A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
2
1
C
e
n
t
r
i
c
a
p
l
c
Helping you live
sustainably, simply
and affordably
Annual Report and Accounts 2021
Group Snapshot
At Centrica, we have been at the
forefront of supporting homes,
businesses and communities with their
energy needs for more than 200 years.
We remain focused on giving customers what
they want and need through our purpose
of helping our customers live sustainably,
simply and affordably.
At the heart of 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.
And central to it, is our commitment to provide
responsible energy our customers can rely
on. Alongside this, we’re investing in our
communities and creating the diverse and
inclusive team we need for a greener future.
In doing so, we can add value for all of our
stakeholders.
Read more about our People
& Planet Plan on Pages
28 to 36
Read more about Stakeholder
Engagement on Pages 8 to 9
Read more about our Chief
People Officer’s Report on
Pages 26 to 27
Sustainability
Find our more about our
People & Planet Plan at
centrica.com/sustainability
Centrica Stories
Read more about our
latest thinking, case studies
and insights on the issues that
matter at centrica.com/stories
Online Report
Read more about our Annual
Report and Accounts at
centrica.com/ar21
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 on pages 16 to 21. See also notes 2, 4 and 10 to the Financial
Statements on pages 119, 125 to 131 and 143, for further details of these adjusted performance
measures In addition see pages 238 to 241 for an explanation and reconciliation of other adjusted
performance measures used within this document.
Strategic Report
1
2
4
Group Highlights
Chairman’s Statement
Group Chief Executive’s Statement
– Our Purpose
– Our Values
Stakeholder Engagement
7 Macro Trends
8
10 Our Strategy
12 Our Business Model
14 Key Performance Indicators
16 Group Chief Financial Officer’s Report
23 Business Review
26 Chief Peoples Officer’s Report
28 People and Planet
– Non-Financial Reporting Statement
38 Our Principal Risks and Uncertainties
– Assessment of Viability Disclosure
Governance
48 Directors’ and Corporate
Governance Report
55 Corporate Governance Statement
61 Committee Reports
– Audit and Risk Committee
– Nominations Committee
– Safety, Environment and
Sustainability Committee
– Remuneration Committee
95 Other Statutory Information
Financial Statements
100 Independent Auditor’s Report
112 Group Income Statement
113 Group Statement of
Comprehensive Income
114 Group Statement of Changes in Equity
115 Group Balance Sheet
116 Group Cash Flow Statement
117 Notes to the Financial Statements
211 Company Financial Statements
223 Gas and Liquids Reserves (Unaudited)
224 Five Year Summary (Unaudited)
225 Ofgem Consolidated Segmental
Statement
Other Information
237 Shareholder Information
238 Additional Information
– Explanatory Notes (Unaudited)
242 People and Planet
– Performance Measures
IBC Glossary
Group Highlights
Group Operational Performance
Brand net promoter score (NPS)(1)
Total recordable injury frequency rate
(per 200,000 hours of work)(1)
Employee engagement(1)
2021
2020
+13.0
+8.7
2021
2020
1.07
1.04
2021
2020
55%
41%
Total carbon emissions (tCO2e)(1)
Total customers(1)
2021
2020
226,904†
989,546(2)
2021
2020
10,067k
9,794k
Group Financial Summary (Year ended 31 December 2021)
Group revenue from business
performance(2):
Group adjusted operating profit from
continuing operations:
Group statutory profit/(loss) from
continuing operations:
£18.3bn
2020: £14.9bn ▲23%
£948m
2020: £447m ▲112%
£954m
2020: £(362)m
Group adjusted basic EPS from
continuing operations:
Group statutory basic EPS from
continuing operations:
Group statutory basic EPS from
continuing and discontinued operations:
4.1p
2020: 2.8p ▲46%
10.0p
2020: (4.7)p
20.7p
2020: 0.7p
Group free cash flow from continuing
operations:
Group statutory net cash flow from
continuing operating activities:
Group net cash/(debt):
£1,174m
2020: £685m ▲71%
£1,611m
2020: £957m ▲68%
£680m
2020: £(2,998)m
†
Included in DNV Business Assurance Services UK Limited (DNV)’s independent limited assurance engagement. See page 242 or centrica.com/assurance for more.
(1) Excludes Direct Energy which is now classified as a discontinued operation. Data relating to historical engagement scores may therefore differ elsewhere in the report.
(2) Restated due to changes in methodology following a move from equity to operational control.
1
Centrica plc Annual Report and Accounts 2021Strategic Report Chairman’s Statement
“We have made significant disposals
that have simplified our Company, we have
radically reorganised and changed the way
we lead Centrica’s workforce to make it fit
for the future. ”
Scott Wheway
Chairman
Where we were
In last year’s Annual Report, I said that we were clear about what we
needed to do to turn around our business, but we had only taken
the first steps in a marathon. Through 2021, the Centrica team have
made good progress against many of those steps whilst also leading
through the continuing COVID-19 crisis and unprecedented volatility
in the energy and commodity markets. So, whilst we are still only
partly through the marathon, we have made further inroads in key
areas that give us a good foundation for 2022, and I’m proud
of what the team has achieved.
When we asked Chris O’Shea to become Group Chief Executive
in April 2020, nobody was under any illusion about the scale of the
challenges we faced. Over a ten-year period, we had lost two million
energy and one million services customers in British Gas, over half
our earnings, and more than three-quarters of our stock market
value. We had to quickly wake up to the reality that radical action
was needed to ensure the business could survive and thrive
in the future.
Where we are now
This year, Chris and the wider management team rose to the hard
challenges we needed to face urgently. We have made significant
disposals that have simplified our Company, we have radically
reorganised and changed the way we lead Centrica’s workforce
to make it fit for the future, we have started to build operational
capability in our customer-facing businesses to improve their
efficiency, and we’ve navigated the very significant impacts of
COVID-19.
Stabilising the balance sheet, reducing
volatility, building capability
The completion of the sale of Direct Energy at the beginning
of the year, for £2.7 billion, has materially strengthened our balance
sheet and removed a source of significant earnings volatility from
the Group. Coupled with the sale of our Norwegian oil and gas
exploration and production assets, this allows us to focus more
on our core businesses, where we have strong customer-facing
market positions and capabilities.
Alongside this, the reorganisation of the business that commenced
in 2020 included the delayering of the organisation so that
colleagues are empowered and better reflect, serve and anticipate
the needs of our customers. And implementation of new terms
and conditions, which have been in place since April 2021, means
that we can now compete more effectively and create more skilled
UK jobs.
This year we have kept a relentless focus on improving our core
business and our customers’ experiences. However, ensuring that
we have the capacity and capability to focus on our customer-facing
energy and services businesses means letting go of the areas we
don’t see as part of our long-term future. The process to divest our
interest in Spirit Energy had been ongoing since 2019, as we looked
to exit Exploration and Production (E&P) in a way that maximises
value for shareholders. I believe we have achieved this through the
sale of Spirit Energy’s Norwegian Assets and the Statfjord field.
We will still hold our 69% stake in Spirit Energy’s remaining UK and
Netherlands assets, focusing on realising value from the remaining
gas reserves and de-risking decommissioning liabilities. While we
will continue to assess opportunities to exit from these remaining
activities over time, Spirit Energy will also pursue potential
opportunities to leverage existing infrastructure for net zero projects.
We are keenly aware that we are custodians of key pieces of national
infrastructure that may have an important role in the transition
to net zero.
2
Centrica plc Annual Report and Accounts 2021Strategic Report We are focusing on returning our core
UK businesses to growth
I am all too aware that the shareholder experience has been
challenging after too many years of disappointment and
unacceptable performance, and it’s my job to make sure our
Company is stewarded in the right direction to create and grow a
sustainable business and, as a consequence, unlock shareholder
value. Your Board is very mindful of the importance of the dividend
to shareholders, and it remains under active consideration. Whilst
the share price increased by around 50%, we are very conscious
this was from a low base. We’ve made progress, and many of the
building blocks are in place, but we still have some way to accelerate
the type of sustainable growth that we strive to deliver. As part of
this, the continuous improvement of our customers’ experience will
be front and centre of our efforts in 2022.
Moving forward
Our Company is moving in the right direction, but there is still a lot to
do as we build our capability. The organisation’s culture is changing
for the better, with colleagues more engaged, empowered and
feeling part of an inclusive environment. I want to thank all Centrica
colleagues for their hard work and dedication during what was
another challenging year for everyone.
Our purpose, ‘Helping you live sustainably, simply and affordably’,
is now embedded not only in our thoughts and words but also in our
actions. We need to remain focused on ensuring that the Centrica
of the future will concentrate on energy supply and services that help
our domestic and business customers transition to a low carbon
world. There are many exciting opportunities ahead of us, and I look
forward to updating you on further progress next year.
Scott Wheway
Chairman
23 February 2022
Read more about our
performance Pages 16 to 25
Read more about our
governance Pages 48 to 49
The changing energy landscape
We saw unprecedented increases in wholesale commodity prices
over the second half of 2021, resulting in an energy crisis in the UK.
The scale of this crisis has been damaging for the whole energy
sector, with millions of customers impacted by the failure of their
supplier. Many lessons must be learned from this crisis, but the
simple facts are that customers were encouraged to switch to
suppliers that did not have sufficiently robust business models.
In some cases, these suppliers played fast and loose with their
customers’ money, and the costs of these failures will run into billions
of pounds which, under the present regulations, will be added to
everyone’s bills, even those customers that stayed with trustworthy
companies such as British Gas. This must never be allowed to
happen again, and, as you might expect, we have been engaging
constructively with Ofgem and the Government on the future of retail
energy markets in the UK, calling for more and tighter regulation.
We are committed to supporting proposals that protect and put the
customer at the heart of the solution while ensuring that well run and
responsible energy suppliers can make a fair return.
Net zero
At Centrica, we understand that we are an important stakeholder
in the drive to net zero. There are some big questions still to be
answered around the decarbonisation of our homes and businesses
and the associated infrastructure needed to accelerate progress
in areas such as electric vehicles. We will continue to ask the hard
questions about how we find an affordable and practical path to
allow our customers to transition to net zero whilst working with
Government and regulators on this issue.
We see our role as the guardians of customers to help them through
the net zero transition. This presents a significant opportunity for
our services and solutions businesses and Centrica as a whole. With
the largest services field force in the UK, our people are in the best
position to deliver the low carbon heating solutions that will make
net zero a reality. In support of this, I’m pleased that we were able
to launch our Climate Transition Plan in 2021, which sets out our
roadmap to become a net zero business by 2045 and help our
customers do the same by 2050.
As a Board, we have allocated time to upskill ourselves on the
carbon transition. Building Board capability in this area is essential
as we look at balancing the need to decarbonise with the needs of
our customers and the long-term needs of the country.
3
Centrica plc Annual Report and Accounts 2021Strategic Report Group Chief Executive’s Statement
“Throughout 2021 we’ve been working hard
to steer your Company in the right direction.
Whilst we still have a long way to go, there are
positive signs that we are beginning to turn
around our business. ”
Chris O’Shea
Group Chief Executive
It appears that this decade may be one of the most eventful for a
long time, one where we learn and adapt more quickly than we’ve
done in the past. COVID-19 has now been with us for almost two
years, and we are learning to live with it. The development and
roll-out of vaccines are at a pace we have never seen before, and
people are adapting to a profound change in how we live our lives
with incredible resilience. It hasn’t been easy, but it’s amazing
what we can achieve when we all work together.
Whilst we have some way to go to achieve our 2030 ambition that
50% of these recruits are women, we are making inroads with over
25% of our apprentices recruited this year being women. These are
the engineers who will install and maintain your smart meter, electric
vehicle charge point, hydrogen boiler, electric heat pump, radiators,
and hot water tanks. These are the people who will deliver the net
zero future of the UK. We are doing all of this today, and we’ll be
doing more tomorrow.
Approaching the need to remove carbon from our atmosphere in the
energy transition, in the same way, is critical. At Centrica, we choose
to see the opportunity in net zero, not the obstacles. The opportunity
to contribute to the essential reduction in climate change; to create
thousands of well-paid, skilled jobs; to help our customers decide
the best path to net zero for them; and to make net zero achievable
by making it affordable. It’s both daunting and exciting; a huge
challenge but also a huge opportunity for Centrica, whether you
call it the energy transition, net zero, or decarbonisation.
Throughout 2021 we’ve been working hard to steer your Company
in the right direction. Whilst we still have a long way to go, there are
positive signs that we are beginning to turn around our business.
We clearly need to improve our customer service levels, particularly
in British Gas Services & Solutions where absence levels more than
doubled in 2021, meaning we struggled to provide as high a level of
service as I would have liked. Central to this journey is our continued
and relentless focus on simplifying our business, building the
workforce to deliver net zero, and empowering those colleagues
to deliver the best for our customers – happy colleagues mean
happy customers, which leads to happy shareholders.
Building the workforce for a net zero future
Reaching an agreement with colleagues and implementing new
terms and conditions were critical steps to put us on a steady footing
to compete. We had seen our customer numbers and share price
decline for many years and this prevented us from creating new
jobs. I regret the pain felt by colleagues and customers during this
process. But it has allowed us to get back to recruiting in a big way.
This underpins our commitment to creating at least one new
apprenticeship for every day of this eventful decade.
I’m pleased that in 2021 we created around 600 new, highly skilled
and well-paid British jobs through our apprenticeship scheme.
4
Listening to colleagues
Our colleagues are vital to turning around our business. This year,
we have spent more time than ever before listening to colleagues
and acting on what we hear. Colleague engagement has been
unacceptably low over recent years, and we have set a target
of achieving engagement levels seen in high-performing companies
over three years. This requires an average increase of 10 percentage
points per year. I think we are beginning to turn a corner, with
colleague engagement scores increasing by 13 points over the
year to 55%. Engaged colleagues will see the opportunities
rather than the problems; empowered colleagues will deliver
those opportunities.
Although there is still a long way to go, I am encouraged that we are
heading in the right direction. We launched our Shadow Board this
year, which comprises colleagues from across the business and in
different locations. They are empowered to influence decisions,
positively disrupt assumptions, challenge my thinking and that of the
Centrica Leadership Team, and advocate for colleague-centred
decision-making. I’m already enjoying our meetings and the valuable
and diverse perspectives of our Shadow Board.
And we’ve made great progress on creating a workplace where
everyone feels welcome and included. I am incredibly proud of the
work achieved in collaboration with our many colleague networks
to raise awareness and produce guidelines for topics that have been
considered workplace taboos for far too long, including menopause,
fertility, domestic abuse and gender transitioning. At Centrica,
nothing is off the table – we will discuss anything our colleagues
want us to.
Centrica plc Annual Report and Accounts 2021Strategic Report Simplifying the portfolio
Whether it’s the £2.7 billion disposal of Direct Energy completed
in early 2021; the headline price of £0.8 billion for the disposal of
Spirit Energy’s Norwegian business; or the smaller disposals of
Io-Tahoe, an AI-driven data management business, and the former
British Gas headquarters in Staines; we are focusing on our core
capabilities, so we can improve, strengthening our foundations
so we can grow.
Although the disposal of Spirit Energy’s Norwegian business took
longer than we would have liked, we wanted to make sure we got
the right deal, and this meant making sure we sold the business
to people who could give us the confidence they would meet the
substantial associated decommissioning liabilities for two reasons:
firstly, to make sure the assets are decommissioned in a way which
is right for our planet; and secondly, to make sure the cost doesn’t
come back to Centrica. Whilst we have retained Spirit Energy’s
assets in the UK and the Netherlands, we won’t invest in exploring
for new hydrocarbons. We’ll use the cash flows generated by Spirit
to meet the remaining decommissioning obligations. The business
is in run-off, and we’ll seek to realise value through a combination
of running fields to the end of their life, selling fields to responsible
buyers, or, where possible, converting fields to aid in the energy
transition, for example, capturing and storing carbon.
Simplifying the business
Our new business unit structure and delayered organisation are now
established. As part of this, we split British Gas into two separate
businesses: British Gas Energy and British Gas Services & Solutions.
This allows us to focus on what’s important for customers who often
have different needs; however, the businesses will also continue to
work very closely alongside each other to deliver combined solutions
to those customers who want both energy and services. Both
businesses have new managing directors appointed this year.
Catherine O’Kelly, who has been with Centrica since 2011 and
most recently led Bord Gáis Energy in Ireland, looks after British Gas
Energy. Jana Siber looks after British Gas Services & Solutions,
having joined us early in 2022 from Arriva Group, where she
was managing director for Mainland Europe. I am delighted to
have Catherine and Jana in these roles; they both bring a wealth
of experience with them.
Reflecting on our 2021 financial performance
Kate Ringrose, our Group Chief Financial Officer, covers the financial
performance in detail on pages 16 to 21. On the whole, we managed
the volatile external environment well during 2021.
We continue to focus on cash flow generation and balance sheet
strength, and ended the year with net cash of £680 million
compared to net debt of £2,998 million at the end of 2020, as we
received proceeds from the Direct Energy sale and maintained a
tight focus on costs, capital expenditure and restructuring spend
across the Company.
Adjusted basic earnings per share from continuing operations were
up 46% to 4.1p as the positive impacts of higher commodity prices
on our Upstream activities, cost efficiencies and a partial recovery
from COVID-19 impacts in 2020 more than offset the impact of
a disappointing British Gas Services & Solutions performance
and lower Energy Marketing & Trading profit.
Statutory basic earnings per share from continuing operations were
10p compared to a loss of 4.7p in 2020, which included the impact
of material impairment of Upstream assets due to the increase in
commodity prices.
Responsible energy
We’ve seen substantial increases in global wholesale energy prices,
which will inevitably lead to higher prices for all energy customers.
We provide energy to retail customers principally in two countries,
Ireland and the UK, which are part of a global energy market and
dependent on gas imports; both are part of a very interconnected
European electricity and gas market. Recent months have seen an
unprecedented change in these markets, with a surge in European
electricity and global gas prices exposing the fragility of suppliers
with unsustainable business models. The current situation
demonstrates the importance of having a responsible business
model and a disciplined approach to hedging and risk management,
with the capabilities in our Energy Marketing & Trading business
proving particularly valuable.
The collapse of energy suppliers, principally in the UK, has resulted
in millions of customers being moved to new suppliers through
Ofgem’s Supplier of Last Resort Process. We played our part to
support customers, taking on more than 700,000 new customers
from failed suppliers since 1 January 2021 to date and ensuring their
continued supply of gas and electricity. This is a distressing time for
those customers and a worrying time for all customers, and we will
do everything we can to help.
Again, we see a huge opportunity to fix issues in the UK’s complex
energy regulations to ensure this crisis never happens again by
simplifying and strengthening regulations to protect customers.
We want the regulator to retain but reform price regulation.
The sector is collectively loss-making, and this means it is not
sustainable. The regulator and suppliers need to work together to
reform price regulations in a way that is fair to all customers, protects
vulnerable customers through the transition to low carbon and
attracts the investment needed to meet the net zero challenge.
Right now, consumers are paying the price for multiple supplier
failures largely due to irresponsible practices and poor business
models. The energy retail market requires stronger prudential
regulation to ensure those involved in the industry are fit and proper,
companies have adequate capital and properly monitored risk
management procedures, and customer deposits are properly
protected. Requiring every customer in the UK to pay to replace
customer deposits spent by failed companies is not the same as
safeguarding customer deposits. We believe energy suppliers in
the UK should be able to refund all customer deposits on demand.
As a responsible supplier, we separately identify customer deposits,
and held nearly £300 million in a separate bank account as at the
end of 2021. We have urged our regulator, Ofgem, to make this a
requirement for all energy suppliers without delay. Until this happens,
we run the wholly unacceptable and very real risk of history
repeating itself.
The focus of regulation also needs to change. It needs to be about
customer requirements and protection rather than success being
measured mainly by customer switching rates. Recent changes
and announcements from Ofgem are a step in the right direction
but much more is needed.
Ofgem have also launched proposals to implement additional
assessments for energy market participants from 1 April 2022
and a consultation on proposed changes to the supplier licence
application guidance. We wait to see the exact nature and timing
of any changes and we’ll continue to engage with Ofgem on the
future of retail energy markets in the UK, to ensure that well run,
responsible suppliers can make a fair return.
Playing our part to tackle climate change
COP26 was a significant moment for the UK, and it highlighted,
once again, the existential threat of climate change. I had the
privilege of attending the summit, where I saw the business
community’s increased presence, which is a positive thing because
collaboration with all parts of society is critical for developing new
technologies, new thinking, and renewed determination to tackle
climate change.
5
Centrica plc Annual Report and Accounts 2021Strategic Report Strategic Report | Group Chief Executive’s Statement continued
If we all work together, we will deliver net zero. As for the outcome
of COP26, I think it’s a step in the right direction, and now we have
to build on the momentum. We’ll do everything we can on this front,
working with all of our commercial partners, customers, government
and non-governmental organisations.
The solutions to climate change require a range of technologies,
including increased electrification and decarbonised gas such as
hydrogen. Ideally, we’d all like decarbonisation to happen tomorrow,
but in reality, it can’t. We need to use gas in the interim and, for many
years to come, to help us to get net zero. It may be an unpalatable
truth for some, but we must favour pragmatism over ideology to
achieve the end goal. It’s why I am sceptical of people pushing for
a one-size-fits-all approach because it doesn’t help. Our customers
want hassle-free and affordable solutions. As the UK and Ireland’s
biggest electricity and gas supplier, we speak from more than
200 years of experience.
We must realise that everyone’s circumstances are not the same, so
we must ensure that the transition to net zero is fair and affordable
for all so nobody gets left behind. This is the ethos that runs through
our Climate Transition Plan, which we launched in 2021 to outline in
detail how we intend to become a net zero business by 2045 and
use our services and solutions capability to help our customers be
net zero by 2050. We will never tire of advocating for our customers
– we want to do this with our customers, not to them.
Continuing what we started
Many of our colleagues had the honour of participating in the London
Marathon this year for our charity partner, Carers UK. There are
interesting parallels between running a marathon and turning around
our business. First, you have to build a resilient mindset. You need to
invest in training and make sure that you have the right resources at
the right time to go the distance. You need a solid plan of action and
must be prepared to face any challenges along the way.
Over the past year, our people have started to adopt a winning
mindset, and I have seen that our passion and determination to
succeed is beginning to gain momentum. We have a plan of action
underpinned by our purpose, and customers are at the heart of it.
Whilst there is still a long way to go to turn around our business, we
have started the race, and in 2022, we will pick up the pace when
hopefully the worst of COVID-19 will be behind us, resulting in
absence returning to more normal levels and service improving. We’ll
continue to focus on the end goal; by doing that, we’ll put ourselves
in the best position possible to drive further improvements in our
performance and ultimately deliver long-term shareholder value.
I am well aware of how the stresses of the past two years have
affected colleagues and customers, and I hope you and your loved
ones are safe and well. Rest assured, we’ll continue to do all we
can to support colleagues and customers through difficult,
uncertain times. And we’ll see the opportunities where others
see the obstacles.
Chris O’Shea
Group Chief Executive
23 February 2022
Read more about
Our Strategy Pages 10 to 11
Read more about our People
Pages 26 to 31
Read more about our Planet
Pages to 32 to 35
Read more about our
foundations Page 36
Our Purpose
By living our values, we will be better able to fulfil our purpose
and help our customers live sustainably, simply and affordably.
Our Values
The safety of our
team and of others
around us is paramount
We respect others, and
the trust they place in us
We want to make a
care
We care deeply
about our impact
and those we touch
We have a sense of
responsibility which
goes beyond our job
collaboration
Together we win
We enjoy working
with others
We believe relationships
and partnerships are
fundamental
We are best when we
work as a team
We seek out views and
mutual understanding,
even from our
harshest critics
courage
We step up and
take responsibility
We pursue the right
outcome, knowing it is
rarely easy
We are prepared to stand
for what we believe
We will challenge
where we believe the
path is wrong
We face into the
challenge and grasp
the opportunity
We value delivering
great service and
customer outcomes
We are rigorous, do things
the right way, and follow
We recognise the journey is
as important as the result
We seek simplicity,
improvement
delivery
We do things
right and deliver
agility
We are nimble,
curious and innovative
We don’t stand still and
know when to change
We seek out the new to
make a difference
We are restless, always
looking to do better
We embrace the ideas
and perspectives of
others
6
Centrica plc Annual Report and Accounts 2021
Macro Trends
Our business is exposed to a range of macro trends which shape the landscape
in which we operate over the medium to long term. These trends span across
industries, underpinning our business model, and forming a core part of our
strategic outlook.
Climate Change
Digitalisation
Consumer Focus
Climate change is an increasingly
important consideration in all our lives,
with carbon emissions continuing to be
the key driver. The impetus to act has
never been greater with increasing social
demand and regulatory mandate to
decarbonise across all sectors. Climate
change is the most important strategic
driver guiding Centrica today and is a
core part of our purpose.
Digitalisation will be key to creating the
flexible energy system of the future and
we have positioned ourselves at the heart
of that. Customers demand that their
homes and businesses become
increasingly connected, controllable and
flexible and we have market leading
solutions to help them do that.
Consumers are driving our behaviour
more than ever as their priorities shift
towards greener offerings and hassle-free
digital customer experience while
still being cost conscious. As a business
we continue to strive towards always
delivering for our customers in line with
our purpose.
How we’re responding
• We’ve clearly outlined our plans for how
we intend to decarbonise power, heat
and transport through our Climate
Transition Plan published 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
electric vehicle chargers while exploring
the future of hydrogen.
• We’re committed to creating additional
green generation with up to £500 million
to deploy through Centrica Energy Assets
in renewable and flexible assets by 2025.
How we’re responding
• We are deploying our leading FlexPond™
aggregation and optimisation technology
to help use energy in the most efficient
way in homes and businesses to help
balance the grid.
• Through Hive we bring our customers
closer to their energy allowing them to
precisely control and monitor their homes.
• 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 a competitive price.
How we’re responding
• We have embedded the restructuring
of our business allowing us to respond
to our customers’ needs more easily.
• We are focused on becoming the most
competitive supplier delivering cost
efficiency through agile new systems.
• We are committed to helping enable the
transition to net zero and will continue
to provide the best energy and heating
solutions to our customers’, tailored
to their needs.
• Advocating for the policy changes
needed to reach net zero on our
customers’ behalf.
7
Centrica plc Annual Report and Accounts 2021Strategic Report Stakeholder Engagement
Stakeholder expectations are rising. They want a better service and improved
solutions, with peace of mind that we’re contributing positively to people’s lives
whilst protecting the planet.
With energy being fundamental to how we all live, work and move,
we know that our actions can have a big impact on a broad range
of stakeholders. That’s why we’re fully committed to maintaining
constructive relationships with all of our key stakeholder groups who
may be impacted by our activities or have responsibility for how the
sector operates. And by establishing an open dialogue with these
stakeholders and considering their views on an ongoing basis,
we can ensure our strategy continuously evolves in line with their
expectations. This not only enables us to create better outcomes for
society and the environment, but it enables us to grow the success
of our business and furthers our ability to deliver on our purpose to
help our customers live sustainably, simply and affordably. Whilst our
Directors are often responsible for making key decisions as a result
of engagement with stakeholders, associated actions are often then
delegated to senior leaders who are best placed to ensure the
desired outcome is delivered.
Section 172 (1) Companies Act 2006
Statement
The Directors consider that they have performed their fiduciary
duty, as stipulated under Section 172 of the Companies Act
2006 (Section 172), in good faith to promote the success of
the Company for the benefit of its members as a whole in its
decision-making.
These pages set out who our key stakeholders are together
with an example of how engagement was vital to navigating
one of the most material issues our business and sector faced
in 2021.
Read more about how the Board engages with stakeholders and
makes decisions on Pages 56 to 57
CENTRICA
STORIES
Engagement during
an energy crisis
During 2021, the energy market faced
unprecedented challenges as global
supplies of gas constricted and demand
surged. This resulted in higher gas prices
and led to over a third of all the UK’s
energy suppliers going out of business
over a short period of time.
Because we manage the risks facing our
energy retail business robustly, we were
adequately hedged and had sufficient
capital to face the challenge. The Directors
8
alongside specialists in Corporate Affairs
and Regulatory Affairs worked at pace with
the UK Government and Ofgem, to limit the
distress to customers by agreeing to take
on and pick up the initial cost of onboarding
around 700,000 customers from failed
energy suppliers. We also engaged
parliamentarians across the UK to ensure
they were up to date with the situation and
provided information leaflets alongside
drop-in sessions, to help answer their
questions whilst raising awareness of the
support available for constituents.
In recognition of household budgets
coming increasingly under pressure with
the rising cost of energy, we took additional
action to support customers. We froze
direct debits for customers over the winter,
provided extra signposting of support,
and launched a £4 million Fuel Fund to
specifically target our most vulnerable
customers. Moreover, we collaborated
with the British Gas Energy Trust, an
independent charity funded solely by
British Gas, to run a nation-wide marketing
campaign that encourages anyone in need
of assistance with their energy bills to get in
touch. These efforts led to a significant
number of people coming forward and
receiving the support they needed.
We continue to work with Ofgem and
the UK Government to identify ways of
improving the robustness of the regulatory
framework to ensure the sector is more
resilient to similar crises in the future.
Towards this, we gave evidence at the
House of Lords and discussed the need to
introduce more robust controls with Ofgem
– from making sure every supplier hedges
properly, to ensuring they’ve the right risk
management policy and amount of capital
to deliver on their commitments to
customers, which includes ensuring
customer credit balances are protected.
We’ve also encouraged Ofgem to spread
recovery costs over a longer period to
reduce the burden on hard-pressed
households. Consequently, Ofgem has
published an action plan, by which it
intends to improve the financial resilience
of energy suppliers.
Read more about our Fuel Fund at
centrica.com/fuelfund
Centrica plc Annual Report and Accounts 2021Strategic Report Our key stakeholders
Customers
Colleagues
To be a truly customer-focused business, it’s vital that we listen
to our customers and act on their feedback. In doing so, we can
understand what they want and what they need across a range
of issues such as customer service, energy efficiency and new
products, as well as pricing and support with their energy bills.
And if we get it right, we’ll be able to grow our customer base and
fulfil our purpose of helping them live sustainably, simply and
affordably. Various engagement methods are used including focus
groups and surveys, as well as proposition and usability testing.
Feedback from colleagues is essential for developing a workplace
where everyone can be themselves and thrive. This helps us
attract, promote and retain diverse talent, which is core to our
ability to deliver for customers. Issues raised and discussed
include reward, development and inclusion alongside business
strategy and transformation. Feedback is sought through
channels such as our Shadow Board of diverse colleagues who
regularly meet with leaders, townhalls, quarterly engagement
surveys, performance reviews and structured engagements
with trade unions.
Read more about customer engagement on
Pages 8, 15, 36 and 56 to 57
Read more about colleague engagement
on Pages 4, 26 to 27, 28 to 31, 36 and 56 to 57
Investors
Government and Regulators
Shareholders and debt holders provide funds that help us run
and grow our business, and they expect a sustainable return. The
Directors are conscious of the need to act fairly for different types
of investors so we aim to consider and reflect their views when
we update on our strategy, financial and operational performance
alongside our Environmental, Social and Governance (ESG)
considerations. To support this, we regularly engage investors
throughout the year via investor roadshows, meetings and the
Annual General Meeting (AGM), as well as responding to
information requests and assessments from ratings agencies.
Government and regulatory policies can have a significant
impact on how we do business. The Directors therefore recognise
the importance of working together towards ensuring a viable
regulatory environment where policy is developed in the interests
of consumers, whilst enabling a sustainable and investable
market. We share our expertise through extensive participation
in consultation processes, meetings and site visits, in order to
support effective policy development and reforms on a range of
topics – from market design, skills and employability requirements,
to the role we can play in supporting decarbonisation.
Read more about investor engagement on
Pages 33, 56 to 57 and 59
Read more about government and
regulator engagement on Pages 8, 33
and 56 to 57
Suppliers
Communities and NGOs
The Directors fully support collaboration with suppliers. This is
because collaboration helps us reduce risk in our supply chain
and maintain high standards of business conduct, which in
turn brings benefits to communities and the environment. We
endeavour to work with like-minded suppliers that are aligned
to these ambitions. We interact with suppliers in multiple ways
such as tendering, surveys, site inspections and remote worker
surveys. Engagement covers topics that include payment
practices alongside strengthening social and environmental
compliance on issues like human rights.
Communities expect companies to give back by supporting
issues that are important to them. And here at Centrica, we’re
passionate about sharing our time and money to work alongside
charities, non-governmental organisations (NGOs) and community
groups, to create stronger and more inclusive communities
together. Through meetings and collaborative research projects,
the Board is armed with a greater understanding of community
issues and has full regard of their views, as well as the likely
consequences their decisions will have. Engagement is focused
on efforts to tackle urgent social and environmental issues like
fuel poverty and climate change.
Read more about supplier engagement on
Pages 36 and 56 to 57
Read more about community and NGO
engagement on Pages 30 to 31 and 56 to 57
9
Centrica plc Annual Report and Accounts 2021Strategic Report Our Strategy
Strategic context
Our strategy is driven by our purpose to help our customers live sustainably, simply and
affordably. As the pace of change continues to accelerate, we are responding by focusing
colleagues and technology on helping businesses and households to use energy more
efficiently and sustainably. We recognise 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. Additionally, in October 2021, we announced the
creation of Centrica Energy Assets, to develop low carbon and transition assets to provide
clean, flexible power solutions to the grid.
Sustainability
Simplicity
Affordability
We are committed to making big
changes that will create a more inclusive
and sustainable future. By cutting both
our own and our customers’ emissions
on a path to net zero, we will help create
a new, more sustainable energy,
services and solutions landscape.
We are simplifying and modernising
our business to allow us to put
customers at the heart of everything
we do with the aim of making their
lives simpler and easier. We recognise
that customers need clear simple
solutions to help them make the
transition to net zero.
Being able to reach net zero in an
affordable way is core to our customers’
futures, so we are striving to provide
energy, services and solutions through our
trusted brands that deliver value for all.
Market trends
Key market trends and factors affecting our business and potential
future development performance and position, bring risks and
opportunities for Centrica, steering our strategy.
Customer needs
Changes in our ways of
living and working in
response to COVID-19
Unstable market conditions
and rising commodity prices
resulting in a changing
competitive landscape in
the UK retail market
Trusted, credible and
sustainable energy suppliers
Hassle-free, empathetic,
personalised and safe
service
Increasing price pressures
as consumers face
challenges of high inflation
environment
Clearer government
support and targets for
decarbonisation
Responsible options
(including green tariffs) and
expert guidance to help
customers achieve net zero
Lower costs, greater
efficiency and increased
flexibility
Low carbon technology
deployment accelerating,
system flexibility increasingly
important
High importance of ESG
driving corporate
decarbonisation targets
Complete solutions, not
just products
Increased regulator and
consumer activism, and
high levels of competitive
intensity
Gas continues to become
a global market with
implications for consumers
Role of data and automation
increasingly important in
providing high quality,
tailored offerings
10
Read more about Our Risks and Uncertainties Pages 38 to 43
Centrica plc Annual Report and Accounts 2021Strategic Report Our approach
We remain committed to helping our customers
on the journey to carbon reduction and ultimately
net zero, through providing low carbon energy
and services, innovation, increasing energy
efficiency and investing directly in renewable
energy. Our focus continues to be delivering
against our ambitious targets to make Centrica
a net zero business by 2045 and help our
customers be net zero by 2050 at the latest.
We will:
• Lead by example – have a zero emission fleet
of vehicles by 2025.
• Continue to look to reduce our exposure to
hydrocarbon production.
• Continue to offer market leading renewable electricity
products for our customers.
• Invest directly in developing solar and storage assets
• Support the development of hydrogen as a
replacement for natural gas.
• Enable low carbon transportation and heating solutions.
• Continue to find ways to help our customers use
less energy and reduce their carbon footprint.
• Create thousands of green skilled jobs to deploy a
range of new and emerging technologies including
heat pumps and hydrogen ready boilers.
Read more about our Climate Transition
Plan ambitions on Pages 32 to 35
Our Group
priorities
In 2019, we evolved our focus on five key
priorities to deliver our strategy and we align
performance and risk management processes
around these, including our Key Performance
Indicators. Our Group Priorities are underpinned
by safety, compliance and conduct.
• Customer obsession
• Operational excellence
• Most competitive provider
• Cash flow growth
• Empowered colleagues
Our near-term
strategic
objectives
Our People
& Planet Plan
➊ Simplify the organisation to free up colleagues
to focus on customers and to reduce costs.
➋ Build the workforce and capabilities
of the future so we can continue to lead
in heating solutions.
➌ Build out an asset base to support our
customers, the grid and the broader energy
system through the energy transition across
green power and clean gas.
➍ Maintain a strong balance sheet enabling
future net zero investment and returns
to shareholders.
We have introduced our People & Planet Plan to
create a more inclusive and sustainable future
that supports communities, our planet and each
other. Our five Group-wide goals accelerate
action in areas where we can make a big
difference which includes being a net zero
business by 2045 and helping our customers be
net zero by 2050 at the latest, whilst building the
diverse and inclusive team that will help us
get there.
Read more about our People
& Planet Plan on Pages 28 to 36
We are focused on turning Centrica around, resulting in
a stronger core business with a robust balance sheet
enabling us to build on our longer-term growth
ambitions in the areas in which we have distinctive
capabilities – energy supply, services and solutions,
energy trading, optimisation and energy assets.
Through careful governance we continue to monitor
our progress against key objectives ensuring that we
can meet our strategic objectives.
People
Supporting every colleague to be themselves to
better serve our customers and communities
Planet
Supporting every customer to live more sustainably
11
Centrica plc Annual Report and Accounts 2021Strategic Report Strategic Report
Our Business Model
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.
Our strategic framework
For consumers
For business
For assets
We want to make people’s lives simpler,
by providing seamless, time-saving
services that are affordable and
sustainable. Understanding and
satisfying consumer needs is critical
to our success.
As a trusted energy partner for our
business customers, we provide
the energy and solutions to help
them operate more efficiently
and sustainably to achieve
commercial success.
Energy supply
Energy supply
Gas supply
Electricity supply
Gas supply
Electricity supply
With a commitment to helping deliver
the energy system of the future we
are investing in green and flexible
assets while driving exploration
of new green solutions.
Home services and solutions
Energy trading and optimisation
Asset Investment
• Protection products (central heating,
plumbing and drains, home electrical,
and kitchen appliance cover).
• On-demand services (service, repair,
and home improvements).
• Aggregation and optimisation of
distributed energy resources.
• Access to energy, capacity and flexible
markets including demand response.
• Route-to-market and commodity risk
• Installation of heating systems and
management services.
electric vehicle charge points.
• Smart meter installations and delivering
energy efficiency through the Energy
Company Obligation scheme.
• Smart heating and energy
management, remote diagnostics,
and monitoring solutions.
Business services and solutions
• Design, install, maintain and service
a wide range of technology solutions.
• Direct investment in developing low
carbon and transition assets.
• Investment in developing new
technologies and enabling wider
renewable development.
Hydrogen development
• Continued investigation of potential
Hydrogen and carbon storage on
industrial scale.
• Energy resource management
• Exploring novel technologies which
and monitoring.
could enable scale hydrogen adoption.
• Operational insights from energy data
to help with preventive maintenance.
Group financial framework
In 2019 we set out a financial framework
intended to enable us to deliver long-term
shareholder value through returns and
growth. Since then both our business and
the markets we operate in have changed
significantly, and as such our intention is to
communicate a new financial framework over
the course of 2022 that reflects our business
as it stands today and enables us to achieve
our future aims.
In the immediate term, our core aim is to
maintain a strong balance sheet and as such
we will target a net debt/EBITDA level that
is sustainable and consistent with our
investment grade credit ratings. We will
also continue to focus on free cash flow
generation, underpinned by focused cost
management. We will also remain disciplined
in the deployment of capital. Maintenance
capital expenditure excluding Spirit Energy
is expected to remain around its current level
of £100 million per annum and we’ll also look
to invest in growth opportunities in support
of the energy transition subject to appropriate
returns, for example in gas-peaking plants,
solar and battery.
