disposals
(iii)
(178) — — (178)
Production
(iv)
(11) (68) (18) (97)
31 December 2022 — 261 16 277
Estimated net 2P reserves of liquids
(million barrels)
Spirit Energy –
Norway/Statfjord
(i)
Spirit Energy –
retained fields
(i)
Rough Total
1 January 2022 55 1 — 56
Revisions of previous estimates
(ii)
— 1
—
1
Disposals
(iii)
(53) —
—
(53)
Production
(iv)
(2) (1)
—
(3)
31 December 2022 — 1 — 1
Estimated net 2P reserves
(million barrels of oil equivalent)
Spirit Energy –
Norway/Statfjord
(i)
Spirit Energy –
retained fields
(i)
Rough Total
31 December 2022
(v)
— 45 3 48
(i) The movements represent Centrica’s 69% interest in Spirit Energy.
(ii) Revision of previous estimates include those associated with Cygnus
(iii) Disposal of Spirit Energy entire Norwegian portfolio and Statfjord field.
(iv) Represents total sales volumes of gas and oil produced from the Group’s reserves.
(v) Includes the total of estimated gas and liquids reserves at 31 December 2022 in million barrels of oil equivalent.
Liquids reserves include oil, condensate and natural gas liquids.
Financial Statements | Centrica plc Annual Report and Accounts 2022 237
Five Year Summary (Unaudited)
2018 (restated)
(i) (ii)
£m
2019 (restated)
(ii)
£m
2020 (restated)
(ii)
£m
2021
£m
2022
£m
Group revenue from continuing operations included in business performance
(i)
16,465 15,958 14,949 18,300 33,637
Operating profit/(loss) from continuing operations before exceptional items and
certain re-measurements:
British Gas Services & Solutions
(ii) (iii)
101 187 191 121 (9)
British Gas Energy
(ii) (iii)
490 117 82 118 72
Bord Gáis Energy
(ii) (iii)
44 50 42 28 31
Centrica Business Solutions
(ii) (iii)
(40) (20) (132) (52) 44
Energy Marketing & Trading
(ii) (iii)
35 138 174 70 1,400
Upstream
(ii) (iii)
567 178 90 663 1,793
Profit share — — — — (23)
1,197 650 447 948 3,308
Operating profit from discontinued operations before exceptional items and
certain re-measurements
(ii) (iii)
195 251 252 — —
Exceptional items and certain re-measurements after taxation
(416) (1,531) (520) 866 (2,755)
Profit/(loss) attributable to equity holders of the parent
183 (1,023) 41 1,210 (782)
Pence Pence Pence Pence Pence
Earnings per ordinary share
3.3 (17.8) 0.7 20.7 (13.3)
Adjusted earnings per ordinary share
11.2 7.3 6.5 4.1 34.9
Dividend per ordinary share in respect of the year
12.0 1.5 — — 1.0
Assets and liabilities
31 December (restated)
(v)
2018
£m
2019
£m
2020
£m
2021
£m
2022
£m
Goodwill and other intangible assets
4,456 4,033 1,940 1,161 1,116
Other non-current assets
(iv)
7,435 5,826 4,767 6,040 7,234
Net current assets/(liabilities)
284 (696) 622 1,465 (1,023)
Non-current liabilities
(iv)
(8,227) (7,474) (8,072) (6,360) (6,047)
Net assets of disposal groups held for sale
— 106 2,125 444 —
Net assets
3,948 1,795 1,382 2,750 1,280
Adjusted net (debt)/cash
(v)
(note 24)
(2,946) (3,507) (2,998) 680 1,199
Cash flows
31 December (restated)
(v)
2018
£m
2019
£m
2020
£m
2021
£m
2022
£m
Cash flow from operating activities before exceptional payments
2,182 1,548 1,532 1,687 1,338
Payments relating to exceptional charges in operating costs
(248) (298) (132) (76) (24)
Net cash flow from investing activities
(1,007) (503) (285) 2,263 (566)
Cash flow before cash flow from financing activities
927 747 1,115 3,874 748
(i) 2018 Group revenue included in business performance has been restated to include the net result of certain commodity purchases and sales trades that are deemed to
be speculative in nature.
(ii) Results have been restated to reflect the new operating structure of the Group, effective during 2021.
(iii) Adjusted operating profit has been restated to include the impact of business performance interest and taxation of joint ventures and associates.
(iv) Results from the 2018 figures have not been presented in line with IFRS 16 ‘Leases’.
(v) Results have been restated to reflect the change in definition of adjusted net debt/cash in 2021.
238 Financial Statements | Centrica plc Annual Report and Accounts 2022
Ofgem Consolidated Segmental Statement
Independent Auditor’s Report to the Directors of Centrica plc and its Licensees
In our opinion the accompanying statement (the ‘Consolidated Segmental Statement’ or ‘CSS’) of Centrica plc and its Licensees for the
year ended 31 December 2022 is prepared, in all material respects, in accordance with:
– the requirements of Ofgem’s Standard Condition 19A of the Gas and Electricity Supply Licences and Standard Condition 16B of the
Electricity Generation Licences established by the regulator Ofgem; and
– the basis of preparation on pages 246 to 249.
We have audited the Consolidated Segmental Statement of Centrica plc and its Licensees (as listed in footnote (i)) (the Group) for the year
ended 31 December 2022 in accordance with the terms of our engagement letter dated 15 February 2023. The Consolidated Segmental
Statement has been prepared by the Directors of Centrica plc and its Licensees based on the requirements of Ofgem’s Standard
Condition 19A and the Gas and Electricity Supply Licences and Standard Condition 16B of the Electricity Generation Licences (together,
the ‘Licences’) and the basis of preparation on pages 246 to 249.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
underthose standards are further described in the auditor’s responsibilities for the audit of the CSS section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the CSS in the United
Kingdom, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard, and we have fulfilled our other ethical responsibilities
inaccordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis forour opinion.
Emphasis of matter – basis of accounting
We draw attention to pages 246 to 249 of the CSS which describes the basis of accounting. The CSS is prepared to assist the Company
in complying with the requirements of Ofgem’s Standard Condition 19A of the Gas and Electricity Supply Licences and Standard
Condition 16B of the Electricity Generation Licences established by the regulator Ofgem. The basis of preparation is not the same as
segmental reporting under IFRS and/or statutory reporting. As a result, the CSS may not be suitable for another purpose. Our opinion
isnot modified in respect of this matter.
Conclusions relating to going concern
In auditing the CSS, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the CSS
isappropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from
when the CSS is authorised for issue. Our responsibilities and the responsibilities of the Directors with respect to going concern are
described in the relevant sections of this report.
Other information
The other information comprises the information included in the Annual Report, other than the CSS and our auditor’s report thereon. The
Directors are responsible for the other information contained within the annual report. Our opinion on the CSS does not cover the other
information and we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with
the CSSor our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the
CSS.If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required toreport that fact.
We have nothing to report in this regard.
Responsibilities of the Directors
The Directors are responsible for the preparation of the CSS in accordance with the Licences and the basis of preparation on pages 246
to 249 and for such internal control as the Directors determine is necessary to enable the preparation of the CSS that are free from
material misstatement, whether due to fraud or error.
In preparing the CSS, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to
liquidate the Group or tocease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the CSS
Our objectives are to obtain reasonable assurance about whether the CSS as a whole is free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of this CSS.
A further description of our responsibilities for the audit of the CSS is located on the Financial Reporting Council’s website at frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022 239
Independent Auditor’s Report to the Directors of Centrica plc and its Licensees
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
We considered the nature of the Group’s industry and its control environment, and reviewed the Group’s documentation of their
policiesand procedures relating to fraud and compliance with laws and regulations. We also enquired of management, the directors
andinternal audit about their own identification and assessment of the risks of irregularities including those that are specific
to Centrica’s business sector.
We obtained an understanding of the legal and regulatory frameworks that the Group operates in, and identified the key laws and
regulations that:
• had a direct effect on the determination of material amounts and disclosures in the CSS. These included UK Companies Act and
Ofgem’s Standard Condition 19A of the Electricity and Gas Supply Licences and Standard Condition 16B of the Electricity Generation
Licences; and
• do not have a direct effect on the CSS but compliance with which may be fundamental to the Group’s ability to operate or to avoid a
materialpenalty.
We discussed among the audit engagement team including significant component audit teams regarding the opportunities and incentives
that may exist within the organisation for fraud and how and where fraud might occur in the CSS.
As a result of performing the above, we identified the greatest potential for fraud in the following area, and our specific procedures
performed toaddress it are described below:
• Credit losses on financial assets within the Group’s energy supply businesses (‘Bad debt provisions’). Our audit approach for bad debt
provisions was a combination of data analytics, substantive audit procedures and tests of internal control.
• Accuracy and completeness of customer revenue processed through the ENSEK platform. Given the significant quantum of revenue,
the developing controls environment and the difference from legacy SAP systems in the methodology used to derive unbilled revenue
related to customers on ENSEK, there is a risk, including a fraud risk over the accuracy and completeness of the revenue recognised.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management
override. In addressing the risk of fraud through management override of controls, we tested the appropriateness of journal entries and
other adjustments; assessed whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluated the business rationale of any significant transactions that are unusual or outside the normal course of business.
In addition to the above, our procedures to respond to the risks identified included the following:
• reviewing financial statement disclosures by testing to supporting documentation to assess compliance with provisions of relevant laws
and regulations described as having a direct effect on the CSS;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due tofraud;
• enquiring of management, internal audit and in-house legal counsel concerning actual and potential litigation and claims, and instances
ofnon-compliance with laws and regulations; and
• reading minutes of meetings of those charged with governance, and reviewing internal audit reports.