Having taken the decision in 2020 to cancel
our 2019 final dividend in response to the
COVID-19 pandemic, with the actions we
have taken over the past two years and
our triennial pension negotiations due to
conclude in the first half of 2022, we now
have a clear path to restarting the dividend.
In addition, the risks to achieving the Group’s
strategy are monitored and reported regularly.
For more information on managing our
exposure to risk, see Our Principal Risks
and Uncertainties on Pages 38 to 43
12
Centrica plc Annual Report and Accounts 2021
Our Businesses
We have embedded our new structures across the organisation and created a modernised and
simplified Centrica, with the heads of each business unit reporting directly to the Group Chief
Executive. The disposals of Direct Energy and the announced sale of Spirit Energy’s Norwegian
E&P assets mean we are more focused on our core UK and Ireland markets and with our
ambitions to invest in low carbon and transition assets through Centrica Energy Assets, we are
building towards the green Centrica of tomorrow.
The Company operates with five customer-facing businesses, which
will continue to focus on the areas in which we have distinctive
capabilities – energy supply, services and solutions, energy trading
and optimisation.
We also currently have an Upstream division comprised of our oil
and gas E&P assets, including the Rough field, and our nuclear
power generation business.
Our businesses are listed here
British Gas Energy
Supplies energy to residential and small
business customers in England, Scotland
and Wales.
British Gas Services
Provides services and solutions to
residential customers in England, Scotland
and Wales.
Bord Gáis
Provides energy supply, services and
solutions to residential and business
customers in the Republic of Ireland.
Read more about British Gas Energy at
centrica.com/british-gas
Read more about British Gas Services at
centrica.com/british-gas
Read more about Bord Gáis at
centrica.com/bord-gáis
Centrica Business Solutions
Provides energy supply to larger business
customers in England, Scotland and Wales,
and low-carbon energy solutions for business
customers internationally. Now includes
Centrica Energy Assets focused on building
out a portfolio of utility scale solar, battery
and flexibility assets
Energy Marketing & Trading
Is the trading and optimisation arm of
Centrica, and is also responsible for
managing commodity risk and sourcing
energy on behalf of the Group’s energy
supply activities in the UK.
Upstream
Includes our oil and gas E&P assets, our 20%
interest in the UK’s nuclear power generation
fleet and the Rough field. We have signed an
agreement to sell our E&P Norwegian assets
and will explore strategies for our remaining
portfolio focused on realising value and
minimising further investment in exploring
for new hydrocarbons.
Read more about Centrica Business
Solutions at centrica.com/cbs
Read more about Energy Marketing
& Trading at centrica.com/emt
Read more about Upstream at
centrica.com/upstream
13
Centrica plc Annual Report and Accounts 2021Strategic Report Key Performance Indicators
Our Key Performance Indicators (KPIs) help the Board
and executive management assess performance against
our Group Priorities set out in 2019.
Our Group Priorities
Customer
Obsession
Operational
Excellence
Most Competitive
Provider
Cash flow
Growth
Empowered
Colleagues
Safety, compliance and conduct
foundation
Read more about Our Group Priorities on
Page 11 and Our Strategy Pages 10 to 11
Read more about Remuneration on
Pages 71 to 94
Read more about adjusted performance
measures on Pages 238 to 241
Group free cash flow from continuing operations (£m)(1)(2)
Group adjusted operating profit from continuing operations
2021
2020
2019
685
472
1,174
(£m)(1)(2)
2021
2020
2019
948
447
650
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 71% predominantly as a result
of the increased operating profit in the Upstream segment.
Group adjusted operating profit from continuing operations
is one of our fundamental financial measures.
Group adjusted operating profit was up 112% predominantly
reflecting increased profit in Upstream.
Link to Remuneration
Short-term incentive
Link to Group Priorities
Link to Remuneration
Short-term incentive
Link to Group Priorities
Group adjusted basic earnings per share from continuing
Total shareholder return (TSR) by year
operations (EPS)(1)(2)
2021
2020
2019
2.8p
4.1p
4.3p
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 46%, reflecting the increased
operating profit partly offset by a higher tax rate.
Link to Group Priorities
140
120
100
80
60
40
20
0
Centrica Total return index
FTSE 350 Total return index
2018
2019
2020
2021
The Board believes that TSR is a valuable KPI to assess the
Company’s performance in the delivery of shareholder value.
Link to Remuneration
Long-term incentive
Link to Group Priorities
(1) Excludes Direct Energy which is now classified as a discontinued operation. See notes 3 and 12 to the Financial Statements for further information.
(2) See notes 2, 4 and 10 to the Financial Statements for definition and reconciliation of these measures.
14
Centrica plc Annual Report and Accounts 2021Strategic Report Brand net promoter score (NPS)(1)(2)
Complaints(1)(3)
2021
2020
2019
+8.7
+13.0
+13.0
2021
2020
2019
4,929
3,040
3,928
All of our efforts are focused on helping customers live sustainably,
simply and affordably. Following the big impact of COVID-19 on call
times in 2020, our aggregated NPS improved by 4.3 points despite
the pandemic’s continued impact alongside challenges arising
from industrial action and reduced engineer capacity.
We strive to provide an excellent service that satisfies our customers
and reduces complaints. However, with reduced appointment
availability and higher levels of job rescheduling as a result of
challenges faced during the year in British Gas Services and
Solutions (see left), customer complaints per 100,000 customers
increased by 62%.
Link to Remuneration
Long-term incentive
Link to Group Priorities
Link to Remuneration
Long-term incentive
Link to Group Priorities
Process safety incident frequency rate (Tier 1 and 2)(1)
Total recordable injury frequency rate (TRIFR)(1)
2021
2020
0.00
2019
0.08
0.20
2021
2020
2019
1.07
1.04
1.09
Process safety enables us to prevent potential incidents where we
source, generate and store energy. With three Tier 2 events
occurring compared to zero the previous year, our incident
frequency rate per 200,000 hours increased.
We want to keep our people safe so having a strong safety culture,
remains a core foundation. Largely due to the adverse impact
of COVID-19 and organisational restructuring on working hours,
our TRIFR per 200,000 hours worsened by 3%.
Link to Remuneration
Long-term incentive
Link to Group Priorities
Link to Remuneration
Long-term incentive
Link to Group Priorities
Colleague engagement(1)(4)
2021
2020
2019
55%
41%
41%
Our success is reliant on having a motivated and engaged team.
Following the completion of business restructuring alongside
action to create a more inclusive and supportive workplace,
our engagement score improved by 14% to 55% favourable.
Link to Remuneration
Long-term incentive
Link to Group Priorities
The KPI performance outcome associated with executive
remuneration is set out on page 76.
(1) Excludes Direct Energy which is now classified as a discontinued operation.
Data relating to historical engagement scores may therefore differ elsewhere
in the report.
(2) Aggregated scores across across British Gas, Hive and Bord Gáis Energy weighted
by customer numbers. This differs to some of the NPS KPIs in the Business Review
due to measurement evolving since the remuneration policy was set.
(3) Aggregated scores across British Gas Energy, British Gas Services
and Solutions, Bord Gáis Energy and Centrica Business Solutions weighted
by customer accounts.
(4) Measured through colleague responses to a survey asking them to rate their
level of advocacy, pride, loyalty and satisfaction. The survey moved from annual
to quarterly in 2021.
Read more about our
Group Priorities on
Page 11
Read more about our
non-financial performance
on Pages 28 to 37 and
242 to 244
15
Centrica plc Annual Report and Accounts 2021Strategic Report Group Chief Financial Officer’s Report
“Our 2021 financial performance was resilient against a
backdrop of high and volatile commodity prices. Adjusted
earnings and free cash flow were both up, helped by our
continued focus on cost and capital discipline, while the actions
we have taken over the past two years mean the balance sheet
is in a much stronger position. Against a continuing challenging
external backdrop, our focus remains on managing the
company through the current energy crisis while maintaining
balance sheet strength and driving cash flow growth across
the Group to add value for shareholders.
”
Kate Ringrose
Group Chief Financial Officer
Revenue
Group statutory revenue from continuing operations increased by 20% to £14.7bn (2020: £12.2bn). Group revenue from continuing
operations included in business performance increased by 23% to £18.3bn (2020: £14.9bn).
Gross segment revenue from continuing operations, which includes revenue generated from the sale of products and services between
segments, increased by 30% to £20.5bn (2020: £15.7bn). 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 different revenue measures is shown in the table below:
Year ended 31 December
Notes
Continuing operations
British Gas Services & Solutions
British Gas Energy
Centrica Business Solutions
Bord Gáis Energy
Energy Marketing & Trading
Upstream
Group revenue included in business
performance
Discontinuing operations
Direct Energy
Business performance revenue arising from
continuing and discontinued operations
Less: revenue arising on contracts in scope of
IFRS 9 included in business performance
Less: Discontinued operations
Group statutory revenue
1,513
7,513
1,981
1,111
6,082
2,282
20,482
–
20,482
Gross
segment
revenue
£m
2021
Less
inter-segment
revenue
£m
Group
revenue
£m
1,460
7,513
1,953
1,111
5,868
395
18,300
(53)
–
(28)
–
(214)
(1,887)
(2,182)
–
(2,182)
–
18,300
(3,556)
–
14,744
2020 (restated
Gross
segment
revenue
£m
Less
inter-segment
revenue
£m
1,547
7,007
1,526
820
2,917
1,918
15,735
9,483
25,218
(64)
–
(8)
–
(175)
(539)
(786)
–
(786)
Group
revenue
£m
1,483
7,007
1,518
820
2,742
1,379
14,949
9,483
24,432
(2,700)
(9,483)
12,249
Segmental revenues have been restated to reflect the new operating structure of the Group. As a result of the change in segments, gross segment revenue has been restated to reflect
the updated inter-segment trading.
16
Centrica plc Annual Report and Accounts 2021Strategic Report Operating profit/(loss)
Adjusted operating profit from continuing operations increased by 112% to £948m (2020: £447m). The statutory operating profit from
continuing operations was £954m (2020: loss of £362m). The difference between the two measures of profit relates to exceptional items and
certain remeasurements. A table reconciling the different profit measures is shown below:
Year ended 31 December
Notes
2021
Business
performance
£m
Exceptional
items and certain
re-measurements
£m
Statutory
result
£m
Business
performance
£m
2020
Exceptional
items and certain
re-measurements
£m
Statutory
result
£m
Continuing operations
British Gas Services & Solutions
British Gas Energy
Centrica Business Solutions
Bord Gáis Energy
Energy Marketing & Trading
Core EM&T
Legacy gas contract
Upstream
Spirit Energy
CSL
Nuclear
5(c)
7
8
Group operating profit/(loss)
Net finance cost
Taxation
Profit/(loss) from continuing operations
Profit attributable to non-controlling interests
Adjusted earnings from continuing
operations
Discontinued operations
Adjusted earnings attributable
to shareholders
121
118
(52)
28
70
155
(85)
663
624
77
(38)
948
(187)
(454)
307
(70)
237
–
237
Group operating profit from business performance
(adjusted operating profit)
The combined net negative impact of COVID-19 across the Group
and the industrial action in British Gas Services & Solutions was
estimated at approximately £60m in 2021. This compares to an
estimated net negative impact of £110m in 2020 which included a
number of mitigating actions not repeated in 2021, including use of
the UK Government’s Coronavirus Job Retention Scheme and the
decision not to pay senior management bonuses relating to 2019
performance, resulting in the release of an accrual in 2020.
Colder than normal weather in H1 had a positive effect on British
Gas Energy and the other supply businesses, partially offset by the
impact of buying incremental gas and power volumes at higher
prices, and higher balancing costs. The significant increase in
wholesale commodity prices in H2 meant that warmer than normal
weather in H2 also had a positive effect, with the Group able to sell
back gas and power it had already bought as part of its hedging
approach at higher than the price at which it was purchased. The
combined positive impact year-on-year was estimated at £95m.
Excluding the impacts of weather, the high commodity price
environment had a negative impact in British Gas Energy, as existing
customers were incentivised to switch to, or remain on, the capped
default tariff. Two-year small business contracts were less profitable
191
82
(132)
42
174
232
(58)
90
84
23
(17)
447
(215)
(42)
190
(25)
165
213
378
6
–
236
242
107
349
624
973
954
(187)
(218)
549
37
586
624
1,210
(809)
–
187
(622)
183
(439)
102
(337)
(362)
(215)
145
(432)
158
(274)
315
41
in 2021, as commodity prices in the year were above the two-year
averages used to price the contracts. This will even out across the
contracts’ remaining duration. The business also bore a share
of the mutualised costs of failed suppliers’ Renewables Obligation
Certificates (ROCs). The total negative impact of these factors
was estimated at approximately £75m.
The benefit of cost efficiencies was seen across the Group.
However, these were more than offset by higher ECO costs in British
Gas Energy, an outage at the Whitegate gas-fired power station
in Ireland, margin pressures in British Gas Services & Solutions
arising from customer losses and a changed product mix towards
lower-priced products and no repeat of an exceptionally strong
LNG performance in Energy Marketing & Trading from 2020.
Upstream adjusted operating profit increased by £573m, with the
impact of higher gas, oil and power prices more than offsetting the
impact of lower gas and oil production and nuclear generation.
More detail on specific business unit adjusted operating profit
performance is provided in the Business Review on pages 23 to 25.
17
Centrica plc Annual Report and Accounts 2021Strategic Report Group finance charge and taxation
Finance costs
Net finance costs for continuing operations decreased to £187m
(2020: £215m), with a reduced interest costs on bonds, bank loans
and overdrafts reflecting our decision to redeem the €750m hybrid
bond at its first call date of April 2021.
Taxation
Business performance taxation on profit from continuing operations
increased to £454m (2020: £42m). After taking account of tax on
joint ventures and associates, the adjusted tax charge was £433m
(2020: £67m).
The resultant adjusted effective tax rate for the Group was 59%
(2020: 26%), with a significant change in the profit mix towards
more highly taxed E&P activities partly offset by the impact of a
£22m one-off increase in net deferred tax assets in respect of
decommissioning liabilities.
The adjusted effective tax rate calculation is shown below:
Year ended 31 December
Adjusted operating profit from continuing
operations before impacts of taxation
Add: JV/associate taxation included in
adjusted operating profit
Net finance cost from continuing operations
Adjusted profit before taxation
Taxation on profit from continuing operations
Share of JV/associate taxation
Adjusted tax charge
Adjusted effective tax rate
2021
£m
948
(21)
(187)
740
(454)
21
433
59%
2020
£m
447
25
(215)
257
(42)
(25)
67
26%
Exceptional items and certain
re-measurements
The significant increase in forecast commodity prices has led
to large but broadly offsetting certain re-measurements and
exceptional items from continuing operations.
Total certain re-measurements and exceptional items from
continuing operations generated a pre-tax profit of £6m (2020: loss
of £809m), made up of a pre-tax loss on certain re-measurements
of £1,241m (2020: gain of £784m) and an exceptional pre-tax
credit of £1,247m (2020: charge of £1,593m). Total certain re-
measurements and exceptional items and from continuing
operations generated a tax credit of £236m (2020: £187m),
with a credit of £486m (2020: charge of £86m) related to certain-
remeasurements and a charge of £250m (2020: credit of £273m)
related to exceptional items.
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 IFRS 9.
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 related to our upstream assets,
capacity/off-take contracts or downstream demand, which are
typically not fair valued.
As a result of the significant commodity price movements, the Group
has also had to recognise an onerous provision in 2021 for its UK
downstream energy supply contract portfolio. Although gains 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 these mark to market gains. Movement
in the amount provided has also been 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 £1,241m (2020: gain of £784m) relating
to re-measurements, comprising:
• A net gain of £1,289m on the re-measurement of derivative energy
contracts. With the Group generally a net purchaser of commodity,
the gain was predominantly due to the positive revaluation of UK
downstream energy supply contract hedge purchases due for
delivery in future periods as commodity prices rose over 2021, less
the unwind of their in-the-money positions from December 2020
(totalling £3,917m). This was offset by the negative revaluation
predominantly from the Upstream and Energy, Marketing and
Trading sell trades due for delivery in future periods, plus the
unwind of their out-the-money positions from December 2020
(totalling £2,628m).
• An onerous energy supply contract provision charge of £2,530m.
Although the Group has purchased the commodity required for
future supply in advance, without these hedges the future costs
of fulfilling downstream customer contracts would exceed the
fixed/capped charges recovered from customers, due to
commodity price increases in 2021. The gain from releasing
this provision will offset losses from the unwinding of in-the-money
hedge positions, without affecting the ultimate profitability of the
underlying transactions.
These re-measurements generated a taxation credit of £486m
(2020: charge of £86m). As a result, the total loss from net re-
measurements after taxation for continuing operations was £755m
(2020: profit of £698m).
18
Centrica plc Annual Report and Accounts 2021Strategic Report | Group Chief Financial Officer’s Report continued 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.
These generated a taxation charge of £250m (2020: credit of
£273m), including a £101m credit associated with deferred tax
provisions related to E&P tax losses and decommissioning carry-
back, due to the increase in forecast prices. As a result, the total
post-tax exceptional profit recognised in continuing operations
after taxation was £997m (2020: charge of £1,320m).
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
The sale of Direct Energy was announced on 24 July 2020 and
completed on 5 January 2021. As such its activities are treated
as a discontinued operation in the financial results.
There was no adjusted operating profit or adjusted earnings from
discontinued operations in 2021. Statutory earnings of £624m
from discontinued operations are entirely related to the profit
on disposal and release of a tax provision related to the disposal
of Direct Energy.
Group earnings
Adjusted earnings
Profit for the year from business performance from continuing
operations after taxation was £307m (2020: £190m). After adjusting
for non-controlling interests relating to Spirit Energy, adjusted
earnings were £237m (2020: £165m).
Adjusted basic EPS from continuing operations was 4.1p
(2020: 2.8p).
Statutory earnings
After including exceptional items, certain re-measurements
and earnings from discontinued operations, the statutory
profit attributable to shareholders for the period was £1,210m
(2020: £41m).
The Group reported a statutory basic EPS of 20.7p (2020: 0.7p).
The statutory basic EPS from continuing operations was
10.0p (2020: loss of 4.7p).
Dividend
The Group is proposing no 2021 final dividend having also paid
no 2021 interim dividend.
Further details can be found in note 7(a).
Exceptional items
An exceptional pre-tax credit of £1,247m was included within the
statutory Group operating profit from continuing operations in
2021 (2020: charge of £1,593m) including:
• A credit of £747m relating to the write-back of the Group’s nuclear
investment, predominantly due to an increase in near-term liquid
commodity prices, partially offset by reduced output assumptions
following generation issues at a number of plants during the year.
Due to current forecast baseload prices being higher in the
near-term, coupled with the requirement for the nuclear fleet
depreciation to be calculated on a production/time basis rather
than economic value, there is a higher likelihood of an impairment
being required in 2022.
• A credit totalling £838m relating to the write-back of E&P assets,
of which £774m related to Spirit Energy and £55m related to CSL.
This was predominantly due to the increase in near-term liquid
commodity prices. It also includes a net credit of £40m due to
a reduction in decommissioning provisions related to assets
previously impaired through exceptional impairments, and a £31m
charge related to the farm down of the Pegasus field and an
update to the loss on disposal from the prior year Danish gas
and oil asset disposal.
• A charge of £244m related to the Spirit Energy Norwegian E&P
and Statfjord disposal and the consequent strategic decision to
focus the remaining Spirit Energy business on retained producing
fields rather than exploration and evaluation. This included a
goodwill impairment of £198m and a write-off of the remaining
exploration and evaluation assets of £33m, with the remaining
£13m related to an onerous provision for exploration spend and
costs incurred for professional assistance relating to the
divestment.
• A charge of £123m connected to an impairment of Goodwill and
specific assets in Centrica Business Solutions, as the business
narrowed its geographical footprint and product offerings following
a change in strategic direction.
• A credit of £15m from a fair value uplift on a historic minority
investment made by Centrica Innovations in Driivz, which is subject
to a signed disposal agreement at the year-end.
• A credit of £14m relating to the reversal of a portion of 2020
restructuring charges relating to pension strain estimates, partially
offset by run off costs from the Group’s restructuring programme.
As stated in the 2020 Preliminary Results, there will be no further
material exceptional charge relating to the Group’s restructuring
programme which was planned to result in £2bn of annualised
efficiencies between 2015-22 and has resulted in £1.2bn of
exceptional restructuring costs since 2015.
19
Centrica plc Annual Report and Accounts 2021Strategic Report Balance sheet
Net assets increased to £2,750m (2020: £1,382m). This reflects the
impact of the statutory profit in the year, in particular the write-back
of impairments related to Upstream assets, and the decrease in net
retirement benefit obligations.
The higher commodity price environment also resulted in a
significant increase in trade and other receivables, with a higher level
of accrued income in the energy supply businesses and cash
collateral posted relating to upstream activities, and derivative
financial instrument assets which are used to manage the risk largely
arising from fluctuations in the value of assets associated with
energy sales and procurement and trading. However, it also resulted
in a broadly similar increase in trade and other payables, with a
higher level of accrued cost related to future commodity payments
and cash collateral received due to downstream activities, and
derivative financial instrument liabilities which are used to manage
the risk largely arising from fluctuations in the value of liabilities
associated with energy sales and procurement and trading.
2021 Acquisitions, disposals and disposal
groups classified as held for sale
On 24 July 2020, the Group announced it had agreed to dispose
of its North American supply, services and trading business,
Direct Energy, to NRG for headline consideration of $3.6 billion
(approximately £2.7bn) on a debt free, cash free basis. The
transaction received all necessary approvals prior to 31 December
2020 and completed on 5 January 2021. This resulted in a profit
on disposal of £0.6bn in 2021.
On 8 December 2021, the Group 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
(excluding interests in the Statfjord field) to Sval Energi, and to
dispose of its UK and Norwegian interests in the Statfjord field
to Equinor, with a commercial effective date of 1 January 2021.
Headline consideration for the transactions was $1,076m
(approximately £800m) on a debt-free cash-free basis (which will
be reduced 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), plus a deferred
commodity price-linked contingent payment. Spirit Energy will
distribute the net cash flow and net consideration to Centrica
and its joint venture partners in proportion to their ownership.
The transaction was approved by Centrica shareholders at a
General Meeting on 13 January 2022.
Further details on assets purchased, acquisitions and disposals
are included in notes 4(e) and 12.
Events after balance sheet date
Details of events after the balance sheet date are described
in note 26.
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
Statutory cash flow from operating activities
Statutory cash flow from investing activities
Statutory cash flow from continuing
operating and investing activities
Add back/(deduct):
Sale and settlement of securities
Interest received
Movements in collateral and margin cash
included in net debt
Defined benefit pension deficit payment
Free cash flow from continuing
operations
Discontinued operations free cash flow
Free cash flow
2021
£m
1,611
(325)
1,286
3
(2)
(481)
368
1,174
2,588
3,762
2020
£m
957
(263)
694
(121)
(7)
(56)
175
685
376
1,061
Net cash flow from continuing operating activities of £1,611m was up
68% (2020: £957m), reflecting higher EBITDA and margin cash
inflows, partly offset by higher pension and tax payments.
Net cash outflow from continuing investing activities increased to
£325m (2020: £263m), largely due to a cash inflow from the maturity
in 2020 of a gilt investment not recurring.
Group total free cash flow from continuing operations was £1,174m
(2020: £685m). When including £2,588m of free cash flow from
discontinuing operations which relates to the proceeds from the sale
of Direct Energy on 5 January 2021, Group free cash flow was
£3,762m (2020: £1,061m).
Net cash outflow from continuing financing activities increased to
£938m in 2021 (2020: £466m) reflecting the repayment of the hybrid
bond in April 2021.
Net debt/cash
The above resulted in a £2,936m increase in cash and cash
equivalents over the year, and when including the impact of reduced
gross debt resulting from the hybrid bond repayment, non-cash
movements and exchange adjustments, the Group’s net cash
position at the end of December 2021 was £680m, compared to
net debt of £2,998m on 31 December 2020 (restated to remove
the adjustment for collateral posted/received, in order to better align
to external net debt definitions).
Further details on the Group’s sources of finance and net debt are
included in note 24.
Pension deficit
The Group had an IAS 19 net pension deficit of £nil at the year-end,
compared to a net deficit of £601m on 31 December 2020, due to
deficit contributions made during the year and the effect of rising
interest rates leading to an increase in the discount rate and
decreasing obligations.
Further details on the post-retirement benefits are included in
note 22.
20
Centrica plc Annual Report and Accounts 2021Strategic Report | Group Chief Financial Officer’s Report continued Risks and capital management
The nature of the Group’s principal risks and uncertainties are
broadly unchanged from those set out in its 2020 Annual Report,
with Climate Change now added as a Principal Risk to ensure
it receives appropriate focus. Per the 2021 Annual Report, our
top three Principal Risks are Commodity Risk, Weather Risk
and Asset Production.
The Group has also actively responded to those risks heightened
by the record levels of global wholesale energy prices. Centrica’s
approach to risk management has enabled the implementation of
agile hedging policies and effective demand forecasting processes.
The extent to which the Group may continue to be impacted by
the consequences of the current high level of commodity prices,
including the onboarding of around 700,000 customers through
the SoLR process since the start of 2021 to date, will in part depend
on government and regulatory policy, including the setting of future
levels of default tariff caps, which could also be a factor in the level
of customer bad debt we see.
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(a).
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.
21
Centrica plc Annual Report and Accounts 2021Strategic Report 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 Her 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.
Statutory tax rates on profits
Group activities
UK supply of energy and services
19.0%
UK oil and gas production
40.0%
Norway oil and gas production
50.0%
78.0%
Tax charge compared to cash tax paid
UK (including Petroleum Revenue Tax)
Norway
Denmark
Ireland
Singapore
Discontinued activities
Current tax
charge/(credit)
Cash tax paid/
(received)
30
358
18
24
0
(10)
420
55
35
12
35
3
9
149
Netherlands oil and
gas production
21.0%
50.0%
Further information on the charges is reported on pages 140 to 142.
Denmark energy services
22.0%
Republic of Ireland supply
of energy and services
12.5%
Further information on the tax
charge is set out in note 9 on
Pages 140 to 142
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
22
Centrica plc Annual Report and Accounts 2021Strategic Report Business Review
British Gas Services & Solutions
negatively impacted by external factors
and industrial action
British Gas Services & Solutions
Services customers (‘000) (closing)(1)
Install and on-demand jobs (‘000)
Services complaints per customer (%)(2)
Services Engineer NPS(3)
Revenue per services customer (£)
Cost per services customer (£)
Adjusted operating profit (£m)
2021
3,428
282
12.1%
60
361
338
121
2020
3,563
283
5.7%
66
359
299
191
Change
(4%)
(0%)
6.4ppt
(6pt)
1%
13%
(37%)
All 2021 metrics and 2020 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.
Customer retention increased by 1ppt to 82% in 2021, although
British Gas Services customers fell by 135,000, or 4%, reflecting
reduced sales opportunity. The number of services products per
customer improved slightly to 2.23 from 2.22 at the start of the year.
• Customer numbers fell by 144,000 in the first half, as proactive
selling and marketing were reduced in Q1 due to the impacts of
industrial action and COVID-19.
• Customer numbers increased by 9,000 in the second half, despite
the impact of significantly reduced activity on energy supply
switching sites, reflecting our decision in Q4 to offer free services
to 86,000 targeted energy customers to aid retention.
The total number of installs and on-demand jobs for the year was
broadly flat compared to 2020. Boiler installations were up 15%,
with the impact of fewer COVID-19 related restrictions more than
offsetting supply chain issues affecting boiler availability towards the
end of the year. The number of on-demand jobs fell, as we prioritised
serving contract customers during periods of constrained capacity.
Service levels were impacted by COVID-19 related absence rates,
industrial action and reduced engineer capacity over the year,
with reduced appointment availability and higher levels of job
rescheduling than in 2020. As a result, customer complaints more
than doubled and engineer NPS reduced by 6 points to +60.
Customer service improvement is a key focus for 2022.
Revenue per services customer increased by 1% to £361. However,
cost per services customer increased by 13% to £338 despite
benefits from cost efficiencies, due to additional costs related to
COVID-19 and industrial action, increased contractor rates, higher
cost of materials and an increased proportion of higher-value boiler
installation workload.
British Gas Services & Solutions adjusted operating profit fell
by 37% to £121m.
• This reflects a £50m negative impact from the combination of
COVID-19 and industrial action in H1 2021, which resulted in
additional costs due to the increased use of third-party labour and
refunds to some customers for annual service visits not completed.
This was broadly similar to the COVID-19 impact in 2020, which
also included around £25m of mitigating actions including use
of the Government’s Coronavirus Job Retention Scheme.
• It also includes the impact of continued higher COVID-19 related
absence rates in H2 2021 resulting in a higher number of jobs
completed by contractors than in 2020, inflationary pressures on
contractor rates and materials and supply chain issues impacting
boiler installations. These factors combined negatively impacted
us by approximately £25m compared to 2020.
• We were also impacted by lower customer numbers and a change
in product mix towards lower-priced products. These negative
impacts were partly offset by cost efficiency benefits and lower
depreciation following the decision to write down some Home
Solutions IT assets at the end of 2020.
Robust British Gas Energy performance against
a backdrop of high and volatile prices
British Gas Energy
Residential energy customers (‘000)
(closing)(1)
Small business customer sites (‘000)
(closing)(2)
Energy complaints per customer (%)(3)
Energy Touchpoint NPS(4)
Cost per energy customer (£)(5)
Adjusted operating profit (£m)
2021
7,260
2020
6,916
455
450
8.5%
14
93
118
6.1%
9
102
82
Change
5%
1%
2.4ppt
5pt
(9%)
44%
All 2021 metrics and 2020 comparators are for the 12 months ended 31 December
unless otherwise stated.
1. Residential energy customers are defined as unique households buying energy
from British Gas.
2. 2020 restated to reflect the number of small business customers moved across to
British Gas Energy.
3. Total complaints, measured as an expression of dissatisfaction in line with
submissions made to Ofgem, as a percentage of average customers over the year.
4. Measured independently, through individual questionnaires, the customer’s
willingness to recommend British Gas following contact.
5. 2020 restated to reflect the transfer of smart metering to British Gas Services &
Solutions
British Gas Energy residential customer numbers increased by
344,000, or 5%, over 2021.
• The first half saw a fall of 114,000 customers, with a significant
increase in default tariff price caps resulting in increased levels of
market switching across March and April. In addition, the price
comparison website market remained fiercely competitive, with
some competitors continuing to price at negative gross margins,
and as a result we reduced our activity through this channel. This
reduction in customer numbers was partially offset by the impact
of taking over supply for 53,000 customers from Simplicity Energy
through Ofgem’s Supplier of Last Resort (SoLR) process and the
acquisition of 36,000 customers from Nabuh Energy.
• In the second half, we added 504,000 customers through the
SoLR process as a number of competitors ceased trading.
Including the impact of a small underlying decline in Q3, total
customer numbers overall increased by 458,000.
As of H1 2021, British Gas Energy also serves all of our small
business customers, with their profile closely matching those of
households. These customers were previously in Centrica Business
Solutions. The number of small business customers increased
by 1% in 2021.
23
Centrica plc Annual Report and Accounts 2021Strategic Report Strategic Report | Business Review continued
Energy Touchpoint NPS increased by 5 points to 14 over the year as
our new operating model led to improved colleague empowerment
and an improved focus on resolving customer issues first time.
Call volumes and complaints increased, following a fall in 2020
during the first phase of the COVID-19 pandemic when we had
encouraged customers to interact with us online so we could
prioritise calls from more vulnerable customers. The onboarding of
SoLR customers also increased operational pressures, while
customer concerns over high energy prices impacted call volumes.
This impact is likely to continue into 2022.
Cost per customer reduced by £9 to £93, despite a £4 per customer
impact from the dual running of IT systems. This reduction
predominantly reflects lower overhead costs resulting from the
significant Group restructure and a lower bad debt charge.
British Gas Energy adjusted operating profit increased by 44%
to £118m.
• This includes the impact of weather, with colder than normal
temperatures in H1 2021 resulting in higher energy consumption
compared to a warm H1 2020, and warmer than normal
temperatures in Q4 allowing a small portion of surplus gas and
power to be sold back into a high-priced commodity market.
• These positive impacts were broadly offset by additional costs
associated with the commodity environment and the number of
supplier failures, including additional balancing costs and the
mutualisation of Renewable Obligation Certificate (ROC) costs
across the industry. The rise in wholesale prices has also meant
that default tariffs have become cheaper than fixed-price tariffs,
resulting in an increasing number of customers moving onto
default tariffs and requiring us to purchase more commodity from
the market. In addition, current prices are higher than forward
prices, resulting in a shift in profit towards the back end of
fixed-term tariffs.
• We also saw the benefit of cost efficiencies, plus reduced
COVID-19 impacts which include a return to historic levels of bad
debt provisioning and additional bad debt allowances in the price
cap, worth approximately £30m in the year.
• These benefits were largely offset by higher Energy Company
Obligation (ECO) costs, the impacts of running two IT systems,
and lower underlying consumption.
COVID-19 recovery in Centrica Business
Solutions and growth in services order intake
Centrica Business Solutions
Energy supply total gas and electricity
volume (TWh)(1)
Energy supply complaints per
customer (%)(2)
Energy supply Touchpoint NPS(3)
New Energy Services order intake (£m)
New Energy Services order book (£m)
Adjusted operating (loss) (£m)
2021
22.3
2020
19.5
Change
14%
2.1%
2.1%
0.0ppt
21
490
820
(52)
nm
350
697
(132)
nm
40%
18%
(61%)
All 2021 metrics and 2020 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) 2020 restated to reflect the transfer of small business customers to from Centrica
Business Solutions to British Gas Energy
(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 and the customer’s
willingness to recommend. This was measured by CBS for the first time in 2021
to align to British Gas Energy methodology, therefore no comparative data
is available for 2020
24
In Centrica Business Solutions energy supply, which consists of
medium-sized entities and Commercial and Industrial (C&I)
customers:
• The total amount of energy supplied in the period was 14% higher
than in 2020, reflecting a combination of recovery in energy
demand due to the reduced impact of COVID-19 restrictions,
and underlying volume growth.
• Customer complaints were stable while Touchpoint NPS was
positive at +21.
In Centrica Business Solutions New Energy Services:
• Order intake of £490m was 40% higher than in 2020, with reduced
Brexit uncertainty and fewer COVID-19 restrictions. The order book
of £820m was £123m higher than at the end of 2020.
Centrica Business Solutions reported a reduced adjusted operating
loss of £52m (2020: loss of £132m).
• Business energy supply reported an adjusted operating profit of
£1m (2020: loss of £47m), with no repeat of having to sell back
excess commodity volumes at a loss due to COVID-19 related
demand reductions, a lower bad debt charge and efficiency
benefits. These benefits were partially offset by impacts of the
increase in wholesale commodity prices and higher ROC
mutualisation costs driven by supplier failures.
• New Energy Services reported a reduced adjusted operating loss
of £53m (2020: loss of £85m), reflecting growth in revenue and
gross margin, in particular from increased asset optimisation
activity. 2020 also included a £16m provision related to US solar
liabilities previously in Direct Energy with no additional provision
made in 2021.
Solid performance from Bord Gáis Energy;
financial result impacted by Whitegate outage
Bord Gáis Energy
Customers (’000) (closing)(1)
Complaints per customer (%)(2)
Journey NPS(3)
Adjusted operating profit (£m)
2021
509
1.6%
30
28
2020
Change
513
(1%)
1.8% (0.2ppt)
(8pt)
(33%)
38
42
All 2021 metrics and 2020 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) 2020 closing customer numbers have been restated, to reflect the methodology
used in other customer-facing business units.
(2) Total complaints, measured as any oral or written expression of dissatisfaction.
as a percentage of average customers over the year.
(3) Weighted NPS for the main customer interaction channels.
The number of Bord Gáis Energy customers fell by 4,000 in 2021 in
a competitive pricing environment. However, products per customer
increased and the number of accounts was broadly stable.
Customer complaints fell slightly, although Journey NPS fell by 8
points over the year, reflecting continued operational challenges
caused by COVID-19 and broader customer concerns as retail tariffs
increased in a price-sensitive market.
The Whitegate CCGT was out of service for most of the year having
gone offline in late 2020, with Bord Gáis capital expenditure £37m
higher than 2020 as a result. The plant came back online in
December 2021.
Bord Gáis Energy adjusted operating profit reduced by 33% to
£28m. This reflects the impact of the Whitegate power station
outage, which was partly offset by a strong trading performance,
the impacts of weather and an improved result in the B2B segment
due to reduced COVID-19 restrictions.
Centrica plc Annual Report and Accounts 2021 Higher legacy gas contract losses and lower
LNG contribution in Energy Marketing & Trading
Centrica’s share of nuclear generation volumes of 8.3TWh was 9%
lower than in 2020, reflecting a number of outages across the fleet.
Energy Marketing & Trading (EM&T)
Renewable capacity under
management (GW)
Total EM&T adjusted operating
profit (£m)
2021
11.7
2020
10.7
Change
9%
70
174
(60%)
Having been offline since 2018, it was announced in June 2021 that
the de-fuelling process would commence immediately at Dungeness
B, while Hunterston B entered de-fuelling in January 2022 and
Hinkley Point B will follow no later than July 2022. This is expected to
result in reduced operating costs for the Nuclear business in 2022.
Upstream adjusted operating profit increased to £663m
(2020: £90m).
• Spirit Energy adjusted operating profit increased from £84m to
£624m, with the effect of higher wholesale commodity prices
flowing through to achieved oil and gas prices. This more than
offset the impacts of lower production volumes, an increase in
cash lifting costs and higher depreciation rates following
impairment write-backs at half year.
• CSL adjusted operating profit was £77m (2020: £23m) with the
higher wholesale prices more than offsetting the impact of lower
production volumes.
• Nuclear reported an adjusted operating loss of £38m (2020: £17m),
reflecting the lower generation volumes, and a reduction in the
achieved price versus 2020 as unplanned outages resulted in us
having to buy power from the market to fulfil hedge obligations.
E&P free cash flow increased 362% to £786m (2020: £170m), with
higher achieved prices resulting in increased EBITDA and lower
capital expenditure reflecting continued capital discipline.
All 2021 metrics and 2020 comparators are for the 12 months ended 31 December
unless otherwise stated.
Our core EM&T trading and optimisation activities performed well in
the second half of the year, particularly in the fourth quarter during
periods of high commodity volatility. This followed a first half where
volatile and unpredictable commodity markets had created a
challenging environment.
EM&T renewable route-to-market capacity under management
increased by 1.0GW to 11.7GW, with the Moray East offshore
windfarm in Scotland coming online. Adding to our route-to-market
capacity continues to be a focus area for growth as more renewable
capacity comes online across Europe.
Losses from the remaining legacy gas contract relating to the Sole
Pit gas field, which runs until 2025, increased by £27m to £85m,
within the previously guided range for losses from the contract
of £50m-£100m.
We also saw a reduced profit from LNG activities, following
particularly strong optimisation performance in 2020.
EM&T adjusted operating profit fell to £70m (2020: £174m), reflecting
the lower profit from LNG activities and the increased loss on
the legacy gas contract. These factors were partially offset by
the impact of the strong trading and optimisation result in the
second half.
Impact of lower volumes more than offset
by higher achieved prices in Upstream
Upstream
E&P total production volumes
(mmboe)
Nuclear power generated (GWh)
Adjusted operating profit (£m)
2021
39.7
8,342
663
2020
48.7
9,134
90
Change
(18%)
(9%)
637%
All 2021 metrics and 2020 comparators are for the 12 months ended 31 December.
Total E&P production was down 18% to 39.7mmboe.
• Spirit Energy volumes fell 18% to 36.8mmboe, reflecting natural
decline in the portfolio and production issues at a number of fields
in H1 2021. This is in line with the guidance given in the Interim
Results that production would be 15-20% lower than in 2020.