Use of this report
This report is made solely to the Group’s Directors, as a body, in accordance with our engagement letter dated 15 February 2023 and
solely for the purpose of assisting the Directors in reporting on the CSS to the regulator Ofgem. We permit this report to be displayed on
the Centrica plc website centrica.com and within the December 2022 Annual Report & Accounts (see footnote (ii)) to enable the Directors
to show they have addressed their governance responsibilities by obtaining an independent assurance report in connection with the CSS.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Directors as a body and
Centrica plc, for our work or this report, or for the opinions we have formed. The materiality level we used in planning and performing our
audit was £50 million.
The engagement partner on the audit resulting in this independent auditor’s report is Jane Boardman.
Deloitte LLP
15 February 2023
London
(i) British Gas Trading Limited, Neas Energy Limited, Centrica Brigg Limited (which changed its name to CBS Energy Storage Assets UK Limited on 15 February 2023),
Centrica Distributed Generation Limited, Centrica KPS Limited, and EDF Energy Nuclear Generation Limited.
(ii) The maintenance and integrity of Centrica plc’s website is the responsibility of the Directors of Centrica plc; the work carried out by the auditors does not involve
consideration of these matters and accordingly, the auditors accept no responsibility for any changes that may have occurred to the CSS since it was initially presented
on the website.
240
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022
Introduction
The Ofgem Consolidated Segmental Statement (CSS) and required regulatory information on pages 241 to 251 are
provided in order to comply with Standard Condition 16B of the Electricity Generation Licences and Standard Condition
19A of the Electricity and Gas Supply Licences.
The CSS and supporting information is prepared by the Directors in accordance with the Segmental Statements Guidelines issued by
Ofgem. The CSS has been derived from and reconciled to the Centrica plc Annual Report and Accounts for the year ended 31 December
2022, which have been prepared in accordance with the United Kingdom adopted International Accounting Standards, with International
Financial Reporting Standards as issued by the IASB and in conformity with the requirements of the Companies Act 2006.
Centrica plc operational reporting structure
Below is a summary of the Centrica plc Group’s (Group) operational reporting structure. The CSS financial data has been extracted from
the Centrica plc Annual Report and Accounts 2022 operating segments rather than with reference to specific legal entities. Certain
activities included in the Group’s operating segments have been excluded from the Generation and Supply segments of the CSS on the
basis they are non-licensed activities (for example Services and Solutions and other trading activity unrelated to Generation or Supply) as
illustrated below. TheCentrica plc Annual Report and Accounts 2022 provides operating segment results in note 4. A full reconciliation
between the relevant operating segment results and those disclosed for ‘Domestic Supply’, ‘Non-Domestic Supply’ and ‘Generation’ in
this CSS is provided at the end of the report.
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022 241
Centrica plc operational reporting structure
Centrica plc is the ultimate parent company of all 100% owned licensees. The individual supply and generation licences are held in legal
entities whose licensed activities are reported as part of the Centrica plc Annual Report and Accounts 2022 within the operating segments
shown above. The individual supply and generation licences held in subsidiaries, joint ventures or associates of Centrica plc at
31December 2022 are detailed below:
Licensee Licence Ownership
British Gas Trading Limited Supply 100%
Neas Energy Limited
(i)
Supply 100%
Centrica Brigg Limited
(ii)
Exempt 100%
Centrica KPS Limited Generation 100%
Centrica Distributed Generation Limited Exempt 100%
EDF Energy Nuclear Generation Limited
(iii)
Generation 20% Associate
(i) Neas Energy Limited holds supply licences but currently does not supply any UK customers.
(ii) Centrica Brigg Limited changed its name to CBS Energy Storage Assets UK Limited on 15th February 2023.
(iii) The Group holds a 20% investment in Lake Acquisitions Limited which indirectly owns 100% of EDF Energy Nuclear Generation Limited.
242
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022
Ofgem Consolidated Segmental Statement
Year ended 31 December 2022
Electricity Generation
Aggregate
Generation
Business
Electricity Supply Gas Supply
Aggregate
Supply
BusinessUnit Nuclear Thermal Domestic
Non-
Domestic Domestic
Non-
Domestic
Total revenue
£m
1,231.4 27.0 1,258.4 5,904.9 2,902.2 5,879.7 1,124.8 15,811.6
Sales of electricity & gas
£m
1,203.7 24.7 1,228.4 5,900.0 2,902.2 5,876.0 1,124.8 15,803.0
Other revenue
£m
27.7 2.3 30.0 4.9 — 3.7 — 8.6
Total operating costs
£m
(321.6) (20.2) (341.8) (5,799.1) (2,838.2) (5,886.1) (1,048.7) (15,572.1)
Direct fuel costs
£m
(78.0) (10.2) (88.2) (3,351.3) (1,609.0) (3,832.4) (828.4) (9,621.1)
Direct costs
£m
(206.2) (6.6) (212.8) (1,911.9) (1,023.4) (1,390.0) (134.4) (4,459.7)
Transportation costs
£m
(85.9) (1.1) (87.0) (1,136.6) (548.5) (1,200.4) (99.7) (2,985.2)
Environmental and social
obligation costs
£m
— (2.2) (2.2) (682.0) (415.6) (103.4) — (1,201.0)
Other direct costs
£m
(120.3) (3.3) (123.6) (93.3) (59.3) (86.2) (34.7) (273.5)
Indirect costs
£m
(37.4) (3.4) (40.8) (535.9) (205.8) (663.7) (85.9) (1,491.3)
WACOF/E/G
(i)
£/MWh, P/th
(9.1) (259.9)
N/A
(192.6) (141.1) (160.3) (137.6)
N/A
EBITDA
£m
909.8 6.8 916.6 105.8 64.0 (6.4) 76.1 239.5
DA
£m
(156.7) (1.7) (158.4) (37.5) (12.3) (43.0) (5.2) (98.0)
EBIT
£m
753.1 5.1 758.2 68.3 51.7 (49.4) 70.9 141.5
Volume
TWh, MThms
8.7 —
N/A
17.4 11.4 2,390.3 601.9
N/A
Average customer numbers/sites
‘000s
N/A N/A N/A 5,883.7 433.6 6,733.6 183.4 N/A
Supply EBIT
margin
1.2% 1.8% (0.8) % 6.3% 0.9%
Supply PAT
£m
52.2 40.0 (37.6) 55.0 109.6
Supply PAT
margin
0.9% 1.4% (0.6) % 4.9% 0.7%
2021 Summarised CSS
Year ended 31 December 2021
Electricity Generation
Aggregate
Generation
Business
Electricity Supply Gas Supply
Aggregate
Supply
BusinessUnit Nuclear Thermal Domestic
Non-
Domestic Domestic
Non-
Domestic
Total revenue
£m
415.5 187.3 602.8 3,410.3 1,872.1 3,253.7 621.9 9,158.0
EBIT
£m
(59.5) 18.2 (41.3) (106.9) (43.4) 222.2 46.1 118.0
Supply EBIT
margin
(3.1) % (2.3) %
6.8% 7.4% 1.3%
Supply PAT
£m
(85.8) (35.1)
178.4 37.1 94.6
Supply PAT
margin
(2.5) % (1.9) %
5.5% 6.0% 1.0%
Notes:
(i) WACOF/E/G is calculated using Volumes to 2 decimal places.
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022 243
Glossary of terms
• ‘WACOF/E/G’ is weighted average cost of fuel (nuclear), electricity (supply) and gas (thermal and supply) calculated by dividing direct
fuelcosts by volumes. For the Thermal sub-segment, the cost of carbon emissions is added to direct fuel costs before dividing by the
generated volume.
• ‘EBITDA’ is earnings before interest, tax, depreciation and amortisation, and is calculated by subtracting total operating costs from
revenue.
• ‘DA’ is depreciation and amortisation.
• ‘EBIT’ is earnings before interest and tax, and is calculated by subtracting total operating costs, depreciation and amortisation from
totalrevenue.
• ‘Supply EBIT margin’ is a profit margin expressed as a percentage and calculated by dividing EBIT by total revenue and multiplying by
100 for the Supply segment.
• ‘Supply PAT’ is profit after tax but before interest and is calculated by subtracting Group adjusted tax from EBIT for the Supply
segment.
• ‘Supply PAT margin’ is a profit margin expressed as a percentage and calculated by dividing Supply PAT by total revenue and
multiplying by 100 for the Supply segment.
• ‘Volume’ for Supply is supplier volumes at the meter point (i.e. net of losses); Generation volume is the volume of power that can
actually be sold in the wholesale market (i.e. generation volumes after losses up to the point where power is received under the
Balancing and Settlement Code but before subsequent losses).
• ‘Average customer numbers/sites’ are calculated by adding average monthly customer numbers/sites (as defined in the basis of
preparation) and dividing by 12.
• ‘Scheduling decisions’ means the decision to run individual generation units.
• ‘Responsible for interactions with the Balancing Market’ means interactions with the Balancing Mechanism in electricity.
• ‘Interacts with wider market participants to buy/sell energy’ means the business unit is responsible for interacting with wider market
participants to buy/sell energy, not the entity responsible for the buy/sell decision itself, which falls under ‘Responsible for implementing
hedging policy/makes decisions to buy/sell energy’.
• ‘Matches own generation with own supply’ means where there is some internal matching of generation and supply before either
generation orsupply interact with the wider market.
• ‘Forecasts total system demand’ means forecasting total system electricity demand or total system gas demand.
• ‘Forecasts customer demand’ means forecasting the total demand of own supply customers.
• ‘Bears shape risk after initial hedge until market allows full hedge’ means the business unit which bears financial risk associated with
hedges made before the market allows fully shaped hedging.
• ‘Bears short-term risk for variance between demand and forecast’ means the business unit which bears financial risk associated with
too little or too much supply for own customer demand.
244
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022
Business functions table
Year ended 31 December 2022 – analysis of business functions
(i)
The table below illustrates where the business functions reside.
Generation Supply
Another part
of business
Operates and maintains generation assets
ü
–
–
Responsible for scheduling decisions
ü
–
–
Responsible for interactions with the Balancing Market
ü ü
–
Responsible for determining hedging policy ü (output) ü (demand) –
Responsible for implementing hedging policy/makes decision to buy and sell energy ü (output) ü (demand) –
Interacts with wider market participants to buy/sell energy
ü (bilateral)
ü (market and
bilateral)
ü (market and
bilateral)
(ii)
Holds unhedged positions (either short or long)
ü ü
ü
(ii)
Procures fuel for generation
ü
– –
Procures allowances for generation
ü
– –
Holds volume risk on positions sold (either internal or external)
ü ü
–
Matches own generation with own supply – –
ü
(ii) (iii)
Forecasts total system demand –
ü
–
Forecasts wholesale price
ü
(iv)
ü
(iv)
ü
(iv)
Forecasts customer demand –
ü
–
Determines retail pricing and marketing strategies –
ü
–
Bears shape risk after initial hedge until market allows full hedge
ü ü
–
Bears short-term risk for variance between demand and forecast –
ü
–
(i) The table reflects the business functions that impact our UK segments.
(ii) The Group’s Supply and Generation businesses are separately managed. Both businesses independently enter into commodity purchases and sales with the market via
Centrica Energy Limited (CEL), our market-facing legal entity. CEL forms part of our non-licensed element of Energy Marketing & Trading function and also conducts
trading for the purpose of making profits in its own right. The Supply segment is also able to enter into market trades directly as part of its within day balancing activities
(as well as external bilateral contracts).
(iii) ‘Matches own generation with own supply’ is undertaken in ‘Another part of the business’ (by CEL at market referenced prices), outside of the Generation and Supply
segments.
(iv) A separate team forecasts the wholesale price for the benefit and use of the entire Group. This team does not formally reside in any particular segment but their costs are
recharged across the Group.
Key:
ü Function resides and profit/loss recorded in segment.
– Neither function nor profit/loss reside in segment.
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022 245
Basis of preparation
The following notes provide a summary of the basis of preparation of the 2022 submission.
The Ofgem CSS segments our Supply and Generation activities and provides a measure of profitability, weighted average cost of fuel, and
volumes, in order to increase energy market transparency for consumers and other stakeholders.
These statements have been prepared by the Directors of Centrica plc and its Licensees in accordance with Standard Condition 16B of
the Electricity Generation Licences and Standard Condition 19A of the Electricity and Gas Supply Licences and the basis of preparation.
Throughout the basis of preparation the first paragraph number relates to the generation licence and the second to the supply licence
conditions respectively.
The financial data provided has been taken from the relevant licensee’s and affiliate’s financial information for the year ended 31 December
2022, included in the Centrica plc Annual Report and Accounts 2022 which have been prepared under IFRS as adopted by the United
Kingdom (in accordance with paragraph 3/19A.3).
The CSS has been prepared on a going concern basis, as described in the Directors’ Report and notes 1 and 24 in the Centrica plc
Annual Report and Accounts 2022.
For the Generation segment, we have included the financial results from all activities that relate to our generation licences. For clarity, the
following judgements have been made:
• the Group has a 20% equity interest in Lake Acquisitions Limited, which owns eight nuclear power stations (through its indirect
investment inEDF Energy Nuclear Generation Limited), of which five were operational at year-end. Although we do not specifically hold
a generation licence for any of the nuclear stations, our gross share of the financial result from this business (including any contractual
arrangements) has been included in the Nuclear sub-segment and hence within the Generation segment;
• Brigg and Roosecote power stations had their licences revoked on 2 July 2015 (at their request) because they no longer required an
electricity generation licence and are now exempt. Whilst we do not specifically hold a generation licence for these power stations (and
note that Roosecote is now a battery storage site), the financial results from these businesses have been included in the Thermal sub-
segment and hence within the Generation segment; and
• where power is purchased from third parties (for example from wind farms, power stations or other bilateral arrangements) and we do
not have an equity interest in, or a leasing arrangement (from an IFRS perspective) over the assets that generate this power, the result
related tothese activities is excluded from the Generation segment. In all cases, the Generation segment reports direct fuel costs and
generation volumes on a consistent basis (if the purchase cost is a direct fuel cost, then the electricity generated is reported in volume).
Domestic Supply represents the revenue and associated costs in supplying gas and electricity to residential customers in the UK. Non-
Domestic Supply represents the revenue and associated costs in supplying gas and electricity to business customers in the UK.
As a voluntary disclosure, to aid comparability, a summarised 2021 CSS with margins has been included within the report.
Revenues
Revenues, costs and profits of the Licensees have been defined below and prepared in compliance with the Group’s accounting policies
asdetailed in notes 2, 3 and S2 of the Centrica plc Annual Report and Accounts 2022, except for joint ventures and associates which are
presented gross (in accordance with paragraph 4(a)/19A.4(a)).
• Revenue from sales of electricity and gas for the Supply segment is recognised on the basis of electricity and gas supplied during the
year to both domestic and non-domestic customers.
• Revenue from sales of electricity and gas includes an assessment of energy supplied to customers between the date of the last meter
reading and the year end (unread). For the respective Supply segments this means electricity and gas sales. Revenue for domestic
supply is after deducting dual fuel discounts where applicable, with the discount split evenly between electricity and gas. Government
mandated social tariffs and discounts, such as the Warm Home Discount, and other social discounts, have also been deducted from
Domestic Supply revenues directly, charged specifically to each fuel.
• Revenue from sales of electricity and gas for the Supply segment include revenues ultimately due from the Government support
schemes (Energy Price Guarantee and Energy Bill Relief Scheme). In 2022, these amount to: Domestic Electricity Supply of £705.7
million and Domestic Gas Supply of £832.6 million; Non-Domestic Electricity Supply of £164.2 million and Non-Domestic Gas Supply of
£55.2 million
• Revenue from sales of electricity for the Generation segment is recognised on the basis of power supplied during the year. Power
purchases and sales entered into to optimise the performance of each of the power Generation segments are presented net
withinrevenue.
246
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022
Basis of preparation
• The financial risks and rewards of owning and using the Group’s power stations reside entirely in the reported Generation segment.
• Other respective segmental revenues not related to the sale of gas or power have been separately disclosed. Other revenues include:
– £4.9 million (2021: £6.4 million) in Domestic Electricity Supply and £3.7 million (2021: £5.8 million) in Domestic Gas Supply primarily
relating to New Housing Connections and smart meter installations;
– £2.3 million (2021: £22.0 million) in Thermal principally relating to Supplementary Balancing Reserve (SBR), Short Term Operating
Reserve (STOR), Triad revenue and Capacity Market income; and
– £27.7 million (2021: £32.1 million) revenue in Nuclear not directly related to energy sales, such as capacity market income and
provision of miscellaneous services.
Direct fuel costs
Direct fuel costs for both Generation and Supply include electricity, gas, nuclear fuel and imbalance costs.
• Energy supply to Domestic and Non-Domestic energy customers is procured at a market referenced price, through a combination of
bilateral, over-the-counter (OTC) and exchange-based trades/contracts (see table below). Where energy is procured from within the
Group it is also at a market referenced price on an OTC basis. The market referenced prices used are those prevailing at the time of
procurement, which may differ from the price prevailing at the time of supply.
• Domestic and Non-Domestic fixed price products are hedged based upon anticipated demand at the start of the contract period. The
majority of the gas and power for Non-Domestic energy and Domestic energy tariff products is purchased in advance (see table below).
• The exact Domestic and Non-Domestic purchasing patterns vary in response to the outlook for commodity markets and commercial
factors.
• The Generation segment purchases gas and sells all of its energy at market referenced prices. Gas for turbines/engines is procured at
market referenced prices through a combination of OTC and exchange-based trades/contracts. The cost to the power stations will
reflect market referenced prices at the time of procurement, and so may differ from the price prevailing at the time of physical supply.
How we procure electricity, gas and carbon:
Long form bilateral
contracts (‘bilateral’)
Individually negotiated contracts with non-standardised terms and conditions which may relate to size,
duration or flexibility. Pricing is predominantly indexed to published market referenced prices, adjusted for
transfer of risks, cost of carry and administration.
OTC Broker supported market of standardised products, predominantly performed via screen-based trading. These
transactions are between two parties, leaving both parties exposed to the other’s default with no necessary
intermediation of any exchange. An internal OTC price may be provided where market liquidity prevents
external trading, with prices that are reflective of market conditions at the time of execution.
Exchange Regulated electronic platform (notably ICE, APX, and N2EX) where standardised products are traded on
exchange through the intermediary of the clearing house which becomes the counterparty to the trade.
Membership of a clearing house is required which entails posting of cash or collateral as margin.
WACOF/WACOE/WACOG
• For Generation this represents a proxy for the weighted average input cost of gas, carbon and nuclear fuel, shown as £/MWh, used by
the Generation business. Gas for turbines/engines is procured at market referenced prices through a combination of OTC and
exchange-based trades/contracts. The cost to the power stations will reflect market referenced prices at the time of procurement, and
so may differ from the price prevailing at the time of physical supply.