51% of 2021 production was from the Norway and Statfjord UK
assets, currently held for sale; these assets generated 89%
of Spirit Energy’s 2021 adjusted operating profit.
• Production volumes from CSL’s Rough field fell by 26% to
2.9mmboe, reflecting the natural decline in the late-life field and
a 19 day unplanned outage at the Easington Terminal in Q4.
25
Centrica plc Annual Report and Accounts 2021Strategic Report Chief People Officer’s Report
“Centrica has created progressive and positive ways
of working that enable our people to flourish.”
Jill Shedden MBE
Chief People Officer
Overview and external winds
In 2021, Centrica reoriented itself towards its people through the
strategic lens of colleagues-customers-cash, recognising that
our people are central to Centrica’s business strategy. Last year
we revitalised our collective agreements with our unions, simplifying
our contractual landscape. Our unions support over a third of
our people, and we are delighted to be forging stronger and more
collaborative ways of working to deliver better people and customer
outcomes together.
We were very aware of the potentially disruptive people impacts of
COVID-19, including impacts on physical health, mental wellbeing,
and general working conditions. Since the outbreak we have
been regularly speaking with our people, the government, and our
regulators. This collaboration has enabled us to change both how
and where we work for the better, virtualising the onboarding of
almost 3,000 colleagues in 2021 and accelerating our industry-
leading ‘Flexible First’ programme. Centrica has created progressive
and positive ways of working that enable our people to flourish.
For our people
Every person that works for Centrica, regardless of seniority, will
now receive Centrica shares through participation in our Global
Profit Share Award. The value of the award will be based on 2%
of our adjusted operating profit, shared amongst all our colleagues
and delivered in shares. This new initiative is one of the many ways
we are aligning colleague and business incentives.
The everyday experience of working for Centrica is a priority, which
is why we have hard-wired colleague experience into Centrica’s core
performance metrics. Our investment in people insight, like
increasing people surveys to quarterly, is enabling us to make better
people decisions more quickly.
Sharing the diversity of thinking and leveraging the unique
experiences of our people helps our leaders improve. To promote
this, last year every senior leader had the opportunity to work
with someone from a different part of the business in our reverse
mentoring scheme. We combined this with a shadow-board
and open-forum ‘straight-talking’ sessions to create more platforms
for our people to make Centrica an exceptional place to work.
This is showing in the numbers, as in 2021 our colleague engagment
increased by 13 percentage points. Progress against our ‘trust in
leadership’ and ‘colleagues believing change will happen’ scores are
particulary pleasing. We’re excited about the further progress we
can make here.
Over the past 18 months we have simplified and modernised the
terms and conditions across our UK workforce. The changes we
needed to make as a business were clear. It was difficult for some of
our colleagues and, regrettably, resulted in some colleagues leaving.
Overall, whilst difficult, simplifying these terms was the right thing to
do for the business. This will enable Centrica to do even more for its
people, customers, and shareholders in the longer term.
Our people vision is to prioritise flexibility around what is best for
the individual; and this could be at home, in an office, or even
outside of core hours. Designed with feedback from more than
5,000 colleagues during a consultation on how we all wanted work
together going forward, Flexible First is having a positive impact on
our colleagues as well as our business – from boosting colleague
wellbeing and engagement, to opening the door for career
opportunities that otherwise wouldn’t have been possible.
It was refreshing to see that 92% of colleagues say that our Flexible
First programme has had a ‘positive impact on their work-life
balance’. Our industry-leading flexibility programme means Centrica
can access talent pools beyond the traditional, delivering access
to a greater breadth of talent.
We have taken a good look at how work is done in Centrica through
cultural diagnostics. We’re using this insight to build the best culture
and environment for our people and strategy across each of our
businesses. To create this right environment, we are focused on
team effectiveness, how we think about performance and career,
and strengthening how our teams come together. Everyone in
Centrica should understand how important their role is in delivering
our strategy.
Building our future
Centrica’s strategy is enabled by its largest asset – its people. The
principles of our people strategy are insight, vision, engagement,
creation and optimisation. Centrica is ambitious in its thinking and
is creating teams that reflect the diversity of our communities across
all levels of our organisation.
26
Centrica plc Annual Report and Accounts 2021Strategic Report Colleague Full Time Equivalent (FTE)
Age breakdown by group as at 31 December 2021
2021
2020
19,783
21,239
Colleague FTE has reduced year on year, predominantly as a result
of the Direct Energy disposal.
Gen Z (10–25)
Millennials (26–41)
Gen X (42–57)
Boomers II (58–67)
Boomers I (68-76)
4.6%
47.3%
40.1%
7.7%
0.3%
Understanding our demographics enables us to tailor the
right training, value proposition, and approach based
on the individual.
92% of colleagues
say that our Flexible First programme has had
a ‘positive impact on their work-life balance’.
3,500 apprentices
by 2030, 50% of which will be female and
14% of which will be ethnically diverse.
500 internal promotions
in 2021, and 100% of our graduate populations receiving
promotions into substantive roles after completing
the graduate programme.
We recruited around 600 new apprentices in 2021, creating new,
highly skilled and well-paid British jobs.
By 2030, we expect to recruit 3,500 apprentices, 50% of which
will be female and 14% of which will be ethnically diverse. We know
that women have traditionally been under-represented in the
engineering workforce – and we’re working hard to change that.
We want to be a leader here.
As we cultivate diversity, developing our talent is a priority. Last year
we launched our Group capability framework which defines 15 core
capabilities relevant across all roles and is closely aligned with our
values, strategy, and purpose. We are equipping people with the
training and skills required to fight climate change. In 2021 we
launched a fully electric salary sacrifice car lease scheme available
to all UK Centrica employees. What’s more, colleagues can now
even invest in climate aware pension funds, making it easier for
our people to make an impact.
As at 31 December 2021, Centrica saw over 500 internal promotions
and 100% of our graduate populations receiving promotions into
substantive roles after completing the graduate programme. We
continued to hire graduates at the same rate, despite a sector
recruitment decline of 15%.
Our new Healthcare Plan for all colleagues provides the same
level of access to healthcare for every member of the organisation.
This supports dependants and pre-existing conditions, giving peace
of mind to colleagues and their families. We continue to leverage
technology, networks of mental health leaders, and mental
health training programmes to support our people. We have
also introduced support, education, and guidelines to support
colleagues through life-events such as the menopause, fertility
treatment and handling caring responsibilities.
27
Centrica plc Annual Report and Accounts 2021Strategic Report Strategic Report
People and Planet
2021 has been a challenging year for many and as we look to rebuild from
COVID-19 and emerge from years of business transformation, we have a
huge opportunity to reshape our future to one that’s fairer and protects
the environment.
That’s why at the start of 2021, we introduced our People & Planet
Plan to create a more inclusive and sustainable future that supports
communities, our planet and each other. The Plan builds on
progress made as part of our outgoing Responsible Business
Ambitions and accelerates action through five Group-wide goals
that are focused in areas that matter deeply to our business and
society, and where we’re well-placed to make a world of difference
(see framework below).
For example, we:
• Strengthened our people goals to strive for a more engaging and
inclusive place to work where every colleague feels supported
to be themselves and succeed, whilst backing communities with
skills and volunteering opportunities.
• Introduced bolder goals for our planet to fight climate change so
that we can support every customer to live more sustainably by
providing services and solutions that help them be net zero by
2050 at the latest, as we work to become a net zero business
ourselves by 2045 which is five years ahead of the UK target(1).
We then built on our People & Planet Plan later in the year, with the
launch of our Climate Transition Plan. The Climate Transition Plan
sets out how we intend to achieve our net zero goals and how we’ll
aim to ensure a fair and affordable transition for everyone.
Through these plans and more, sustainability has gradually shifted
to the very heart of our business. This not only helps us deliver our
purpose of helping our customers live sustainably, simply and
affordably, but it’ll also enable us to contribute positively to the
United Nations Sustainable Development Goals (SDGs) on key
issues like promoting gender equality alongside decent work and
economic growth, as well as enabling affordable and clean energy.
Our People & Planet Plan
Supporting communities, our planet and each other
Achieving our People & Planet Plan goals will undoubtedly be
challenging. Over the next decade, we’ll therefore continue to harness
the collective expertise of our colleagues and collaborate with key
stakeholders such as government, partners and local communities,
to further evolve our plans and drive forward the necessary action
to deliver the change we all want and need together.
“There’s nothing more important
than looking after people and planet
because without this as a priority, we’ll
fail our customers and our communities. That’s
why we’ve set ambitious goals to drive greater
action via our People & Planet Plan, and why
we’re upping our game to overcome big
challenges to achieve them. The path forward
won’t be easy but we’re committed to doing all
we can today, to create a more inclusive and
sustainable tomorrow.”
Chris O’Shea, Group Chief Executive
Read more about our People
& Planet Plan, Climate
Transition Plan, SDGs
and SASB disclosure at
centrica.com/peopleandplanet
Read more about our
non-financial KPIs on
Pages 15, 26 to 27 and
242 to 244
(1) Net zero is the point at which there is a balance between human-related carbon
dioxide (CO2) being emitted into the atmosphere and those taken out.
People
Supporting every colleague to be themselves to
better serve our customers and communities
Planet
Supporting every customer to live more sustainably
We want to:
We want to:
– Create a more engaged and inclusive team that reflects
the full diversity of the communities we serve by 2030*
– Help our customers be net zero by 2050
(28% carbon intensity reduction by the end of 2030)
– Recruit 3,500 apprentices and provide career development
– Be a net zero business by 2045
opportunities for under-represented groups by 2030
(1,000 apprentices by the end of 2022)
(40% carbon reduction by the end of 2034)
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
* All company and senior leaders to reflect 2011 Census data for working populations with 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).
28
Centrica plc Annual Report and Accounts 2021
People
Supporting every colleague to be themselves
to better serve our customers and communities
Goal 1
Key: Progress against goals
On track
Behind
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)
2021 Progress
Women
Ethnically
diverse
Disability
LGBTQ+
Ex-service
All company
Senior leaders(2)
28%
12%
1%
2%
2%
28%
9%
1%
1%
2%
(1) Based on 2011 Census data for working populations. Towards this, we’re
aiming for 30% women, 13% ethnically diverse, 4% disability, 3% LGBTQ+
and 3% ex-service to be achieved by the end of 2022.
(2) Senior leaders include colleagues above general management and spans
senior leaders, the Centrica Leadership Team and the Board.
To build a more sustainable future, we need the best team –
a diverse mix of people and skills, where different thoughts and
ideas can grow, and where everyone feels motivated and able to
be their best selves. That’s why in 2021, we co-created an action
plan with colleagues to help deliver our goals and published our
commitments in an open letter. As part of this, we:
• Introduced ambitious goals to ensure we reflect the full diversity
of our customers so that we can serve them better (see goal 1).
Whilst positive progress has been made in specific areas like
achieving gender parity at a Board level and encouraging
a significant increase in women entering engineering (see goal 2),
it’ll take time to overturn the lack of diversity in our business and
sector. Consequently, our representation remained broadly flat
against our goals in 2021.
• Focused on providing equal access to opportunities which
included strengthening recruitment processes with diverse
shortlists and interview panels, as well as inspiring more leaders
into reverse mentoring to grow the skills of diverse talent.
• Ensured our culture promotes and values difference by creating
a ‘Shadow Board’ of diverse colleagues to meet with leaders
and drive colleague-centric decisions, whilst launching ground-
breaking guidelines to improve support for those experiencing
the menopause, domestic abuse or transitioning at work.
80%
Proportion of colleagues who feel that
people of all backgrounds are accepted
for who they are at Centrica, which is
better than the 78% external benchmark
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
These goals are ambitious and boosting the representation of women
will be particularly challenging given our large field engineering team is
traditionally made up of men, but aiming high is the right approach to
ensure we deliver the change that’s needed. To ensure we get back
on track with our goals and respond to the changing world around us,
we’ve again sharpened our focus with the help of colleagues and data
insight. Going forwards, we’ll do all we can to create a more inclusive
environment and attract, promote and retain diverse talent.
We’ve received external recognition for our efforts to create a truly
inclusive culture during 2021-22. This includes a top 20 ranking in
the European Women on Boards’ Gender Diversity Index, for our
promotion of gender equality at the executive and Board level.
Goal 2
By 2030, we want to:
2021 Progress
600 apprentices
Recruit 3,500 apprentices
and provide career
development opportunities
for under-represented
groups (1,000 apprentices
by the end of 2022)(3)
(3) Baseline 2021.
To get to net zero we need to create thousands of high-quality green
jobs. We believe there’s a huge opportunity to tap into the talent of
under-represented groups to not only deliver a greener future, but
a more inclusive one. Towards this in 2021, we started to recruit
1,000 apprentices over two years against our 2030 goal of 3,500
apprentices – that’s equivalent to hiring one apprentice every day
over the next decade – with the ambition that 50% will be women.
And following a targeted recruitment campaign, we’re on track
having onboarded 600 apprentices with 30% being women.
With women making up around 4% of our engineers, getting more
women into engineering and keeping them is a big challenge.
It’ll require us to tackle long standing stereotypes around the types
of jobs people typically do and it’ll need us to think and do things
differently – from rolling-out uniforms that are more comfortable
for women, to how we run training so that it’s more conducive to
balancing family life. Once qualified, our apprentices will become
Smart Energy Experts that provide smart meters and energy
efficiency advice, with opportunities to upskill in other areas like
installing heat pumps (see ‘Centrica Stories’ overleaf).
Alongside this, we’re supporting over 650 schools in under-
represented areas via Tech We Can, to inspire more young people
into a career in energy.
Centrica plc Annual Report and Accounts 2021
29
3,500
Apprentices to be recruited
by 2030, with the ambition
for 50% to be women
CENTRICA
STORIES
Isaura’s apprenticeship
journey
“Lockdown put the health and fitness industry in
limbo and teaching Pilates online just wasn’t the
same. I’ve always enjoyed pushing myself to learn
new things and be the best I can be, so I started
to think more and more about a shift in career.
Then I stumbled across an ad to become a British
Gas engineer and it looked like the challenge I’d
been waiting to take on.
No two days are the same which I love and my fear
of failing was never able to manifest; it was British
Gas who simply eased me in and supported me
one step at a time.
It feels great being able to help customers
have a smarter and more efficient home, and I’m
proud that my apprenticeship is giving me new
skills as well as a solid trade. When I’ve finished
my apprenticeship, I’m excited about the potential
to get further qualifications in areas like electric
vehicle charging and heat pump installation.”
Our wider diversity breakdown
Gender(1)
2021
2020
Ethnically diverse(1)(2)
2021
2020
Board of Directors
Senior executives and direct reports
Senior leaders
All employees
Female
Headcount %
4 (50%)
29 (32%)
99 (28%)
5,421 (28%)
Male
Headcount %
4 (50%)
61 (68%)
254 (72%)
13,832 (72%)
Female
Headcount %
4 (44%)
44 (37%)
164 (28%)
6,530 (28%)
Male
Headcount %
5 (56%)
75 (63%)
415 (72%)
16,670 (72%)
Ethnically diverse
Headcount %
Ethnically diverse
Headcount %
1 (13%)
6 (7%)
31 (9%)
2,251 (12%)
1 (11%)
16 (13%)
75 (13%)
2,987 (13%)
(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 54.
(2) Based on 65% of colleagues in 2020 and 2021, who voluntarily disclosed that they were from a Black, Asian, Mixed/Multiple or other ethnic group across the UK and
North America.
Goal 3
Key: Progress against goals
On track
Behind
By 2030, we want to:
2021 Progress
10,889 days
Inspire colleagues to give
100,000 days to build
inclusive communities
(20,000 days by the end
of 2022)(3)
(3) Baseline 2019.
We’re harnessing the passion of our people to build inclusive
communities through volunteering because strong communities
are central to a more sustainable future. It’s also a great way to help
colleagues develop their skills and improve engagement. Following
an all-time high of volunteering days in 2020 when we launched our
new partnership with the Trussell Trust to meet the urgent demand
for food at the outbreak of COVID-19, our volunteering days reduced
by 96% in 2021 which brings our cumulative volunteering days to
30
10,889 since 2019. This was primarily due to the changing nature
of COVID-19 restrictions limiting the availability of wider volunteering
opportunities as well as our focus on customer service – particularly
during the urgent and unprecedented need to support customers
during the energy crisis which resulted in us rapidly taking on around
700,000 customers from failed energy suppliers (see page 8).
Colleagues have told us they want to do more to support their local
communities in 2022. We’ve exciting plans to help them use their
two-day volunteering allowance, including new opportunities to
make a difference at their local Trussell Trust food bank amongst
other initiatives. We hope this re-energised approach will help us
get back on track with our goal and see us progress towards our
ambition of having 1 in 3 colleagues volunteering by 2030.
Overall in 2021, we gave £306 million(4) in mandatory, voluntary and
charitable contributions to support customers and communities.
(4) Comprises £305 million in mandatory and £1 million in voluntary contributions
and charitable donations.
Centrica plc Annual Report and Accounts 2021Strategic Report | People and Planet continued How we’re helping to build more inclusive
and sustainable communities
For the last three years, we’ve worked
together to improve the lives of unpaid
carers across the UK. And whilst our
partnership concluded at the end of 2021,
we’ll continue to further the cause and
advocate for every carer to receive the
help they need. Our partnership highlights
include:
• £1.5 million donated.
• Over £255,000 fundraised by colleagues.
• Statutory carers leave due to be
introduced by the UK Government
following our successful joint campaign.
Realising our scale and passion could help
the Trussell Trust meet the unprecedented
demand for food banks at the start of the
pandemic in 2020, we’ve continued to
combine forces to fight food and fuel
poverty. So far:
• 2,000 colleagues have been inspired
to help their local food bank.
• Over 400 food banks have received
our support.
• £125,000 has been donated to help
people in hardship, and further the
ultimate aim of eliminating the need
for food banks.
For over a decade, our impact fund has
provided grants and expert advice for
community initiatives that deliver affordable
and sustainable energy solutions for the UK.
With money generated from solar panels we
installed at nearly 270 schools, the fund now
focuses on regional campaigns targeted to
help communities transition to net zero.
The fund has:
• £600,000 to spend annually with grants
up to £100,000 available.
• Supported more than 20 community
initiatives so far, including five new
ones in 2021 following our first regional
campaign which took place in Scotland
during COP26.
Partnered with Focus Ireland for the last six
years to help prevent family homelessness
and alleviate the distress of homelessness.
We’ve now extended the partnership for
another five years to build off progress
already made, such as:
• €2.4 million donated.
• Over €200,000 via colleague fundraising.
• More than 7,000 vulnerable families
supported, including directly preventing
460 families from becoming homeless.
Funded solely by British Gas, the
independent charity plays a key role
supporting customers and non-customers
alike with their energy bills and household
debt. The Trust is one of the largest sources
of financial help for vulnerable households
outside of Government funding and over
the last 17 years, we’ve enabled:
• Over £130 million in mandatory and
voluntary contributions to the Trust.
• More than 500,000 people to benefit
from debt advice and grants, with over
88,200 interventions during 2021-22.
• Funding of nearly 50 grassroot charities,
empowering over 120 expert advisers
to support communities of
heightened need.
“The ongoing impact
of the COVID-19
pandemic and
continued lack of access to
support means many carers
are at breaking point. But
together, we have helped make
life better for carers by bringing
about a step change in the way
that society recognises, values
and supports the millions of
unpaid carers in the UK.”
Helen Walker, Chief Executive of Carers UK
A winning
partnership
Our partnership with Carers UK
won the ‘Best Partnership with
a National Charity’ at the Better
Society Awards
31
Centrica plc Annual Report and Accounts 2021Strategic Report Planet
Supporting every customer
to live more sustainably
Goal 4
Goal 5
Key: Progress against goals
On track
Behind
By 2050, we want to:
2021 Progress
By 2045, we want to:
2021 Progress
Help our customers be
net zero (28% reduction
by the end of 2030)(1)
18% reduction†
Be a net zero business
(40% reduction by the
end of 2034)(2)
82% reduction
(1) Net zero goal measures the carbon intensity of our customers’ energy use including
electricity and gas with a 2019 baseline of 183gCO2e/kWh, normalised to reflect
acquisitions and divestments in line with changes in Group structure and therefore
excludes Direct Energy. Target aligned to the Paris Accord and based on science,
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 242 or centrica.com/assurance for more.
†
Around 90% of our total carbon emissions (scope 1, 2 and 3), come
from the sale of gas and electricity to customers (scope 3). So the
biggest thing we can do to fight climate change, is to help them use
energy more sustainably. Towards this in 2021, we provided services
and solutions that enabled the carbon intensity of our customers’
energy use to remain strong at an 18% reduction against our 2019
baseline, which is similar to last year. This is equivalent to our
customers saving the annual emissions of 1.6 million homes in 2021,
and was largely due to renewable and low carbon energy tariffs
alongside energy efficiency and optimisation solutions.
In 2021, we helped our customers advance towards net zero by
supporting them with measures to decarbonise power, heat and
transport having:
• Maintained a leadership position in driving electric vehicle (EV)
take-up with over 20,000 charge points installed since 2013, whilst
integrating EV charging into our Hive smart home platform.
• Launched a new air source heat pump business to accelerate
delivery beyond the 1,900 already installed across social housing.
• Expanded customers on our Green Future tariff which is one of the
greenest on the market and we were one of only two companies
awarded the Uswitch Gold Standard for renewable tariffs.
• Provided a route-to-market for renewables with 11.7GW under
management, which can power around 10 million homes.
(2) Net zero goal measures scope 1 (direct) and 2 (indirect) greenhouse gas emissions
based on operator boundary which excludes Spirit Energy and Nuclear emissions,
and is normalised to reflect acquisitions and divestments in line with changes
in Group structure and therefore excludes Direct Energy, against a 2019 baseline
of 1,146,601mtCO2e. Target aligned to the Paris Accord and based on science.
As part of our strategic transformation, we produce over 90% less
carbon than we did a decade ago having moved away from the
majority of our carbon intensive energy assets and businesses, to
focus on providing energy services and solutions for our customers.
As part of this, we continued to make progress against our net zero
target in 2021, with our total carbon emissions decreasing by 78%
from 2020 and 82% from the 2019 baseline. Whilst the main driver
of emissions reduction related to a temporary outage at Whitegate
power station in Ireland, sustainable savings were also achieved
through low carbon fleet initiatives like rolling out EVs and green
tariffs, delivering property efficiencies across lighting, heating and
cooling systems, alongside savings arising from the restructuring
of our business. In 2022, we expect our emissions to rebound as
Whitegate resumes normal operations to play its important role
in ensuring the security of supply in Ireland.
3,000
Our order for commercial EVs during
2020-21, the largest made in the UK
CENTRICA
STORIES
Launching our Climate
Transition Plan
In 2021, we set out how we plan to deliver our net
zero targets whilst ensuring a fair and affordable
transition for all.
• For customers, we’ll accelerate the delivery of
energy efficiency and optimisation services, low
carbon technologies and cleaner energy. This
includes 2025 aspirations to double the number
of Hive customers to 2.5 million, achieve annual
installs of up to 100,000 EV charge points and
20,000 heat pumps, whilst remaining a leader in
the supply of zero carbon electricity for homes
and investing up to £100 million in low carbon
and transition assets each year.
• Within our business, our ambition is to build a zero
emission fleet in the UK by 2025 and cut our UK
property emissions by a further 50% by 2030.
At the same time, we plan to progress our
strategic transformation to exit our remaining
activities in oil and gas exploration and production
and redirect investment into assets that drive the
transition forward – from securing up to 800MW
of low carbon and transition assets including
solar and battery storage by 2025, to exploring
the conversion of our Rough gas storage facility
to store hydrogen.
These aspirations provide great opportunities for us
and our customers, but they will be challenging and
require customers, government and others to play
their part as we play ours.
And for it to be a success, we’ll also need to ensure
we don’t leave anyone behind. So we’ll 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.
The Climate Transition Plan will go for shareholder
advisory vote at the AGM in 2022.
Read more at
centrica.com/climatetransition
32
Centrica plc Annual Report and Accounts 2021Strategic Report | People and Planet continued
Task Force on Climate-related
Financial Disclosures
Climate change is one of the greatest
challenges facing society. And as an energy
company, we’ll play an increasingly pivotal
role in helping our customers and our business
transition to net zero. It’s therefore important
that we share our action and plans on
climate-related matters in a transparent
and robust way.
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 TCFD recommendations and recommended disclosures
across the four pillars.
Signatories of the Task Force
on Climate-related Financial
Disclosures since 2020
‘A-’ leadership rating for
action and disclosure on
climate change by CDP
DISCLOSURE INSIGHT ACTION
Governance
Our Group Chief Executive has overall accountability for climate
change and ensures the issue is consistently discussed at the
highest levels of the Company. As part of this, the Board has direct
oversight over climate change and reviews related issues through
a regular flow of information from its Committees. The Board is
principally supported by the Safety, Environment and Sustainability
Committee (SESC), which is chaired by an independent non-
executive director, and typically reviews climate change information
three times a year. This allows the SESC to maintain oversight over
climate-related content raised and discussed as frequently as
required at Centrica Leadership Team (CLT) meetings, which are
held monthly. The Board is further aided by the Audit and Risk
Committee in reviewing stated matters quarterly whilst also
overseeing audit and risk matters at CLT meetings. Meanwhile,
the Remuneration Committee ensures climate change is considered
in remuneration arrangements and in 2022, climate transition KPIs
were incorporated into incentive plans for Executive Directors and
other key colleagues across the Group (see page 72).
Climate change is an increasingly important issue for the Board
and our business. In 2021, members of the Board regularly
engaged investors, government and regulators on climate change
and attended COP26 events. We therefore continuously review
capabilities to ensure the Board has a wide range of skills relevant
to climate change across energy, regulation, geopolitics and
technology. In 2021, we further developed Board capabilities by
running a deep-dive session on climate change and the energy
transition with internal and external experts. Best practice in climate
governance for Boards was also reviewed, covering topics such as
strategic planning, climate risk and opportunities alongside Board
capability and emerging issues, from which we’ve identified areas
for continual improvement. These improvements include further
embedding climate risk and opportunities into strategic planning
processes as well as incorporating KPIs within the remuneration
scheme for Executives which was progressed in 2022.
The Board and its Committees work closely with senior managers
in Group Strategy and Environment who collaborate with business
unit leaders to develop our climate strategy. Group Strategy and
Environment additionally co-ordinate members of the TCFD Working
Group, which includes Group Enterprise Risk and Control who
manage the integration of climate risk into the Enterprise Risk
Management (ERM) Framework and Group Finance who support
the businesses to understand the financial impacts of net zero.
Group HR then integrate ESG targets into remuneration frameworks.
The Board
Remuneration
Committee
Safety, Environment and
Sustainability Committee
Audit and
Risk Committee
• Agrees climate-related KPIs that
• Reviews and approves proposals
Centrica Leadership Team
apply to executive remuneration and
wider bonuses paid.
for climate-related targets.
• Reviews and approves Climate
Transition Plan (CTP) and TCFD
analysis.
• Reviews performance against climate
targets and CTP ambitions.
• Receives updates on stakeholder
ESG expectations.
Working groups
• Reviews climate-related risks.
• Reviews integration of climate-related
factors into Financial Statements.
33
Centrica plc Annual Report and Accounts 2021Strategic Report Strategy
To assess our resilience to climate change, we chose several
independent climate scenarios that are most relevant to our
business and to national climate targets set by government across
our key markets of the UK and Ireland. The scenarios allow us to test
the implications of various plausible pathways relating to global
warming of 1.5°C to 4°C(1). Using our in-house scenario analysis
model, we then assessed the potential negative and positive
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 which correspond to 2025, 2035 and 2050.
The scenario analysis in 2021 showed that based on our strategic
plans and capabilities, we’re well-positioned to mitigate the risks and
seize the opportunities related to climate change. Whilst some areas
of our business will inevitably face bigger challenges than others as
the world increasingly decarbonises, our modelling suggests an
overall net financial benefit for the Group as we evolve in line with the
needs of the energy transition and deliver on our purpose of helping
our customers live sustainably, simply and affordably (see page 32
for a summary of our Climate Transition Plan).
In particular, the analysis showed that we’re potentially exposed
to transitional risks and opportunities such as policy and regulatory
changes that could range from ‘low to high’ in significance over the
longer term. The risks primarily relate to the gradual phase-out of
natural gas in heating, which although an essential transition fuel
in the mid-term, could require a shift in the range of products and
services we offer our customers in the future. Decarbonisation
also presents significant opportunities for the Group including low
carbon heating, energy optimisation and EV charging as well as
the development of new assets like solar and battery storage.
Meanwhile physical risks such as those associated with extreme
weather and rising mean temperatures, have been identified as ‘low’
in significance over the near and longer term. This is because we’re
transitioning away from being an asset-heavy business, and whilst
the potential to impact on energy supply chains as well as customer
supply and demand remain, these risks are expected to be lower
with increased levels of decarbonisation and are effectively managed
through defined hedging strategies and collaboration with
counterparties. As with all risks identified, we’ll continue to monitor
these risks so that we can act if the level of anticipated impact rises.
Summary of our most material risks and opportunities(2)
Impact on gross margin (GM)
Low
Medium
High
TFCD
category
Climate
related trend
Potential financial
impact
Potential materiality
2025
{short
term}
2035
{medium
term}
2050
{long
term}
Strategic response
and resilience
Transition: Policy,
Markets and
Technology
Transition away
from fossil fuelled
heating
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
Risk 1: Reduced GM from the
sale and servicing of natural gas
residential boilers and
commercial Combined Heat
and Power (CHP)
Opportunity 1: Increased sales
and servicing of electric and
hydrogen fuelled heating
systems, alongside associated
opportunities in fabric upgrade
including insulation
Transition: Policy,
Markets and
Technology
Transition away
from natural gas
Risk 2: Reduced GM from the
sale of natural gas
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
Opportunity 2: Increased sales
of electricity and green/low
carbon hydrogen
Transition:
Markets
Growth of EV
transport market
Transition: Energy
Source
Growth in
demand for
renewable
energy
Opportunity 3: Access to new
and growing value pools related
to EV charger installs, operation
and maintenance (O&M), and
energy supply
Opportunity 4: Strong growth
in solar and battery markets
driven by decarbonisation
>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
1.5˚C
• Ambition to remain a market leader in
heating solutions in the UK and Ireland,
growing market share in heating installs.
• Expanding roll out of hydrogen ready
boilers.
• Heat pump business launched with
material growth plans, aiming for 20,000
installs a year by 2025 and build
from there.
• Partnering in hydrogen use trials and
technology as well as research and
development into low carbon CHP to
grow adoption and capability.
• Ambition to grow customer numbers
in UK energy supply.
• Strategic aim to grow customer numbers
in UK energy supply.
• Partnering in hydrogen production and
use trials to grow capability and adoption.
• Capability to pursue hydrogen trading.
• Aim to become a leader in EV charging
infrastructure install and O&M.
• Ambition to install up to 100,000 EV
charge points a year by 2025 and
continue to grow from there.
• Strategy to invest up to £100 million a year
by 2025, to secure up to 800MW of low
carbon and transition assets like solar
and battery.
• Value derived from install, O&M and
asset ownership.
(1) Transitional impacts are assessed using the National Grid Future Energy Scenarios comprising four different pathways for the future of energy out to 2050, where assumptions
on energy 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, EV’s and insulation. Physical impacts
are assessed using the Intergovernmental Panel on Climate Change Representative Concentration Pathways as they allow physical climate attributes to be modelled such as
temperature and sea level rise, 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
and 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 oil, gas and power assets.
(2) A well-below and well-above 2°C scenario for global warming is 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.
34
Centrica plc Annual Report and Accounts 2021Strategic Report | People and Planet continued We also assessed the risk of asset impairment on price forecasts,
whereby our most exposed assets were our exploration and
production (E&P) fields alongside our investment in Nuclear. We
found that the impact on the value of our E&P assets were relatively
‘low’ due to existing impairment headroom, whilst our investment
in Nuclear saw a positive increase given baseload power price
scenarios are higher under net zero price forecasts (see note 7).
All modelled scenarios contain significant opportunities for capital
investment into new and existing assets and technologies required
by decarbonisation. The requirement for capital expenditure to
manage potential risks and substitution opportunities has been
assessed as being in line with current plans.
Our identification and assessment of how climate-related issues
might affect our business serves as an input into our annual strategic
and financial planning process. In 2021 we explicitly 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. In 2021 we provided a coherent description
of the resulting strategy in our first ever Climate Transition Plan.
Risk management
In 2021, transitional and physical climate risks were predominantly
managed via our ERM Framework. This enabled us to effectively
identify, assess and manage risks in a consistent way Group-wide.
Our ERM Framework uses a time horizon of 1–3 years to assess
Principal Risks alongside a longer timeframe of 3–20 years to assess
Emerging Risks. Following this process, climate change has been
made a Principal Risk which applies to the 2021 reporting period.
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 and integration within the ERM Framework and
Principal Risks register. Together, they ensure climate-related risks
and opportunities are shared with the CLT, Group Audit and Risk
Committee, SESC and the Board.
Going forwards, we’ll continue to embed and enhance
understanding and controls related to climate change risks and
opportunities so that we’re effectively managing the issue.
Metrics and targets
We were early adopters of best practice reporting of greenhouse
gas emissions and have a strong track record in setting and
achieving climate-related targets. We therefore have metrics and
targets in place to help us manage our impact on climate change
which includes monitoring and reporting our global scope 1, 2 and 3
emissions (see table below), which we’ve achieved limited external
assurance† over alongside others, every year since 2012. In 2021,
we also strengthened our existing net zero targets by committing to
be a net zero business by 2045 and to help our customers be net
zero by 2050 (see page 32). These targets are aligned to the Paris
Accord and in 2021, we committed to have them validated by the
Science Based Target initiative (SBTi) which we’re aiming to do
within the two-year window SBTi provides. And off the back of
our Climate Transition Plan launched earlier in 2021, we recently
developed a Climate Transition Dashboard which the CLT and Board
will use to track progress on our strategic response to climate-
related risks and opportunities, and includes our ambition to ramp
up key services and solutions for a more sustainable future such
as EVs, heat pumps and solar (see page 32). All of these stated
metrics and targets are the primary way in which we currently
measure and manage our impact on climate change, but we expect
this set of metrics and targets to evolve as we keep pace with best
practice and respond to the changing world around us.
We recognise, however, that delivering our targets and reducing our
impact on climate change is in part dependent on having a policy
and regulatory environment that supports our net zero objectives.
So we have continued to advocate for positive policy development
relating to issues like the decarbonisation of heat, transport and
increased system flexibility.
In 2022, climate transition KPIs were further elevated as a key focus
for the business with the link to incentive plans for Executive
Directors and other key colleagues.
Read more about governance
on Pages 48 to 73
Read more about our strategy
on Pages 7 and 10 to 11
Read more about Principal
Risks and Uncertainties on
Pages 38 to 43
Read more about metrics
and targets on Pages 32
and 242 to 244
Our energy and carbon emissions
Total carbon emissions (scope 1 and 2)
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions(6)
Total carbon intensity by revenue(7)
Total energy use
2021
226,904tCO2e†(1)
222,064tCO2e†
4,840tCO2e†(4)
23,097,452tCO2e
15tCO2e/£m(8)
1,142,249,379kWh†(10)
2020
989,546CO2e(2)(3)
982,469tCO2e(3)
7,077tCO2e(3)(5)
116,947,439tCO2e(3)
41tCO2e/£m(3)(9)
5,165,166,409kWh(3)(11)
Our energy and carbon emissions set out above and on page 32, 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 36 and 244, with additional metrics available at centrica.com/datacentre. Our reporting practices are drawn from the
WRI/WBCSD Greenhouse Gas Protocol and Defra’s Environmental Reporting Guidelines.
† Included in DNV’s independent limited assurance report. See page 242 or centrica.com/assurance for more. (1) Comprises UK 162,460tCO2e and non-UK 64,444tCO2e.
(2) Comprises UK 203,955tCO2e and non-UK 785,590tCO2e. (3) Restated due to changes in methodology following a move from equity to operational control to align with the more
commonly used organisational boundary approach set out by the WRI/WBCSD Greenhouse Gas Protocol and means that Spirit Energy and Nuclear are not included, whilst scope 2
and 3 have moved to a market-based approach to better reflect our decisions on where we source imported power. (4) Location-based 10,352tCO2e. (5) Location-based 13,687tCO2e.
(6) 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. (7) 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. (8) Comprises UK 15tCO2e/£m
and non-UK 17tCO2e/£m. (9) Comprises UK 21tCO2e/£m and non-UK 54tCO2e/£m. (10) Comprises UK & Offshore 739,687,327kWh and non-UK energy use 402,562,052kWh.
(11) Comprises UK & Offshore 866,199,955kWh and non-UK energy use 4,298,966,454kWh.
35
Centrica plc Annual Report and Accounts 2021Strategic Report Our foundations
Our People & Planet Plan is underpinned by strong
foundations that ensure we act fairly and ethically.
Customers
2021 was another challenging year for customers and we wanted
to be there for them. We spent £304.86 million in mandatory and
voluntary contributions to help those who struggled with their energy
bills. For example, nearly 535,900 customers were helped via the
UK’s Warm Home Discount scheme whilst additional assistance
was prioritised for those impacted by the pandemic and energy
market crisis which included our new £4 million Fuel Fund
to help our most financially vulnerable customers (see page 8).
On top of this, we provided energy advice and grants for customers
and non-customers alike via the British Gas Energy Trust (see
page 31) which helped around 31,600 people during the period.
With our net promoter score and complaints impacted by COVID-19
and industrial action alongside reduced engineer capacity, we’ll
endeavour to improve service levels in 2022 (see pages 23 to 24).
Colleagues
We want our people to feel safe, engaged and rewarded. To protect our
people from COVID-19 during 2021, we ensured all field workers were
provided with personal protective equipment and operated in line with
government guidance to keep themselves and our customers safe.
Our Tier 1 and 2 process safety incident frequency rate did, however,
worsen following three Tier 2 events compared to zero in 2020. The
events related to Centrica Storage Limited and resulted in remedial
action including enhanced inspection regimes across piping systems
and switching to a new asset integrity inspection company. Our total
recordable injury frequency rate also worsened slightly by 3% to 1.07 per
200,000 hours, largely due to the impact of COVID-19 and organisational
restructuring on working hours. We’ve since seen improvements in
safety performance and hope to continue this by ensuring safety
remains front-of-mind, whilst reinforcing a strong safety culture and
advancing controls and monitoring. Alongside physical health, we were
mindful of the impact COVID-19 coupled with changes to our business,
could have on mental health. We helped provide peace of mind by
ensuring everyone had the flexibility to adjust working hours to
accommodate caring responsibilities and temporarily amended policies
to ensure COVID-related absence wouldn’t impact pay. In addition, we
ran campaigns that talked about the importance of being open about
mental health and encouraged use of our mental health suite which
includes our 130-strong mental health first aiders and the ‘Unmind’
wellbeing app. Our Flexible First approach to working also supports
wellbeing as it empowers colleagues to choose when to work from
home or go into the office to connect and collaborate, enabling them
to better balance work alongside personal commitments.
Improvements like these have helped our engagement score
improve by 13% to 55% favourable in 2021, which is key to
productivity. We’ve a big opportunity to build on this by continuing
to create a more inclusive and supportive place to work.
As a responsible employer, we also reward our people fairly. This
includes paying at least the Living Wage in the UK and upholding
equal pay. In 2021, our gender pay gap improved by 5% to 30%
median and continues to be driven by more men working in higher
paid roles like engineering coupled with more women in lower paid
customer service and administration roles. We’re one of few
companies to have voluntarily published our ethnicity pay gap which
is driven by similar factors to our gender pay gap, and improved by
1% to 13% median. Tackling the pay gap will not be quick or easy,
but we hope to continue to transform our business and sector as our
People & Planet Plan gets fully underway (see pages 29 to 30).