• For Supply this covers the wholesale energy cost, the energy element of reconciliation by difference (RBD) costs and balancing and
shaping costs incurred by the Supply licensees. Again, gas and electricity is procured at market referenced prices through a
combination of bilateral, OTC and exchange-based trades/contracts. The cost for the Supply business will reflect market referenced
prices at the time of procurement, and so may differ from the price prevailing at the time of physical supply. Where gas is procured
using (predominantly indexed) bilateral contracts, the fuel cost is then allocated between Domestic and Non-Domestic Supply using
annually updated fixed percentages based on the historical split of tariff book volumes. Gas and Electricity balancing costs are allocated
between Domestic and Non-Domestic Supply based on their respective volumes multiplied by an appropriate industry referenced price
(for example APX or SAP).
• For electricity Supply the weighted average cost of electricity is shown as £/MWh. For gas Supply, the weighted average cost of gas is
shownas p/th.
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022 247
Basis of preparation
Direct costs
Direct costs for Supply and Generation are broken down into transportation (network) costs, environmental and social obligation costs and
other direct costs.
• Transportation costs for Supply and Generation include network transportation costs, BSUOS and the transport element of RBD costs.
Supply transportation costs include transportation and LNG costs, including £37.1 million (2021: £37.5 million) incurred by Gas
Domestic Supply, which enables the segment to secure supply by giving the ability to bring gas into the UK from overseas.
• Environmental and social obligation costs for Domestic Supply include ROCs, FIT, ECO and UK Capacity Market costs. Non-Domestic
Supply includes the cost of LECs, ROCs, FIT and UK Capacity Market costs. Within the Domestic and Non-Domestic segments, the
costs of LECs, FIT, ROCs and UK Capacity Market costs are included within Electricity, and ECO is allocated between Electricity and
Gas based on the relevant legislation. Environmental and social obligation costs for the Generation segment relate to EU ETS carbon
emission costs and carbon tax.
• Other direct costs for Generation include employee and maintenance costs.
• Other direct costs for Supply include brokers’ costs and sales commissions when the costs have given rise directly to revenue, that is,
producing a sale. They also include Elexon and Xoserve market participation and wider smart metering programme costs.
Indirect costs
Indirect costs for Supply and Generation include operating costs such as sales and marketing, bad debt, costs to serve, IT, HR, finance,
property, staffing and billing and metering costs (including smart meter costs).
• Indirect costs for the Generation, Domestic and Non-Domestic Supply segments (including corporate and business unit recharges) are
allocated based on relevant drivers, which include turnover, headcount, operating profit, net book value of fixed assets and
proportionate use/benefit. For Supply, indirect costs (including corporate recharges but excluding bad debt costs) are primarily allocated
between Electricity and Gas on the basis of customer numbers (Domestic) and sites (Non-Domestic). Bad debt costs are allocated
between Electricity and Gas on the basis of actual bad debt cost by individual contract in the billing system (Domestic) and on the basis
of revenues (Non-Domestic).
Other
• For Supply, depreciation and amortisation is allocated between Electricity and Gas on the basis of customer numbers (Domestic) and
sites (Non-Domestic).
• For the purposes of Supply PAT, tax is allocated between Gas and Electricity within both Domestic and Non-Domestic Supply based on
their relative proportions of EBIT.
• For the Domestic Supply segment, customer numbers are stated based on the number of district meter point reference numbers
(MPRNs) and meter point administration numbers (MPANs) in our billing system (for gas and electricity respectively), where it shows an
active point of delivery and a meter installation. As a result, our customer numbers do not include those meter points where a meter
may recently have been installed but the associated industry registration process has yet to complete, as the meter information will not
be present in our billing system.
• For the Non-Domestic Supply segment, sites are based on the number of distinct MPRNs and MPANs in our billing system for gas and
electricity respectively.
248
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022
Basis of preparation
Transfer pricing for electricity, gas and generation licensees in accordance with paragraph 4(d)/19A.4(d)
There are no specific energy supply agreements between the Generation and Supply segments.
The Group continues to ensure transfer pricing methodologies are appropriate and up to date. In order to meet this requirement, the
Group ensured all transfer pricing and cost allocation methodologies were internally reviewed, updated and collated in a central repository.
Treatment of joint ventures and associates
The share of results of joint ventures and associates for the year ended 31 December 2022 principally arises from the Group’s interests in
the entities listed on page 242.
Under paragraph 5 of the Conditions, the information provided in the CSS includes our gross share of revenues, costs, profits and
volumes ofjoint ventures and associates. In preparing the CSS, joint ventures and associates (which hold a UK generation licence or
exemption) are accounted for as follows:
• our proportionate share of revenues of joint ventures and associates has been included within revenue;
• our proportionate share of the profit before tax of joint ventures and associates has been included within EBIT and EBITDA; and
• our proportionate share of the generation volumes of joint ventures and associates has been included within the generation volumes.
For each of the above items, our share of the income and expenses of the joint ventures or associates has been combined line-by-line
within the relevant item of the CSS.
Exceptional items and certain re-measurements
Impairment reversals that have been identified as exceptional items, and mark-to-market adjustments (alongside onerous supply contract
provisions) in the Centrica plc Annual Report and Accounts 2022, are excluded from the CSS. For further details ofexcluded exceptional
items and certain re-measurements see note 7 in the Centrica plc Annual Report and Accounts 2022.
A reconciliation of the Segmental Statement revenue, EBIT and depreciation to the 2022 audited Centrica plc Annual Report and
Accounts hasbeen included in accordance with paragraphs 4(b) & (c)/19A.4 (b) & (c) and 6/19A.6.
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022 249
Reconciliation to Centrica plc Annual Report and Accounts
The reconciliation refers to the segmental analysis of the 2022 Centrica plc Annual Report and Accounts in note 4.
Generation
segment
Supply segment
Domestic Non-Domestic
Electricity Gas Electricity Gas
Notes 2022 2022 2022 2022 2022
Revenue (£m)
Centrica plc Annual Report and Accounts
Segmental Analysis
(i)
Upstream British Gas Energy
Centrica Business
Solutions
Segment revenue 3,351.0 13,096.0 3,000.0
Less non-UK and non-Generation/Supply
1
(2,147.3) — (257.4)
Segment revenue after non-UK and non-Generation/Supply 1,203.7 13,096.0 2,742.6
Reallocate British Gas Non-Domestic Supply element
2
— (1,311.4) 1,311.4
Reallocate Centrica Business Solutions Generation element
2
27.0 — (27.0)
Segment revenue after non-UK and non-Generation/Supply and
reallocation of Generation element from Centrica Business Solutions to
Upstream 1,230.7 11,784.6 4,027.0
Electricity and Gas allocation
3
— 5,904.9 5,879.7 2,902.2 1,124.8
Include share of JVs and associates
4
592.0 — — — —
Exclude intra-segment revenues
5
(564.3) — — — —
Ofgem Consolidated Segmental Statement 1,258.4 5,904.9 5,879.7 2,902.2 1,124.8
EBIT (£m)
Centrica plc Annual Report and Accounts
Segmental Analysis
(i)
Segment EBIT 1,793.0 72.0 44.0
Less non-UK and non-Generation/Supply
1
(1,068.5) — 36.8
Segment EBIT after non-UK and non-Generation/Supply 724.5 72.0 80.8
Reallocate British Gas Non-Domestic Supply element
2
— (48.4) 48.4
Reallocate Centrica Business Solutions Generation element
2
5.2 — (5.2)
Less Employee Profit share excluded from Segment EBIT (4.7) (1.4)
Segment EBIT after non-UK and non-Generation/Supply and reallocation of
Generation element from Centrica Business Solutions to Upstream 729.7 18.9 122.6
Electricity and Gas allocation
3
— 68.3 (49.4) 51.7 70.9
Exclude share of JVs’ and associates’ interest and tax
4
28.5 — — — —
Ofgem Consolidated Segmental Statement 758.2 68.3 (49.4) 51.7 70.9
250
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022
Reconciliation to Centrica plc Annual Report and Accounts
Generation
segment
Supply segment
Domestic Non-Domestic
Electricity Gas Electricity Gas
Notes 2022 2022 2022 2022 2022
Depreciation and amortisation (£m)
Centrica plc Annual Report and Accounts
Segmental Analysis
(i)
Upstream British Gas Energy
Centrica Business
Solutions
Segment depreciation and amortisation (481.0) (82.0) (45.0)
Less non-UK and non-Generation/Supply
1
481.0 — 27.3
Segment depreciation and amortisation after non-UK and
non-Generation/Supply — (82.0) (17.7)
Reallocate British Gas Non-Domestic Supply element
2
— 1.5 (1.5)
Reallocate Centrica Business Solutions Generation element
2
(1.7) — 1.7
Segment depreciation and amortisation after non-UK and
non-Generation/Supply and reallocation of Generation element
fromCentrica Business Solutions to Upstream (1.7) (80.5) (17.5)
Electricity and Gas allocation
3
— (37.5) (43.0) (12.3) (5.2)
Include share of JVs and associates
4
(156.7) — — — —
Ofgem Consolidated Segmental Statement (158.4) (37.5) (43.0) (12.3) (5.2)
(i) The tables reconcile the Generation segment to Upstream, the Domestic Supply segment to British Gas and the Non-Domestic Supply segment to Centrica Business
Solutions from note4 to the 2022 Centrica plc Annual Report and Accounts. Also included in note 4 is a reconciliation to the IFRS compliant statutory result reported by
the Centrica plc Group.
Notes:
1. Centrica Business Solutions includes Business Services and Solutions and Upstream includes Exploration and Production, which are
non-licensed activities and have been deducted to reconcile these CSS numbers.
2. British Gas Energy includes supply activity to certain companies fulfilling the Non-Domestic definition. Centrica Business Solutions
includes generation activity from the Group’s turbines, engines and battery assets.
3. The share of Domestic and Non-Domestic Revenues, Operating Profit (EBIT) and Depreciation (including amortisation) as provided in
note 4 of the Centrica plc Annual Report and Accounts 2022, has been split between Electricity and Gas.
4. £592.0 million of revenues relating to the Group’s share of joint ventures and associates in Generation are included in the CSS for
Nuclear revenues. £120.5 million of EBIT in the Generation segment relates to profits from associates for Nuclear. Additionally, costs
relating to the Group’s share of joint ventures and associates: £78.0 million direct fuel costs, £194.4 million direct costs, £42.4 million
indirect costs and £156.7 million depreciation and amortisation are included. Also, note that financing costs and tax of £(28.5) million
are initially included in the Upstream segmental EBIT associated with nuclear. The results of joint ventures and associates are shown
separately in the Centrica plc Annual Report and Accounts 2022 in notes 6 and 14. (Note that overall Nuclear indirect costs are less
than the Nuclear associate indirect costs as a result of credits from recharges and provision releases in the non-associate books.)
5. £564.3 million of intra-segment revenues between the joint ventures and associates and the Generation segment (included in the
£592.0million of joint venture and associate revenues) are excluded from the CSS.
Ofgem Consolidated Segmental Statement | Centrica plc Annual Report and Accounts 2022 251
Shareholder Information
General enquiries
Centrica’s share register is administered and maintained by
Equiniti, our Registrar, whom you can contact directly if you
haveany questions about your shareholding which are not
answered here or on our website. You can contact Equiniti
usingthe following details:
Address: Equiniti, Aspect House, Spencer Road, Lancing,
WestSussex BN99 6DA, UK
Telephone: 0371 384 2985*
Outside the UK: +44 (0)371 384 2985
Contact: help.shareview.co.uk
Website: equiniti.com
You can also contact Equiniti using the Relay UK website
atrelayuk.bt.com
* Calls to an 03 number cost no more than a national rate call to an 01 or
02number. Lines open 8.30 am to 5.30 pm, Monday to Friday (UK time),
excludingpublic holidays in England and Wales.
When contacting Equiniti or registering via shareview.co.uk, you
should have your shareholder reference number to hand. This can
be found on your share certificate, dividend confirmation or any
other correspondence you have received from Equiniti.
Together with Equiniti, we have introduced an electronic queries
service to enable our shareholders to manage their investment at
aconvenient time. Details of this service can be found at
shareview.co.uk.
Dividend
As communicated previously, dividends are now paid only by direct
transfer to your bank or building society account, rather than by
cheque. This is faster, more secure and better for the environment.
If you have not already done so, please therefore provide Equiniti
with your bank or building society account details. You can do
thisonline at www.shareview.co.uk OR by telephoning Equiniti
on+44 (0)371 384 2985.
American Depositary Receipt (ADR)
We have an ADR programme, trading under the symbol CPYYY.
Centrica’s ratio is one ADR being equivalent to four ordinary
shares. Further information is available on our website or
pleasecontact:
Regular mail delivery address: BNY Mellon Shareowner Services,
PO Box 505000, Louisville, KY 20233-5000, USA
Overnight, certified, registered delivery address: BNY Mellon
Shareowner Services, 462 South 4th Street, Suite 1600, Louisville,
KY 40202, USA
Email: shrrelations@cpshareownerservices.com
Website: mybnymdr.com
Telephone: +1 888 269 2377 (toll-free in the US)
Outside the US: +1 201 680 6825
Manage your shares online
We actively encourage our shareholders to receive communications
via email and view documents electronically via our website,
centrica.com. Receiving communications and documents
electronically saves your Company money and reduces our
environmental impact. If you sign up for electronic communications,
you will receive an email to notify you that new shareholder
documents are available to view online, including the Annual Report
and Accounts, on the day it is published.
You will also receive alerts to let you know that you can cast your
Annual General Meeting (AGM) vote online. You can manage your
shareholding online by registering at shareview.co.uk, a free online
platform provided by Equiniti, which allows you to:
• view information about your shareholding;
• have your dividend paid into your bank account;
• update your personal details; and
• appoint a proxy for the AGM.
Centrica FlexiShare
FlexiShare is an easy way to hold Centrica shares without a share
certificate. Your shares are held by a nominee company, Equiniti
Financial Services Limited. However, you are able to attend and
vote at general meetings as if the shares were held in your own
name. Holding your shares in this way is free and gives you:
• low cost share dealing rates (full details of which are available
oncentrica.com, together with dealing charges);
• quicker settlement periods for buying and selling shares; and
• no paper share certificates to lose.
centrica.com
The Shareholder Centre on our website contains a wide range of
information including a dedicated investors section where you can
find further details about shareholder services including:
• share price information;
• dividend history;
• telephone and internet share dealing;
• downloadable shareholder forms; and
• taxation.
This Annual Report and Accounts can also be viewed online by
visiting centrica.com/ar22.
ShareGift
If you have a small number of shares and the dealing costs or the
minimum fee make it uneconomical to sell them, it is possible to
donate them to ShareGift, a registered charity, which provides a
free service to enable you to dispose charitably of such shares.
More information on this service can be found at sharegift.org or by
calling +44 (0)20 7930 3737.
Financial calendar
Ex-dividend date for 2022 final dividend Thursday, 8 June 2023
Record date for 2022 final dividend Friday, 9 June 2023
Annual General Meeting (AGM) Tuesday, 13 June 2023
Payment of 2022 final dividend Thursday, 20 July 2023
For more information on Centrica’s financial calendar please
visitcentrica.com/investors/financial-calendar
252 Other Information | Centrica plc Annual Report and Accounts 2022
Additional Information – Explanatory Notes (Unaudited)
Definitions and reconciliation of adjusted performance measures
Centrica’s 2022 consolidated Financial Statements include a number of non-GAAP measures. These measures are chosen as they
provide additional useful information on business performance and underlying trends. They are also used to measure the Group’s
performance against its strategic financial framework. They are not however, defined terms under IFRS and may not be comparable with
similarly titled measures reported by other companies. Where possible they have been reconciled to the statutory equivalents from the
primary statements (Group Income Statement (‘I/S’), Group Balance Sheet (‘B/S’), Group Cash Flow Statement (‘C/F’)) or the notes to the
Financial Statements.
Adjusted revenue, adjusted gross margin, adjusted operating profit, adjusted earnings and free cash flow have been defined and
reconciled separately in notes 2, 4 and 10 to the Financial Statements where further explanation of the measures is given. The Group has
updated in the year its net debt adjusted performance measure to adjusted net debt, as the net debt adjusted performance measure now
includes a loan of £400 million provided to the UK registered pension schemes. Additional performance measures are used within these
Financial Statements to help explain the performance of the Group and these are defined and reconciled below. Further information has
been provided to help readers when reconciling between different parts of the consolidated Group Financial Statements, and when
reconciling cash flow measures to the Group Cash Flow Statement.
Adjusted EBITDA
Adjusted EBITDA is a business performance measure of operating profit, after adjusting for depreciation and amortisation. It provides
aperformance measure in its own right, and provides a bridge between the Income Statement and the Group’s key cash metrics. Further,
a reconciliation excluding Spirit Energy disposed assets is provided.
Year ended 31 December Notes
2022
£m
2021
£m Change
Group operating (loss)/profit
I/S
(240) 954
Exceptional items included within Group operating loss/profit and certain re-measurements
before taxation
7
155 (1,247)
Certain re-measurements before taxation
7
3,393 1,241
Share of (profits)/losses of joint ventures and associates, net of interest and taxation
(i)
I/S
(92) 103
Depreciation and impairments of PP&E
(i)
4
598 583
Amortisation, write-downs and impairments of intangibles
(i)
4
179 216
Group total adjusted EBITDA 3,993 1,850 116%
(i) These line items relate to business performance only.