36
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 and
ensuring we embrace them. 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 like risk-based training,
due diligence and monitoring of supplier selection and renewal,
as well as conducting audits across our supply chain. And to date,
we’ve found no instances of modern slavery. We also have 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 through
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, whilst a register is
used to record and manage potential or actual conflicts of interest.
During 2021, 98% of colleagues completed refresher training on Our
Code and confirmed they would uphold its principles. And if anyone has
concerns about Our Code not being upheld, they can raise them
via our confidential Speak Up helpline. In 2021, we had 1.3 reports
per 100 employees which largely aligns with the external benchmark
of 1.4, and demonstrates that colleagues feel safe to speak up.
Reports are investigated by the Ethics and Compliance team, with
quarterly monitoring via SESC and the Audit and Risk Committee,
with matters brought to the attention of the Board as appropriate.
We also strive to use our purchasing power to contribute positively
to workers in our supply chain. So in 2021, we continued to assess
suppliers on their social and environmental standards. Overall, our
sustainability score remained strong at 68 (low risk), which is better
than the multi-industry average of 51 (medium risk). If suppliers
receive a high-risk rating, we consider appropriate action, which may
involve conducting a site audit to better understand the level of risk
on issues like human rights, or ending our relationship and reporting
the abuse. During 2021, we were unable to conduct on-the-ground
site audits due to COVID-19, so we deployed remote worker
surveys to nearly 7,000 workers in higher risk countries like China,
Bangladesh and Pakistan. Whilst no material issues were identified,
insight enabled a supplier to subsequently provide training to help
workers manage their personal finances better.
Environment
We closely monitor and manage our wider environmental impact.
During 2021, our water consumption dropped by 62% to 66,762m3
and waste declined by 12% to 12,756 tonnes. This was largely due to
lower power station activity and reduced site occupancy as colleagues
increasingly worked from home.
“Flexible First has transformed my ability
to balance work and caring. I’m now able
to work without the stress of being away
from home too much and can really focus on work
as well as access development opportunities that
would’ve been extremely difficult before.”
Marie McCann, Customer Service Adviser
Centrica plc Annual Report and Accounts 2021Strategic Report | People and Planet continued 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.
This includes an explanation of the relevant Group policies which
relate 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.
Reporting requirement
Section
Business model
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.
Read more at
centrica.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.
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.
Our Business Model – Pages 12 to 13
Due diligence
and outcome
Impact of
COVID-19
• Chairman’s Statement – Page 2
• Group Chief Executive’s Statement –
Page 6
• KPIs – Page 15
• Chief People Officer’s Report –
Page 26
• People and Planet – Pages 30
and 36
• Principal Risks and Uncertainties:
COVID-19, Health, Safety,
Environment: Process Loss and
Containment – Pages 39 and 43
• People and Planet – Page 36
• Group Chief Executive’s Statement – Page 4
• Stakeholder Engagement – Page 9
• Chief People Officer’s Report – Pages 26 to 27
• People and Planet – Pages 29 to 31 and 36
• Principal Risks and Uncertainties: Capability of
People, Highly Competitive Markets, Legal,
Regulatory & Ethical Compliance, Health, Safety,
Environment: Process Loss and Containment
and Asset Production – Pages 39 and 40 to 43
• Key Performance Indicators (KPIs) – Pages 15,
26 to 27, 29 to 31, 36 and 242 to 243
• Chairman’s Statement – Page 3
• Group Chief Executive’s Statement –
Pages 5 to 6
• Marco Trends – Page 7
• Stakeholder Engagement – Page 9
• Principal Risks and Uncertainties: Climate
Change, Health, Safety, Environment: Process
Loss and Containment, Political and Regulatory
Intervention, Asset Production, Highly
Competitive Markets and Weather Risk –
Pages 39 to 43
• People and Planet – Pages 32 to 36
• KPIs – Pages 32, 35 to 36, 242 and 244
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.
• Stakeholder Engagement – Pages 8 to 9
• People and Planet – Pages 30 to 31 and 36
• Principal Risks and Uncertainties: Weather Risk,
Political and Regulatory Intervention, Highly
Competitive Markets, Cyber Risk and Legal,
Regulatory & Ethical Compliance – Pages 39
to 43
• KPIs – Pages 23 to 25, 30 to 31, 36 and 242
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.
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 or corruption from suppliers.
to 244
• Stakeholder Engagement – Page 9
• People and Planet – Page 36
• Principal Risks and Uncertainties:
Legal, Regulatory & Ethical Compliance –
Page 43
• KPIs – Pages 36 and 244
• People and Planet – Page 36
• Principal Risks and Uncertainties: Legal,
Regulatory & Ethical Compliance – Page 43
• Based on materiality, KPIs specific to anti-
bribery and corruption are not reported
externally.
• KPIs – Page 15
• Business Review – Pages 23 to 25
• People and Planet – Pages 30 to 31
and 36
• Principal Risks and Uncertainties:
COVID-19 and Legal, Regulatory &
Ethical Compliance, Health, Safety
and Environment; Process Loss and
Containment – Pages 39, 43 and 46
• People and Planet – Page 36
• No material impact.
37
Centrica plc Annual Report and Accounts 2021Strategic Report Our Principal Risks and Uncertainties
We manage risks to support our Group strategy
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 40 to 43, in order of magnitude to the Group.
The annual risk management process is summarised in the
diagram below.
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.
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 certain elements
of financial markets risk. We are committed to operating our
businesses in compliance with relevant laws and regulations.
Risks are assessed at a Business Unit (BU) level to determine impact
and likelihood. During the BU and Group level risk reviews the
adequacy of mitigating actions is considered to determine the net
residual risk scores and compare them to the Group risk appetite.
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, as determined through
our strategic planning process.
Centrica Group’s Annual Risk Management Process
E
v
al
u
a
t
e
Business Unit
Risk and Controls
Committee
Asse s s
Business Unit
risk assessment
and mitigation
update
Functional
advisory teams
Business Unit
risk owners
Quarterly Group
Enterprise Risk and
Controls review
Bi-annual review
of Principal Risks
n tr ol & m onitor
I
d
e
n
tif
y
C o
*Audit and Risk Committee (ARC)
**Safety, Environment and Sustainability Committee (SESC)
38
Group Enterprise Risk
and Controls report
Centrica
Leadership Team
RISK DEEP DIVES
ARC*
SESC**
Centrica plc Annual Report and Accounts 2021Strategic Report 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 by
the 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 were chaired by the
Group CFO until November, and then by the Director of Risk and
Internal Audit.
• 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, is
presented 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 40 to 43. The annual Viability
Assessment has 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
principal and emerging risks.
• At the year-end the Board reviewed and approved the Principal
Risk and Uncertainties disclosure.
• On an annual basis we evaluate our System of Risk Management
and Control, which is supported by an annual 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 as part
of their Business Performance and Risk Reviews. Major emerging
risks and issues are escalated immediately.
During 2021 a number of Group level areas of risk were closely
monitored, and actions taken to mitigate their impact on the Group.
Energy market
Current global wholesale energy prices are putting pressure on the
energy market, with gas and electricity prices reaching record levels.
Some smaller suppliers have ceased trading, leaving them unable
to fulfil their commitments to supply gas and electricity to their
customers. Centrica has stepped in as the Supplier of Last Resort
(SoLR) for some of these energy suppliers, taking on around 700,000
residential and 6,600 business customers by the start of 2022.
It is anticipated there will be increased customer contact due to
increased prices along with an increased risk of customer bad debt.
Price levels and volatility have severely increased the commodity and
weather risks, alongside potential unstable customer churn through
Winter 21/22 and the increase in the price cap in April 22. The Group
is addressing this by implementing agile hedging policies/risk
management and effective demand forecasting processes.
COVID-19
COVID-19 continues to pose significant challenges to the risk
management and resilience of businesses globally. Centrica
has a robust approach to risk management which enables rapid
mobilisation of resources to react and mitigate the ongoing impacts
of the pandemic, and working practices continue to be monitored
and modified as required. Changes in operational processes and
working practices were adopted to minimise the impact of COVID-
related absences. We are actively sourcing alternative parts and
accelerating stock through the supply chain to mitigate the risk of
shortages of parts and components, but there are no specific
changes to any Principal Risks.
Legal, Regulatory or Ethical Compliance
During the year the Skilled Persons Review under s166 of the
Financial Services and Markets Act 2000 was successfully closed
and the legal challenge to the Belgian regulator imposing a fine on
CBS for its bid pricing on the flexible reserve market upheld. While
the risk climate remains stable, compliance continues to be an
important area of focus.
Customer Service
A key area of focus in the UK is the expansion of field engineer
capacity following attrition in 2021 to enhance customer service
levels. Centrica faces constraints in its efforts because of the
shortage of skilled labour in the wider economy affecting many
sectors and the time taken to train new apprentice engineers.
Whilst temporary resources are actively being recruited, this labour
shortage, combined with a programme to change systems and
processes, creates a short term risk in some parts of the country
to the consistency in the level of service provided to customers.
Industrial Action
Contingency plans were implemented to manage the impact of
industrial action in Q1 2021 on our customers, colleagues and our
business. New employee terms and conditions were introduced in
April 2021 and new collective agreements signed with Trade Unions.
These set out new ways of working with the Trade Union and the
introduction of a Centrica-wide set of policies and procedures.
We continue our dialogue with our Trade Union representatives
and work towards building positive relationships. We will continue
to monitor this risk closely through 2022.
Technology
Advances in technology bring both opportunities and threats in the
medium term. Failure to adapt and exploit opportunities from
advances in technology in the medium term will impact our ability
to grow, compete and meet the changing needs of our customers.
Digital connectivity and intelligent systems supported by advanced
analytics and artificial intelligence will drive unanticipated changes.
We continue to automate and integrate our operations and monitor
the changing technology landscape, but this has not led to any
specific changes in Principal Risks.
Supply Chain
Supply chain issues with boiler and part supply are being closely
monitored as a forward-looking risk, driven largely by microchip
shortages. Measures have been taken to minimise the short-term
impact, including securing alternative supply routes and working
closely with our suppliers. Group Procurement have developed an
impact assessment of potential financial and operational impacts of
current supply chain issues on the 2022 forecast. We are actively
monitoring the situation closely with our suppliers but at present this
is not leading to a change to the Principal Risks.
39
Centrica plc Annual Report and Accounts 2021Strategic Report Overview
Commodity Risk
Weather Risk
Risk Category: Financial
Risk Category: Financial
Group Priority
Risk Climate
Group Priority
Risk Climate
Deteriorated
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, as is the case for Winter
21/22, 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.
Risk of financial loss due to our exposure to
market, credit and operational risk.
• Material downward movements in
commodity prices can impact in-year P&L
through impact on sale of asset production,
and impact on the long-term valuation of
asset portfolios.
• Commodity exposure arises within the
trading businesses, which provide a route
to market for Centrica’s upstream and
power generation operations, source
electricity and gas for the Group’s energy
supply businesses and trade on a
proprietary basis. We also have commodity
exposures within our LNG portfolio and, in
particular, the Cheniere, Shenergy and
Mozambique contracts.
• Changes in our customer demand
requirements can result in a commodity
exposure as we balance our established
hedges at market prices.
• Hedging commodity price risk in the markets
exposes Centrica to credit risk (and supply
shock), which is the risk of a loss if a
counterparty fails to perform on its
obligations. Trending directional price moves
leads to a build-up of mark to market which
is a component of credit risk.
• Volatile commodity markets can also
increase cash and working capital
requirements for both ourselves and our
counterparties (with the latter increasing
credit risk and the risk of contagion).
Mitigations
• Review of hedging policies in bi-annual
• The monthly Downstream Energy Margin
Group Committee.
• Financial risks reviewed regularly in
dedicated Risk Committee forums within
trading entities.
• 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.
• Increased credit risk exposure review and
mitigation actions taken, both within the
individual BUs and at a Group level.
• Updated exploration & production (E&P)
hedging policy to help mitigate risk of
commodity fluctuations.
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, to narrow the range of gross margin
outcomes, are reviewed ahead of winter
seasons with decision rights held by
the CEO.
• Ensure adequate access to liquidity
in stressed scenario.
• Increased frequency of updated demand
curves which capture changes in demand
driven by deviations from seasonal
normal weather.
• Group strategic hedge approved to reduce
the exposure to high price and cold weather
risk across Centrica business units.
Developments
• Implementation of bi-annual Group Risk
Hedging Policy Committee.
• Trading positions have been scaled down to
align with risk appetite given that high
market prices in a high volatility environment
have driven increased market risk.
• Teams more actively managing credit
exposures, which have increased to very
high levels, through triangulations and other
risk reducing trades. Teams are also actively
monitoring counterparty liquidity stresses.
• Daily cash movements on margined
counterparties have been significant, driven
by the high price and high volatility
commodity price environment seen in 2021.
Positions have been flattened with the
highest risk counterparties to minimise
exposures to daily cash movement.
• Increased outage risk of aging assets leads
to greater volume uncertainty.
Principal Risks
The following Principal Risks
were adopted by the Board in
2021 and reflect the position
of the Group at the point of
signing the accounts. 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.
Our Group Priorities
Customer
Obsession
Most
Competitive
Provider
Empowered
Colleagues
Operational
Excellence
Cash Flow
Growth
Safety,
Compliance
and Conduct
Foundation
40
Centrica plc Annual Report and Accounts 2021Strategic Report | Our Principal Risks and Uncertainties continued Asset Production
Cyber Risk
Political and Regulatory Intervention
Risk Category: Operational
Risk Category: Operational
Risk Category: Strategic
Group Priority
Risk Climate
Group Priority
Risk Climate
Group Priority
Risk Climate
Stable
Stable
Stable
Risk that failures in the development or
integrity of our investments in operated and
non-operated assets could compromise
asset production or the long-term viability
of our assets.
• Failure to invest in the maintenance and
development of our assets could result in
significant safety issues or asset
underperformance through
unplanned outages.
• Failure to capture adequate return on our
20% nuclear investment due to
operational issues suppressing earnings
and cash flows or increased
decommissioning costs.
Risk of political or regulatory intervention and
changes, or a failure to influence such
changes.
• The Group faces uncertainty as to whether
the Government will influence the price cap
mechanism or impose a windfall tax to
respond to soaring wholesale energy
prices. This could result in profit margin
erosion and/or damage to our reputation.
• There is uncertainty as to the timing and
application of the SoLR levy process and
the Special Administration Regime.
• Risk of further government intervention
to support vulnerable customers that
may not be funded through the price
cap mechanism.
• Continuing focus on ESG interventions
and impact on investor confidence in
our responses.
• The Group faces potential erosion of profit
margins through potential further FCA
interventions on pricing impacting our UK
Services business.
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) and
Prudential Regulation Authority (PRA).
• Financial impact of investigating and
recovering from a cyber attack.
• Reputational impact of negative
media coverage.
• Group annual plan includes contingencies
• Ongoing collaboration and information
to cover events such as unexpected
outages from assets.
sharing with industry peers and National
Cyber Security Centre.
• 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.
• The E&P portfolio is not dependent on a
single asset and the impact of an outage
is diluted. The Spirit Energy joint venture
structure also mitigates the impact of
outages, and the risk will be reassessed
following the completion of the sale of the
Norway assets.
• The Cyber Security Change Programme
focuses on improvements to controls that
increase the difficulty of targeting Centrica
and being able to exploit weaknesses.
• Information Security tooling deployment
across the Group, that detects and prevents
advanced attack techniques.
• Training and awareness campaigns and
simulated Phishing attacks throughout
2021 to raise awareness and highlight
responsibilities in protecting data.
• Cyber attack simulations to identify control
gaps and undertake remediation activity.
• We experienced nuclear plant availability
• The external Cyber threat landscape has
issues throughout 2021. We are waiting for
the outcome of an investigation into
corrosion on a reactor at Hartlepool to
determine whether there will be further
outages at the Hartlepool and Heysham 1
nuclear stations. The closure of Dungeness
and Hunterston nuclear stations has
reduced the risk.
• During 2021, despite the continuing impact
of the pandemic, Spirit Energy maintained
all activity and programmes critical to the
safe operation of assets.
• In December 2020 an outage occurred at
Whitegate power station in Ireland. Repairs
were completed and the asset returned to
service in December 2021.
• The Rough field returned to service in
November and is performing in line with
planned levels. Discussions are continuing
about options for the future of this asset.
seen a significant shift in the use of targeted
Ransomware campaigns against
corporations, utilising Ransomware as a
service. The sophistication of attacks has
increased, with data removed, and backups
disabled to increase the pressure to pay.
• The increased connectivity of Industrial
Automated Controls Systems used to
manage domestic, commercial and national
infrastructure increases their vulnerability to
a cyber attack.
• As a power utility operator, Centrica will be
of interest to Nation State for commercial
data and potential disruption.
• Beyond ransomware, Centrica’s business
will be a target for activities such as
mandate fraud and fake invoicing.
• The Cyber risk climate is continually
evolving and has the potential to deteriorate
with increased breadth and volume of
attacks. A deterioration has not yet
crystallised but the Group remains on
high alert.
We continue to be committed to an open,
transparent and competitive UK energy market
which provides choice for consumers.
• Ongoing 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 via the
monthly External Affairs meeting.
• Understanding the expectations of
stakeholders through reputational surveys
and review of media sentiment.
• The planned regulatory reform through
the impending ‘Energy Bill’ will present
significant medium-term opportunities
and challenges for the Group.
• The Group 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.
• We will engage in further Government and
regulator consultation on the future of the
UK retail energy market.
41
Centrica plc Annual Report and Accounts 2021Strategic Report
Overview
Capability of People
Highly Competitive Markets
Climate Change
Risk Category: Operational
Risk Category: Strategic
Risk Category: Strategic
FY 20: Capability of People, Process
and Systems
Group Priority
Risk Climate
Group Priority
Risk Climate
Group Priority
Risk Climate
Stable
Stable
New Risk
Risk of failure to attract and retain key talent.
Deterioration to health and wellbeing of
workforce.
• 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.
Risk that events in the external market
or environment could hinder the delivery
of our strategy.
• Successful delivery of our strategy requires
helping our customers live sustainably,
simply and affordably in a competitive
marketplace, with increased focus on
climate change, renewables and a move to
lower carbon products and propositions.
• Pace of change is critical given competitive
pressures, ability to right-size the cost base
and take advantage of market opportunities.
• Driving transformation at pace creates
additional delivery and technology risk
through investment in markets which may
not become material (i.e through uncertainty
of net zero pathway).
• Increasing competition for sites for
renewable development could prevent
Centrica Energy Assets from establishing
a foothold in the market.
Impact of Market, Regulatory and Policy
changes affecting the Group.
• 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 electrification
of Energy and Transport industries.
• Timing and execution of British Gas
pivot to decarbonised heating and
power products and services.
• Increased focus on ‘greenwashing’
and greater rigour on Renewables
Guarantee of Origin, impacting
renewable products and propositions.
Mitigations
• Extensive focus on rebuilding capabilities
• Significant focus on profitable growth and
and providing targeted learning and
development opportunities, improving
capacity and implementing retention
enhancement strategies.
• Talent management and planning forums
reinstated.
• 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.
innovation across all BUs including
customer retention in the downstream
businesses. Focus on developing our
products to respond to changing customer
needs and sentiment.
• Regular review of organisational model to
support delivery of strategic objectives.
• Transition to a lower cost platform is a
significant step in addressing the challenge
from rapidly scaling lower cost players.
• Regular review of skills and capability to
sustain a strong ethically-minded and
performance-focused culture.
• New asset strategy communicated with
clear targets, close review of market
fundamentals, competition and
expected returns.
• People & Planet targets published in early
2021 include net zero targets for Centrica
and our customers.
• Centrica’s Climate Transition Plan
published in October 2021 outlines our
plans to move to a low carbon future.
• The SESC, which is chaired by an
independent non-executive director,
typically reviews climate change
information three times a year. The SESC
additionally maintains oversight over
climate-related content and discuss as
frequently as required at CLT meetings
which are held monthly.
• We have committed to compliance with
TCFD requirements, including climate
change scenario analysis providing insight
into the risks, opportunities and timing of
change (see pages 33 to 35).
Developments
• BUs and functions have been closely
monitoring the impact of the 2020
reorganisation and modernising of
employee terms and conditions on
knowledge and skills retention.
• Throughout the pandemic there have been
increased direct employee communications
from the CLT, with continued emphasis on
wellbeing, mental health and ways of
working, and the introduction of Flexible
First to combine working at home with time
on site. Pulse surveys are regularly
completed to gauge employee sentiment
and address concerns.
• Regular ‘Straight Talking’ sessions are
conducted by senior management to
identify the root causes of colleague
engagement issues and rebuild trust.
• Core markets continue to be highly
• COP 26 and focus on Corporate response
to Climate Change.
• Sale of Spirit Energy Norway assets to
decarbonise our asset strategy.
• UK 6th carbon budget adopted.
• UK government heat & buildings,
Hydrogen and net zero strategies.
• Potential repurposing of Rough for
hydrogen storage.
• Electrification of transport and new heating
technologies, reallocating capital
investment to realise opportunities from
moving to a low carbon economy.
competitive. Our response is to focus
colleagues and technology on helping
businesses and households to use energy
more efficiently and sustainably.
• Continued disruption in the Energy supply
market with potential further rationalisation
of suppliers.
• Embedding the restructuring of our
business allowing us to respond to our
customers’ needs more easily.
• Focus on becoming the most competitive
supplier delivering cost efficiency through
an agile new system.
• Training the next generation of apprentices
to deliver low carbon technologies e.g. heat
pumps and electric vehicle chargers, while
exploring the future of hydrogen.
• Renewables market highly attractive, given
increasing focus of governments and
businesses in meeting net zero targets, level
of competition rising to meet demand.
42
Centrica plc Annual Report and Accounts 2021Strategic Report | Our Principal Risks and Uncertainties continued
Legal, Regulatory & Ethical
Compliance
Health, Safety, Environment:
Process Loss of Containment
Risk Category: Compliance
Risk Category: Operational
FY 20: Legal, Regulatory and Ethical
Standards Compliance
FY 20: Health, Safety, Environment:
Process Containment
Group Priority
Risk Climate
Group Priority
Risk Climate
Stable
Stable
Risk of failure to comply with laws and
regulations, and to behave ethically in line
with Our Code, resulting in adverse
reputational and/or financial impact.
• Any material real or perceived failure to
follow Our Code or comply with legal or
regulatory obligations would undermine
trust in our business.
• Material or sustained non-compliance
could lead to financial penalties,
reputational damage, customer churn
and/or legal and/or regulatory action.
Risk of an unplanned or uncontrolled release
of any material from primary containment that
could result in fatalities, injury and/or
environmental damage resulting in legal
claims, reputational and financial impacts.
• Our operations have the potential to result
in personal or environmental harm.
• Significant HSE events could have
regulatory, financial and reputational
repercussions that would adversely affect
some, or all, of our brands and businesses.
• 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.
• 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 and the
FCA to influence the regulatory environment.
• 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.
• The Our Code employee annual training for
2021 included expense fraud and
information security dilemmas as part of a
campaign to raise awareness of increased
fraud risks.
• Minimum manning levels continue to be
assessed and contingency plans made
for key assets (offshore and onshore)
in light of COVID-19.
• Mitigations have been implemented to
address potential operational issues from
higher staff absence rates or staff
contracting COVID-19.
• The HSE Function works with the business
to ensure effective HSE resources and
competency operate consistently and
effectively across the business.
43
Centrica plc Annual Report and Accounts 2021Strategic Report
Assessment of Viability Disclosure
Requirement
In accordance with provision 31 of the 2018 UK Corporate
Governance Code the Directors have assessed the prospects
and viability of the Group taking into account the business model
(as set out in the Strategic report on pages 12 to 13), 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 Centrica’s Energy Marketing & Trading business is
a leading route to market services provider across Europe. Centrica
also has the largest heating engineering 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
to grow long-term shareholder value.
2. Market trends affecting future prospects
• The current commodity price volatility and its impact on the UK
energy supply market.
• 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, and we expect that
to remain the case as the market emerges from the current crisis.
However, due to the way Centrica forward hedges its commodity
requirements we are not as exposed to volatile market prices as
other recently failed suppliers.
• Falling costs for battery, solar and wind, electric vehicles
deployment accelerates, growing need for flexibility.
• 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.
• 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 7,
10 to 12 and 36 respectively.
4. The Group’s strategic objectives
The Group’s strategic purpose include sustainability, simplicity
and affordability, as set out on page 6 of this Annual Report.
These support the assessment of the Group’s prospects.
5. Principal risks facing the Group, as set out on pages
38 to 43
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,
responding to climate change and uncertainty as to whether the
Government will influence the price cap mechanism to respond to
soaring wholesale energy prices;
• External risks associated with COVID-19, weather and commodity
price movements;
• Highly competitive markets;
• Compromised asset production and HSE impacts of process loss
of containment; and
• Risks associated with the effectiveness of our internal control
environment in relation to cyber risk, data protection and customer
conduct.
A more detailed summary of the business strategy is provided in the
Strategic report on pages 10 to 11 and more detail on the principal
risks facing the Group on pages 38 to 43.
Climate change is the most important driver guiding Centrica’s
prospects today and is a core part of our purpose as reflected
by the 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 electric vehicle chargers
while exploring the future of hydrogen.
• We’re committed to creating additional green and transition
generation with up to £500 million to deploy through Centrica
Energy Assets in renewable and flexible assets by 2025.
Good progress has been made on managing the prospects of the
Group during 2021, including the completion of the Direct Energy
sale in January, the announced sale of Spirit Norway and the
delivery of the Group restructuring activity, which has simplified our
management structure, reduced management layers and increased
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 much stronger, with a net
cash position as of 31 December 2021.
The Board has confidence in the long-term prospects of the
business. The Board believe that the strategic steps taken in 2021,
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 and
key risks are managed.
44
Centrica plc Annual Report and Accounts 2021Strategic Report Viability Sensitivity Tests Assessed
Links to Principal Risks
Risk >5% of opening
headroom(1)?
A. External risks associated with a reduction in commodity
price down to historic price levels
B. Risk of higher bad debt due to the large increase in the
UK price cap in 2022 and from further economic
disruption to customers from COVID-19, and the
operational impact of further COVID restrictions
C. Regulatory risks in relation to loss of sensitive data,
and the operational impact of sustained employee
industrial action.
• Financial Markets Commodity Risk
• Highly Competitive Markets
• Political and Regulatory Intervention
• Highly Competitive Markets
• Legal, Regulatory & Ethical Compliance
• Political and Regulatory Intervention
• Highly Competitive Markets
• Cyber Risk
• Capability of People,
D. Significant disruption to the asset-based business
leading to loss of production and/or earnings
• Asset Production
• Health, Safety, Environment: Process Containment Event
E. The risk of significant adverse weather
• Financial Markets Weather Risk
F. Increased margin cash requirements arising from
• Financial Markets Commodity Risk
adverse market conditions
G. Removal of 25% of drawn uncommitted Letters
of Credit
H. Increased collateral requirements arising from a
single-notch credit rating downgrade
• Financial Markets Weather Risk
• Financial Markets Commodity Risk
• Asset Production
• Cyber Risk
• Political and Regulatory Intervention
• Highly Competitive Markets
• Financial Markets Weather Risk
• Financial Markets Commodity Risk
• Asset Production
• Cyber Risk
• Political and Regulatory Intervention
• Highly Competitive Markets
Yes
No
No
Yes
No
No
No
Yes
(1) Headroom is calculated as undrawn committed facilities plus total liquid resources.
Assessment of viability
The assessment is based upon the Group Annual Plan for 2022 and
the longer-term strategic forecast for 2023 and 2024 which are
approved annually by the Board. The Board continues to 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 competitive
pressures creating disruption in our customer-facing markets.
Important context to the viability assessment is the management
of the 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 2021, the Group had total
committed credit facilities of £4.8 billion, of which £0.4 billion expires
in 2024 and the remaining £4.4 billion expire in 2025. The undrawn
committed facilities as at 31 December 2021 were £3.0 billion in
addition to total liquid resources of £3.6 billion.
On 8 December 2021, the sale of Spirit Norway (including Statfjord
UK) was announced. This transaction will improve the Group viability
assessment through removal of the risks associated with this part
of the business, and is factored in to the viability assessment
conducted.
The viability assessment identifies eight sensitivities (A to H) shown
in the table above, which incorporate the impact of our principal risks
as set out on pages 40 to 43. These risks were selected as they
have the most material impact on cash flow and liquidity. These
sensitivities were applied to the baseline financial forecast which
uses the Group Annual Plan for 2022 and the longer-term strategic
forecast for 2023 and 2024.
The key assumptions made in the specific sensitivities include:
• Historical evidence and the evaluation of similar events observed
in the market have been used to inform the potential impact
of modelled scenarios;
• The recent increase in gas and power prices has also been
reflected in the commodity price sensitivity. In previous years a
30% reduction to the base forecast has been used, but to reflect
the particularly high price curve in 2022 we have modelled a 60%
stress to 2022 (which equates to gas at 52p/th and power at £55/
MWh). We have retained a 30% stress to 2023/24 as those prices
have not increased as much as the nearer time period (equating to
gas at 44p/th in 2023 and 37p/th in 2024, and power at £46/MWh
in 2023 and £43/MWh in 2024). Oil prices have not been as volatile,
therefore the 30% reduction has been retained (equating to $55/
bbl, $45/bbl and $43/bbl in 2022, 2023 and 2024 respectively)
(Sensitivity A);
• A sustained loss of production from one of the highest producing
oil and gas fields (Sensitivity D);
• A repeat of historically seen adverse UK weather resulting in the
need to purchase additional power and gas at higher prices which
cannot be fully recovered through customer billing (Sensitivity E);
• There would be some offset between Sensitivity A and Sensitivity
E, because in a low price environment weather would have
a smaller impact.
45
Centrica plc Annual Report and Accounts 2021Strategic Report Strategic Report | Assessment of Viability Disclosure continued
Further Group-wide assumptions include:
• No material acquisitions or disposals of Group business areas,
other than the disposal of Spirit Norway which was announced
on 8 December 2021.
• No new debt funding within the three-year period of the
assessment.
• The Group retains its existing credit ratings (BBB/Baa2) during
the three-year period of the assessment, although the impact
of a one-notch reduction is modelled in our sensitivity tests.
The risk of further impacts of COVID-19 has been modelled, due to
the ongoing uncertainty over new variants of the virus. An impact
similar to that seen in the first wave of the pandemic in H1 2020 has
been modelled, where lockdown restrictions impacted our services
and solutions activity. This risk models the impact of engineer
absence through either sickness or self-isolation and reduced
customer appetite for in-home visits which would result in a drop in
services and solutions activity to the same extent as seen in 2020.
In Sensitivity B, in addition to the COVID-19 economic impact, we
have also considered the impact of the expected price cap increase,
which raises the risk of many more customers falling into fuel
poverty, which in turn could lead to higher levels of customer bad
debt, which has been modelled to be the same impact as seen
in 2020.
The eight sensitivities have been grouped into three scenarios as
set out in the table below. It is not plausible that all eight sensitivities
would occur at the same time, and therefore each of the three
scenarios is considered as a plausible combination of the above
sensitivities. Within these scenarios, commodity (sensitivity A), bad
debt and operational COVID-19 risks (sensitivity B), and risks relating
to credit rating, collateral and liquidity (sensitivities F, G and H) were
selected as constant events in all three scenarios.
Sensitivities grouped into three scenarios
Scenario 1: A significant external event outside the Group’s
control such as a significant and sustained reduction in
commodity price, increased bad debt, continuation of
COVID-19 restrictions throughout 2022, along with a regulatory/
industrial event and additional debt and liquidity risks
Scenario 2: A significant external event outside the Group’s
control such as a significant and sustained reduction in
commodity price, increased bad debt, continuation of
COVID-19 restrictions throughout 2022, along with a
significant disruption to the asset-based businesses,
and additional debt and liquidity risks
Scenario 3: A significant external event outside the Group’s
control such as a significant and sustained reduction in
commodity price, increased bad debt, continuation of
COVID-19 restrictions throughout 2022, along with adverse
weather impacts affecting the energy supply businesses,
and additional debt and liquidity risks
A + B +
C + F +
G + H
A + B +
D + F +
G + H
A + B +
E + F +
G + H
The scenarios have been assessed to confirm whether the Group
would have sufficient liquidity available to meet its future planned
financial commitments against its existing undrawn committed credit
facilities of £3.0 billion, and that the credit metrics calculated would
not imply a sustained fall to below investment grade (S&P BB and
Moody’s Ba1 NP).
In order to reach a conclusion as to the Group’s viability, the Directors
have considered the following:
• The Directors considered whether any of the scenarios breached
the available headroom in the three-year period and concluded
that sufficient headroom was available in all scenarios.
• The Directors considered whether any of the scenarios 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)
for all 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 has also been performed to identify and
analyse the circumstances under which the Group’s business model
would no longer be viable. Examples considered, all occurring
simultaneously, included further sustained low commodity prices
significantly beyond the level assumed in the severe but plausible
viability scenario, a two notch credit rating downgrade to sub
investment levels, business underperformance, further upstream
asset production issues, a GDPR fine levied at 2% of global annual
revenue and liquidity funding events.
The reverse stress test models all of these scenarios occurring to
an extreme extent and at the same time. Even after applying these
additional stresses, there was still headroom available in 2022 and
2023. Should all modelled events occur at maximum foreseeable
severity, the headroom would then be fully utilised in 2024. However,
the combined severity and extent of these modelled events far
exceeds any impacts that have historically been experienced by
the Group. In addition, the exposure related to a double notch credit
rating downgrade has been modelled on the current high price
environment. If prices were to drop significantly, the exposure would
be much lower. As such, the likelihood of all events occurring
concurrently, and at the severity modelled, is judged to be very
remote.
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
of the Group’s ability to continue to operate and meet its liabilities,
as they fall due, over a period of at least three years.
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
23 February 2022
46
Centrica plc Annual Report and Accounts 2021 Governance
48 Directors’ and Corporate Governance Report
50 Board of Directors
55 Corporate Governance Statement
61 Committee Reports:
– Audit and Risk Committee
– Nominations Committee
– Safety, Environment and Sustainability Committee
– Remuneration Committee
95 Other Statutory Information
Centrica plc Annual Report and Accounts 2021
47
Directors’ and Corporate
Governance Report
value creation for our stakeholders. I am grateful for the support
and guidance of the members of the Board, whose diverse
backgrounds, skills and experience have enabled us to deliver
some outstanding achievements in difficult times.
We are pleased with the work undertaken by the Centrica Leadership
Team (CLT) to develop the Company’s culture (details can be found
on pages 26 to 36 of the Strategic Report). The report from the
engagement undertaken by the CLT is directly fed to the Board
at the subsequent Board meeting. An example are the results from
‘Our Voice’ quarterly engagement survey, which provides the Board
with insight into the tone of the culture. Further information about
the survey and the improvement in colleague engagement can
be found on pages 4, 15 and 26 to 27 and 36. The Board will
continue to focus on the development of the Company’s culture,
which includes people development and digital enablement,
to ensure Centrica is prepared for the future.
Throughout the year, the Board reflected on and developed its
understanding of the Company’s culture, thereby ensuring that
we continue to strengthen the trust and confidence of our
stakeholders as our culture evolves in line with our commitment
to care for our people, planet and communities, all of which matters
to our shareholders and stakeholders. Our Code, which reflects
our culture, sets out our minimum expectations for all those we
work with or alongside. It is a guide to making good choices and
represents our commitment to doing the right thing and act
with integrity. Information on our Code can be found in our People
and Planet section on pages 36 and 37.
Board changes
As stated in last year’s report, during the financial year, for personal
reasons, Johnathan Ford stepped down from his role as Group
Chief Financial Officer and from the Board on 18 January
2021 and resigned from the Company on 31 January 2021.
Following recommendation by the Nominations Committee, the
Board was pleased to approve the appointment of Kate Ringrose as
Group Chief Financial Officer and Executive Director on 18 January
2021. Kate has been with Centrica since 2005, latterly in the position
of Group Financial Controller, and brings a wealth of experience from
a wide range of finance roles across Centrica. Additionally, Joan
Gillman stepped down from the Board on 8 February 2021.
In January 2022, the Company appointed Amber Rudd as a
Non-Executive Director. Also, in January, the Company announced
that Stephen Hester, Senior Independent Director and a member
of the Company’s Audit & Risk, Nominations and Remuneration
Committees, has notified the Board of his intention not to stand for
re-election as a Non-Executive Director at Centrica’s Annual General
Meeting later this year having served six years on the Company’s
Board. On behalf of the Board, I would like to thank Stephen for
his service to the Company over the last six years.
Further information about Board changes is provided on page 69.
Dear Shareholder
I am pleased to introduce the Directors’ and Corporate
Governance Report for 2021. This report describes the
activities of the Board during the year, along with Centrica’s
governance arrangements.
This year, the Board has focused on: ensuring the health and safety
of our colleagues and customers; delivering value in the supply
of heat and light to our customers in challenging market conditions;
accelerating Centrica’s actions and commitments to achieving net
zero; maintaining robust corporate governance practices; and
enhancing value for stakeholders. This report describes our
governance framework; 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 (UK Code) (details of our
compliance with the UK Code can be found on page 55 and our
application of the UK Code on page 60).
The year in review
2021 has been a challenging time for the industry. We saw the
collapse of many of the UK’s retail energy suppliers and the
recapitalisation of one very large energy supplier. In spite of the
challenges, the Board continues to drive the Company’s strategy
forward and deliver value for the long-term benefit of the Company.
Working closely with the executive team, the Board and the
Company have been focused on delivering value to customers,
while making strides to deliver net zero by 2045 and support
customers in making the transition to net zero by 2050 at the latest.
As the largest energy services and solutions company in the UK
and Ireland, we have an opportunity to reshape our future to one
that is more sustainable, yet affordable for our customers. Our
Climate Transition Plan available at centrica.com/climatetransition,
outlines how we propose to achieve this.
We announced on 30 July 2019 our intention to exit Exploration
and Production activity (E&P) and focus on our customer-facing
businesses. On 8 December 2021, we announced the proposed
sale of Spirit Energy’s Norway and Statfjord UK asset. The Board
believes this is an important step towards the decarbonisation
of the Group and will continue to assess opportunities to exit from
our remaining E&P activities.
Governance and culture
The Board plays a critical role in defining the right culture for the
Group, by setting the tone from the top and monitoring how the
Group’s culture and values are communicated, lived and evolve.
Our enduring values at Centrica underpin our culture. While priorities
may change the values are firmly embedded in who we are and give
direction to everything we do. They are aspirational and allows us to
focus on delivering our purposes: being sustainable, simple and
affordable for our customers. They create a shared understanding
of what we think is important to deliver success.
As a Board, we remain committed to high standards of corporate
governance and compliance. We believe that these practices are
fundamental to driving the long-term success of the Company and
48
Centrica plc Annual Report and Accounts 2021Governance Board and Committee evaluation and
effectiveness
The 2021 Board evaluation, an external review, was conducted
in conjunction with Independent Board Evaluation, led by me,
as Chairman, and supported by the Group General Counsel &
Company Secretary. Directors and certain senior executives were
invited to complete questionnaires. The formal and rigorous
evaluation process reviews the performance of the individual Board
members, time commitment, performance and ability to continue to
contribute to the Board taking account of the knowledge, skills and
experience required. The results of the evaluation process were
discussed by the Nominations Committee and the Board.
Further information about the 2021 Board and Committee evaluation
process, including the outcome of the evaluation and the Board
and Committee effectiveness is provided on page 58.
Responding to the COVID-19 pandemic and the
energy crisis
The Board met more frequently than usual during the year to focus
on the business response to the energy crisis and, where
appropriate, to monitor the response to the COVID-19 pandemic.
As the UK saw many retail energy suppliers cease trading, the Board
focused on Centrica’s response to meeting and serving customers’
needs while protecting our business.