Adjusted EBITDA excluding Spirit Energy disposed assets
Year ended 31 December
2022
£m
2021
£m Change
Group total adjusted EBITDA 3,993 1,850
Less disposed assets adjusted EBITDA (including associated hedges) (485) (803)
Adjusted EBITDA excluding Spirit Energy disposed assets 3,508 1,047 235%
Adjusted operating profit excluding Spirit Energy disposed assets
Year ended 31 December Notes
2022
£m
2021
£m Change
Group total adjusted operating profit
I/S
3,308 948
Less disposed assets adjusted operating profit (including associated hedges) (485) (556)
Adjusted operating profit excluding Spirit Energy disposed assets 2,823 392 620%
Other Information | Centrica plc Annual Report and Accounts 2022 253
The below table shows how adjusted EBITDA reconciles to free cash flow:
Year ended 31 December Notes
2022
£m
2021
£m
Adjusted EBITDA 3,993 1,850
Group operating (loss)/profit including share of joint ventures and associates, from exceptional items and certain
re-measurements
I/S
(3,548) 6
Share of profits of joint ventures and associates, net of interest and taxation, from exceptional items and certain
re-measurements
I/S
(1) —
Depreciation, amortisation, write downs, impairments and write-backs, from exceptional items and certain re-
measurements
I/S
(207) (1,214)
Loss on disposals
C/F
343 28
(Decrease)/increase in provisions
C/F
(1,903) 2,434
Cash contributions to defined benefit schemes in excess of service cost income statement charge
C/F
(184) (388)
Employee share scheme costs
C/F
10 12
Unrealised losses/(gains) arising from re-measurement of energy contracts
C/F
4,095 (1,159)
Exceptional charges reflected directly in operating profit
C/F
— 12
Net movement in working capital
C/F
(656) 246
Taxes paid
C/F
(574) (140)
Operating interest paid
C/F
(30) —
Payments relating to exceptional charges in operating profit
C/F
(24) (76)
Net cash flow from operating activities 1,314 1,611
Purchase of businesses, net of cash acquired
C/F
12 (14)
Sale of businesses
C/F
92 70
Purchase of property, plant and equipment and intangible assets
C/F
(371) (420)
Sale of property, plant and equipment and intangible assets
C/F
11 36
(Investment in)/disposal of joint ventures and associates
C/F
(18) 2
Dividends received from joint ventures and associates
C/F
60 2
UK Pension deficit payments
4
214 368
Movements in variation margin and collateral
4
1,173 (481)
Free cash flow from continuing operations
4
2,487 1,174
Adjusted earnings attributable to shareholders excluding Spirit Energy disposed assets
Year ended 31 December Notes
2022
£m
2021
£m Change
Adjusted earnings attributable to shareholders
I/S
2,050 237
Less disposed assets adjusted earnings attributable to shareholders (including associated hedges) (45) (75)
Adjusted earnings attributable to shareholders excluding Spirit Energy disposed assets 2,005 162 1,138%
Adjusted basic earnings per share excluding Spirit Energy disposed assets
Year ended 31 December Notes 2022 2021 Change
Adjusted earnings attributable to shareholders excluding Spirit Energy disposed assets (£m) 2,005 162
Weighted average of ordinary shares in issue during the period (million shares)
10
5,869 5,836
Adjusted basic earnings per share excluding Spirit Energy disposed assets 34.2p 2.8p 1,121%
254
Other Information | Centrica plc Annual Report and Accounts 2022
Definitions and reconciliation of adjusted performance measures
Loss on disposals
Year ended 31 December Notes
2022
£m
2021
£m
Loss on disposals
C/F
343 28
Less: exceptional loss on disposals
7
(362) (31)
Profit on disposals relating to business performance (19) (3)
Group net investment
With an increased focus on cash generation, capital discipline and managing net debt/cash, Group net investment provides a measure of
the Group’s capital expenditure from a cash perspective and allows the Group’s capital discipline to be assessed.
Year ended 31 December Notes
2022
£m
2021
£m Change
Capital expenditure (including small acquisitions)
(i)
377 434
Net disposals
(ii)
(103) (108)
Group net investment 274 326 (16) %
Dividends received from joint ventures and associates
C/F
(60) (2)
Interest received
C/F
(46) (2)
Net purchase of securities
C/F
398 3
Net cash flow used in continuing investing activities
C/F
566 325 74%
(i) Capital expenditure is the net cash flow on capital expenditure, purchases of businesses and investments in joint ventures and associates (less than £100 million). See
table (a).
(ii) Net disposals is the net cash flow from sales of businesses, property, plant and equipment and intangible assets, and disposals of investments in joint ventures and
associates. See table (b).
Group net investment is capital expenditure including acquisitions less net disposals. It excludes cash flows from investing activities not
associated with capital expenditure as detailed in the table above.
(a) Capital expenditure (including small acquisitions)
Year ended 31 December Notes
2022
£m
2021
£m Change
Purchase of property, plant and equipment and intangible assets
C/F
371 420
Purchase of businesses, net of cash acquired
C/F
(12) 14
Investment in joint ventures and associates
C/F
18 —
Less: material acquisitions (>£100 million) — —
Capital expenditure (including small acquisitions) 377 434 (13) %
(b) Net disposals
Year ended 31 December Notes
2022
£m
2021
£m
Change
Sale of businesses
C/F
(92) (70)
Sale of property, plant and equipment and intangible assets
C/F
(11) (36)
Disposal of joint ventures and associates
C/F
— (2)
Net disposals (103) (108)
(5) %
Other Information | Centrica plc Annual Report and Accounts 2022 255
Definitions and reconciliation of adjusted performance measures
The following tables provide additional information to help readers when reconciling between different parts of the consolidated Group
Financial Statements, and the Group Cash Flow Statement.
Reconciliation from free cash flow to change in adjusted net cash/(debt)
Year ended 31 December Notes
2022
£m
2021
£m
Free cash flow from continuing operations
4
2,487 1,174
Free cash flow from discontinued operations
4
— 2,588
Group total free cash flow
4
2,487 3,762
Financing interest paid
C/F
(172) (233)
Interest received
C/F
46 2
UK Pension deficit payments
4
(214) (368)
Payments for own shares
C/F
(5) —
Share buyback programme
C/F
(43) —
Distributions to non-controlling interests
C/F
(273) —
Equity dividends paid
C/F
(59) —
Proceeds from sale of forfeited share capital
C/F
— 1
Movements in variation margin and collateral
4
(1,173) 481
Cash flows affecting adjusted net cash/debt 594 3,645
Discontinued operations non-cash movements in adjusted net cash/debt
— 32
Non-cash movements in adjusted net cash/debt (75) 1
Change in adjusted net cash/debt 519 3,678
Opening adjusted net cash/(debt)
24
680 (2,998)
Closing adjusted net cash
24
1,199 680
Reconciliation of adjusted net cash to unadjusted net cash
Adjusted net cash/(debt) is a business performance measure used by management to assess the underlying indebtedness of the
business.
Year ended 31 December Notes
2022
£m
2021
£m
Adjusted net cash
24
1,199 680
Less: current and non-current securities
24
(525) (156)
Less: sub-lease assets
24
(2) (2)
Unadjusted net cash 672 522
Payments relating to exceptional charges in operating costs
Year ended 31 December Notes
2022
£m
2021
£m
Restructuring costs incurred during the year and utilisation of prior year liabilities
24 76
Payments relating to exceptional charges in continuing operating costs
C/F
24 76
256
Other Information | Centrica plc Annual Report and Accounts 2022
Definitions and reconciliation of adjusted performance measures
Depreciation, amortisation, write-downs, impairments and write-backs
Year ended 31 December Notes
2022
£m
2021
£m
Movement from depreciation, amortisation, write-downs, impairments and write-backs, from exceptional
items included in the Group Cash Flow Statement
7
(207) (1,214)
Made up of:
Write-back of E&P assets
7
— (598)
Write-back of power assets
7
(207) (747)
Impairment of Centrica Business Solutions goodwill and other assets
7
— 123
Impairment of property
7
— 8
Movement from depreciation, amortisation, write-downs, impairments and write-backs, from business
performance included in the Group Cash Flow Statement 777 799
Made up of:
Business Performance PP&E depreciation
4
510 580
Business Performance PP&E impairments
4
88 3
Business Performance intangibles amortisation
4
159 188
Business Performance intangibles impairments and write-downs
4
20 3
Business Performance E&E write-downs
4
— 25
Movement from depreciation, amortisation, write-downs, impairments and write-backs included in the
Group Cash Flow Statement 570 (415)
Reconciliation of receivables and payables to Group Cash Flow Statement
Year ended 31 December Notes
2022
£m
2021
£m
Receivables opening balance
B/S
6,114 2,946
Less: receivables closing balance
B/S
(8,579) (6,114)
Payables opening balance
B/S
(7,633) (3,836)
Less: payables closing balance
B/S
10,341 7,633
Net increase in receivables and payables
243 629
Non-cash changes, and other reconciling items:
Share buyback liability
(207) —
Transferred to held for sale and business disposals
(22) (29)
Movement in capital creditors
6 10
Movement in ROCS and emission certificate intangible assets
(67) (8)
Other movements (including foreign exchange movements)
(16) 5
Non-cash charges, and other reconciling items
(306) (22)
Movement in trade and other receivables, trade and other payables and contract-related assets relating
tobusinessperformance
C/F
(63) 607
Pensions
Year ended 31 December Notes
2022
£m
2021
£m
Cash contributions to defined benefit schemes in excess of service cost income statement charge
C/F
(184) (388)
Ordinary employer contributions
22
50 52
UK Pension deficit payments
22
214 368
Contributions by employer in respect of employee salary sacrifice arrangements
22
21 20
Total current service cost
22
(105) (105)
Past service credit
22
— 1
Termination benefit
22
4 52
Other Information | Centrica plc Annual Report and Accounts 2022 257
People and Planet –
Performance Measures
In 2022, we engaged DNV Business Assurance Services UK Limited (DNV) to conduct an independent limited assurance engagement
using the International Standard on Assurance Engagements (ISAE) 3000 (Revised): ‘Assurance Engagements Other Than Audits or
Reviews of Historical Financial Information’. DNV has provided an unqualified opinion in relation to five KPIs that are identified with the
symbol ‘†’ and feature on pages 1, 27, 43, 52 to 53, 258 and 260. It is important to read the responsible business information in the
Annual Report and Accounts 2022 in the context of DNV’s full limited assurance statement and Centrica’s Basis of Reporting, which are
available at centrica.com/assurance
+ Read more about our People & Planet Plan on Pages 39 to 45
+ Read more about our wider non-financial performance at centrica.com/datacentre
+ Read more about our SASB disclosure at centrica.com/peopleandplanet
Progress against our People & Planet Plan Key: Progress against goals On track l Behind ¢
Goal Milestone 2022 Progress 2021 Progress
Create an engaged team that reflects the
full diversity of the communities we serve
by 2030 – this means all company and
senior leaders to be
(i)
:
• 47% women
• 14% ethnically diverse
• 15% disability
• 3% LGBTQ+
• 3% ex-service
By the end of 2022:
• 30% women
• 13% ethnically diverse
• 4% disability
• 3% LGBTQ+
• 3% ex-service
All company:
(ii)
All company:
(ii)
• 30% women
l
• 28% women
¢
– 41% excluding
fieldengineers
l
– 44% excluding
fieldengineers
l
• 14% ethnically diverse
l
• 12% ethnically diverse
¢
• 3% disability
¢
• 1% disability
¢
• 3% LGBTQ+
l
• 2% LGBTQ+
l
• 2% ex-service
¢
• 2% ex-service
l
Senior leaders:
(ii)
Senior leaders:
(ii)
• 33%women
l
• 28% women
¢
– 32%excluding
fieldengineers
l
– 29%excluding
fieldengineers
l
• 9% ethnically diverse
¢
• 9% ethnically diverse
¢
• 3% disability
¢
• 1% disability
¢
• 0% LGBTQ+
¢
• 1% LGBTQ+
¢
• 3% ex-service
l
• 2% ex-service
l
Recruit 3,500 apprentices and provide
career development opportunities for
under-represented groups by 2030
(base year 2021)
1,000 apprentices by the end
of 2022
1,033 apprentices
l
666 apprentices
(iii)
l
Inspire colleagues to give 100,000 days
tobuildinclusive communities by 2030
(base year 2019)
20,000 days by the end of 2022 12,987 days
¢
10,889 days
¢
Help our customers be net zero by 2050
(iv)
(base year 2019)
28% carbon intensity reduction by
the end of 2030
6% reduction
¢
17% reduction
(iii)(v)
l
Be a net zero business by 2045
(vi)
(base year 2019)
40% carbon reduction by the end
of 2034
6%
†
reduction
l
53% reduction
(vii)
l
† Included in DNV’s independent limited assurance report referenced at the top of this page.