To ensure the safety of our colleagues, where appropriate, Board
meetings were held virtually or with hybrid options where in-person
meetings were possible. 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
COVID-19 pandemic and energy crisis. Examples of principal
decisions taken by the Board can be found in the Section 172
statement on pages 56 to 57.
Engagement with our stakeholders
By listening to, and collaborating with, our stakeholders we believe
we can grow the business and deliver improvements for our
customers and society over the long term. During 2021, together
with the Group Chief Executive and Group Chief Financial Officer,
we met regularly, and often remotely, with major shareholders, in
order to update them and obtain their perspectives on performance,
strategy and Environmental, Social and Governance matters.
To enhance the level of engagement with our colleagues, the Board
sponsored setting up a Shadow Board. The Shadow Board is a
unique partnership with the CLT to provide impartial and diverse
insight, review, and assurance on strategic topics relating to
colleagues, customers, and cash and to ensure Our Values and
standards are upheld. Through the Shadow Board, colleagues
will be able to influence decisions, positively disrupt assumptions,
and challenge our Executives’ thinking, to support customer-
focused and colleague-centred decision-making in the Boardroom.
The CLT in return act as mentors to the Shadow Board and offer
support through the Senior Leadership Teams.
The Board’s current approach regarding colleague engagement is
one of shared responsibility amongst Board members. The Board
considers that there is benefit from all of the Board being involved
in colleague engagement activities, particularly in an environment
of face-to-face activity becoming more possible prospectively with
the easing of COVID-19 restrictions. This approach to colleague
engagement will remain under ongoing review to ensure it is effective.
Further details of our methods of engagement with our colleagues
and other stakeholders are provided on page 9. How the Board has
sought to discharge its duties under Section 172 of the Companies
Act 2006 during the year, including in relation to the COVID-19
pandemic, the energy crisis and its engagement with stakeholders,
is covered in more detail in our Section 172 statement on page 8, 56
and 57 and Stakeholder Engagement section on pages 8 to 9.
Diversity and inclusion
Diversity and inclusion continues to be a top priority of the Board,
and the Company remains committed to putting diversity, inclusion,
care and respect at the heart of what we do. The Company
operates a diversity and inclusion policy at Board level and a Group
diversity and inclusion policy which applies to the Company’s
administrative, management and supervisory bodies. Further
information about the Board diversity and inclusion policy and our
Group diversity and inclusion policy, including how it is implemented,
can be found at centrica.com/policies.
In line with our People & Planet Plan we are working to ensure that
all Company and senior leaders represent the full diversity of our
communities. We strive for greater representation targeted across
gender, ethnicity, disability and sexuality which is more in line with
Census data for working populations, as well as creating a culture
where everyone can be themselves and achieve their full potential
irrespective of their age, gender, culture, race, religion, sexual
orientation, disability or background. Read more on pages 28
to 31 for further information about how we are progressing with
our goals.
We have, and are, making positive changes to the way we attract,
promote and develop diverse talent across the business. We will
remain committed to reporting on our progress, including closing
our gender and ethnicity pay gaps. We will continue to report the
diversity of all colleagues, alongside our existing focus on gender
and ethnicity pay gaps.
Conclusion
The Directors’ and Corporate Governance Report which follows
has been prepared to provide stakeholders with a comprehensive
explanation of the Company’s governance framework under
the UK Corporate Governance Code 2018, the Companies Act
2006, the UK Listing Rules and the Disclosure Guidance and
Transparency Rules.
Scott Wheway
Chairman
23 February 2022
49
Centrica plc Annual Report and Accounts 2021Governance Board of Directors*
Scott Wheway
Chairman
Chris O’Shea
Group Chief
Executive
Kate Ringrose
Group Chief
Financial Officer
C
SC
£
DC
£
DC
£
Kate joined Centrica in 2005 and was
appointed as Group Chief Financial Officer
on 18 January 2021.
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.
Scott joined the Board on 1 May 2016 and
became Chairman of the Board on
17 March 2020.
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. 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, served as non-executive director
of Aviva plc until December 2016, and as
the senior independent director of
Santander UK plc until 30 September 2020.
External appointments
Chairman of AXA UK plc.
Chris joined Centrica in 2018 as Group
Chief Financial Officer and was appointed
as Group Chief Executive on 14 April 2020.
Chris is also Chair of the Disclosure
Committee and Chairman of Spirit Energy.
Relevant skills and experience
Chris is an experienced listed company
executive with considerable experience
of complex, multi-national organisations,
not only in the energy sector but also in
technology-led engineering and services
industries.
Previous experience
Chris was appointed Group Chief Executive
in early 2020 having previously been Group
Chief Financial Officer. Prior to joining
Centrica, Chris was group chief financial
officer of UK 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 of Business
at Duke University.
External appointments
None.
50
Centrica plc Annual Report and Accounts 2021Governance | Directors’ and Corporate Governance Report continued
Carol Arrowsmith
Non-Executive
Director
Stephen Hester
Senior
Independent
Director
AC NC RC
£
AC NC RC
£
Carol joined the Board on 11 June 2020.
Stephen joined the Board on 1 June 2016.
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 and
Managing Director of New Bridge Street
Consultants.
External appointments
Non-executive director of Compass Group
Plc and non-executive director of Vivo
Energy Plc, director and trustee of Northern
Ballet Limited.
Relevant skills and experience
Stephen has wide-ranging experience,
particularly in customer-facing businesses,
together with recognised expertise in
transforming business performance. He has
a deep knowledge of operating within highly
regulated businesses with over 35 years’
experience in financial services and within
FTSE 100 companies.
Previous experience
Stephen previously held positions as chief
executive of RSA Insurance Group plc, chief
executive of Royal Bank of Scotland Group,
chief executive of British Land plc and chief
operating officer of Abbey National plc,
as well as a number of senior executive
roles at Credit Suisse First Boston in
London and New York.
External appointments
Chair of easyJet plc and lead independent
director of Kyndryl Holdings, Inc.
Committee membership key
C Chairman of the Board
AC Audit and Risk Committee
DC Disclosure Committee
NC Nominations Committee
RC Remuneration Committee
SC Safety, Environment and
Sustainability Committee
Denotes Committee
Chairman
Skills and experience key
Consumer Services
Energy Sector
Engineering/Safety
£ Finance/M&A
Financial Services
Government/Regulatory
Technology
*as at 23 February 2022
51
Centrica plc Annual Report and Accounts 2021Governance
Pam Kaur
Non-Executive
Director
Heidi Mottram
Non-Executive
Director
Kevin O’Byrne
Non-Executive
Director
AC NC SC
£
NC RC SC
NC
£
Pam joined the Board on 1 February 2019.
Heidi joined the Board on 1 January 2020.
Kevin joined the Board on 13 May 2019.
Relevant skills and experience
Pam has extensive experience in audit,
business, compliance, finance and risk
management.
Previous experience
Pam has previously held various senior
roles at global financial institutions including
Citigroup, Lloyds TSB, the Royal Bank of
Scotland and Deutsche Bank, and has
worked with regulators and supervisory
boards across the world. She has an
MBA in finance and a BCom (Hons) from
Panjab University in India and is a qualified
chartered accountant.
External appointments
Group chief risk and compliance officer
at HSBC Holdings plc.
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, 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 of B&Q UK & Ireland and
group finance director. Prior to that he was
finance director of Dixons Retail plc. From
2008 to 2017 he was 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 J Sainsbury plc.
52
Centrica plc Annual Report and Accounts 2021Governance | Directors’ and Corporate Governance Report continued
Rt Hon. Amber Rudd
Non-Executive
Director
RC SC
£
Amber joined the Board on 10 January
2022.
Relevant skills and experience
Amber brings a wealth of 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
(COP 21) 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 Equinor,
Darktrace, Finsbury Glover Hering, Island
Green Power, Centreview Partners and
Phoenix Group. Amber is a trustee of
The Climate Group, RUSI and Action
Against Gambling Harms.
Raj Roy
Group General
Counsel &
Company
Secretary
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
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 9 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
None.
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
2022 which will be made
available on our website
centrica.com/agm22.
Full biographies can be found
at centrica.com/board
Committee membership key
C Chairman of the Board
AC Audit and Risk Committee
DC Disclosure Committee
NC Nominations Committee
RC Remuneration Committee
SC Safety, Environment and
Sustainability Committee
Denotes Committee
Chairman
Skills and experience key
Consumer Services
Energy Sector
Engineering/Safety
£ Finance/M&A
Financial Services
Government/Regulatory
Technology
*as at 23 February 2022
53
Centrica plc Annual Report and Accounts 2021Governance
Board Diversity and Meeting Attendance
Board diversity as at 31 December 2021*
By gender
By nationality
By ethnicity
By tenure
Male
50%
Female 50%
74%
British
Irish
13%
South African 13%
63%
White British
White Irish
13%
White South African 13%
13%
British Indian
0-3 years 75%
4-6 years 25%
During 2021, the Company exceeded the Hampton-Alexander target of 33% female representation on the Board (with 50% being female)
and met the Parker Review target of at least one director being from an ethnic minority background.
* Following the appointment of Amber Rudd in January 2022, the data as at 23 February 2022 is:
(i) by gender: Male: 44%, Female: 56%;
(ii) by nationality: British: 78%, Irish: 11%, South African: 11%;
(iii) by ethnicity: White British: 67%, White Irish: 11%, White South African: 11%, British Indian: 11%
(iv) by tenure: 0-3 years: 78 %, 4-6 years: 22%
Read more about Board diversity on Page 69
Board and Committee meeting attendance during 2021(1):
Name
Role
Scott Wheway
Chairman
Chris O’Shea
Kate Ringrose
Group Chief
Executive
Group Chief
Financial Officer
Joined the
Board
01/05/2016
Tenure(2)
5 years, 8 months
Nationality
British
01/11/2018
3 years, 2 months
British
18/01/2021
0 years, 11 months
South African,
British
Carol Arrowsmith Independent
11/06/2020
1 years, 7 months
British
Stephen Hester
Pam Kaur
Heidi Mottram
Kevin O’Byrne
Non-Executive Director
Senior Independent
Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
01/06/2016
5 years, 7 months
British
01/02/2019
2 years, 11 months
British
01/01/2020
2 years, 0 months
British
13/05/2019
2 years, 7 months
Irish
Gender/
identity Board
M
M
F
F
M
F
F
M
13
13
12
13
13
12
12
13
AC
N/A
NC
4
RC
8
SC
3
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
4
4
4
N/A
4
4
4
4
4
4
8
8
N/A
8
N/A
N/A
N/A
3
3
3
(1) Any Director who is unable to attend a Board meeting provides feedback to the Chairman on the matters to be discussed in advance of the meeting.
(2) Data as at 31 December 2021.
54
Centrica plc Annual Report and Accounts 2021Governance | Directors’ and Corporate Governance Report continued Corporate Governance Statement
The Board is committed to high standards of corporate
governance and is pleased to confirm that throughout the
year ended 31 December 2021, the Company has, with the
exception of provisions 40 and 41 of the UK Corporate Governance
Code (UK Code), complied with all other relevant provisions
of the UK Code. Further details explaining our non-compliance
with provisions 40 and 41 can be found on page 92. The UK Code
and associated guidance are available on the Financial Reporting
Council’s website at frc.org.uk.
The index on page 96 sets out where to find each of the required
disclosures in respect of Listing Rule 9.8.4 and Disclosure Guidance
and Transparency Rules 4.1.5R and 7.2.1.
Governance framework
In order to facilitate its oversight role, and to ensure that it retains
decision-making power over matters considered to be material to
the current or future financial performance of the Group, the Board
has put in place the governance framework to support the creation
of long-term value for stakeholders. This is achieved through
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.
The Board has also delegated authority to the Group Chief Executive
for the execution of the strategy and day-to-day management
of the Group. The Centrica Leadership Team (CLT) supports the
Group Chief Executive in the performance of his duties. The Board
oversees, challenges and supports executive management in the
execution of the strategy and management of the Group.
Our Board
The Role of the Board
The Centrica Board is collectively responsible for corporate
governance, developing strategy and major policies, reviewing
management performance, approving financials and for 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.
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.
Board composition and roles
The Board comprised of the Non-Executive Chairman (independent
on appointment), two Executive Directors (Group Chief Executive
and Group Chief Financial Officer), and five Independent Non-
Executive Directors, increasing to six Independent Non-Executive
Directors following the appointment of Amber Rudd in January
2022. A list of our Directors’ biographies can be found on pages
50 to 53.
There is a clear division of responsibilities between the Chairman
and Group Chief Executive, reflected in the schedule of matters
reserved for the Board.
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, best practice in corporate governance and ensuring
that Directors receive accurate, timely and clear information.
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 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.
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 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 and the Board on matters of corporate governance,
induction, training and the efficient management of Board and
Committee meetings, with responsibility for ensuring the
effectiveness of the Company’s governance framework. The Board
relies on the Group General Counsel & Company Secretary for
facilitating the policies, processes, information, time and resources
it needs in order to function effectively and efficiently.
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. The Committee reports can be found on pages 61 to 94.
Attendance at Committee meetings in 2021 can be found on page 54.
Board meetings
The Board held 13 formal meetings in 2021. In addition,
supplementary meetings were called for specific approvals.
The table showing the attendance of Directors at Board meetings
in 2021 can be found on page 54. 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.
During the year, the Non-Executive Directors, including the
Chairman, met frequently without management present.
The Non-Executive Directors met once during the year without
the Chairman present.
55
Centrica plc Annual Report and Accounts 2021Governance Board activity including Section 172(1) considerations
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
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.
In 2021, the Board reflected on strategic decisions made during
2020, resulting from the COVID-19 pandemic, to protect the
Company in the long term and maintain cash flow, such as decisions
to not pay a dividend, and reduce consultancy spend.
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.
Board discussions held during the year included:
Strategy and business plan
The Board considered and oversaw the delivery of the strategic
initiatives to Strategic reviews, updates, and stress testing.
The Board also considered the following matters:
• Strategic reviews, updates, and stress testing.
• Sale of Spirit Energy’s Norwegian assets.
• Cancellation of 2020 final dividend.
• Group Annual Plan 2021.
• Energy Transition and Energy price risk Directors’ Training.
• Energy Supply Market.
• Climate Transition Plan.
• COP26.
• Capital Markets Day.
Stakeholders considered:
Cu Co
I
G
S
C
Governance
The Board receives regular reports from the Group General Counsel
and 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:
• Annual Report and Accounts.
• General Meetings.
• Board evaluation.
• Succession planning for the Board.
• Committee composition.
• Reports from Committee Chairs.
• Conflicts of interest reviews.
• Terms of reference reviews.
• Director independence.
• Workforce engagement.
• All-Employee Share Plan.
Stakeholders considered:
Co
I
Political and regulatory environment
During the year, the Board considered the following matters:
• COVID-19 crisis management and mitigation.
• UK Government energy policy proposals.
• Modern Slavery Act Statement.
• Annual tax update.
• Treasury risk management annual update.
• Insurance update.
Stakeholders considered:
I
G
S
C
56
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.
• Group Performance Reports.
• Business reviews.
• Periodic results.
• Direct Energy Sale proceeds.
• Going concern and viability statements.
• Portfolio reshaping including Pensions.
• Issuer Call Option.
• 2021 Group Shape review.
Stakeholders considered:
Cu Co
I
G
S
Culture and stakeholders
The Board recognises that understanding the views and interests
of the Company’s diverse community of stakeholders 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:
• 2021 cultural transformation review.
• Purpose and vision update.
• Investor updates and feedback.
• Industrial Action update.
• Voice of the Customer.
• Diversity & Inclusion Strategy.
Stakeholders considered:
Cu Co
I
G
S
C
Stakeholders
Customers
Colleagues
Investors
Cu
Co
I
Government and
Regulators
Suppliers
Communities
and NGOs
G
S
C
Centrica plc Annual Report and Accounts 2021Governance | Directors’ and Corporate Governance Report continued
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.
Consideration of stakeholders and outcomes:
Decisions considered by the Board
Key stakeholder interests considered
Outcomes
Sale of Spirit Energy’s Norwegian oil
and gas assets and run-off strategy
for the remaining Spirit Energy business
(the ‘Sales’)
General Meeting (held in January 2022)
for shareholders to approve the Sales
Centrica developed and published its
Climate Transition Plan setting out the key
steps we plan to take to help our business,
our customers and the wider energy
system decarbonise
Customers: Centrica’s strategy to reduce
its exposure to carbon intensive oil and gas
exploration and production in a way that
maximises shareholder value.
Investors: allow for increased focus on the
customer-facing activities in Centrica’s core
home markets of the UK and Ireland where
we have leading market positions.
The Sales represented a significant step
towards Centrica delivering on its strategy
to decarbonise its portfolio and reduce
its exposure to oil and gas production,
and further simplify and de-risk Centrica’s
business model while strengthening the
balance sheet and reducing earnings
and cashflow volatility.
Shareholders successfully participated
in the General Meeting where they heard
answers to their questions and the
resolution was passed. The format of
the Meeting not only reduced the risk
of impact to public health by minimising
the spread of COVID-19 but also embraced
the opportunities provided by virtual
participation including reducing the
carbon footprint of the Meeting.
Centrica’s strategy and purpose are rooted
in providing energy services and solutions
that’ll help our customers live sustainably,
simply and affordably. In support of this,
our People & Planet Plan sets out our net
zero targets, and how we’ll continue to
develop the diverse and inclusive team
that’ll help us get there. Our Climate
Transition Plan is the next step, explaining
how we intend to achieve these goals
to become a net zero business by 2045
and help our customers be net zero by
2050, while ensuring a fair and affordable
transition for all.
Colleagues: in order to protect the health
and safety of our shareholders and our
colleagues, the Board issued an update
to all investors via an announcement,
an update on its website and with a
supplementary mailing strongly advising
all shareholders to participate virtually
in the General Meeting.
Investors: Shareholders’ views are
important. Shareholders were strongly
encouraged to exercise their votes by
submitting their proxy forms, invited
to submit questions in advance of
the meeting, and provided access
to participate in the meeting, and vote,
via an online portal.
Ongoing dialogue with key stakeholders
confirms a growing desire to understand
more about how companies are
strategically responding to climate change,
including how they’ll mitigate climate impact
whilst enhancing long-term commercial
resilience. For example:
Investors: Institutional investors requested
that Centrica develop and publish a Climate
Transition Plan.
Customers: Our goal is to help our
customers be net zero by 2050.
Colleagues: Taking a lead role in the
growth of green jobs whilst continuing to
embrace a diverse mix of people and skills
needed for a greener future.
Suppliers: Part of future-proofing our
business against climate change is to
ensure we have a reliable and responsible
supply chain for customers.
Government and Regulators: We want
and need governments, regulators and
policymakers to work with us to deliver the
necessary changes that’ll be needed to
achieve our climate change goals, and
specifically help us get our customers to
net zero in a way that’s affordable and fair.
We engage responsibly with key decision
makers on issues we believe are critical for
shaping the energy landscape our
customers need.
Communities and NGOs: Community
action and engagement is essential for
ensuring a successful transition.
The outcome from the key engagements, stated above, are fed back to the Board through the appropriate forum.
57
Centrica plc Annual Report and Accounts 2021Governance 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.
Section 172
Evidence
The likely consequences of any decision in the long term
Please see page 6, 8 to 9, 10 to 11, 28 to 37, and 56 to 57
The interests of our colleagues
Please see page 8 to 9, 26-27, 29-31, 56-57, 59 and 96
The need to foster relationships with suppliers, customers and others
Please see page 8 to 9, 70
The impact of the Company’s operations on the community and the
environment
Please see pages 32 to 37, 70
The desirability of the Company maintaining a reputation for high
standards of business conduct
Please see pages 36, 70 and 96, and visit our website centrica.com
The need to act fairly between members of the Company
Please see pages 56 and 57, and visit our website centrica.com
Board appointments
The report of the Nominations Committee on pages 69 describes
the work of the Committee in relation to Board appointments and
recommendations for (re-)election.
All Directors are subject to annual re-election. 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.
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. 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.
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, 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 2021, the Directors received training on net zero, climate
change and the energy transition.
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.
Board strategic planning
During the year, the Board continued to review the Group’s
operating model and strategic plan, stress testing its resilience
under a number of different scenarios. The Board also continues
to regularly review various elements of strategy at Board meetings.
Site visits
The Directors recognise the importance of, and benefits gained by,
visiting the Group’s operations. The Directors endeavour to make
a couple of visits to Centrica sites each year. For the first time in the
last two years, the Board undertook a site visit to the British Gas
sites at Spinneyside and Aylestone Road in Leicester, including
meeting with apprentices at the British Gas Academy and visiting
the British Gas innovations laboratory.
Evaluation and effectiveness of the Board, Committees
and the Directors
The 2021 external Board Effectiveness Review was conducted
according to the principles of the UK Code and was facilitated by
Independent Board Evaluation (IBE). IBE has no other connection
with the Company. The Company’s last externally facilitated Board
Effectiveness Review occurred in 2018, with internal self-
assessments having been conducted in 2019 and 2020.
In May 2021, a comprehensive brief was given to IBE by the
Chairman, Group Chief Executive, the Senior Independent
Director and the Group General Counsel & Company Secretary.
In June 2021, detailed interviews were conducted with every Board
member. All participants were interviewed for 1.5 hours by IBE.
In addition, IBE interviewed members of senior management and
advisers. The lead evaluator observed Board and Committee
meetings in July 2021 and reviewed the associated Board and
Committee papers.
Draft conclusions were discussed with the Chairman and
subsequently discussed by the Board on 23 September 2021 in the
presence of IBE. IBE then gave feedback to Committee Chairs on
the performance of each Committee and discussed the Board’s
feedback for the Chairman with the Senior Independent Director.
In addition, the Chairman received a report with feedback on
individual Director’s performance as an input to the regular annual
performance review process.
Based on the results of the external evaluation, the Board concluded
that it and the Board Committees continue to operate effectively
with, amongst other strengths, a strong culture of performance
evaluation and governance. In addition, each Director continues
to contribute effectively, with high levels of commitment and
a strong determination to increase value for stakeholders.
In 2022, the Board’s action plan for further enhancing its
effectiveness includes focusing on talent development (particularly
Board and senior management succession planning and plans
for developing high potential individuals).
58
Centrica plc Annual Report and Accounts 2021Governance | Directors’ and Corporate Governance Report continued 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.
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.
Engaging with our stakeholders
Workforce engagement
Following Joan Gillman stepping down from the Board in February
2021 and ceasing her role as designated non-executive director,
the Board shared responsibility for workforce engagement 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, particularly
in an environment of face-to-face activity becoming more possible
prospectively with the easing of COVID-19 restrictions.
During 2021, the Chairman and Non-Executive Directors engaged
with members of the workforce in various ways, including meeting
with engineers and apprentices at the British Gas Academy during
the site visit held there in September 2021 and regular Board
breakfast engagement sessions held virtually or in person
immediately prior to selected Board meetings in 2021. 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 56
and 57.
The Executive Directors and senior leadership team dedicated
significant time and focus on meeting with and listening to the views
of colleagues.
This has made good progress in changing the leadership tone
from the top and facilitating the cultural shifts the business needs.
The work undertaken is set out in the Chief People Officer’s Report
on pages 26 to 27. Further information can also be found in People
and Planet on pages 28 to 37.
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. During 2021, the Chairman held
20 one-to-one meetings with investors.
Meetings, roadshows and conferences
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. The Company was due to hold a Capital
Markets Event in November. However it announced in October the
decision to postpone the event, with the focus on looking after
customers during the unprecedented commodity environment.
Engagement themes with our institutional
shareholders
During the year, engagement themes included:
• Centrica’s strategic refresh and organisational restructure;
• Interim results;
• Sale of Direct Energy in North America;
• Progress on the planned divestments of Nuclear and Spirit Energy;
• The regulatory and political environment for UK energy;
• Impact of rising commodity prices;
• Ongoing impacts of the COVID-19 pandemic;
• Terms and Conditions changes;
• Board succession; and
• Environmental, Social and Governance (ESG) matters.
General Meetings
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.
Shareholders are encouraged to participate in these meetings and
to ask questions at, or in advance of, these meetings.
Although shareholders were not able to attend the 2021 AGM in
person, their views remained important to us. 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 via a dedicated question facility on our
website and the answers were published on our website.
Our 2021 AGM was well supported with voting in favour of the
resolutions ranging from 94% to 99% and with 62% of issued
share capital voted.
The 2022 AGM is due to take place on 7 June 2022 at 10.00am.
Information about the format of the 2022 AGM will be provided
in the Notice of Meeting. Further information pertaining to the
2022 AGM will be available at centrica.com/agm22. 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.
59
Centrica plc Annual Report and Accounts 2021Governance Our application of the UK Corporate Governance Code
It is the view of the Board that Centrica has applied the principles of the UK Corporate Governance Code throughout the year. As set out
below, there are examples throughout this report of how we do this.
Section 1: Board Leadership and Company Purpose
Principle A: A successful company is led by an effective and
entrepreneurial board, whose role is to promote the long-term
sustainable success of the company, generating value for shareholders
and contributing to wider society.
Pages
50 to 53
Principle D: In order for the company to meet its responsibilities
to shareholders and stakeholders, the board should ensure
effective engagement with, and encourage participation from,
these parties.
Pages
8 to 9
56 to 57
Principle B: The board should establish the company’s purpose,
values and strategy, and satisfy itself that these and its culture are
aligned. All directors must act with integrity, lead by example and
promote the desired culture.
Pages
6, 10 to 11,
and 48
Principle E: The board should ensure that workforce policies and
practices are consistent with the company’s values and support
its long-term sustainable success. The workforce should be able
to raise any matters of concern.
Pages
36, and 96
Principle C: The board should ensure that the necessary resources
are in place for the company to meet its objectives and measure
performance against them. The board should also establish a
framework of prudent and effective controls.
Pages
12 to 15
38 to 43
Section 2: Division of Responsibilities
Principle F: The chair leads the board and is responsible for
its overall effectiveness in directing the company. The chair should
demonstrate objective judgement throughout their tenure and promote
a culture of openness and debate. In addition, the chair facilitates
constructive board relations and the effective contribution of all
non-executive directors, and ensures that directors receive accurate,
timely and clear information.
Principle G: The board should include an appropriate combination
of executive and non-executive (and, in particular, independent
non-executive) directors, such that no one individual or small group
of individuals dominates the board’s decision-making. There should be
a clear division of responsibilities between the leadership of the board
and the executive leadership of the company’s business.
Page
55
Page
55
Principle H: Non-executive directors should have sufficient time
to meet their board responsibilities. They should provide
constructive challenge, strategic guidance, offer specialist advice
and hold management to account.
Pages
55 and 69
Principle I: The board, supported by the company secretary,
should ensure that it has the policies, processes, information,
time and resources it needs in order to function effectively
and efficiently.
Page
55
Section 3: Composition, Succession and Evaluation
Principle J: Appointments to the board should be subject to
a formal, rigorous and transparent procedure, and an effective
succession plan should be maintained for board and senior
management. Both appointments and succession plans should be
based on merit and objective criteria and, within this context, should
promote diversity of gender, social and ethnic backgrounds, cognitive
and personal strengths.
Pages
58 and 69
Principle K: The board and its committees should have a
combination of skills, experience and knowledge. Consideration
should be given to the length of service of the board as a whole
and membership regularly refreshed.
Principle L: Annual evaluation of the board should consider
its composition, diversity and how effectively members work
together to achieve objectives. Individual evaluation should
demonstrate whether each director continues to contribute
effectively.
Section 4: Audit, Risk and Internal Control
Principle M: The board should establish formal and transparent policies
and procedures to ensure the independence and effectiveness of
internal and external audit functions and satisfy itself on the integrity of
financial and narrative statements.
Pages
61 to 63
Principle N: The board should present a fair, balanced
and understandable assessment of the company’s position
and prospects.
Principle O: The board should establish procedures to manage
risk, oversee the internal control framework, and determine the
nature and extent of the principal risks the company is willing to
take in order to achieve its long-term strategic objectives.
Section 5: Remuneration
Principle P: Remuneration policies and practices should be designed
to support strategy and promote long-term sustainable success.
Executive remuneration should be aligned to company purpose
and values, and be clearly linked to the successful delivery of the
company’s long-term strategy.
Pages
82 to 94
Principle Q: A formal and transparent procedure for developing
policy on executive remuneration and determining director
and senior management remuneration should be established.
No director should be involved in deciding their own
remuneration outcome.
Principle R: Directors should exercise independent judgement
and discretion when authorising remuneration outcomes, taking
account of company and individual performance, and wider
circumstances.
Pages
50 to 53
69
Page
58 and 69
Page
62
Pages
62 and 64
to 68
Pages
82 to 94
Pages
88 to 89
60
Centrica plc Annual Report and Accounts 2021Governance | Directors’ and Corporate Governance Report continued Audit and Risk Committee
Dear Shareholder
I am pleased to present the Audit and Risk Committee’s
report for the year ended 31 December 2021 which provides
an insight into the work carried out by the Committee, our
areas of focus and key activities in what has been another
demanding year.
During the year, the Committee focused on ensuring the integrity
of the Group’s published financial information and the effectiveness
of the Group’s risk management and internal controls framework.
The Committee considered a range of matters during the year,
which are disclosed in this report.
As a standing item on the Committee’s agenda, the Committee
considered the enterprise risk and control framework, the
management of cyber risks and legal and regulatory matters.
I hope you find this report a helpful explanation of our work during
the year. It should be read in conjunction with our UK Corporate
Governance Code application section on page 60, Our Principal
Risks and Uncertainties on pages 38 to 43 and our Viability
Statement on pages 44 to 46. I would like to thank the members
of the Committee and the functional support teams across the
business for their effort, time and commitment during what was
a testing year for the industry.
Role of the Committee
The Committee’s terms of reference are available on our website
centrica.com. We review these terms of reference annually.
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 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 Chief Risk & Audit Officer;
• manage the relationship, including appointment, independence,
effectiveness and remuneration of the Group’s external auditors
on behalf of the Board;
• conduct a tender for the external audit contract at least every
10 years 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.
Membership of the Committee and attendance
at meetings
The Committee is comprised solely of independent Non-Executive
Directors. Kevin O’Byrne, the chairman of the Committee and group
chief financial officer of J Sainsbury plc, is considered by the Board
to have recent and relevant financial experience. The members of
the Committee are Carol Arrowsmith, Stephen Hester and Pam
Kaur. Carol Arrowsmith is connected to Deloitte (‘the Firm’) as
historically, she was a partner there but she had left the Firm prior to
their appointment as the Group’s external auditor. 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 Deloitte nor the Committee’s oversight of Deloitte’s
performance. Biographical details of the Committee Chairman and
members can be found on pages 50 to 53. Meeting attendance of
the Committee members can be found on page 54. The Board is
satisfied that the Committee has the resources and expertise
to fulfil its responsibilities.
Meetings of the Committee are attended by the Chairman of the
Board, the Group Chief Executive, the Group Chief Financial Officer,
the Group General Counsel & Company Secretary, the Group
Financial Controller and the Chief Risk & Audit Officer, none of
whom do so as a right. Other Senior Executives will attend as
required to provide information on matters being discussed which
fall within their area of responsibility. The external auditors, Deloitte
LLP (Deloitte), also attended each meeting. The Committee meets
individually with the external auditors, the Group Chief Financial
Officer and the Chief Risk & Audit Officer without other Executive
Directors present.
The Committee met four times in 2021.
The Committee has a yearly agenda which is linked to the
Company’s financial calendar. The agenda is flexible, facilitating
deep dives into topics of particular importance to the Committee.
Main activities of the Committee during 2021
During the year, the Committee:
• reviewed business risk areas, accounting judgements and
effectiveness of the finance function and control environment.
Details of key judgements and financial reporting matters in 2021
are set out on pages 64 to 68;
• reviewed the approach taken to assess credit risk exposure to
wholesale and large industrial and commercial customers affected
by COVID-19 and the changes in the energy market;
• reviewed accounting judgements in particular, those relating to the
impact of COVID-19, the sale of Direct Energy and the proposed
sale of Spirit Energy’s Norwegian assets and interests in the
Statfjord field;
• reviewed Going Concern and viability work and associated
disclosures;
• reviewed the future working capital requirements of the Group
following the disposal of Direct Energy;
• reviewed the 2020 financial results, 2020 Annual Report and
Accounts and 2021 Interim results, having regard to any matters
that may have been communicated by Deloitte;
61
Centrica plc Annual Report and Accounts 2021Governance • reviewed the structure of the 2021 Annual Report and Accounts
to best reflect the Group’s operations in line with the strategic
update in 2021;
• effectiveness review of the external audit process;
• continued oversight of the maintenance and development of the
control environment particularly in light of organisation design
changes and their impact on the oversight of the control
environment;
• external review of the internal audit function;
• reviewed the approach taken to assess credit risk exposure amidst
the collapse of some energy suppliers in the UK energy supply
market during 2021;
• considered the wider impact of the exceptionally volatile
commodity prices;
• reviewed regular reports and recommendations from the
Internal and External Audit on Risk, Assurance and Controls; and
• carried out deep dives of British Gas Energy’s risks and controls
as well as the Group-wide financial risk and Group definitions
of capital employed.
Effectiveness of the Committee
Read more about the Committee’s effectiveness on page 58.
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 Chairman, 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 38 to 43. During the year,
the Committee receives regular updates on the Internal Audit team’s
findings and the business units’ action on the findings and on the
plan. The progress made on the plans, which are ranked according
to significance, is monitored to ensure each plan is completed
satisfactorily.
During the year, the Internal Audit function was benchmarked
against the Internal Audit Code of Practice 2021. No material gaps
were noted and some opportunities to strengthen existing operating
practices were identified. 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
and Internal Controls
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, enable
the Committee, on behalf of the Board, to form and report their
view on effectiveness.
During 2021, 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 their 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.
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.
Following a competitive external audit process in 2016, Deloitte
was appointed as the Company’s auditors at the beginning of 2017
and will this year perform their fifth full audit. In accordance with
applicable audit independence standards, the lead audit partner,
James Leigh, will rotate off the audit at the conclusion of this year’s
audit, and Jane Boardman has been selected as his replacement.
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 is 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 Committee considers that the Deloitte
lead audit partner rotation goes some way to providing a fresh
perspective and accordingly believe it is in the best interests of
shareholders for the company to plan for a competitive audit tender
in 2026 (the ten-year legal threshold) with the successful firm taking
over for the 2027 financial year. The re-appointment of Deloitte as
auditors for the 2021 financial year was approved by shareholders
at the AGM in May 2021 and Deloitte has been recommended for
re-appointment again in 2022.
The Company has complied with the Statutory Audit Services Order
2014 for the financial year under review.
62
Centrica plc Annual Report and Accounts 2021Governance | Committee Reports continued 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 Chairman of the Audit
and Risk 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 £1 million, which is assessed
each year for appropriateness in the context of external guidance
and regulation.
During 2021, work on the divestment of Spirit Energy’s Norwegian
assets and the Statfjord field required additional services from
Deloitte to facilitate the sale, pushing fees above the overall cap
of £1 million. The work related to the Reporting Accountant services
in respect of the disposal Class 1 Circular. Deloitte were clearly
best placed to undertake this engagement given their knowledge
of the business and the required time frame. Fees for this service
amounted to £0.9 million. Overall total non-audit fees incurred in the
year was £1.7 million (2020: £4.3 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 service not required by regulation) compared
to the three-year average of statutory audit fees, amounting to
approximately 19%.
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.
Kevin O’Byrne
on behalf of the Audit and Risk Committee
23 February 2022
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
independence and objectivity of the external auditors, the Committee
carried out an assessment, 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 received 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 has confirmed its 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.
The Committee is aware of, and has noted, the FRC’s July 2021
report on Deloitte’s Audit Quality Inspection and Supervision. The
Committee has also reviewed the findings of the FRC’s Audit Quality
Review (AQR) in respect of Deloitte’s audit of the Group’s 2019
financial statements, which was received in May 2021. The report
included key findings in one area of the audit, together with an
identified area of good practice. The Committee reviewed Deloitte’s
responses to the AQR’s findings, noting areas which were addressed
in the completed 2020 audit, and areas to be addressed
in the 2021 audit. The Committee was satisfied with Deloitte’s
responses to the matters raised.
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.
63
Centrica plc Annual Report and Accounts 2021Governance Key judgements and financial reporting matters in 2021
Audit and Risk Committee reviews and conclusions
The Committee has considered the judgement made by the Group and
concurs that the recognition of the SoLR receivable is 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 were further re-assured that the proposed
accounting treatment aligns with expected industry practice.
The Committee noted the unprecedented rise in short-term prices
and the wider impact/causation this had on other judgements.
It reconfirmed continued support for the longer-term “P50” median
curve (derived from third parties) approach.
The Committee noted that the “P50” long-term commodity price
forecasts were slightly down year-on-year for all commodities, although
this was dwarfed by the near-term increases.
The external auditors provided detailed reporting and held discussions
with the Committee on the impact of the commodity curves.
As a result of the above, the Committee were comfortable the curves
were reasonable.
Sensitivities of the asset impairment tests to changes in price forecasts
are provided in note 7 on page 134 to 138.
The Committee noted the use of a price curve intended to be
consistent with the net zero by 2050 in the impairment sensitivities
and believed the output provided useful information to readers
of the accounts.
The Committee concurred that the disposal of Spirit Energy’s
Norwegian and Statfjord fields was highly probable on 8 December
2021 and should be reflected as a disposal group held for sale
in this year’s financial statements.
It also noted the shareholder approval on 13 January 2022 and the
expected completion date in Q2 2022.
The Committee agreed that classification as a discontinued operation
was not appropriate because the Group will retain the Spirit Energy UK
and Netherlands business, post-completion.
The Committee re-confirmed its support for Direct Energy being
treated as a discontinued operation.
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 eight 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, covering a six month period from
the date of appointment, and received confirmation of Ofgem’s
acceptance in December 2021. The claim primarily covers incremental
commodity costs, incurred as a result of procuring gas and electricity to
supply affected customers. The Group will submit a second claim to
Ofgem by 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
has not waived the right to do so. The value recognised for the receivable
at 31 December 2021 is £234 million, offsetting losses incurred and
customer credit balances recognised.
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.
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 4 years, observable liquid market
prices (as at 31 December 2021) 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 and so other external data points (e.g. consensus
view of impact of climate change and geopolitical events) are expected
to be factored into these prices. 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 Brent Oil
but are higher for Baseload power. The Group has shown the impact
of such price forecasts on the gas and oil, and Nuclear assets in note 7
of the financial statements.
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. At the year-end, the disposal was subject to
shareholder approvals. The Group’s shareholders approved the
transaction at a general meeting on 13 January 2022, and SWM, our Spirit
Energy partner, are expected to complete their approval process shortly,
with completion of the deal due in Q2 2022.
The Group judged that the assets and liabilities of the Spirit Energy
Norwegian and Statfjord disposal group should be classified as held for
sale as at 8 December 2021 because disposal was highly probable at that
point. Furthermore, as the disposal group did not represent a separate
major line of business or geographical operation, because the Upstream
segment will retain other European oil and gas fields post-completion,
its results have not been presented as discontinued operations.
The disposal of Direct Energy completed on 5 January 2021. This
business was treated as a discontinued operation in both 2020 and 2021
because it represented a separate major line of business.
64
Centrica plc Annual Report and Accounts 2021Governance | Committee Reports continued Key judgements and financial reporting matters in 2021
Audit and Risk Committee reviews and conclusions
The Committee reviewed the recoverable amount assessment of the
Norwegian and Statfjord disposal groups. It concurred with the
allocation of the entire E&P Goodwill balance to the Norwegian
group and the consequent write-off booked.
The Committee also understood the rationale for writing off the
remaining exploration and evaluation assets.
The Committee reviewed management reports detailing the retained
E&P assets requiring impairment reversal and the key judgements
and estimates used.
The Committee noted that the reversals were driven by the increase
in short-term commodity prices offset by a modest fall in “P50”
longer-term prices. It also observed that the asset write-backs were
generally restricted to depreciated historic cost and therefore there
is some headroom maintained over the updated carrying values.