(i) Our 2030 goal was based on 2011 Census data for working populations. For 2023 annual reporting onwards, our goal will be re-aligned to the recently released 2021
Census data of 48% women, 18% ethnically diverse, 20% disability, 3% LGBTQ+ and 4% ex-service.
(ii) Beyond gender, 2021 disclosure is based on 65% of colleagues disclosing their diversity data and 70% in 2022. Senior leaders include colleagues above general
management and spans senior managers, the Centrica Leadership Team and the Board.
(iii) Restated due to availability of improved data.
(iv) Net zero goal measures the greenhouse gas (GHG) intensity of our customers’ energy use including electricity and gas with a 2019 base year of 183gCO
2
e/kWh,
normalised to reflect acquisitions and divestments in line with changes in Group customer base. Target aligned to the Paris Agreement and based on science to limit
global warming, corresponding to a well below 2°C pathway initially and 1.5°C by mid-century.
(v) Previous figure included in DNV’s limited assurance scope for the Annual Report 2021 was an 18% reduction.
(vi) Net zero goal measures scope 1 (direct) and 2 (indirect) GHG emissions based on operator boundary, which now includes all emissions from our shipping activities
relating to Liquified Natural Gas (LNG) alongside the retained Spirit Energy assets in the UK and Netherlands. Non-operated nuclear emissions are excluded. Target is
normalised to reflect acquisitions and divestments in line with changes in Group structure against a 2019 base year of 2,132,680mtCO
2
e. It’s also aligned to the Paris
Agreement and based on science to limit global warming, corresponding to a well below 2°C pathway initially and 1.5°C by mid-century.
(vii) Restated due to LNG shipping and Spirit Energy’s remaining assets moving into scope in 2022.
258 Other Information | Centrica plc Annual Report and Accounts 2022
Progress against our Foundations
People
Metric 2022 2021 What’s next
Customers
British Gas Services & Solutions –
Services Engineer Net Promoter
Score (NPS)
(i)
+64 +60 Continue to deliver energy, services and solutions that help our
customers live sustainably, simply and affordably
British Gas Energy – Energy
Touchpoint NPS
(ii)
+13 +11
(iii)
Bord Gáis Energy – Journey
NPS
(iv)
+19 +30
British Gas Services & Solutions –
Services complaints per
customer
(v)
12.6% 12.1% Maintain focus on driving down complaints by improving customer
experience
British Gas Energy – Energy
complaints per customer
(vi)
14.4% 8.5%
Bord Gáis Energy – Complaints
per customer
(v)
2.2% 1.6%
Vulnerable customers helped
through the UK Warm Home
Discount scheme
589,460 535,866 Ensure customers in vulnerable circumstances receive the help they
need with their energy bills
Customer safety incident
frequency rate per 1,000,000 jobs
completed
3.64 3.03 Consistently follow existing controls as well as encourage customers to
maintain distance from work areas
(i) Measured independently, through individual questionnaires, the customer’s willingness to recommend British Gas following an engineer visit.
(ii) Measured independently, through individual questionnaires and the customer’s willingness to recommend British Gas following contact.
(iii) Restated to reflect the average weighted score by channel across the year.
(iv) Weighted NPS for the main customer interaction channels.
(v) Total complaints, measured as any oral or written expression of dissatisfaction, as a percentage of average customers over the year.
(vi) Total complaints, measured as an expression of dissatisfaction in line with submissions made to Ofgem, as a percentage of average customers over the year.
Metric 2022 2021 What’s next
Colleagues
Colleague engagement
(i)
73% 55%
Continue to improve colleague experience by connecting colleagues
with our Purpose and leaders, whilst supporting everyone to perform
attheir best
Gender pay gap
(ii)
23% median 30% median Drive action through our People & Planet Plan to create an engaged
team that reflects the full diversity of the communities we serve
15% mean 20% mean
Gender bonus gap
(iii)
12% median 10% median
30% mean 31% mean
Ethnicity pay gap
(ii)(iv)
10% median 13% median
3% mean 0% mean
Ethnicity bonus gap
(iii)(iv)
23% median 12% median
0% mean 4% mean
Retention 88% 72%
Improve retention through our focus on talent development whilst
providing a supportive and inclusive culture
Absence
(v)
10 days 12 days
Reduce absence through good management practices alongside
proactive support and education via our health and wellbeing suite
ofsupport
Total recordable injury frequency
rate (TRIFR) per 200,000 hours
worked
1.12 1.07 Drive down TRIFR and LTIFR by keeping safety front-of-mind
andreinforcing a strong safety culture whilst advancing controls
andmonitoring
Lost time incident frequency rate
(LTIFR) per 200,000 hours worked
0.67 0.72
Process safety incident frequency
rate (Tier 1 and 2) per 200,000
hours worked
0 0.20 Continue to ensure robust operational controls and operator
competencies, timely safety-critical maintenance programmes
andeffective performance management
Significant process safety events
(Tier 1)
0 0
Fatalities
1 0
Return to zero fatalities
(i) Measured through colleague responses to a survey asking them to rate how they feel about the company.
(ii) Based on hourly rates of pay for all employees at full pay (including bonus and allowances) at the snapshot dates of 5 April 2021 and 2022. Read our Gender and Ethnicity
Pay Statement to find out more at centrica.com/paygap.
(iii) Includes anyone receiving a bonus during the 12-month period leading up to the pay gap snapshot date and who are still employed on the snapshot date.
(iv) Based on 65% of colleagues who confirmed whether they are from a Black, Asian, Mixed/Multiple or other ethnic group in 2021 and 70% in 2022.
(v) Relates to absence from sickness rather than wider forms of absence such as bereavement.
Other Information | Centrica plc Annual Report and Accounts 2022 259
Metric 2022 2021 What’s next
Communities
Total community
contributions
£293.4 million
(i)
£307.8 million
(ii)
Make a big difference in our local communities – from helping
people with their energy bills and energy efficiency, to
volunteering and fundraising for causes colleagues feel
passionately about
On the ground site audits
completed
9 7 Continue to monitor and raise standards across our supply
chain to reduce risk and guard against modern slavery,
focusing on enhancing engagement and controls
Sites completing remote
worker surveys
6 7
Colleagues committed to
Our Code
98% 98%
Ensure all colleagues uphold Our Code as part of our
commitment to doing the right thing and acting with integrity
(i) Comprises £243.8 million in mandatory and £45.1 million in voluntary contributions to support vulnerable customers, alongside £4.5 million in charitable donations
whichincludes £0.23 million in contributions from third parties such as colleague fundraising.
(ii) Comprises £304.8 million in mandatory and £2.0 million in voluntary contributions to support vulnerable customers, alongside £0.96 million in charitable donations
whichincludes £0.21 million in contributions from third parties such as colleague fundraising. Restated due to availability of improved data.