The Committee noted the Nuclear investment write-back was also
primarily driven by the price increases noted above, offset by the
small reduction on “P50” longer term prices, as well as a reduction
in production volume assumptions, following a number of availability
issues during the year and the early closure of Dungeness.
It observed that due to the backwardation of forecast commodity
prices, the Nuclear investment would likely need to be impaired
again in 2022.
The Audit and Risk Committee challenged management and the
external auditors on the key inputs to the impairment models including
price, outage rates, assumed lives and discount rates, and were
comfortable with the conclusions reached.
The Committee were pleased that further price sensitivity disclosures
have been included in the financial statements.
The Committee also noted the methodology used in valuing the
Centrica Business Solutions – energy solutions. It concurred with
management’s ultimate assessment of the level of impairment
required for Centrica Business Solutions.
Further detail on impairment arising and the assumptions used in
determining the recoverable amounts is provided in notes 7, 12 and S2
on pages 134 to 138, 145 to 147 and 175 to 187.
Impairment and Reversals of long-lived assets
The Group makes judgements and estimates in considering whether
the carrying amounts of its assets are recoverable:
Spirit Energy Norwegian and Statfjord field Disposal Groups
An impairment test must be conducted immediately prior to the transfer
of assets and liabilities to held for sale categorisation. At the same time,
Goodwill associated with the wider Exploration and Production cash
generating unit must be allocated between the retained business and
the disposal group. The Group has judged that all of the Goodwill
(£408 million) should be allocated to the Norwegian disposal group
because historically it was only these fields and this geographic area
that had justified the recoverable amount.
Subsequently, the disposal group impairment test, comparing the net
asset carrying value to the expected proceeds, has led to an exceptional
Goodwill impairment of £198 million.
At the year-end, the Group has also considered the value of its retained
exploration and evaluation (‘E&E’) assets. As a result of the proposed
Norwegian/Statfjord disposal, Spirit Energy’s strategic direction has
changed such that there is now limited appetite to explore or develop new
fields. Consequently, the E&E assets (and related contractual positions)
have been written off and led to an exceptional cost of £37 million.
Retained Upstream (Exploration and Production (‘E&P’)
and Power assets)
For retained Upstream assets, discounted cashflows 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 cashflows, 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 E&P, each
field has specific reservoir and field characteristics and is modelled
independently. For Nuclear, recent availability issues at a number of
stations and early closure of Dungeness have been factored in and
implications considered for the wider fleet. The expected operating life
of Sizewell has continued to be reflected to 2055 in the modelling,
beyond the original design life.
At the year-end, pre-tax net exceptional impairment reversals of E&P gas
and oil fields (including decommissioning and small disposal adjustments).
of £838 million were booked, relating to a number of fields.
A pre-tax exceptional impairment reversal of £747 million in relation the
Nuclear investment was also booked.
Both these reversals were predominantly driven by the dramatic increase
in short-term commodity prices.
As a result, extra sensitivity analysis has been provided in the financial
statement to show the impact if there was a 50% reduction in short-term
liquid prices.
Centrica Business Solutions – energy solutions
For Centrica Business Solutions – energy solutions customer cash
generating unit (i.e. excluding energy supply), the recoverable amount of
the business is calculated using a discounted cashflow. Cashflows are
projected over a 5-year period, based on Board-approved business plans,
and a terminal value calculated based on year 5 and an appropriate
growth rate. Judgement is required in assessing the achievement of
Board-approved business plans, the long-term projected cash flows, and
macroeconomic assumptions such as the growth and discount rates.
During the year, Centrica Business Solutions has made a number of
strategic changes, re-focusing the business in core locations and leading
to revised growth forecasts.
As a result, a £123 million exceptional asset impairment (including the
entire Goodwill balance of £103 million) has been booked at the year-end.
65
Centrica plc Annual Report and Accounts 2021Governance Key judgements and financial reporting matters in 2021
Audit and Risk Committee reviews and conclusions
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 gain
of £1.3 billion (being £3.9 billion gain for UK Supply book trades, offset
by £2.6 billion loss for Upstream, EM&T and other books) was
predominantly a result of the increase in short-term commodity prices.
The Committee noted the link between the derivative certain
re-measurements for the UK supply books and the new onerous
supply contract provision certain re-measurements, as discussed
below.
Further detail is provided in notes 1, 2 and 7 on pages 117 to 120
and 134 to 138.
The Committee noted and continued to concur with the specific
judgement around LNG contract own use classifications.
The Committee understood the rationale for including an onerous
energy supply contract provision.
The Committee observed that this was required because of the
unprecedented movement in energy prices and that the onerous
provision would expect to predominantly unwind in 2022.
The Committee reviewed the key assumptions used in the calculation
and noted the sensitivity to margin and customer churn assumptions.
It noted the disclosures included in the financial statements to highlight
this sensitivity.
The Committee held discussions with the external auditor to confirm
the appropriateness of the accounting treatment and to confirm their
views of the assumptions used.
Further detail is provided in notes 1, 2, 3 and 7 on pages 117 to 124 and
134 to 138.
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.
On entering 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”).
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.
Following the substantial increase in near-term commodity prices,
significant gains have arisen on these procurement hedges as they
are marked-to-market. Because of this hedge value recognition, the
assessment of whether the supply contracts are onerous must be
calculated based on the cost of fulfilling these arrangements, including
the reversal of previous mark to market gains.
The Group determines that at the reporting date, the future costs to fulfil
customer contracts including market-to-market reversals, will exceed the
charges recovered from customers because the associated hedging
gains have already been recognised in the income statement.
The Group has recognised an onerous supply contract provision
of £2.5 billion at the year-end date. This has been calculated by estimating
the expected margins from energy supply customers, and deducting from
this margin the expected costs to fulfil those arrangements, including
energy purchase costs reflecting the mark to market gains, 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.
66
Centrica plc Annual Report and Accounts 2021Governance | Committee Reports continued Key judgements and financial reporting matters in 2021
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 impairments and reversals
noted above, as well as a restructuring net credit predominantly from the
reversal of a prior period over-provision of £14 million and a fair value gain
of £15 million on a minority investment.
Certain re-measurements totalled an overall c £1.2 billion loss – being
£1.3 billion gain from derivatives and £2.5 billion loss from the onerous
supply contract provisions.
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 £1.7 billion (2020: £1.5 billion).
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 deficit was £nil (2020: £601 million). The UK
defined benefit schemes used a nominal discount rate of 1.8%
(2020: 1.5%) and inflation of 3.1% (2020: 2.8%).
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.
The Committee 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 also noted that the Group policy on certain re-
measurements had been updated to include the onerous supply
contract provisions. It noted the link between these provisions and
the derivatives associated with procuring downstream supply.
Accordingly, the Committee agreed that this presentation continues
to allow underlying performance to be reflected on a consistent
and comparable basis.
Further detail is provided in notes 1, 2, 3 and 7 on pages 117 to 124
and 134 to 138.
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 unread revenue and unbilled accrual had
followed the same estimation process as in previous years and that
the external auditors had independently reperformed this calculation
to within an immaterial difference.
More details of unread energy income are provided in note 3 on
pages 121 to 124 and on unbilled energy income in note 17 on pages
153 to 159.
The Committee noted the key pension assumptions and disclosures
in the Financial Statements.
The Committee also noted that the Group had removed a 15 basis
point adjustment to the discount rate, thereby becoming marginally
more conservative. All other key defined benefit assumptions were
derived using a consistent year-on-year methodology. All rates
remained within comparator range.
The Committee recognised the role of the independent actuary,
who are consulted on the appropriateness of the assumptions,
and discussions were also held with the external auditors.
Further details on pensions are set out in note 22 on pages 164 to 168.
67
Centrica plc Annual Report and Accounts 2021Governance Key judgements and financial reporting matters in 2021
Audit and Risk Committee reviews and conclusions
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, 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 have then also factored in forward looking economic
assumptions, taking into account inflation and affordability forecasts.
In the prior year, the Group increased its level of bad debt provisioning
by £30m in response to the risks associated with COVID-19. In 2021,
the deemed quality and relative aging of the Group’s debt has improved
compared with last year, reducing the underlying modelled provision
output. High-level macroeconomic provisions have been maintained to
cover inflationary concerns. For UK Downstream energy supply, the
closing bad debt provision moved to 29% (2020: 34%) of UK energy
supply gross receivables.
Due to the significant estimation uncertainty in this area, management
continue to provide detailed analysis and sensitivities in note 17 to the
Annual Report and Accounts.
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.
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 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 were comfortable with the provisions booked,
including the macroeconomic provisions, whilst noting the significant
estimation uncertainty in this area.
The Committee welcomed the 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.
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 auditor’s reviews of the consistency between
the reporting narrative of the Annual Report and the Financial
Statements.
The Committee reviewed the Ofgem Consolidated Segmental
Statement and the key judgements and disclosures made in its
preparation.
The external auditor 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
225 to 236.
68
Centrica plc Annual Report and Accounts 2021Governance | Committee Reports continued Nominations Committee
Dear Shareholder
On behalf of the Board, I am pleased to present the
Nominations Committee report for 2021 which explains
the Committee’s focus and activities during the year.
This year the Committee focused on succession planning
specifically on the membership of the Board and ensuring the
Board is of the appropriate size and has the right composition
as the Company builds for the future, as well the evaluation
of the Board’s effectiveness.
Role of the Committee
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 effective succession
planning, reviewing Board composition and assessing training
requirements for Board members.
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 embraces the importance of diversity and inclusion and
supports the recommendations of the Hampton-Alexander and
Parker Reviews in relation to gender and ethnic diversity respectively.
In line with the Board’s Diversity Policy, adopted by the Board in July
2019, the Committee remains committed to enhancing the diversity
of the Board, with broad search criteria used to encourage a diverse
range of candidates. As at 31 December 2021, 50% of the Board and
three out of five independent Non-Executive Directors (60%) were
women. The Board comprised nationals of three different countries
(the UK, Ireland and South Africa), with a wide range of backgrounds
and experience. Further information on our Board can be found on
pages 54 and 55.
The current Board composition meets the target ethnic minority
representation set by the Parker Review. We are pleased with the
progress that we have made. However, as a Committee we recognise
that this is only one aspect in our strategy of achieving a diverse and
inclusive business. In this respect, our senior leaders are also required
to support our Board Diversity Policy in developing diversity in the
business. Further information on the steps that the Company is taking
to create a diverse workplace and develop the appropriate culture to
enable all of our colleagues to achieve their full potential, together with
information on the diversity and ethnicity of our management and
colleagues is provided on pages 29 and 30.
The Committee reviews its Terms of Reference annually to ensure
that they remain appropriate and the Committee continues to
operate effectively.
Main activities for the Committee during 2021
During the year, the Committee met on four occasions and its main
areas of focus were:
• the process for the selection and appointment of Kate Ringrose
as Group Chief Financial Officer;
• the process for the selection and appointment of Raj Roy as Group
General Counsel and Company Secretary;
• Board composition post-completion of the divestment of the Direct
energy business in North America in January 2021;
• approach to Workforce Engagement; and
• Board Evaluation assessment (see page 58).
Board succession
It is the role of the Nominations Committee to ensure there is a
formal procedure for the appointment of new Directors to the
Board. The Committee is responsible for leading the succession
planning process and making recommendations to the Board.
The Committee, during the year, focused on the skills the Board
required, to support the Company’s goals and objectives. As part
of its focus, the Committee considers the diversity of gender,
cultural background and experience, within the Board. The
Company is proud of the progress made so far. However, we
recognise there is more work to be done to support our commitment
to putting diversity, inclusion, care and respect at the heart of what
we do.
Executive Directors
In January 2021, Johnathan Ford stepped down as Group Chief
Financial Officer and Executive Director, leaving on 31 January
2021. In line with the succession plans in place, Kate Ringrose
was appointed Group Chief Financial Officer with effect from
18 January 2021.
Non-Executive Directors
Centrica has a thorough and robust search process for the selection
of new Non-Executive Directors. Except for Spencer Stuart, where
Carol Arrowsmith was a member of its Advisory Group during
2021 and early 2022, there are no other connections between
search firms, the Company and its individual directors. 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.
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.
During the year, the Committee considered and approved Stephen
Hester, appointment as chair of easyJet plc and lead independent
director of Kyndryl Holdings, Inc.
Joan Gillman stood down as a Non-Executive Director with effect
from 8 February 2021. On 7 January 2022, the Board announced
the appointment of Amber Rudd, with effect from 10 January 2022.
Spencer Stuart supported the search process for Amber who brings
a wealth of experience in energy, policy and business, which will be
invaluable as the Company faces the challenge of delivering net
zero and helping our customers live more sustainably and affordably.
In addition, through other roles she has held, including as Home
Secretary and Secretary of State for Work and Pensions and Minister
for Women and Equalities, she brings a diverse range of expertise
which will complement the skills and capabilities of the existing Board
and leadership team.
Committee memberships
The Nominations Committee comprises of five Non-Executive
Directors and Scott Wheway as Chairman. The members of the
Committee and their attendance for the year is reported on page 54.
During the year, the Committee considered the composition of
the Board and its committees, taking into account the skills and
experience of Directors. The Committee was satisfied and did not
recommend any changes to the membership of the Committees.
Effectiveness of the Committee
Read more about the Committee’s effectiveness on page 58.
Scott Wheway
on behalf of the Nominations Committee
23 February 2022
69
Centrica plc Annual Report and Accounts 2021Governance Safety, Environment and Sustainability Committee
Dear Shareholder
On behalf of the Board, I present the Safety, Environment and
Sustainability Committee (SESC) report for the year ended
31 December 2021 which explains the Committee’s focus on,
and activities relating to, a breadth of Health and Safety and
wider ESG (Environmental, Social and Governance) matters
during the year.
It was an important year for the SESC. As part of our review of the
People & Planet Plan, we oversaw the development of Centrica’s
Climate Transition Plan, which sets out our ambition to become a
net zero business by 2045 and to help our customers be net zero
by 2050, whilst ensuring a fair and affordable transition for all.
Role of the Committee
The purpose of the Committee is to assist the Board in reviewing
the practices and performance of Centrica with respect to safety,
environment and broader sustainability. This is achieved through a
regular and rigorous review of activities relating to the responsible
and sustainable activities undertaken by the Company which
includes significant incidents that impact safety, as well as key
progress and performance against our People & Planet Plan.
As part of its focus, the Committee also provides input to and
review of the Company’s annual reporting and disclosures.
The Committee regularly undertakes annual reviews of its terms
of reference to ensure that they accurately reflect the role carried
out by the Committee and that they take account of new external
developments.
Committee memberships
The Committee is comprised solely of Non-Executive Directors with
Heidi Mottram as Chair, and members include Pam Kaur and Scott
Wheway. Amber Rudd became a member on 10 January 2022.
SESC members bring a wide range of sector experience, insight
and stakeholder perspectives which are used to challenge, shape
and provide oversight of the SESC’s agenda. Details of the matters
discussed at Committee meetings are set out later in this report.
During the year, the Audit and Risk Committee Chair, the
Remuneration Committee Chair, the Group Chief Executive, the Group
General Counsel & Company Secretary and the Group Chief People
Officer attended all Committee meetings, as did other key executives
on relevant issues. The Committee met three times in 2021.
Main activities of the Committee during 2021
During the year, the Committee focused on ESG issues relevant
to Centrica, as well as reviewing health and safety risks.
At the start of the year, the Committee oversaw the launch of
Centrica’s new People & Planet Plan. The People & Planet Plan
was introduced to help create a more inclusive and sustainable
future that supports communities, our planet and each other, in
alignment with our purpose of ‘helping you live sustainably, simply
and affordably’. During the year, the Committee reviewed progress
against the Company’s climate targets as well as the stated diversity
and inclusion and community goals (see pages 29 to 35).
With strong net zero goals in place via the People & Planet Plan,
the goal of the Board and Management was to develop and adopt
a climate transition plan for the business. The Committee has
therefore engaged with, and reviewed, the Group’s climate
ambitions alongside the risks associated with the transition to net
zero. The Committee also assessed the supporting scenario
analysis. The Climate Transition Plan was subsequently published in
October 2021 and supplements the progress we have already made
to address environmental and sustainability areas that are critical to
our stakeholders, and highlights where we are well placed to make
the greatest difference (see pages 28 to 35).
The Committee takes an active role in supporting the Company
with its disclosures and credentials. For example, following the
announcement by the Chancellor of the Exchequer in 2020
regarding the UK’s plan to be the first country in the world to make
TCFD (Task Force on Climate-related Financial Disclosures) aligned
disclosures mandatory across the economy by 2025, Centrica
began reporting on this in its 2020 annual report and has enhanced
disclosure further having fully complied with the framework in
2021 annual reporting and with the Listing Rules (see pages 33 to
35). The TCFD importantly provides information to investors about
the action companies are taking to mitigate the risks of climate
change, as well as be transparent about the way in which they are
governed. To ensure we remain in-line with best practice
as we move to net zero, the SESC supports Centrica’s decision
to join the UN’s global campaign, ‘Race to Zero’.
In support of these efforts to create a more inclusive and sustainable
future, the Committee also reviewed the Company’s role in, and
contribution to, communities through its charitable partnerships
(see page 31). The Committee additionally supported an enhanced
Responsible Sourcing Strategy; continued its focus on the monitoring
and improvement of the Company’s reputation; reviewed the
Company’s approach to the Modern Slavery Act (MSA) and
recommended the adoption of the MSA Statement to the Board.
As part of a key standing item on the agenda, the Committee
furthermore maintained its focus on safety performance. This
includes, improving the business’ approach to benchmarking;
understanding the root causes for any underperformance; and
the associated remedial actions. The Committee expects to see
the further impact, and benefit, of the remedial actions on Group
health and safety performance in 2022.
The Committee considered stakeholders’ views on various matters.
In particular, customer insights regarding net zero; investor
expectations on the Climate Transition Plan; and perspectives of
Government and Regulators in respect of joining the Race to Zero.
Committee effectiveness
I believe the Committee has continued to perform effectively with
renewed focus and enhanced responsibilities. Read more about
our Committee’s effectiveness on page 58.
Heidi Mottram
on behalf of the Safety, Environment and Sustainability
Committee
23 February 2022
Read more about our safety
performance on Pages 15
and 36
Read more about Our Code
and the Speak Up helpline on
Page 36 or centrica.com/
ourcode
Read more about our People
& Planet Plan’s net zero goals
on Pages 28 to 35
70
Centrica plc Annual Report and Accounts 2021Governance | Committee Reports continued Remuneration Report
Dear Shareholder
This is my second Remuneration Report since joining the Board in
June 2020. Last year I outlined the progress the Executives were
making in starting to build the foundations to transform the Centrica
business. This year, turning around our business against the
backdrop of the ongoing COVID-19 pandemic, and an increasingly
volatile energy market was never going to be easy, but I believe our
leaders and colleagues have responded well to these challenges.
Reflecting on the year, it’s pleasing to see the progress we’ve made to
simplify and stabilise our company. We’ve materially strengthened the
balance sheet, eliminating net debt by completing the Direct Energy
disposal for £2.7bn and by focusing on operational cash generation.
We took some big steps towards a simpler business model by
continuing to delayer the organisation and by splitting the British Gas
business into separate Services & Solutions and Energy businesses to
allow better focus on the different challenges faced by each business.
We’ve also taken a major step towards moving away from
exploration and production by agreeing the sale of the Norwegian
assets in Spirit Energy in a way which removes a substantial element
of decommissioning liabilities and keeps assets that may serve the
UK on its green journey. This is a great example of delivering the
right outcome for shareholders and wider stakeholders.
Modernising the complex legacy of colleagues’ terms and conditions
has proved the most challenging step in our transformation to date.
The scale of change needed to permit more customer focussed
ways of working was always going to be difficult. We sought to be
fair and reasonable but recognise and regret the impact on some
of our colleagues and customers.
Through this challenging year the Executive team has continued
to promote quality engagement with our colleagues which is crucial
to delivering our turnaround. We set ourselves a very stretching
cumulative target of increasing engagement by 30 percentage
points over three years. I am delighted that we have managed
to increase engagement to 55% at the end of the fourth quarter,
an increase of 13 percentage points. Our target remains to get
to 70% by the end of 2023.
It was also pleasing to see that over 2021, the company’s total
shareholder return grew significantly, rising by 53% compared
to the FTSE 100 index increasing 18% over the same time period,
as all the various changes start to restore the company’s value.
Performance outcomes for the year
The Centrica leadership team has navigated a volatile wholesale
market, rescuing over 700,000 customers from failed suppliers,
whilst continuing to face the disruption caused by the global
pandemic. The assessment of annual performance for this team is
75% based on business performance and the remaining 25% based
on strategic and individual targets. The business element for the
year was split equally between a financial target, earnings per share
(EPS), and the outcome of the balanced business scorecard. EPS
for 2021 was 4.1p which was the level set by the Committee for
maximum achievement. The balanced scorecard has 9 financial
measures and 6 strategic measures – of these 15 measures,
12 were met and 3 were missed.
Despite the raw numbers supporting a higher number, management
and the Committee agreed that a downward adjustment was
appropriate, given the uplift from higher commodity prices.
Therefore, the Committee has agreed the group performance
outcome is between target and maximum. This results in an
outcome for the Executive Directors of 150% of maximum for the
financial element of the annual bonus plan.
Two Executive Directors were eligible to be considered for
a bonus payment in respect of 2021, the Group Chief Executive,
Chris O’Shea and the Group Chief Financial Officer, Kate Ringrose.
Our Group Chief Executive, Chris O’Shea, has driven the
performance of the business and the Board considered that he
had performed exceptionally well throughout 2021. In addition
to the achievements set out above, Chris has been instrumental
in reshaping the business, divesting Direct Energy at the beginning
of the year and progressing the planned disposal of Spirit Energy’s
Norwegian business towards the end of the year. This has allowed
Chris to focus on the core businesses, establishing a new leadership
team who will drive performance in the remaining businesses through
2022. Chris has also played a key role working with stakeholders
to ensure the smooth transition of customers from failing suppliers.
Based on an assessment of personal objectives over the year
which covered leadership, balance sheet stability, repositioning
the remainder of the portfolio and driving a performance culture,
the Committee determined that an outcome of above target,
at 150%, under the personal objectives element of the annual
bonus was appropriate.
Our Group Chief Financial Officer, Kate Ringrose, has settled into
her new role well in what has been a very volatile year, building on
her deep, detailed knowledge of the business. She has been a key
contributor to the leadership team and has done well in establishing
herself as a credible CFO both with the Board and the financial
markets. Kate’s enthusiasm, willingness to listen, and ability
to act on feedback augurs well for 2022.
Based on an assessment of personal objectives over the year
which covered leadership, building strength in the finance function,
ensuring the balance sheet finished the year in a strong position
maintaining the credit rating and pension covenant ratings, Kate
performed strongly. Active management of credit and cash
flexibility have been used to good effect in the volatile commodity
environment and the Committee determined that an outcome
of above target, at 125%, under the personal objectives element
of the annual bonus was appropriate.
Upon careful consideration, and review of the external environment
including the increasing energy costs to our customers, Chris has
decided that his own bonus should not be paid given the hardships
faced by our customers. The Committee and I would like to thank
Chris for this selfless act. This is particularly commendable as he
earned a bonus for 2019 that was not paid as the pandemic
emerged and he would have been entitled to a payment last year
in respect of 2020 which was also not paid.
71
Centrica plc Annual Report and Accounts 2021Governance However, it is important to recognise that this is not sustainable and
the Committee is clear that if performance justifies a bonus in the
coming year it is our intention to pay that bonus.
Long Term Incentive Plan (LTIP) 2019-2021
For the third year in succession, the Committee exercised its
discretion to reduce to zero the overall vesting of the 2019-2021
LTIP award as, although a number of the non-financial KPI targets
had been achieved, the financial measures were not met over the
three-year performance period.
New Executive Remuneration Policy
In last year’s letter to shareholders, I noted that it was our intention
to submit a Policy for approval at the 2021 AGM that was largely
unchanged, with the exception of small changes to reflect the UK
Code requirements and a better alignment of our Policy with best
practice. I am pleased that we received a vote in favour of this Policy
of over 94%. We committed to conduct a thorough review of
remuneration for the Executive Directors and the senior leadership
team during 2021 and to seek approval for a new Policy at the
2022 AGM.
Over the past year, the Committee has undertaken a detailed review
of Executive Director remuneration, in particular the long-term
incentive structure.
At the outset the Committee considered a number of alternative
long-term remuneration structures. Over the summer, we carried
out an initial consultation with our major shareholders. To ensure
we received appropriate input as we determined the best approach,
we included all the models but guided our shareholders to two
principal models for the long-term incentive. These were: retaining
the current structure of long-term share awards with a three-year
performance period and a maximum award of 300% of salary for
the Group Chief Executive or introducing a restricted share plan
with annual awards of up to 150% of salary for the Group Chief
Executive. The latter would provide an exceptional application of
discretion to avoid the circumstances of a full payment when the
experience of stakeholders was very poor. The conversations with
shareholders were immensely helpful to guide our decision-making
process and I am very grateful for all the views provided.
A number of our shareholders are keen advocates of the use of
restricted shares providing the important design considerations
around a reduction in quantum of 50% and an acceptable vesting
and holding period are applied.
We believe that this needs to be coupled with an accelerated
build-up of shareholding where the Executive Directors would be
required to hold all incentive shares, post-tax, until their shareholding
requirement was reached. The shareholding requirements
themselves are set at levels above the value of an allocation of
shares and above market practice for businesses of our size.
Having taken into account the input provided by our major
shareholders during our initial consultation, the Committee determined
that a Restricted Share Plan (RSP) was the most appropriate structure
for Centrica’s Executive Directors going forward.
After further work and consideration, the Committee refined the
proposed Policy detail and in November, we provided a more final
version of our proposals to our major shareholders for their input
and feedback. We, once more, received very helpful contributions
to allow us to progress and finalise the Policy.
Proposed long-term incentive structure
It is proposed that the RSP will vest over three years, subject to
a performance underpin framework, with a further two year
holding period.
Our rationale for this approach is:
• As we restore shareholder value and work to deliver growth in both
customers and profit, the RSP would ensure a large proportion of
our executives’ pay is based on direct and uninhibited share price
movement. The simplification of pay in this manner also aligns
to our overall strategic goal of simplification across all aspects
of the business.
• Potential pay-outs from restricted shares are far less variable
than conventional long-term incentives. We believe this is more
appropriate given the regulatory environment within which Centrica
operates with a more limited acceptable range of performance
outcomes than in many other companies.
• The next few years are likely to represent significant uncertainty
for the business, as we continue to reshape, re-prioritise and drive
towards net zero. Setting long-term performance targets within
this context that appropriately accommodate this volatility and
uncertainty will be very challenging.
• We operate an RSP for our colleagues below senior management
and this approach therefore creates alignment between our
Executive Directors and our senior colleagues.
It is proposed that vesting 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
and progress towards our Climate Transition Plan.
72
Governance | Remuneration Report continuedCentrica plc Annual Report and Accounts 2021 Other changes to the Remuneration Policy
The Committee proposes to make the following changes to
shareholding requirements to further increase alignment between
our Executive Directors and shareholders:
• Executive Directors will be required to hold 100% of vested
incentive shares until the shareholding requirement is met,
increased from 75% under the current Policy. The current
shareholding requirement of 300% of salary for the Group Chief
Executive is above comparative market levels but will remain
as is. The shareholding requirement for the Group Chief Financial
Officer will be set at 200% of salary.
• The post-employment shareholding requirement will be increased
to 100% of the in-role shareholding requirement (or actual
shareholding on departure if lower) for a period of 2 years
post-employment, increased from 50% in the current Policy.
• Only shares earned from vested incentives will be included within
the post-employment shareholding requirement so as not to
disincentivise Executives from purchasing additional shares
in the company.
We believe the proposed changes to our Policy are in the best
interests of our shareholders and will allow us to appropriately
motivate and recognise executive performance within the context
of the challenges ahead of us, whilst ensuring that their experience
is aligned to yours.
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
23 February 2022
Role of the Remuneration Committee
The role of the Committee continues to be ensuring that
the Directors, the Senior Executive Group and the Chairman
of the Board are appropriately rewarded, through making
recommendations regarding remuneration policy and framework.
The Terms of Reference further extend the Committee’s remit
to include greater responsibility for understanding how pay and
conditions align across the Group.
The Committee monitors and reviews the effectiveness of the
Remuneration Policy and considers its impact and compatibility
with remuneration policies across the wider workforce. To facilitate
this remit, the Committee is provided with information and context
on pay, benefits and incentive structures in place across the Group
to support its decision-making.
Membership and attendance
The Committee is chaired by Carol Arrowsmith, an Independent
Non-Executive Director. Each member of the Committee is
independent. No Director is involved in the determination of, or votes
on, any matters relating to his or her own remuneration.
The Chairman of the Board, the Group Chief Executive, the Chief
People Officer and the Group Head of Reward are normally invited
to attend each Committee meeting to provide advice and guidance,
other than in respect of their own remuneration.
73
GovernanceCentrica plc Annual Report and Accounts 2021 Directors’ Annual
Remuneration Report
Directors’ remuneration in 2021
This report sets out information on the remuneration of the Directors for the financial year ended 31 December 2021.
Summary of total remuneration received in 2020 and 2021 (£000)
1,000
1,000
800
600
400
200
0
800
600
400
200
0
2020
2021
Chris O’Shea CEO
Long-term incentive
Short-term incentive
Fixed Remuneration
2020
2021
Kate Ringrose CFO
(appointed in 2021)
Long-term incentive
Short-term incentive
Fixed Remuneration
Annual Incentive Plan Outcomes for 2021
Chris O’Shea(1)
Kate Ringrose
0%
25%
50%
75%
100%
125%
150%
175%
£1,162,500
On target
£485,157
200%
Maximum
0%
25%
50%
75%
100%
125%
On target
150%
Maximum
(1) As disclosed on page 71 and 72, after careful consideration, Chris O’Shea has decided that his own bonus should not be paid given the hardships faced by our customers.
Single figure for total remuneration (audited)
Executives
£000
2021
Chris O’Shea
Johnathan Ford(5)
Kate Ringrose(6)
Total
2020
Chris O’Shea
Johnathan Ford(5)
Kate Ringrose(6)
Total
Salary/
fees
Bonus
(cash)
Bonus
(deferred)
Benefits(1)
LTIPs(2)
Pension(3)(4)
Total
remuneration
Total fixed
Total variable
remuneration
775
24
432
1,231
659
275
–
934
–
–
243
243
–
–
–
–
–
–
243
243
–
–
–
–
18
1
15
34
25
10
–
35
–
–
–
–
–
–
–
–
82
2
44
128
81
28
–
109
875
27
977
1,879
765
313
–
1,078
875
27
491
1,393
765
313
–
1,078
–
–
486
486
–
–
–
–
(1) Taxable benefits include car allowance, health and medical benefits. Non-taxable benefits include matching shares received under the Share Incentive Plan (SIP). Both taxable and
non-taxable benefits are included in the table.
(2) The LTIP award for the 2019-21 performance period will lapse. Further details are set out on page 76.
(3) 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 0.7% in 2021 (1.5% in 2020).
(4) Johnathan Ford received a salary supplement in lieu of a pension contribution, of 10% of base salary.
(5) Johnathan Ford stepped down from the Board on 18 January 2021.
(6) Kate Ringrose was appointed to the Board on 18 January 2021.
74
Governance | Remuneration Report continuedCentrica plc Annual Report and Accounts 2021
(1) Joan Gillman stepped down from the Board on 8 February 2021.
Bord Gáis
Cost to serve
Single figure for total remuneration (audited)
£000
Non-Executives
Scott Wheway
Carol Arrowsmith
Joan Gillman(1)
Stephen Hester
Pam Kaur
Heidi Mottram
Kevin O’Byrne
Total
Salary/fees
Total
2021
2020
2021
2020
410
93
10
93
73
93
98
870
343
51
93
93
73
73
98
824
410
93
10
93
73
93
98
870
343
51
93
93
73
73
98
824
Payments for loss of office (audited)
No payments for loss of office were made in 2021.
Base salary/fees
Base fees for the Group Chief Executive (CEO) and the Group Chief
Financial Officer (CFO) were reviewed by the Committee in February
2022. At that time, the expected average level of salary increases
across the wider UK workforce was 2.5% with some restrictions in
place for colleagues who were currently paid above the median of
the salary range for their job profile, or for collective colleagues who
were currently paid above the payspine rate for their role.
Taking into consideration the increases across the wider workforce,
and salary benchmarking data for similar Executive roles
commensurate in size and complexity with Centrica, the Committee
determined that the salary for the CEO would be increased by 2.5%
to £794,375 and the salary for the CFO would be increased by 2.5%
to £461,250.
Non-Executive Director fee levels were reviewed in December
2021 and it was agreed that no changes would be made to the
base fees or the Committee Chairman fees.
Base fees for Non-Executives were last increased on 1st January
2016 and will continue to be reviewed at least every two years.
Bonus – Annual Incentive Plan (AIP)
In line with the Remuneration Policy, 75% of the award was based
on a mix of financial measures based on Centrica’s priorities for
2021 and 25% was based on strategic and personal objectives.
The Committee agreed that half of the financial performance
measures for 2021 would be based on an Earnings per Share (EPS)
target with a defined threshold, target and maximum, as follows:
EPS
Threshold
2.1p
Target
3.1p
Max
4.1p
Outcome
4.1p
The EPS outcome was 4.1p which was the level for maximum
achievement set by the Committee.
In addition, the Committee agreed a balanced scorecard for the
remaining financial element of the annual bonus plans plus additional
measures to be considered in the determination of individual
strategic objectives for 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,
with management, would consider the overall outcome against the
balanced scorecard to determine the remaining half of the financial
measures for the AIP.
The balanced scorecard of measures, targets and outcomes were
as follows:
Group
Measure
Adjusted
Operating Profit
Free Cash
Flow
Net (Debt)/
Cash
Credit Rating
BG S&S
BG Energy
CBS
EM&T
Cost per
customer
Cost to serve
Order Intake
Opex: GM
Ratio
Target
£522m
Outcome
£948m
£633m
£873m(1)
£(726)m
£680m
Maintain credit
rating required to
support business
activities
€84 per
customer
£329 per
customer
£101 per
customer
£463m
Maintained and
negative watch
removed
€90
£338
£93
£490m
60%
52%
(1) Free cash flow has been adjusted downwards to reflect tax payable in 2022 for 2021
profits, relating to the upstream business.
The Committee carefully considered the maximum result against
the EPS target, and the achievement of the majority of the balanced
scorecard measures, and determined that a downward adjustment
to the overall outcome was appropriate, given the uplift received
from higher commodity prices. Therefore, the Committee agreed
that the group performance outcome would be halfway between
target and maximum.
Each Executive had a set of stretching personal objectives which
included key non-financial performance indicators (KPIs) that were
critical to the success of the business in 2021. The KPIs were
cascaded to the business and functional leaders to ensure a strong
line of sight to key priorities through the organisation. The KPI
metrics and outcomes were as follows:
Measure
Targets
Outcome
Transformation
Customer
numbers
Colleague
engagement
9,778,000 unique
customers
Improve by
10 percentage points
Transformation Successfully conclude the
Terms and Conditions
change and the industrial
relations dispute
Progress the migration
of UK energy customers
from SAP to the new
energy platform
Progress the 2021
Triennial Pension
Valuation in a way which
balances the interests of
the Company, members
and pensioners
M&A Deliver M&A programme
in a way that maximises
value for the Company
and advances the
strategic simplification
of Centrica
Pension
Valuation
10,067,000 unique
customers
Up 13 percentage
points
Successfully
concluded albeit with
some industrial action
Migration paused due
to planning issues
Good progress made
Completion of Direct
Energy and
Peterborough Power
Station Sale and
progress on delivery
of Spirit transaction
75
GovernanceCentrica plc Annual Report and Accounts 2021 In addition to the performance set out above, Chris O’Shea has been instrumental in reshaping and simplifying the business. He has
established a new leadership team that will drive performance in the remaining core businesses through 2022 and beyond. Chris has
also played a key role working with stakeholders to ensure the smooth transition of customers from failing suppliers. Based on an
assessment of achievement against strategic and personal objectives during the year, including leadership, balance sheet stability and
driving a performance culture, the Committee determined that an outcome of above target, at 150% of maximum, under the personal
objectives element of the annual bonus was appropriate. The overall bonus outcome for the CEO was therefore a payment of £1,162,500.
As reported in the Chairman’s letter, Chris has decided that this bonus should not be paid given the hardships faced by our customers
as a result of the increasing energy costs.
Kate Ringrose has quickly established herself as a credible CFO both with the Centrica Board and the financial markets. During the year
she strengthened the finance function, ensuring the balance sheet finished the year in a strong position and credit ratings were maintained.
The management of cash and credit flexibility were optimised in the volatile commodity environment. Based on an assessment of
achievement against strategic and personal objectives during the year, the Committee determined that an outcome of above target, at 125%
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 £485,157.
Long-term incentive awards due to vest in 2022
Performance conditions
The performance conditions relating to the three-year period ending in 2021 are set out below, together with an explanation of the
achievement against these performance conditions. Vesting between stated points is on a straight-line basis.
Financial targets and outcomes
Measures
Relative Total Shareholder Return (TSR)
Underlying adjusted operated cash flow (UAOCF) growth
Absolute aggregate Economic Profit (EP)
Non-financial KPI improvement
(1) Compound annual growth rate.
Weightings
33.3%
22.2%
22.2%
22.2%
Threshold (25%)
Maximum (100%)
Targets
FTSE 100
median
CAGR 2%(1)
£1,625m
See below
FTSE 100
upper quartile
CAGR 5%(1)
£2,125m
See below
Outcomes
Below median
-13.9%
£673m
See below
Centrica’s TSR during the three-year performance period was -49.8%, compared with the required threshold level of 19.9%, therefore the
TSR portion of the LTIP award granted in 2019 will not vest.
Both the UAOCF growth and the absolute aggregate EP threshold targets were not met and therefore these two portions of the LTIP award
granted in 2019 will not vest.
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:
Baseline performance
Long-term goal
KPI
Threshold
vesting
Maximum
vesting
For each LTIP cycle we expect the KPI performance gap to close by 25% for threshold vesting and 50% for maximum vesting. The KPI
measures, targets and outcomes for the 2019-21 cycle were:
Safety
Total recordable injury frequency rate (TRIFR)(1)
Tier 1 and Tier 2 process safety event frequency rate(1)
Customer satisfaction
Aggregate brand NPS across our customer businesses weighted by
customer numbers
Complaints per 100,000 customers across our customer businesses
weighted by customer accounts
Colleague engagement (percentage favourable)
(1) Per 200,000 hours worked.
Baseline
performance
2021
Threshold
Maximum
Long-term goal
Outcomes
Targets
1.04
0.00
+8.7
0.85
0.073
+16.33
0.45
0.065
+17.55
0.25
0.05
+16
1.07
0.20
+13.0
3,040
3,041
2,653
2,159
4,929
41
51.5
60.0
77
55
Overall performance outcome
Although a number of the non-financial KPI targets were achieved over the three-year period, the Committee exercised its discretion to
reduce to zero the overall vesting of the 2019-21 LTIP award as the financial measures were not met over the performance period against
each measure.
76
Governance | Remuneration Report continuedCentrica plc Annual Report and Accounts 2021 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 2021 the average pension contribution rate was 10-13% of base salary.
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)
Chris O’Shea(1)
Kate Ringrose(1)(2)
(1) The retirement age for the CUPS DC scheme is 62.
(2) Kate Ringrose joined on 18 January 2021.
Total notional
pension fund as at
31 December 2021
£
312,710
43,670
Total notional
pension fund as at
31 December 2020
£
229,466
–
Executive Director recruitment and terminations
Johnathan Ford
Johnathan Ford resigned from his role on 18 January 2021 and Centrica waived its right to contractual notice. Therefore, all remuneration
entitlement ceased from his leave date of 31 January 2021, with no further payments due to be made after this date. He will not be entitled
to receive a bonus payment for 2021.
Kate Ringrose
On 18 January 2021, Kate Ringrose was appointed Group Chief Financial Officer. Her remuneration package consisted of a base salary
and variable incentive arrangements which were in line with Centrica’s remuneration policy and practice. The base salary was set at
£450,000 per annum and the pension contribution was set at 10% of base salary. It was confirmed that the annual bonus maximum
award would be 150% of salary and the initial annual LTIP grant would be 175% of salary.
Directors’ interests in shares (number of shares) (audited)
The table below shows the interests in the ordinary shares of the Company for all Directors on the Board at 31 December 2021.
For Executive Directors only, the minimum shareholding requirement is 300% 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, at 300% of salary, is challenging.
A post-cessation shareholding requirement of 50% of the full shareholding requirement (or full actual holding if lower) is applicable
for two years post-cessation.
Executives
Chris O’Shea(4)
Kate Ringrose(4)
Non–Executives
Scott Wheway
Carol Arrowsmith
Stephen Hester
Pam Kaur
Heidi Mottram
Kevin O’Byrne
Shares
owned as at
31 December
2020(1)
Shares
owned as at
31 December
2021(1)
Minimum
shareholding
guideline
(% of salary)
Achievement
as at
31 December
2021
(% of salary)(2)
Shares owned
(subject to
continued
service) as at
31 December
2021(3)
489,251
–
580,574
40,796
300
300
54
6
792
792
Shares
owned as at
31 December
2020(1)
Shares
owned as at
31 December
2021(1)
110,187
–
20,700
–
–
40,000
110,187
49,286
20,700
–
–
40,000
(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 2019 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) The share price used to calculate the achievement against the guideline was 71.50 pence, the price on 31 December 2021.
(3) Shares owned subject to continued service include SIP matching shares that have not yet been held for the three-year holding period.
(4) During the period from 1 January 2022 to 10 February 2022 both Chris O’Shea and Kate Ringrose acquired 435 shares through the SIP.
77
GovernanceCentrica plc Annual Report and Accounts 2021 Executive Directors interests in shares (number of shares) subject
to Company performance conditions
The table below shows the performance share awards that were granted in respect of 2020 and 2021 to Executive Directors under the LTIP.
These awards are subject to the achievement of Company performance conditions before vesting and there is a mandatory two-year
holding period following the vesting date before the shares can be released.
Chris O’Shea
Kate Ringrose
Plan
LTIP
LTIP
LTIP
Number
of shares
3,522,471
4,431,948
1,501,143
Basis of
award
% of salary
250%
300%
175%
Face value
of award
£000
1,938
2,325
788
Vesting
date
May 2024
June 2024
June 2024
Release
date
May 2026
June 2026
June 2026
Share awards granted in respect of 2021 (audited)
The following targets will apply to the LTIP awards for the three-year performance period 2021-23.
Measures
TSR
Cumulative EPS
Cash conversion
Non-financial KPI improvement
(1) 3 year cumulative EPS
Weightings
Threshold (25%)
Maximum (100%)
Targets
median
33.3%
22.2%
7.5p
22.2% EBITDA to OCF
of 85%
See below
22.2%
upper quartile
10.5p(1)
EBITDA to OCF
of 100%
See below
Vesting between stated points will be on a straight-line basis.
KPI improvement relates to closure of the gap between performance at the start of the period (current performance) and our long-term
aspirational goals which are generally aligned with upper quartile market performance:
Baseline performance
Long-term goal
KPI
Threshold
vesting
Maximum
vesting
For each LTIP cycle we expect the KPI performance gap to close by 25% for threshold vesting and 50% for maximum vesting.
The KPI measures and targets are:
Safety
Total recordable injury frequency rate (TRIFR)(1)
Customer satisfaction
Aggregate brand NPS across our customer businesses weighted
by customer numbers
Complaints per 100,000 customers across
our customer businesses weighted by customer accounts
Colleague engagement
(1) Per 200,000 hours worked.
Current
performance
Threshold
Maximum
Long-term goal
Targets
1.03
+8.69
3,040
41%
0.85
0.65
+10.52
+12.35
2,820
45%
2,600
54%
0.25
+16
2,159
77%
78
Governance | Remuneration Report continuedCentrica plc Annual Report and Accounts 2021 2021 cash flow distribution to stakeholders
The Committee monitors the relationship between the Directors’ total remuneration and cash outflows to other stakeholders.
As demonstrated by the chart, the Directors’ aggregate total remuneration for the year equates to 0.05% (2020: 0.06%)
of the Group’s operating cash flow.
To staff
To Directors
To government
To shareholders
Investing activities
33%
0.05%
17%
0%
50%
To staff
To Directors
To government
To shareholders
Investing activities
37%
0.06%
15%
0%
48.7%
2021
2020
Annual percentage change in remuneration of directors and employees
The table below shows the percentage changes (on a full-time equivalent basis) in the Executive and Non-Executive Directors’ remuneration
between the financial years ended 31 December 2020 and 31 December 2021 compared to the amounts for full-time employees of the
Group for each of the following elements of pay:
Executive Directors
Chris O’Shea(1)
Kate Ringrose(2)
Non-Executive Directors
Scott Wheway
Carol Arrowsmith
Joan Gillman
Stephen Hester
Pam Kaur
Heidi Mottram(3)
Kevin O’Byrne
Average per employee (excluding Directors)(4)
Percentage change from 2019 to 2020
Percentage change from 2020 to 2021
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
6.3
–
268.8
–
0
0
0
–
0
0
0
–
–
–
–
–
–
–
–
1.1
0
–
–
–
–
–
–
–
–
236.4
0
–
0
0
0
0
0
27.8
0
1.77
-28.0
–
–
–
–
–
–
–
–
-10.27
0
–
–
–
–
–
–
–
–
16.25
(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) Kate Ringrose was appointed as Group Chief Financial Officer on 18 January 2021.
(3) Heidi Mottram was appointed SESC Chair on 1 January 2021.
(4) The comparator group includes all management and technical or specialist employees based in the UK in Level 2 to Level 6 (where Level 1 is the Executive and Non-Executive
Directors). There are insufficient employees in the Centrica plc employing entity to provide a meaningful comparison. The employees selected have been employed in their role for
full years to give meaningful comparison. The group has been chosen because the employees have a remuneration package with a similar structure to the Executive Directors,
including base salary, benefits and annual bonus. The increase in the benefits between 2019 and 2020 represents the increase in the healthcare plan costs. The increase in the
bonus between 2019 and 2020 is due to the fact that cash bonuses relating to 2019 for non-customer facing employees were cancelled. The bonus number relating to 2021 is an
estimate of the payments due to be made in March/April 2022.
79
GovernanceCentrica plc Annual Report and Accounts 2021
The chart below shows the ratio of remuneration of the CEO to the
average UK employee of the Group.
CEO pay ratio
2021
2020
2019
2018
25th
percentile
50th
percentile
75th
percentile
29:1
32:1
34:1
72:1
24:1
15:1
29:1
59:1
15:1
14:1
22:1
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 during 2020.
The Company has used its gender pay gap data (Option B in
the Directors’ Reporting Regulations) to determine the employees
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
employees immediately above and below the identified employee
at each quartile within the gender pay gap analysis.
The annual remuneration for the three identified employees has
been calculated on the same basis as the CEO’s total remuneration
for the same period in the single figure table on page 74 to produce
the ratios.
The ratios in 2021 are broadly in line with the ratios for 2020.
The 25th percentile is now mainly customer experience roles
as the engineer roles previously at this level have moved to the
median which has meant a change at both the 25th percentile
and 50th percentile.
Pay for performance
The table below shows the CEO’s total remuneration over the last
ten 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
2021
2020
Iain Conn
2020
2019
2018
2017
2016
2015
Sam Laidlaw
2014
2013
2012
875
765
239
1,186
2,335
1,678
4,040
3,025
3,272
2,235
5,709
0
0
0
0
41
0
82
63
34
50
61
0
0
0
0
18
26
0
0
35
0
67
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
as CFO and CEO.
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 2021. The FTSE 100 Index has been chosen
as it is an index of similar-sized companies and Centrica has been
a constituent member throughout the majority of the period.
Total return indices – Centrica and FTSE 100
200
150
100
50
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Centrica Total return index
Source: Datastream from Refinitiv
FTSE 100 Total return index
Fees received for external appointments
of Executive 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. She received no fees or remuneration relating to these
external appointments in 2021.
Relative importance of spend on pay
The table below shows the percentage change in total remuneration
paid to all employees compared to expenditure on dividends and
share buyback for the years ended 31 December 2020 and 2021.
There are no share buyback arrangements.
Dividends
Staff and employee costs(1)
2021
£m
0
1,247
2020
£m
0
1,577
%
Change
0
-21
(1) Staff and employee costs are as per note 5 in the notes to the Financial Statements.
Payments to past Directors (audited)
During 2021, no payments were made to past Directors with the
exception of the payments disclosed in the single figure for total
remuneration table on page 74.
Advice to the Remuneration Committee
Following a competitive tender process, PwC was appointed as
independent external adviser to the Committee in May 2017.
PwC also provided advice to Centrica globally during 2021 in the
areas of employment taxes, regulatory risk and compliance issues
and additional consultancy services.
PwC’s fees for advice to the Committee during 2021 amounted
to £166,150 which included the preparation for and attendance
at Committee 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 advisers.
PwC is a member of the RCG and the Committee is satisfied
that the 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.
80
Governance | Remuneration Report continuedCentrica plc Annual Report and Accounts 2021 Statement of voting
Shareholder voting on the resolutions to approve the Directors’
Remuneration Policy, and the Directors’ Remuneration Report,
put to the 2021 AGM, was as follows:
Directors’ Remuneration Policy
Votes for
3,452,985,721
%
Votes against
94.30
208,890,057
38,449,626 votes were withheld.
Directors’ Remuneration Report
Votes for
3,516,916,505
%
Votes against
95.16
178,887,714
4,457,830 votes were withheld.
%
5.70
%
4.84
Implementation in the next financial year
Base salaries for Executive Directors were reviewed in February
2022 and the Committee determined that an increase of 2.5% would
be applied to the salary of the Group Chief Executive and the Group
Chief Financial Officer on 1st April 2022. This aligns with increases
being awarded across the wider workforce.
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 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 targets are considered commercially sensitive until the end
of the financial year and will therefore be disclosed retrospectively
in the Remuneration Report for 2022.
Subject to the approval of the new Remuneration Policy, set out on
pages 82 to 94, at the AGM in 2022, Restricted Share Plan (RSP)
awards will be granted to the Executives. It is proposed that the
awards will be 150% of salary for the Group Chief Executive and
125% of salary for the Group Chief Financial Officer.
While our previous policy stated the maximum opportunity under the
Long-Term Incentive Plan (LTIP) was 300% of salary for all Executive
Directors, in practice, in both 2018 and 2019, CFO LTIP awards were
250% of annual salary. In 2020 there was no incumbent at the point
of grant.
When our CFO came into role the first LTIP award granted in 2021
of 175% of salary was set at a level below market and below historic
Centrica CFO levels. Had we proposed to retain the LTIP, the
Committee intended to return to the historic approach to the LTIP
award level of 250% of salary. To this end, the Committee
determined the 50% discount be applied to this award level
resulting in a RSP award level of 125% of salary.
The RSP awards will vest after three years, subject to a performance
underpin, with an additional two-year post-vesting holding period.
It is proposed that 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 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.
The Remuneration Report has been approved by the Board
of Directors and signed on its behalf by:
Raj Roy
Group General Counsel & Company Secretary
23 February 2022
81
GovernanceCentrica plc Annual Report and Accounts 2021 Governance | Remuneration Policy
Director’s Remuneration Policy
The Centrica Remuneration Policy was last approved by
shareholders at the 2021 AGM. This was largely unchanged from
the Policy approved in 2018, however at that time we indicated our
intention to conduct a thorough review of remuneration for the
Executive Directors and the senior leadership team during 2021.
This section contains Centrica’s proposed Directors’ Remuneration
Policy (Policy) that will govern and guide the Group’s future
remuneration payments. The Policy described in this section is
intended to apply for three years, subject to shareholder approval
at Centrica’s 2022 AGM.
Objectives of the Policy
The proposed 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.
Key changes to the Policy
In reviewing the Policy, the Committee consulted extensively with
shareholders and aimed to devise a remuneration structure that
would support our strategic direction, enable us to engage our
Summary of Policy design
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 face going forward.
Further details on the rationale for the proposed changes are
described in the Committee Chair’s letter on pages 71 to 73. Details
on how the Policy will be implemented in the coming financial year
are provided on pages 82 to 94.
The main change to the Policy is the replacement of the Long Term
Incentive Plan (LTIP) with a Restricted Share Plan (RSP), which
reflects a reduction in quantum and for which vesting three years
from grant is subject to the assessment of an underpin. Awards are
subject to a two-year post-vest holding period. Further details are
set out on page 85.
In addition to the above, the Committee will make the following
changes to shareholding requirements to further increase alignment
between our Executive Directors and shareholders:
• Executive Directors will be required to hold 100% of vested
incentive shares (net of tax) until the shareholding requirement is
met, increased from 75% under the current Policy. The current
shareholding requirement of the CEO of 300% of salary is above
comparative market levels and will remain as is. The shareholding
requirement for the CFO will be set at 200% of salary.
• The post-employment requirement will be increased to 100% of
the in-role shareholding requirement (or actual shareholding on
departure if lower) for a period of 2 years post-employment,
increased from 50% in the current Policy.
Fixed remuneration
Annual Incentive Plan (AIP)
Restricted Share Plan (RSP)
Pension
Base
pay
Benefits
Mix of financial, business and strategic measures
Underpin aligned to strategic priorities
50% of award deferred into
shares for three years
Three-year performance period followed
by two-year holding period
Malus and clawback
82
Centrica plc Annual Report and Accounts 2021 As we restore shareholder value and work to deliver growth in both
customers and profit, 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.
How the policy links to our strategy
Our near-term strategic objectives are set out on page 11.
“We are focused on turning Centrica around resulting in a stronger
core business with a robust balance sheet enabling us to build on
our longer-term growth ambitions in the areas in which we have
distinctive capabilities – energy supply, services and solutions,
energy trading, optimisation and energy assets.”
Our revised policy has been designed to support our strategic
direction, to enable us to engage our leadership team in the
continuing transformation of Centrica.
An RSP is the most appropriate incentive vehicle for our Executive
Directors 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.
Remuneration Policy Table for Executive Directors
The following table summarises each element of the Remuneration Policy for the Executive Directors, explaining how each element operates
and the link to the corporate strategy.
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Changes
Not applicable.
Removal of maximum
salary for Executive
Directors. Salary
increases will usually
be in line with the other
employees of the
Group.
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.
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.
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
Director;
• 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.
83
Centrica plc Annual Report and Accounts 2021Governance Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Changes
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.
No changes to
quantum.
Up to 50% of the
award is payable in
cash and the
remainder is paid in
deferred shares which
are held for a further
three years.
The majority of any
short term incentive is
based on a mix of
financial and business
measures aligned to
Centrica’s priorities for
the forthcoming
financial year and up to
25% is based on
individual objectives
aligned to the Group’s
performance and
strategy.
Annual Incentive
Plan (AIP)
Designed to incentivise
and reward the
performance of
individuals and teams 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
of the 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
AIP award.
Dividend equivalents may be paid
as additional shares or cash.
The Committee will have the
discretion to adjust AIP outcome
if it believes the outcome is not a
fair and accurate reflection of the
business’ performance, the
individual’s personal performance
and/or such other factors as the
Board may consider appropriate.
The exercise of this discretion may
result in a downward or upward
movement in the amount of AIP
earned resulting from the
application of the performance
measures.
In exceptional circumstances where
the Committee believes the original
measures and/or targets are no
longer appropriate, the Committee
has discretion to amend
performance measures and targets
during the financial year.
Any discretion applied by the
Committee will be fully disclosed in
the following year’s Remuneration
Report.
Malus and clawback apply to the
cash and share awards (see policy
table notes).
84
Governance | Remuneration Policy continuedCentrica plc Annual Report and Accounts 2021 Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Changes
Restricted share
plan (RSP)
Designed to reward and
incentivise the delivery of
long-term performance
and shareholder value
creation.
The maximum
opportunity for RSP
awards will be 150%
of salary earned
during the financial
year for Executive
Directors.
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.
The previous long-term
incentive has been
replaced with a
restricted share plan.
Maximum opportunity
under the new plan is
150% of salary for
Executive Directors
(compared to 300%
of salary under the
previous plan).
The award is subject
to an underpin
framework.
As we restore
shareholder value and
work to deliver growth
in both customers and
profit, the RSP ensures
that a large proportion
of our Executives’ pay
is based on direct and
uninhibited share price
movement. The
simplification of pay in
this manner also aligns
to our overall strategic
goal of simplification
across all aspects of
the business. Further
rationale for this
change is set out in the
Chair’s letter on pages
71 to 73.
RSP awards granted to Executive
Directors 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 Executive Directors 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.
An award that vests in any year may
be reduced or forfeited at the
Committee’s discretion if it believes
that the outcome is not a fair and
accurate reflection of the
company’s overall performance, the
individual’s personal performance
and/or such other factors as the
Board may consider appropriate
including but not limited to share
price performance.
In exceptional circumstances where
the Committee believes any
underpin that may have been set at
the beginning of the period is no
longer appropriate, the Committee
has discretion to amend the
underpin.
Any adjustments or discretion
applied by the Committee will be
fully disclosed in the following
year’s Remuneration Report.
Malus and clawback apply to the
awards (see policy table notes).
85
GovernanceCentrica plc Annual Report and Accounts 2021 Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Changes
Pensions
Positioned to provide a
market competitive
post-retirement benefit,
in a way that manages
the overall cost to the
Company.
Benefits
Positioned to support
health and wellbeing and
to provide a competitive
package of benefits that
is aligned with market
practice.
All-employee
share plans
Provides an opportunity
for employees to
voluntarily invest in 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 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.
Executives are entitled to
participate in all-employee share
plans on the same terms as all other
eligible employees.
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
10-13% of salary.
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.
Maximum
contribution limits are
set by legislation or
by the rules of each
plan. Levels of
participation apply
equally to all
participants.
Not applicable.
No changes to Policy.
Not applicable.
No changes to Policy.
Not applicable.
No changes to Policy.
86
Governance | Remuneration Policy continuedCentrica plc Annual Report and Accounts 2021 Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Changes
Shareholding
requirements
To align the interests of
Executive Directors 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
Executive Directors 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.
Not applicable.
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.
The current
shareholding
requirement of the
CEO of 300% of base
salary is above
comparative market
levels and will remain
as is. The shareholding
requirement for the
CFO will be 200%
of base salary.
Executives must hold
100% of vested
incentive shares until
the shareholding
requirement is met
(this was previously
set at 75%).
The post-employment
shareholding
requirement now
applies to 100%
of the in-employment
shareholding
requirement (or actual
if lower) for a period
of two years post-
employment (this was
previously set at 50%).
Shares purchased
by Executives with
their own monies are
explicitly excluded
from the post-
employment
shareholding
requirement.
87
GovernanceCentrica plc Annual Report and Accounts 2021 For financial measures, the targets are set with reference to
internal forecasts, external forecasts and other circumstances
as appropriate to ensure that targets are suitably stretching
and motivational to executives.
Non-financial targets are set each financial year with reference to the
key strategic objectives of the company and are linked to the long
term success of the business.
RSP
The RSP is subject to an underpin assessed by the Committee
to ensure any risk of “payment for failure” is mitigated. In assessing
the underpin, the Committee will consider the Company’s overall
performance, including financial and non-financial performance
measures, 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.
For example, for the 2022 RSP award (subject to shareholder
approval of the Policy), the specific factors which 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 meet a major milestone in our
Climate Transition Plan which sets out our ambition to be a net
zero business by 2045;
• 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 appropriate customer numbers over
the vesting period; and
• progress against broader ESG commitments.
Notes to the Remuneration 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 82 to 94, 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.
Statement of consideration of shareholder views
In developing the Policy set out above, the Committee carried out
an extensive shareholder consultation exercise, engaging directly
with our top 20 shareholders making up approximately 50% of the
shareholder register. After several rounds of consultation, we
carefully considered the feedback received and proposals were
refined in response.
One point that was raised by a number of shareholders was in
respect of the underpin. It is important for the Committee to ensure
that, in the removal of performance conditions from the long term
incentive structure, any risk of “payment for failure” is mitigated,
and this was a key discussion point in our consultation with
shareholders. A number of shareholders requested further clarity
in respect of the underpin and an indication of the type of factors
that would be considered in assessing it and this has been set out
in respect of the 2022 award on page 81 and will be disclosed
in advance of each grant of RSP going forward. The assessment
under the RSP underpin will also be disclosed on vesting. Further
details on our consultation with shareholders is described in the
Committee Chair’s letter on pages 71 to 73.
Performance measures
We continue to be committed to full transparency and disclosure.
We will disclose all targets as soon as any commercial sensitivity falls
away. At the latest, full disclosure will be at the end of the
performance period.
AIP
Performance for the AIP will be measured against financial
and non-financial measures with respective targets for each
measure set by the Committee each financial year. The Policy
provides the Committee with the flexibility to choose measures
each financial year that are strongly linked to the specific strategic
and financial priorities in any given financial year.
88
Governance | Remuneration Policy continuedCentrica plc Annual Report and Accounts 2021 The balance and weighting of these factors in the Committee’s
assessment may be adjusted as the key strategic objectives
of the Group develop over time, and the Committee will continue
to consider performance in the round to ensure there is a fair
link between the remuneration outcomes and the shareholder
experience.
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 3 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 proposed 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.
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.
89
GovernanceCentrica plc Annual Report and Accounts 2021 In the case of a corporate action, the Committee can agree, whether
share awards pay out or are rolled over in this situation and how
any special dividend might apply. The Committee also maintains
the discretion to adjust any awards in the event of a variation of
capital, for example to maintain the incentive value at the level
originally intended.
• Maximum – fixed remuneration plus maximum AIP opportunity
and value under the RSP on vesting of 100%; and
• Maximum + 50% share price growth – fixed remuneration
plus maximum AIP opportunity and value under the RSP with
50% share price growth.
Recruitment Policy
The Committee will apply the same remuneration 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 Remuneration
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 Remuneration 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.
The Committee retains discretion, consistent with market practice,
regarding the operation and administration of the incentive plans
including, but not limited to, the following:
• determination of the result of any disputes relating to the
interpretation of the rules;
• determining the appropriate choice of measures, weightings
and time frame of any award, subject to the time frame being
no less than set out in the policy table;
• alteration of the terms of the performance targets during or at
the end of the measurement period if it feels that they are no
longer a fair measure of the Company’s performance, as long
as the new targets are not materially less challenging than the
original ones; and
• determination that any award is forfeit in whole or in part.
The Committee also retains the discretion to forfeit or clawback
deferred awards if it determines that prior performance which
resulted in the AIP being awarded was discovered to be a
misrepresentation of results or inappropriate management behaviour
which fails to reflect the governance or values of the business.
The Committee further has discretion over the determination of
whether a leaver is a ‘leaver by exception’ for incentive plan
purposes subject to the rules of each plan and has discretion
over any adjustments required in certain circumstances.
Total remuneration by performance scenario
The charts below indicate the minimum, on-target and maximum
remuneration that could be received by each Executive, under the
Policy. Assumptions made for each scenario are:
• Minimum – fixed remuneration only (base salary at current level,
together with pension and benefits as set out in the Remuneration
Policy table);
• On-target – fixed remuneration plus target AIP (as set out in the
Remuneration Policy table) and value under the RSP on vesting
of 100%;
Total remuneration by performance scenario (£000)
5,000
4,000
3,000
2,000
1,000
0
90
£4,267
14%
28%
£3,671
33%
43%
37%
24%
21%
£2,877
41%
28%
31%
£892
100%
£1,444
40%
24%
36%
£522
100%
£1,790
32%
39%
29%
£2,078
14%
28%
33%
25%
Minimum
On-Target
Maximum Maximum (with 50%
Minimum
On-Target
CEO
share price appreciation)
Maximum
Maximum (with 50%
share price appreciation)
CFO
Fixed Remuneration
Short-term incentive
Long-term incentive
Share price growth
Governance | Remuneration Policy continuedCentrica plc Annual Report and Accounts 2021
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
Operation and clawback
Maximum opportunity
Performance measures
Changes
Enables the Group to recruit or promote the appropriate individual into a
role, to retain key skills and to provide career opportunities.
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 of 100% of base salary.
Not applicable.
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 Code, 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
Chris O’Shea
Kate Ringrose
Date of appointment to role
Date of current contract
Notice from the Group
Notice from the individual
1 November 2018
18 January 2021
10 December 2020
17 January 2021
12 months
12 months
12 months
12 months
Termination policy
The Committee carefully considers compensation commitments in the event of an Executive Director’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
and other 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 installments 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
Change of control
Executives leaving as a result of resignation will forfeit any potential AIP award for the
performance year in which the resignation occurs.
The AIP award will be prorated for time (based on the proportion of the AIP period elapsed
at the date of change of control).
Exceptions*
LTIP and RSP
Dismissal with cause or
resignation
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 prorating in exceptional circumstances.
Deferred awards may vest immediately or be exchanged for new equivalent awards
in the acquirer where appropriate.
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 50% a deferral in line with
the remuneration policy table.
The Committee has discretion to accelerate the vesting of deferred awards.
All unvested awards will lapse.
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 prorated 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 prorating 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.
91
GovernanceCentrica plc Annual Report and Accounts 2021 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 and 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.
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 (the “Code”). In the Committee’s view, the proposed Policy addresses those factors as set out below:
Principles of the code
Clarity
Remuneration arrangements should be transparent and promote
effective engagement with shareholders and the workforce
Simplicity
Remuneration structures should avoid complexity and their
rationale and operation should be easy to understand
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
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
How the Policy aligns
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
are to be made.
The Committee proactively seeks engagement with shareholders on remuneration matters on an
ongoing basis and whilst no direct engagement with the workforce occurred on the development of
the Remuneration Policy this year, the proposed structure is aligned to that available to our Senior
level employees. Additionally, 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. Details of how the Committee has engaged with the Shadow Board will be disclosed
in next year’s Director’s Remuneration Report and on an ongoing basis.
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 the Group strategy.
The majority of the Executive Directors’ total remuneration is weighted towards variable pay (and
provided in shares).
The proposed changes 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.
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
Remuneration is appropriately balanced between fixed and variable pay.
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
Alignment to culture
Incentive schemes should drive behaviours consistent with the
Group’s purpose, values and strategy
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.
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.
92
Governance | Remuneration Policy continuedCentrica plc Annual Report and Accounts 2021 Non-Executive Directors’ remuneration
Remuneration Policy
Centrica’s policy on Non-Executive Directors’ (Non-Executives) fees takes into account the need to attract the 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
Changes
Not applicable.
No changes to policy.
The maximum level
of fees payable to
Non-Executives, in
aggregate, is set out
in the Articles of
Association.
Chair 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 Chairman of a
Committee of the Board, additional
fees are payable. The Senior
Independent Director also receives
an additional fee.
Current fee levels (applying from
1 January 2016):
Chairman of the Board – up to
£495,000 per annum.
Base fee for Non-Executives –
£72,500 per annum. The following
additional fees apply:
• Chairman of Audit and Risk
Committee – £25,000 per annum;
• Chairman of Remuneration
Committee – £20,000 per annum;
• Chairman of Safety, Environment
and Sustainability Committee
– £20,000 per annum;
• Senior Independent Director –
£20,000 per annum; and
• Employee Champion – £20,000
per annum.
The Company reserves the right to
pay a Committee membership fee
in addition to the base fees.
Non-Executives are able to use
50% of their fees, after appropriate
payroll withholdings, to purchase
Centrica shares. Dealing
commission and stamp duty is paid
by the Non-Executive.
The Non-Executives, including the
Chairman, do not participate in any
of the Company’s share schemes,
incentive plans or pension
schemes.
Non-Executives will be reimbursed
for business expenses relating to
the performance of their duties
including travel, accommodation
and subsistence. In certain
circumstances these, or other
incidental items, may be considered
a ‘benefit in kind’ and if so may be
grossed up for any tax due.
93
GovernanceCentrica plc Annual Report and Accounts 2021 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
reappointment and the length of service for each NED are shown in the table below:
Non Executive Director
Date of appointment
Date of current letter of appointment
Notice from the Group
Notice from the individual
Scott Wheway
Carol Arrowsmith
Stephen Hester
Pam Kaur
Heidi Mottram
Kevin O’Byrne
1 May 2016
11 June 2020
1 June 2016
1 February 2019
1 January 2020
13 May 2019
10 May 2021
10 May 2021
10 May 2021
10 May 2021
10 May 2021
10 May 2021
6 months
3 months
3 months
3 months
3 months
3 months
6 months
3 months
3 months
3 months
3 months
3 months
94
Governance | Remuneration Policy continuedCentrica plc Annual Report and Accounts 2021 Other Statutory Information
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
2021. The Directors’ Report required under the Companies Act
2006 (the Act) comprises this Directors’ and Corporate Governance
Report (pages 48 to 98) including the People and Planet section for
disclosure of our carbon emissions in the Strategic Report (page 35).
The management report required under Disclosure Guidance and
Transparency Rule 4.1.5R comprises the Strategic Report (pages 2
to 46) (which includes the risks relating to our business), Shareholder
Information (page 237) and details of acquisitions and disposals
made by the Group during the year in note 12 (pages 145 to 147).
The Strategic Report on pages 2 to 46 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.
Share capital
The Company has a single share class which is divided into
ordinary shares of 614/81 pence each. The Company was authorised
at the 2021 AGM to allot up to 1,956,190,545 ordinary shares
as permitted by the Act. A renewal of a similar authority will be
proposed at the 2022 AGM. The Company’s issued share capital
as at 31 December 2021, together with details of shares issued
during the year, is set out in note 25 to the Financial Statements
on page 174.
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 2021.
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.
Centrica shares
Significant shareholdings
At 31 December 2021, Centrica had received notification of the
following interests in voting rights pursuant to the Disclosure and
Transparency Rules:
Date
notified
% of share
capital(1)
Schroders Investment Management Limited
Bank of America Corporation
Ameriprise Financial, Inc.
BlackRock, Inc.
RWC Asset Management LLP
01.11.21
09.12.21
22.12.21
06.05.21
15.07.21
10.99
5.78
5.07
<5%
<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 23 February 2022,
the Company had received further notifications from Bank of America Corporation
(23.02.22, <5%), Ameriprise Financial, Inc. (18.01.22, <5%) and Schroders Investment
Management Limited (21.01.22, 9.82%). Copies of these, along with historic
notifications and any notifications received since 23 February 2022, can
be found on our website at centrica.com/rnsannouncements.
.
Purchase of shares
As permitted by the Articles, the Company obtained shareholder
authority at the 2021 AGM to purchase its own shares up to
a maximum of 586,857,163 ordinary shares. No shares were
purchased under this authority in 2021. As at 31 December 2021,
no shares were held as treasury shares.
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.
In respect of allocated shares in both the EBT and the SIP Trust,
the Trustees 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 offer 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, 20% of eligible employees
participate in Sharesave and 31% of eligible employees participate in
the SIP. From 2022 all eligible employees globally will be awarded a
Profit Share award.
95
Centrica plc Annual Report and Accounts 2021Governance Index to Directors’ Report and other disclosures
59
95
100 to 111
50 to 53
12
35 and 244
58 to 59
97
94
77
96
30 and 242
Note 11
Page 144
Note 26
Page 174
Notes 19, S2 and
S6 on pages 160 to
161, 185 to 186, 197
to 199
2 to 46
96
62
95
26 to 31
97
Note S8
Page 201
7 to 36
1
38 to 43
56 to 57
95
96
8 to 9
28 to 35
33 to 35
9, 11, 27, 36, 37,
49, 73, 75, 92, 95
and 96
Annual General Meeting (AGM)
Articles of Association
Audit Information
Board of Directors
Business Model
Carbon emissions
Conflicts of Interest
Directors’ indemnities and insurance
Directors’ service contracts and letters
of appointment
Directors’ share interests
Disclosure required under Listing Rule
9.8.4R
Diversity
Dividends
Events after the balance sheet date
Financial instruments
Future developments
Human rights
Internal control over financial reporting
Material shareholdings
People
Political donations and expenditure
Related party transactions
Research and development activities
Results
Risk management
Section 172(1) statement (Director’s
Duty)
Share capital
Speak Up
Stakeholder engagement (including
employees, suppliers and customers)
Sustainability
TCFD
The Company’s approach to investing
in and rewarding its workforce
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 colleagues with disabilities should have full and
fair consideration for all vacancies. We continued to demonstrate our
commitment to interviewing and enabling people with disabilities
who fulfil the minimum criteria during the year. We also provide
training, career development and promotion from which all of our
colleagues can benefit and are working to develop initiatives within
our strategy. We endeavour to retain colleagues in the workforce if
they become disabled during employment.
This commitment was further recognised in December 2021 by our
renewed level 1 Disability Confident Status and 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 in 2021, with an increased emphasis on
neurodiversity. We are 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.
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 members
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. For further information about our efforts
can be found in our People and Planet section on Pages 28 to 37.
Copies of our Modern Slavery Act (MSA) statement and our Human
Rights Policy are available on our website centrica.com.
Workforce
Employee involvement
We remain committed to employee involvement throughout the Group
and regularly consult colleagues to ensure we take account of their
views in decision making. Colleagues are encouraged to participate
via questions and are kept well informed of the performance and
strategy, throughout the year, including financial and economic, of the
Group and other matters of concern through personal briefings,
regular meetings, town halls, email and broadcasts by the Group Chief
Executive, Group Chief Finance Officer and members of the Centrica
Leadership team at key points in the year.
96
Governance | Other Statutory Information continuedCentrica plc Annual Report and Accounts 2021 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 6 and the Business
Reviews on pages 23 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 44
to 46. Further details of the Group’s liquidity position are provided
in notes 24 and S3 to the Financial Statements on pages 171
and 192.
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
UK-adopted international accounting standards, in conformity
with the requirements of Companies Act 2006. The Directors have
also chosen to prepare the parent company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law), including 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 applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
• prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
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
31 December 2021 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.
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 91 details on the
treatment of the executive directors’ pay arrangements, including
the treatment of share schemes in the event of a change of control.
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.
Disclosures required under Listing Rule 9.8.4R
The Company is required to disclose certain information under
Listing Rule 9.8.4R 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 2021 Annual Report and Accounts:
Information
Capitalised interest
(borrowing costs)
Details of long-term
incentive schemes
Waiver of emoluments
by a Director
Location in Annual Report
Financial Statements
Page(s)
139, note 8
Remuneration Report
72 and 76
Remuneration Report
74
97
GovernanceCentrica plc Annual Report and Accounts 2021 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
23 February 2022
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
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.
98
Governance | Other Statutory Information continuedCentrica plc Annual Report and Accounts 2021 Financial
Statements
Independent Auditor’s Report
100
112 Group Income Statement
113 Group Statement of Comprehensive Income
114 Group Statement of Changes in Equity
115 Group Balance Sheet
116 Group Cash Flow Statement
117 Notes to the Financial Statements
211 Company Financial Statements
223 Gas and Liquids Reserves (Unaudited)
224 Five Year Summary (Unaudited)
225 Ofgem Consolidated Segmental Statement
Centrica plc Annual Report and Accounts 2021
99
Independent Auditor’s Report
Report on the audit of the financial statements
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
2021 and of the Group’s profit 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 XIV 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).
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.
100
Centrica plc Annual Report and Accounts 2021Financial Statements Financial Statements | Independent Auditor’s Report continued
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 reversals in respect of Exploration and Production (E&P) assets and the Group’s investment in Nuclear;
• the presentation and accounting for the completed disposal of Direct Energy and the planned disposal of Spirit Norway
and Statfjord; and
• classification, valuation and presentation of non-supply energy contracts.
The second half of 2021 saw a significant increase in gas, power and oil prices which, in the UK, led to some energy suppliers ceasing
to operate. The Group has agreed to take on customers from some of these suppliers through the supplier of last resort (‘SoLR’)
mechanism. This, and the related macro-economic environment, has increased the risk that energy supply contracts are now onerous
as well as heightening the risk of bad debt within the Group’s British Gas Energy and Centrica Business Solutions energy supply
businesses. In the prior year we considered this key audit matter to relate solely to the billed debt provisions. We have expanded the key
audit matter this year to cover other judgements associated with the supply of energy, including the risk of onerous supply contracts
and accounting for transactions under the SoLR mechanism.
In 2021 the Group completed the sale of Direct Energy and announced the planned sale of Spirit Energy’s Norwegian portfolio and
Statfjord fields. The Spirit transactions are expected to complete in the first half of 2022. Given the size of these transactions we have
included a key audit matter related to the presentation and accounting of each transaction.
We have removed “Presentation of the Group Income Statement” as a separate key audit matter as the presentation of items within the
Group income statement is now covered within the individual key audit matters set out above.
Within this report, key audit matters are identified as follows:
! Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the audit of the Group financial statements is £35m (2020: £30m). This materiality was determined on
the basis of a range of metrics including shareholders’ equity, free cash flow and pre-tax profit adjusted for exceptional items and
certain re-measurements.
Materiality of £35m represents 4.6% of final pre-tax profit adjusted for exceptional items and certain re-measurements, 0.9%
of free cash flow and 1.3% of shareholders’ equity.
Scoping
All components of the Group were subject to a full scope audit other than:
• Bord Gáis;
• Non-regulated parts of British Gas Services and Solutions segment;
• New Energy Services (within the Centrica Business Solutions segment); and
• Centrica Storage and the Group’s investment in Nuclear (within the Upstream segment)
These components were each subject to an audit of specified account balances and/or review procedures.
Component materiality levels were set based on the size and audit risk associated with each component on a range of applicable
metrics.
Other than the changes to key audit matters discussed above, there were no significant changes to our audit approach when compared
to 2020.
Significant
changes in
our approach
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.
• Assessing the mitigating actions that could be taken by the
directors to maximise liquidity headroom including continuing
to not pay dividends, a reduction in capital expenditure and
a reduction in discretionary spend.
Our evaluation of 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 2022 and 2023 cash flow forecasts, by
considering actual cash flow performance in 2021, historical
accuracy of the Group forecasts and key assumptions
underpinning the assessment;
• Agreeing the level of committed undrawn facilities of £3.0bn
to signed facility agreements;
• Testing the clerical accuracy of the model used to prepare the cash
flow forecasts and recalculating the level of headroom;
• Assessing the sensitivities run by the directors including the linkage
of these sensitivities to the Group’s principal risks disclosed on
page 40 to 43 of the Annual Report & Accounts. These sensitivities
include a reduction in the Group’s credit rating, a reduction in
commodity prices impacting the profitability of the Group’s
Upstream assets and the return in 2022 of COVID-19 restrictions,
or a worsening macro-economic environment leading to a
decrease in customer cash collection; and
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.
101
Centrica plc Annual Report and Accounts 2021Financial Statements 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.
Key audit matter description
How the scope of our audit
responded to the key audit matter
Judgements associated with accounting for energy supply arrangements to British Gas Energy and Centrica Business
Solutions customers !
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 second half of 2021
saw a significant increase in gas, power and oil prices which, in the UK, led to certain energy
suppliers ceasing to operate. The Group has agreed to take on customers from some of
these suppliers through the supplier of last resort (‘SoLR’) process. This, and the related
macro-economic environment, has increased the risk that energy supply contracts are
onerous as well as heightening the risk of bad debt within the Group’s British Gas and
Centrica Business Solutions energy supply businesses.
adopted by management and challenged whether it is
in line with IAS 37 ‘Provisions, Contingent Liabilities and
Contingent Assets’.
Energy supply onerous contract provision
• We obtained an understanding of the relevant methodology
• We assessed future gross margin forecasts through reviewing
historic gross margins and assessing the reasonableness of any
adjustments made to normalise future margins relative to
historic performance.
• We assessed management’s customer churn assumptions
through assessing historical churn rates and evaluating the
factors which may increase or decrease customer churn.