Planet
Metric 2022 2021 What’s next
Greenhouse gas (GHG)
andenergy
Total GHG emissions
(scope 1 and 2)
(i)
2,007,655tCO
2
e
†(ii)
1,032,807tCO
2
e
(iii)(iv)(v)
Measure and reduce our emissions through our People &
Planet Plan, whereby we’re focused on being a net zero
business by 2045 and helping our customers be net zero
by2050
Scope 1 emissions
1,994,153tCO
2
e
†(vi)
1,018,888tCO
2
e
(iv)(v)(vii)
Scope 2 emissions
13,502tCO
2
e
†(viii)
13,919tCO
2
e
(iv)(v)(ix)
Scope 3 emissions
(x)
24,330,208tCO
2
e 22,812,989tCO
2
e
(xi)
Total GHG intensity
by revenue
(xii)
85tCO
2
e/£m
(xiii)
70tCO
2
e/£m
(iv)(xiv)
Continue to analyse the impact of our strategy on decoupling
GHG emissions from value creation
Total energy use 9,047,097,047kWh
†(xv)
3,561,052,815kWh
(iv)(v)(xvi)
Remain focused on energy efficiency as we strive to be a net
zero business by 2045
Water, waste and
non-compliance
Total water use
317,760m
3
245,242m
3(iv)
Effectively monitor, manage and reduce our water use and
waste production, as well as our incidence of environmental
non-compliance
Total waste generated
18,686 tonnes 18,060 tonnes
(iv)
Environmental
non-compliance
(xvii)
22 12
(iv)
Reporting is based on operator boundary which is the more commonly used approach set out by the WRI/WBCSD Greenhouse Gas Protocol, and now includes all emissions
from our shipping activities relating to LNG alongside the retained Spirit Energy assets in the UK and Netherlands. Non-operated nuclear emissions are excluded.
† Included in DNV’s independent limited assurance report. See page 258 or centrica.com/assurance for more.
(i) Comprises scope 1 and scope 2 emissions as defined by the Greenhouse Gas Protocol.
(ii) Comprises UK 737,725tCO
2
e and non-UK 1,269,930tCO
2
e.
(iii) Comprises UK 757,518tCO
2
e and non-UK 275,289tCO
2
e.
(iv) Restated due to LNG shipping and the retained Spirit Energy assets in the UK and Netherlands moving into scope following the transition to become a fully operated
joint venture in 2022.
(v) Previous figures included in DNV’s limited assurance scope for the Annual Report 2021 was 226,904tCO
2
e for total carbon emissions, 222,064tCO
2
e for scope 1,
4,840tCO
2
eforscope 2 and 1,142,249,379kWh for total energy use.
(vi) Comprises UK 725,422tCO
2
e and non-UK 1,268,731tCO
2
e.
(vii) Comprises UK 746,243tCO
2
e and non-UK 272,645tCO
2
e.
(viii) Market-based. Location-based is 16,261tCO
2
e. Comprises UK 12,302tCO
2
e and non-UK 1,200tCO
2
e
(ix) Market-based. Location-based is 19,592tCO
2
e. Comprises UK 11,276tCO
2
e and non-UK 2,643tCO
2
e.
(x) Includes emissions from the following scope 3 categories defined by the Greenhouse Gas Protocol: purchased goods and services, capital goods, fuel and
energy-related activities, waste generated in operations, business travel, employee commuting, upstream and downstream transportation and distribution, use
of sold productand investments. All emissions are calculated in line with the methodologies set out by the Greenhouse Gas Protocol’s technical guidance, apart
from workingfrom home emissions which are based on methodology set out in EcoAct’s homeworking emissions whitepaper. Other categories spanning upstream
leased assets, processing of sold products, end-of-life treatment of sold product, downstream leased assets and franchises, are not included because they are
not relevant toour business.
(xi) Restated due to availability of improved data.
(xii) Carbon intensity of revenue is employed as our intensity measure because it is the most meaningful intensity measure for our diverse business and is the most widely
used and understood measure for climate-related stakeholders such as CDP. Based on statutory revenue.
(xiii) Comprises UK 42tCO
2
e/£m and non-UK 203tCO
2
e/£m.
(xiv) Comprises UK 70tCO
2
e/£m and non-UK 71tCO
2
e/£m.
(xv) Comprises UK & Offshore 2,394,832,533kWh and non-UK energy use 6,652,264,514kWh.
(xvi) Comprises UK & Offshore 2,263,144,251kWh and non-UK energy use 1,297,908,564kWh.
(xvii) Includes breaches of environmental authorisation including permit, licence and consent coupled with wider environmental legislation where we are either required
tonotify the regulator or where an authority or regulator is involved. The majority of incidents relate to offshore activities.
260 Other Information | Centrica plc Annual Report and Accounts 2022
Disclaimer
This Annual Report does not constitute an invitation to underwrite, subscribe for,
orotherwise acquire or dispose of any of the Company’s shares or other securities.
This Annual Report and Accounts contains certain forward-looking statements.
Forward-looking statements can be identified by the use of terminology such as ‘intend’,
‘aim’, ‘proje c t’, ‘a ntic ipate’, ‘es timate’, ‘p lan’, ‘beli eve’, ‘expe ct’, ‘forecasts’, ‘may’, ‘c ould’,
‘should’, ‘will’, ‘continue’ or similar words. The forward-looking statements appear in a
number of places throughout this Annual Report and Accounts and include statements
regarding the current intentions, beliefs or expectations of the Directors, the Company
and/or the Group concerning, among other things, the financial condition, goals and
commitments, prospects, growth, strategies, results, operations and businesses
of the Company.
Although we make such statements based on assumptions that we believe to be
reasonable, by their nature, these forward-looking statements are subject to risk and
uncertainties because they relate to, and may be impacted by, events and circumstances
that will occur in the future which are beyond the Company’s ability to control or estimate
precisely. There can be no assurance that the Company’s actual future results, financial
condition, performance, operations and businesses will not differ materially from those
expressed or implied in the forward-looking statements due to a variety of factors,
including, but not limited to, those set out in the ‘Our Principal Risks and Uncertainties’
section of the Strategic Report. Readers are cautioned that these forward-looking
statements are not guarantees or predictions of the Company’s future performance
and undue reliance should not be placed on them when making investment decisions.
At any time subsequent to the publication of the Annual Report and Accounts, neither
the Company nor any other person assumes responsibility for the accuracy and
completeness or undertakes any obligation, to update or revise any of these forward-
looking statements to reflect any new information or any changes in events, conditions
or circumstances on which any such forward-looking statement is based save in respect
of any requirement under applicable law or regulation.
Past performance is no guide to future performance and persons needing advice should
consult an independent financial adviser.
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$ Refers to US dollars unless specified otherwise
2P reserves Proven and probable reserves
Acas The Advisory, Conciliation and Arbitration Service is an independent
public body that receives funding from the UK Government to provide
employees and employers with free impartial advice on workplace
rights and to help resolve disputes
AGM Annual General Meeting
AIP Annual Incentive Plan
bcf Billion cubic feet
CHP Combined heat and power
CO
2
e Universal unit of measurement of the global warming potential (GWP)
of greenhouse gases (GHG) expressed in terms of the GWP of one
unit of CO
2
e (carbon dioxide equivalent)
CPI Consumer Price Index
CSS Consolidated Segmental Statement
Data analytics The process of examining data sets to draw conclusions and insights
about the information they contain
DEEPAC Direct Energy Employee Political Action Committee
EBITDA Earnings before interest, tax, depreciation and amortisation
EBT Employee Benefit Trust
EP Economic profit
EPS Earnings per share
ESG Environmental, Social & Governance
Ethnically diverse Colleagues from a Black, Asian, Mixed or Other ethnic background
EV Electric vehicle
EU European Union
FCA Financial Conduct Authority
FCF Free cash flow
FRS Financial Reporting Standards
GDPR General Data Protection Regulation
GHG Greenhouse gas emissions
GM Gross margin
GMB Trade union
Green jobs Jobs that have a direct positive impact on the planet
GW Gigawatt
GWh Gigawatt hours
HSES Health, Safety, and Environmental Services
IAS International Accounting Standards
IFRS International Financial Reporting Standards
KPI Key performance indicators
kWh Kilowatt hour
LGBTQ+ Lesbian, gay, bisexual, transgender, queer (or questioning), and
others. The ‘plus’ is inclusive of other groups such as asexual,
intersex and pansexual
LNG Liquefied natural gas
LTIFR Lost time injury frequency rate
mmboe Million barrels of oil equivalent
MThms Million therms
Net zero The point at which there is a balance between human-related
carbon dioxide (CO
2
) being emitted into the atmosphere and
the CO
2
taken out
NGO Non-governmental organisation
NPS Net promoter score
Ofgem The government regulator for gas and electricity markets in
GreatBritain
Paris Accord A global agreement to keep temperature rise well below 2°C above
pre-industrial levels, and pursue efforts to limit the increase to 1.5°C
PP&E Property, Plant and Equipment
ppt Percentage point
Process safety Process safety is concerned with the prevention of harm to people
and the environment, or asset damage from major incidents such as
fires, explosions and accidental releases of hazardous substances
PRA Prudential Regulatory Authority
PRT Petroleum Revenue Tax
PWR Pressurised water reactor
RBD Reconciliation by difference
ROC Renewable Obligation Certificate
RPI Retail Price Index
SASB Sustainability Accounting Standards Board
SAYE Save As You Earn
SESC Safety, Environment and Sustainability Committee
SIP Share Incentive Plan
tCO
2
e Tonnes of carbon dioxide equivalent
T&Cs Terms and Conditions
TCFD Task Force on Climate-related Financial Disclosures
The Company Centrica plc
The Group Centrica plc and all of its subsidiary entities
TRIFR Total recordable injury frequency rate
TSR Total shareholder return
TWh Terawatt hour
UAOCF Underlying adjusted operating cash flow
Under-
represented
groups
A person or group of people who are insufficiently or inadequately
represented in society such as women apprentices or those who
are ethnically diverse, have a disability, are LGBTQ+ or carers
VIU Value in use
WBCSD World Business Council for Sustainable Development
WRI World Resources Institute
Glossary
Centrica plc
Registered office:
Millstream
Maidenhead Road
Windsor
Berkshire
SL4 5GD
Company registered
in England and Wales
No. 3033654
centrica.com
Centrica plcAnnual Report and Accounts 2022