• With involvement of our data analytics specialists, where
relevant, we analysed the customer churn data used within
management’s onerous contract assessment and agreed
the data to the customers ageing report. We have also
performed direct testing, where relevant, to substantiate
the reasonableness of customer ageing profiles.
• We challenged whether overhead costs were directly
attributable to the onerous contracts and were appropriately
estimated, by considering their categories and nature.
• We assessed the appropriateness of nil % discount rate and
whether it represented a market risk-free rate.
• We assessed the appropriateness of management’s disclosures
within the financial statements including the key assumptions
and sensitivities disclosed. We also assessed whether the
presentation within the exceptional items and certain
re-measurements column of the Group income statement was
appropriate.
SoLR claim
• We reviewed correspondence between the Group and Ofgem
to confirm that the Group had been appointed as the relevant
SoLR, and assessed whether the SoLR mechanism met the
definition of a government grant under IAS 20 ‘Accounting for
Government Grants and Disclosure of Government Assistance’.
• We tested a sample of costs incurred in the current year
in acquiring and servicing SoLR customers to supporting
documentation and assessed whether these are incremental
by nature.
• We verified the Group’s claims made to date under the SoLR
mechanism to Ofgem correspondence to assess whether
claimed costs will be reimbursed.
• We assessed the appropriateness of management’s
disclosures.
The Group has recorded an onerous contract provision relating to energy supply contracts
within British Gas Energy and Centrica Business Solutions of £2,530m. Credit losses of
£104m have been recognised in the year on amounts due of £2,012m from the supply
of energy to customers. £234m has been recognised under Ofgem’s SoLR process as
a receivable offsetting losses incurred and customer credit balances recognised for
customers taken on through the SoLR process.
Further details on the accounting policies for these areas, including the SoLR claims can be
found in note 1b. Further detail on the judgements associated with onerous contracts can be
found in note 3(b). Details on credit losses relating to trade receivables can be found in note
17. These matters also considered by the Audit and Risk Committee in its report on pages
64 to 68.
Energy supply onerous contract provision
The Group enters into hedges to fix the cost of certain future gas and power purchases.
Mark-to-market gains relating to these hedges have been recognised at fair value within
the exceptional items and certain re-measurements column of the Group income statement.
As these hedges mature and the gas and electricity is purchased, fair value losses will be
recognised. The recognition of these charges in future periods will render certain energy
supply arrangements as loss-making, and therefore an onerous contract provision is
required and is accounted for in line with IAS 37 ‘Provisions, Contingent Liabilities and
Contingent Assets’. This amounts to £2,530m as at 31 December 2021.
The key assumptions adopted in estimating this provision include the future gross margin
earned from supplying gas and power and customer churn rates, which determine which
energy supply arrangements are likely to be loss making over their duration, and which are
likely to be profitable and therefore are not included in the provision. Other assumptions
include the allocation of overhead costs and selection of the appropriate discount rate.
The onerous contract provision has been recorded within the exceptional items and certain
re-measurements column of the Group income statement.
SoLR claim
Under Ofgem’s licence conditions and based on accepted SoLR bids, the Group is entitled
to claim all incremental costs reasonably incurred in supplying customers taken on through
the SoLR process. These include all losses in supplying those customers and customer
credit balances. As at 31 December 2021 an asset of £234m has been recognised which
offsets the losses incurred by the Group in taking on and supplying these customers in 2021,
together with the related customer’s credit balances. These arrangements have been
accounted for as a government grant under IAS 20 ‘Accounting for Government Grants
and Disclosure of Government Assistance’.
102
Financial Statements | Independent Auditor’s Report continuedCentrica plc Annual Report and Accounts 2021
Financial Statements | Independent Auditor’s Report continued
Key audit matter description
How the scope of our audit
responded to the key audit matter
Judgements associated with accounting for energy supply arrangements to British Gas Energy and Centrica Business
Solutions customers (continued) !
Billed debt provision
Current macro-economic uncertainties including rising energy bills, a general increase in the
cost of living and rising inflation lead to judgement in estimating the expected credit losses
on customers receivables in British Gas Energy and Centrica Business Solutions. Key
assumptions include the timing and impact of these macroeconomic factors and their
impact on the ability of customers to pay their bills. A credit loss charge of £104m has been
recognised in the year. Total receivables from British Gas and Centrica Business Solutions
energy customers were £2,012m as at 31 December 2021, against which a total provision
of £587m is held, including a £30m macroeconomic provision.
Given the judgements involved in these areas, including the risk of management bias,
we identified a risk of fraud in the recording of credit losses within British Gas Energy
and Centrica Business Solutions.
Billed debt provision
• Our audit approach for the bad debt provisions was a
combination of data analytics, substantive audit procedures
and tests of internal control.
• We understood the cash collection processes and relevant
controls over the recording of bad debt provisions.
We tested and relied upon controls relevant to the
calculation of 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 2020
were collected over 2021 in order to estimate an expected
profile of the recovery of 31 December 2021 balances,
on a ‘business as usual basis’. We applied this profile
to 31 December 2021 debt and then assessed:
– how cash collection could change, based on the timing
and severity of cost of living changes; and
– management’s accounting for the impact of these
changes in the billed debt provision estimate.
• We assessed management’s disclosures of this key source of
estimation uncertainty, and the range of sensitivities disclosed.
Key observations
We are satisfied that certain energy supply contracts within the British Gas Energy and Centrica Business Solutions segments are onerous and that the charge
of £2,530m has been appropriately estimated. We are satisfied that the charge has been correctly presented within the exceptional items and certain
re-measurements column of the Group income statement.
We are satisfied that the Group’s SoLR claims meet the definition of a government grant under IAS 20 ‘Accounting for Government Grants and Disclosure of
Government Assistance’ and that the receivable of £234m has been appropriately recognised.
We are satisfied that the Group’s bad debt provisions including the £30m macroeconomic provision are within an acceptable range.
103
Centrica plc Annual Report and Accounts 2021Financial Statements
Key audit matter description
How the scope of our audit
responded to the key audit matter
Impairment reversals in respect of Exploration and Production (E&P) assets and the Group’s investment in Nuclear
The Group holds significant upstream exploration and production assets and a 20%
investment in certain of the UK’s nuclear power stations, which are required to be
reviewed for indicators of impairment, or impairment reversal as appropriate.
The total pre-impairment book value of exploration and production assets at 31 December
2021 is £640m and the total book value of the investment in Nuclear is £843m. Management
have recorded a pre-tax impairment reversal of £1,585m against these assets, including
£838m on exploration and production assets and £747m on the investment in Nuclear,
primarily due to higher gas, oil and power prices in the near and medium term, as disclosed
in note 7.
Further details on the key sources of estimation uncertainty underpinning the impairment
reversals 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 pages
64 to 68.
The significant increase in near- and medium-term gas, oil and power prices has increased
the risk a reversal of prior impairments recorded is required. We therefore identified a risk of
material misstatement and a key audit matter around the valuation of these assets for
impairment testing purposes.
The impairment reversals have been recorded within the exceptional items and certain
re-measurements column of the Group income statement.
The key assumptions and judgements underpinning the impairment reviews of exploration
and production assets and 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 production or generation profiles of the assets;
• forecast future cash flows for the assets;
• estimates of oil and gas reserves specific to each asset, evaluated by third-party
experts;
• availability forecasts in respect of the nuclear power stations;
• useful life estimates; and
• the discount rate.
Furthermore, impairment reversals are capped at the original cost of these assets,
less related depreciation. Therefore, the assessment of the level of the cap is critical
in determining the level of impairment reversal recognised.
We identified a risk of fraud in the future generation profiles adopted in the Nuclear
impairment review as there may be a risk of bias in the assumptions adopted.
Procedures on the overall impairment review:
• We understood management’s process for identifying
indicators of impairment and impairment reversals 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 in evaluating
management’s discount rates, which involved benchmarking
against available market views and analysis.
• We tested the arithmetical accuracy of the impairment
models.
• We evaluated the impairment reversal judgements taken,
with reference to our assessment of the key assumptions
as outlined above and the outcome of the sensitivities
performed.
• We tested the historical cost of the assets and the related
depreciation, to assess whether impairment reversals were
capped at these values, where relevant.
• 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 board’s approved forecasts, where relevant, and analysed
reasonably possible downside sensitivities.
• We validated oil and gas production profiles to external reserve
and operator estimates and agreed these to the cash flow
forecasts.
• We agreed estimates of oil and gas reserves to third party
reserve reports, assessing the competence, capabilities
and objectivity of those third-party experts engaged
by management.
• We assessed the reasonableness of the Nuclear plants’
availability forecasts and estimated useful lives and sensitised
the impact of a change in assumptions on the overall
impairment charge.
• We evaluated the Group’s estimation of future commodity
prices with involvement of our own internal specialists,
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.
Key observations
We are satisfied that the key assumptions used to determine the recoverable amount of long-life assets are appropriate, including estimates of reserves,
production and availability forecast. We are also satisfied that the Group’s discount rate assumptions are determined based on acceptable valuation
methodologies and, when considered alongside other key assumptions, are appropriate.
The Group’s future commodity price estimates are at 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 oil and gas prices were above the assumed prices in the net zero scenario, with forecasts
for oil and gas being above a Net Zero curve, although forecasts for power were below a Net Zero curve. 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 has capped certain impairment reversals at the original cost of those assets, less related depreciation, where appropriate.
Based on the procedures performed we are satisfied that the Group’s impairment reversals are appropriate and that the recording of the impairment reversals
within the exceptional items and certain re-measurements column of the Group income statement is consistent with Group policy.
104
Financial Statements | Independent Auditor’s Report continuedCentrica plc Annual Report and Accounts 2021
Key audit matter description
How the scope of our audit
responded to the key audit matter
The presentation and accounting for the disposal of Direct Energy and the planned disposal of Spirit Norway and Statfjord !
On 5 January 2021, the Group completed the sale of Direct Energy to NRG Energy Inc
(‘NRG’), recognising a £624m post-tax gain on disposal.
The sale of Direct Energy
• We verified the consideration to the signed share purchase
On 8 December 2021, the Group announced the sale of Spirit Energy’s portfolio of
Norwegian assets and the Statfjord fields (together the ‘Spirit disposal group’) to Sval Energi
AS and Equinor, respectively. Following the proposed sale, an impairment of £244m has
been recorded, including a goodwill impairment of £198m and the write off of the remaining
Spirit exploration and evaluation assets of £33m. Transaction and other costs total £13m.
Details and judgements on assets and liabilities of disposal groups classified as held for sale
and discontinued operations relating to the sale of Direct Energy, and the planned sale of
Spirit Norway and the Statfjord fields can be found in note 3(a) and note 12. The matter is
also considered by the Audit and Risk Committee in its report on pages 64 to 68.
agreement, bank statements and other supporting evidence,
including the final agreed working capital adjustments.
• We recomputed the final gain on disposal.
• We evaluated whether Direct Energy has been correctly
presented within the financial statements as a discontinued
operation and that the post-tax gain on disposal of £624m has
been correctly presented as an exceptional item under Group
policy within the exceptional items and certain remeasurement
column of the Group income statement.
We identified a risk that the transactions had not been correctly presented and accounted
for in accordance with applicable accounting standards, including IFRS 5 ‘Assets held for
sale and discontinued operations’.
The sale of Direct Energy
The Group completed the sale of Direct Energy to NRG for £2,703m, net of transaction costs
of £31m. The £624m post-tax gain on disposal has been presented as an exceptional item
within discontinued operations in the exceptional items and certain re-measurements
column of the Group income statement.
Spirit disposal group
A total headline consideration for Spirit disposal group was £795m. Further deferred
contingency payments will be payable upon completion, currently estimated at £47m. The
final consideration receivable will be reduced for net cash flows generated by the Spirit
disposal group from 1 January 2021 to the final disposal date. The Group also announced
plans to limit capital expenditure and cease exploration within the retained Spirit business.
The transaction is subject to approvals by Centrica and Stadtwerke München GmbH
(‘SWM’) shareholders, representing the majority and minority shareholders of Spirit Energy
respectively.
The Spirit disposal group has been presented as ‘held for sale’ at 31 December 2021 in
accordance with IFRS 5 ‘Assets held for sale and discontinued operations’, but is not
presented as a discontinued operation. This is because the transactions do not represent
an exit from a major line of business (not being a separate segment as reported in note 4),
and does not represent an exit from a separate geographical area as the group retains oil
and gas assets within Europe.
Spirit disposal group
• We verified the key terms of the transactions to the share
purchase agreements.
• We assessed whether the disposal group met the criteria to
be classified as held for sale at the balance sheet date. This
included enquiring with key members of management on the
status of approvals at both Centrica and SWM. We also
reviewed the joint Centrica and SWM steering committee
documents to assess the status of the transactions and the
key conditions attached to the closing of the sale.
• We assessed whether the disposal group met the definition
of a discontinued operation, including assessing the size
of the Spirit disposal group to the rest of the Group, and
its geographic footprint.
• We performed substantive testing procedures to audit the
results generated by the disposal group in 2021.
• We recomputed and verified to the share purchase agreement
the forecast consideration and recomputed the impairment
charge recorded of £198m. This included assessing the
allocation of goodwill to the disposal group and the retained
business.
• We reviewed the announcements made around the future plans
for the retained Spirit business and assessed the write down of
the remaining Spirit exploration and evaluation assets of £33m.
• We assessed the disclosures within the financial statements,
including whether the impairment charges of £244m have been
correctly recorded within the exceptional items and certain
re-measurements column of the Group income statement.
We also assessed the appropriateness of management’s
disclosures of determining the recoverable amount of Spirit
disposal group as a key source of estimation uncertainty.
Key observations
We are satisfied that the sale of Direct Energy has been appropriately accounted for and disclosed within the financial statements, including its presentation
as a discontinued operation.
We agree that the Spirit disposal group met the criteria to be classified as held for sale at the balance sheet date, but does not meet the definition
of a discontinued operation.
We are satisfied with the final impairment charge recorded of £244m and that this has been correctly recorded within the exceptional items and certain
re-measurements column of the Group income statement.
105
Centrica plc Annual Report and Accounts 2021Financial Statements
Key audit matter description
Classification, valuation and presentation of energy contracts
How the scope of our audit
responded to the key audit matter
As disclosed in note 7 to the financial statements, a re-measurements gain of £1,289m on
energy derivative contracts have 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 pages 64 to 68.
The critical accounting judgement in respect of Liquefied Natural Gas (‘LNG’) is disclosed in
note 3(a) and the long term LNG commitments are disclosed in note 23. These matters are
also reported on pages 64 to 68 of the Audit and Risk Committee’s report.
Valuation of complex derivatives
• We understood the Group’s processes and controls for
authorising and recording commodity trades.
• We have understood management’s process and tested
the relevant controls relating to the valuation of complex
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.
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. Others are treated as ‘own
use’ activities as permitted by IFRS 9 ‘Financial Instruments’. We identified a key audit
matter related to the following:
• 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. We also assessed the
movement in the fair values based on the change in significant
inputs, while testing these inputs, where relevant.
• Valuation of complex commodity trades
We identified the valuation of complex derivative trades performed internally by
management’s valuation specialists as having a risk of material misstatement due
to error. This is because judgement is required in valuing derivative contracts, particularly
where there is modelling complexity and bespoke contractual terms (level 3 in
accordance with IFRS 13 ‘Fair Value Measurement’).
The value of complex commodity trades increased this year due to the significant rise
in commodity prices in the second half of 2021 and this heightened the level of risk.
• LNG contracts
The Group does not consider its long term LNG supply contracts to be derivatives
because these contracts are entered into for the receipt and delivery of physical
commodity in accordance with expected purchase and sales requirements (i.e.
are determined to be for the Group’s own use). Such contracts are therefore outside the
scope of IFRS 9 ‘Financial Instruments’ and are not marked to market. These contracts
are significant commitments and therefore this judgement is important and our
assessment of this judgement is therefore part of our key audit matter.
• Other own use contracts
Certain other commodity contracts have been entered into for the purposes of securing
commodities for the energy supply businesses or for selling the Group’s commodity
production. Where contracts have been entered into to satisfy the Group’s normal
business activities, these have also been determined to be own use contracts and
consequently are not recorded at fair value. Management performed retrospective and
prospective demand tests as part of the own use assessment. Due to the size and value
of these contracts we identified the appropriateness of the own use treatment of these
contracts as another aspect of this key audit matter.
LNG contracts
• We assessed whether the Group’s LNG contracts meet the
definition under IFRS 9 ‘Financial Instruments’ to be classified
as own-use, including analysing the LNG cargos in the year,
assessing whether the cargos delivered were consistent with
an own use business and that a past practice of net settling
the LNG contracts had not been established.
Other own use contracts
• We reviewed the Group’s material own use contracts to
determine whether the application of the own-use treatment
under IFRS 9 was appropriate.
• We tested the prospective and retrospective demand tests
performed by the Group to determine whether the contract
volumes exceed the amount of estimated own use demand
in the relevant periods. This also included an evaluation
of the contracts for net settlement activity.
• We assessed plans to amend certain own-use contracts
in the year to ensure whether such plans would invalidate
the own use assessment.
Key observations
We are satisfied that complex derivative trades are valued on a reasonable basis and that the accounting classification and valuation of such trades
is appropriate.
We are satisfied with the conclusion that LNG contracts should not be accounted for at fair value because they meet the criteria to be classified as own use.
We are satisfied with the appropriateness of the Group’s own-use accounting across the wider group.
106
Financial Statements | Independent Auditor’s Report continuedCentrica plc Annual Report and Accounts 2021
Our application of materiality
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 materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Materiality
£35 million (2020: £30 million)
£33 million (2020: £28 million)
Basis for determining
materiality
Rationale for the
benchmark applied
We determined materiality on the basis of a range of applicable
metrics including free cash flow, shareholders’ equity and pre-tax
profit adjusted for exceptional items and certain re-measurements.
The range was £35-45m.
Materiality of £35m represents 4.6% of final pre-tax profit adjusted
for exceptional items and certain re-measurements, 0.9% of free
cash flow and 1.3% of shareholders’ equity.
In the prior year, materiality was based on the same range of
applicable metrics and represented 6.3% of final pre-tax profit
adjusted for exceptional items and certain re-measurements, 2.3%
of shareholder’s equity and 4.3% of free cash flow.
We consider it appropriate to consider a range of applicable metrics
in establishing materiality, because of the complexity of the income
statement arising from significant exceptional items, re-measurements
and discontinued operations, and the importance of cash flow and
balance sheet metrics to users of the financial statements. We
considered our established materiality against the final audit results
and concluded that it remained appropriate in the context of the
financial statements as a whole.
We determined company materiality based
on 1.0% (2020: 1.0%) of estimated net assets
but capped materiality at 95% (2020: 95%)
of Group materiality. Our final materiality
constituted 0.6% of net assets (2020: 0.6%
of net assets).
We considered net assets to be the most
appropriate benchmark given the primary
purpose of the company is a holding
company
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% (2020: 70%) of group materiality
70% (2020: 70%) of parent 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.
Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all individual audit differences in excess of £5m (2020:
£5m), and in aggregate all audit differences in excess of £1.8m (2020: £1.5m) 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.
107
Centrica plc Annual Report and Accounts 2021Financial Statements An overview of the scope of our audit
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 these businesses as the basis for identifying and scoping
components. During 2021 the Group completed the sale of the
Direct Energy segment. There were no other substantial changes
in the remaining segments listed below.
Segment
Business
British Gas Energy
British Gas Energy
British Gas Services and Solutions
Regulated entities
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.
Audit scope
Full scope audit
Full scope audit
Non-regulated parts of British Gas Services
and Solutions segment
Review procedures
Bord Gáis Energy
Bord Gáis Energy
Audit of specified account balances
Energy, Marketing & Trading
Energy, Marketing & Trading
Full scope audit
Centrica Business Solutions
New Energy Services
Audit of specified account balances
Upstream
Energy supply
Nuclear
Spirit Energy
Full scope audit
Audit of specified account balances
Full scope audit
Centrica Storage
Audit of specified account balances
This scoping resulted in 96% of Group revenue, 98% of Group
adjusted profit before tax and 92% of Group shareholders’ equity
being subject to audit. The equivalent figures in 2020 were 95% of
Group revenue, 99% of final pre-tax profit adjusted for exceptional
items and 90% of shareholders’ equity.
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 includes the
Group’s SAP general ledger and consolidation financial reporting
systems, the SAP revenue reporting systems in British Gas Energy,
CBS Energy and Bord Gáis Energy, the Endur trading system in
Energy, Marketing and Trading, and Workday used to manage the
Group’s payroll processes.
Our consideration of climate-related risks
We reviewed management’s climate change risk assessment
and evaluated the completeness of identified risks and the impact
on the financial statements. We also considered climate change
within our audit risk assessment process.
Management’s identified risks of material misstatement included:
• Consideration of the Net Zero price scenario in non-current asset
impairment tests (other than goodwill);
• Consideration of transition risks in goodwill impairment tests.
Management’s conclusion is that climate change, at present, does
not materially impact the valuation of goodwill as disclosed in note
15(b), principally relating to energy supply, the services business
and Energy Marketing & Trading.
Our response to identified the Net Zero price risk scenario is
documented within the ‘Impairment reversals of Exploration and
Production (E&P) assets and the Group’s investment in Nuclear’
key audit matter.
With the involvement of our climate specialists, we:
• evaluated financial statement disclosures to assess whether
climate risk assumptions underpinning specific account balances
were appropriately disclosed;
• 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; and
• assessed the Task Force on Climate-related Financial Disclosures
(‘TCFD’) for compliance against the recommendations of the TCFD
framework.
Working with other auditors
All components except for Bord Gáis Energy are audited from the
UK and we oversee all component audits through regular meetings
and direct supervision.
Due to COVID-19 and the restrictions on travel, we were not able
to visit Ireland during the year. However, as COVID-19 restrictions
in the UK eased, we were able to interact in person with our UK
component teams including holding a 2-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.
108
Financial Statements | Independent Auditor’s Report continuedCentrica plc Annual Report and Accounts 2021 A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
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.
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.
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:
• credit losses on billed debt;
• the valuation of unbilled receivables; and
• impairment reversals in respect of the Group’s investment
in Nuclear.
In common with all audits under ISAs (UK), we are also required to
perform specific procedures to respond to the risk of management
override.
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. In addition
to our direct interactions, we sent detailed instructions to our
component audit teams, attended audit closing meetings,
and reviewed their audit working papers.
We are satisfied that the level of involvement of the lead audit partner
and group audit team in the component audits has been extensive,
despite the restrictions from COVID-19 and the impact of remote
working, 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.
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.
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.
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 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 these financial statements.
109
Centrica plc Annual Report and Accounts 2021Financial Statements 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 and 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.
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) impairment
reversals in respect of the Group’s investment in Nuclear and (2)
credit losses on billed debt. 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 to
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; 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.
In addressing the risk of fraud in the valuation of unbilled revenue,
we involved data analytics specialists in recalculating unbilled
revenue recorded by the Group’s billing systems.
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
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.
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 97;
• 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 44 to 46;
• the directors’ statement on fair, balanced and understandable
set out on page 62;
• the Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 39;
• the section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 62; and
• the section describing the work of the Audit and Risk Committee
set out on pages 61 to 68.
110
Financial Statements | Independent Auditor’s Report continuedCentrica plc Annual Report and Accounts 2021 Matters on which we are required to report
by exception
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.
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.
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) 4.1.14R, 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.
James Leigh FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
23 February 2022
Other matters which we are required
to address
Auditor tenure
Following the recommendation of the Audit and Risk Committee,
we were appointed by shareholders on 10 May 2021 to audit the
financial statements for the year ending 31 December 2021 and
subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments
of the firm is 5 years, covering the years ending 31 December 2017
to 31 December 2021.
Consistency of the audit report with the additional
report to the Audit and 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).
111
Centrica plc Annual Report and Accounts 2021Financial Statements Financial Statements
Group Income Statement
Results for
the year
£m
12,249
(8,498)
(632)
3,119
(1,714)
(195)
(2,700)
4,118
(632)
786
–
–
(1,319)
(1,319)
(274)
(1,593)
(274)
(3,502)
(2)
(809)
–
(809)
187
(622)
102
(520)
(337)
(183)
21
(362)
(215)
(577)
145
(432)
315
(117)
41
(158)
Pence
0.7
0.7
(4.7)
(4.7)
–
–
2021
Business
performance
£m
Exceptional
items and certain
re-measurements
£m
Results for
the year
£m
Business
performance
£m
2020
Exceptional
items and certain
re-measurements
£m
14,744
(12,681)
14,949
(12,616)
18,300
(15,430)
–
2,870
(1,703)
(116)
–
–
(1,819)
(103)
948
(187)
761
(454)
307
–
307
237
70
Year ended 31 December
Continuing operations
Group revenue
Cost of sales (i)
Re-measurement and settlement of derivative
energy contracts
Gross profit
Operating costs before exceptional items and credit
losses on financial assets
Credit losses on financial assets
Exceptional items – net impairment
reversals/(impairments)
Exceptional items – net restructuring cost
reversals/(charge) and other
Operating costs
Share of (losses)/profits of joint ventures and associates,
net of interest and taxation
Group operating profit/(loss)
Net finance cost
Profit/(loss) from continuing operations
before taxation
Notes
4,7
5,7
7
4,7
5
5,17
7
7
5
6
4
8
Taxation on profit/(loss) from continuing operations
7,9
Profit/(loss) from continuing operations
after taxation
Discontinued operations (ii)
Profit/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per ordinary share
From continuing and discontinued operations
Basic
Diluted
From continuing operations
Basic
Diluted
Interim dividend paid per ordinary share
Final dividend proposed per ordinary share
7,12
10
10
10
10
11
11
(3,556)
2,749
(434)
(1,241)
–
–
(434)
1,629
(1,703)
(116)
1,218
1,218
29
1,247
–
6
–
6
236
242
624
866
973
(107)
29
(572)
(103)
954
(187)
767
(218)
549
624
1,173
1,210
(37)
Pence
20.7
20.5
10.0
9.9
–
–
–
2,333
(1,714)
(195)
–
–
(1,909)
23
447
(215)
232
(42)
190
213
403
378
25
(i) Cost of sales includes £2,530 million (2020: £nil) of onerous energy supply contract provision within the certain re-measurements column. See note 3.
(ii) Profit from discontinued operations is entirely attributable to equity holders of the parent.
The notes on pages 117 to 210 form part of these Financial Statements.
112
Centrica plc Annual Report and Accounts 2021
Group Statement of Comprehensive Income
Year ended 31 December
Profit/(loss) for the year
Other comprehensive income/(loss)
Items that will be or have been reclassified to the Group Income Statement:
Impact of cash flow hedging (net of taxation)
Exchange differences on translation of foreign operations (i)
Exchange differences reclassified to Group Income Statement on disposal (i)
(Losses)/gains on net investment hedging (net of taxation) (ii)
Items that will not be reclassified to the Group Income Statement:
Net actuarial gains/(losses) on defined benefit pension schemes (net of taxation)
Gains/(losses) on revaluation of equity instruments measured at fair value through other comprehensive
income (net of taxation)
Share of other comprehensive income of associates, net of taxation
Other comprehensive income/(loss), net of taxation
Total comprehensive income/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income/(loss) attributable to owners of the parent arises from:
Continuing operations
Discontinued operations
Notes
2021
£m
1,173
S4
S4
S4
S4
S4
S4
14,S4
S11
2020
£m
(117)
9
(54)
12
40
(6)
(49)
(20)
(40)
144
(379)
3
(4)
152
184
1,357
1,397
(40)
833
564
1,397
58
(318)
(435)
(277)
(158)
(571)
294
(277)
(i) Exchange differences on translation of foreign operations includes £46 million (2020: £50 million) of losses attributable to the equity holders of the parent, and £3 million (2020: £4 million)
of losses attributable to non-controlling interests. Exchange differences reclassified to Group Income Statement on disposal includes a £20 million gain (2020: £8 million loss) attributable
to the equity holders of the parent, and £nil (2020: £4 million loss) attributable to non-controlling interests. See note S4.
(ii) The Group recommenced its strategy of net investment hedging in advance of the disposal of Direct Energy. See note S2 for details.
The notes on pages 117 to 210 form part of these Financial Statements.
Centrica plc Annual Report and Accounts 2021
113
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements
Group Statement of Changes in Equity
1 January 2020
Profit/(loss) for the year
Other comprehensive loss
Total comprehensive income/(loss)
Employee share schemes and other
share transactions
31 December 2020
Profit/(loss) for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Employee share schemes and other
share transactions
31 December 2021
Share
capital
£m
360
–
–
–
1
361
–
–
–
2
363
Share
premium
£m
2,330
–
–
–
17
2,347
–
–
–
30
2,377
Retained
earnings
£m
(869)
41
–
41
(8)
(836)
1,210
–
1,210
3
377
Other
equity
£m
(609)
–
(318)
(318)
12
(915)
–
187
187
(24)
(752)
Total
£m
1,212
41
(318)
(277)
22
957
1,210
187
1,397
11
2,365
Non-controlling
interests
£m
583
(158)
–
(158)
–
425
(37)
(3)
(40)
–
385
Total
equity
£m
1,795
(117)
(318)
(435)
22
1,382
1,173
184
1,357
11
2,750
The notes on pages 117 to 210 form part of these Financial Statements.
114
Centrica plc Annual Report and Accounts 2021
Group Balance Sheet
Non-current assets
Property, plant and equipment
Interests in joint ventures and associates
Other intangible assets
Goodwill
Deferred tax assets
Trade and other receivables, and contract-related assets
Derivative financial instruments
Retirement benefit assets
Securities
Current assets
Trade and other receivables, and contract-related assets
Inventories
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Assets of disposal groups classified as held for sale
Total assets
Current liabilities
Derivative financial instruments
Trade and other payables, and contract-related liabilities
Current tax liabilities
Provisions for other liabilities and charges
Bank overdrafts, loans and other borrowings
Liabilities of disposal groups classified as held for sale
Non-current liabilities
Deferred tax liabilities
Derivative financial instruments
Trade and other payables, and contract-related liabilities
Provisions for other liabilities and charges
Retirement benefit obligations
Bank loans and other borrowings
Total liabilities
Net assets
Share capital
Share premium
Retained earnings
Other equity
Total shareholders’ equity
Non-controlling interests
Total shareholders’ equity and non-controlling interests
31 December
2021
£m
31 December
2020
£m
Notes
13
14
15
15
16
17
19
22
24
17
18
19
24
12
19
20
21
24
12
16
19
20
21
22
24
25
S4
S11
1,985
1,628
760
401
823
233
1,005
231
135
7,201
5,881
644
6,545
83
5,060
18,213
1,672
19,885
27,086
(4,929)
(7,513)
(333)
(2,769)
(1,204)
(16,748)
(1,228)
(17,976)
(36)
(1,080)
(120)
(1,454)
(231)
(3,439)
(6,360)
2,643
843
1,011
929
636
145
366
–
134
6,707
2,801
324
1,224
132
1,820
6,301
4,111
10,412
17,119
(747)
(3,722)
(235)
(188)
(787)
(5,679)
(1,986)
(7,665)
(149)
(181)
(114)
(2,438)
(601)
(4,589)
(8,072)
(24,336)
(15,737)
2,750
363
2,377
377
(752)
2,365
385
2,750
1,382
361
2,347
(836)
(915)
957
425
1,382
The Financial Statements on pages 112 to 210, of which the notes on pages 117 to 210 form part, were approved and authorised for issue
by the Board of Directors on 23 February 2022 and were signed below on its behalf by:
Chris O’Shea
Group Chief Executive
Kate Ringrose
Group Chief Financial Officer
Centrica plc Registered No: 03033654
Centrica plc Annual Report and Accounts 2021
115
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements
Group Cash Flow Statement
Year ended 31 December
Continuing operations:
Group operating profit/(loss) including share of results of joint ventures and associates
Add back/(deduct) share of losses/(profits) of joint ventures and associates, net of interest and taxation
Group operating profit/(loss) before share of results of joint ventures and associates
Add back/(deduct):
Depreciation, amortisation, write-downs, impairments and write-backs
Loss on disposals
Increase in provisions
Cash contributions to defined benefit schemes in excess of service cost income statement charge
Employee share scheme costs
Unrealised gains arising from re-measurement of energy contracts
Exceptional charges reflected directly in operating profit
Operating cash flows before movements in working capital relating to business performance and payments relating to
taxes and exceptional charges
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables and contract-related assets relating to business performance
Increase/(decrease) in trade and other payables and contract-related liabilities relating to business performance
Operating cash flows before payments relating to taxes and exceptional charges
Taxes paid
Payments relating to exceptional charges in operating costs
Net cash flow from continuing operating activities
Net cash flow from discontinued operating activities
Net cash flow from operating activities
Continuing operations:
Purchase of businesses, net of cash acquired
Sale of businesses
Purchase of property, plant and equipment and intangible assets
Sale of property, plant and equipment and intangible assets
Disposal of/(investments in) joint ventures and associates
Dividends received from joint ventures and associates
Receipt of sub-lease capital payments
Interest received
Settlement and sale of securities
Net cash flow from continuing investing activities
Net cash flow from discontinued investing activities
Net cash flow from investing activities
Continuing operations:
Payments for own shares
Proceeds from sale of forfeited share capital
Financing interest paid
Repayment of borrowings and capital element of leases
Net cash flow from continuing financing activities
Net cash flow from discontinued financing activities
Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents including overdrafts, and cash classified as held for sale at 1 January
Effect of foreign exchange rate changes
Cash and cash equivalents including overdrafts at 31 December
Included in the following line of the Group Balance Sheet:
Cash and cash equivalents
Overdrafts included within current bank overdrafts, loans and other borrowings
Assets of disposal groups classified as held for sale
The notes on pages 117 to 210 form part of these Financial Statements.
116
Centrica plc Annual Report and Accounts 2021
Notes
6
9
7
12
12
4
14
14
24
24
12
S4
24
24
12
24
2021
£m
954
103
1,057
(415)
28
2,434
(388)
12
(1,159)
12
1,581
(361)
(3,358)
3,965
1,827
(140)
(76)
1,611
–
1,611
(14)
70
(420)
36
2
2
–
2
(3)
(325)
2,588
2,263
–
1
(233)
(706)
(938)
–
(938)
2,936
1,393
(1)
4,328
5,060
(750)
18
2020
£m
(362)
(21)
(383)
2,217
28
46
(42)
34
(666)
49
1,283
4
363
(571)
1,079
(2)
(120)
957
443
1,400
–
43
(489)
–
(10)
62
3
7
121
(263)
(22)
(285)
(30)
–
(202)
(234)
(466)
(16)
(482)
633
794
(34)
1,393
1,820
(534)
107
Notes to the Financial Statements
Notes to the Financial Statements provide additional
information required by statute, accounting standards or
Listing Rules to explain a particular feature of the
consolidated Financial Statements.
The notes to these Financial Statements focus on areas that
are key to understanding our business. Additional information
that we are required to disclose by accounting standards or
regulation is disclosed in the Supplementary Information
(notes S1 to S11).
In addition, for clarity, notes begin with a simple introduction
outlining its purpose.
1. Basis of preparation and summary of significant
new accounting policies and reporting changes
This section details new accounting standards, amendments
to standards and interpretations, whether these are effective
in 2021 or later years, and if and how these are expected to
impact the financial position and performance of the Group.
The principal accounting policies applied in the preparation of these
consolidated Financial Statements are set out below and in the
Supplementary Information (note S2). Unless otherwise stated, these
policies have been consistently applied to the years presented.
(a) Basis of preparation
The consolidated Financial Statements 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.
The consolidated Financial Statements have been prepared on the
historical cost basis except for: certain gas and oil inventory, derivative
financial instruments, financial instruments required to be measured at
fair value through profit or loss or other comprehensive income, and
those financial instruments so designated at initial recognition, and the
assets of the Group’s defined benefit pension schemes that have
been measured at fair value; the liabilities of the Group’s 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.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It requires
management to exercise its judgement in the process of applying the
Group’s accounting policies. The areas involving a higher degree of
judgement or complexity and areas where assumptions and estimates
are significant to the consolidated Financial Statements are described
in notes 2 and 3.
(b) New accounting policies, standards, amendments
and interpretations effective or adopted in 2021
From 1 January 2021, the following standards and amendments
are effective in the Group’s consolidated Financial Statements:
• Amendments to IFRS 17 and IFRS 4: 'Insurance Contracts' –
deferral of IFRS 9; and
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Interest Rate Benchmark Reform – Phase 2.
Phase 2 of the Interest Rate Benchmark Reform, including the
amendments to accounting standards noted above, became effective
on 1 January 2021. Under Phase 2, to the extent that modifications
are made to financial instruments that are necessary to implement
Interest Rate Benchmark Reform, reliefs from the discontinuation of
hedge accounting or immediate recognition of any gains or losses in
the income statement on the modification of financial instruments
measured at amortised cost are available on transition to alternative
rates, provided that the modification is a direct consequence of the
reform and the new basis for calculating cash flows is economically
equivalent to the previous basis.
The Group will apply the International Swaps and Derivatives
Associates (ISDA) fallback protocol to the derivative financial
instruments held by the Group affected by the IBOR Reform where
the interest rate benchmark is linked to GBP Libor. These instruments
primarily comprise interest rate swap agreements designated in fair
value hedge relationships. The ISDA fallback rates are derived from
the Sterling Overnight Interbank Average (SONIA) rate and are
calculated and published by Bloomberg. The Group has determined
that Phase 1 reliefs no longer apply in respect of GBP Libor - the
uncertainty regarding the timing and the amount of interest rate
benchmark-based cash flows ceased on 31 December 2021, at the
point of transition to the ISDA fallback protocol. The Group also has
interest rate swap agreements designated in fair value hedge
relationships which are linked to USD Libor which are expected to
remain in place until 2023, uncertainty over its replacement still exists.
The Group has determined that the reliefs available under Phase 2
of the Reform are available and has amended the formal designation
of hedge relationships; hedge accounting is expected to continue.
The amendments to IFRS 4 defer the date of application of IFRS 17
to 1 January 2023 and change the fixed date of the temporary
exemption in IFRS 4 from applying IFRS 9 until 1 January 2023.
These changes and other amendments effective during the year
did not materially impact the consolidated Financial Statements.
Accounting policy for Supplier of Last Resort claim
During the year the Group has been appointed as Supplier of Last
Resort (SoLR) to a number of energy suppliers who have ceased to
trade. Under Ofgem licence conditions, the Group is entitled to make
a Last Resort Supplier Payment (LRSP) claim for incremental costs
reasonably incurred to supply affected customers. The claim is
permitted by Ofgem to ensure that energy suppliers can provide
support and stability to the market, through a period of significant
volatility. In accounting for the receivable arising under the claim, the
Group has applied IAS 20 ‘Government Grants’ on the basis that the
LRSP is a form of assistance provided by Ofgem which permits
suppliers to recover the incremental costs of supply associated with
SoLR appointment. At the reporting date, the Group has recognised
a receivable to the extent that these additional costs of supply have
been incurred. A credit, offsetting the associated costs, has been
recognised in cost of sales and operating costs in the Income
Statement (see note 5). The Group is entitled to recover the
incremental costs of supply until six months post SoLR appointment.
The Group submitted the first of two LRSP claims to Ofgem in
December 2021 and this is expected to be settled in monthly
instalments between April 2022 and April 2023. A second claim will
be made in Autumn 2022 to both adjust the first claim for actual costs
incurred, and to claim for additional costs not previously included.
The second claim will be settled between April 2023 and April 2024.
Centrica plc Annual Report and Accounts 2021
117
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
• Amendments to IAS 1: 'Presentation of Financial Statements',
effective from 1 January 2023. The amendments clarify the
meaning of settlement in the context of liabilities, and the
circumstances in which liabilities are classified as current or
non-current;
• ‘Annual Improvements to IFRS 2018-2020', effective from
1 January 2022;
• Amendments to IAS 8: 'Accounting policies, Changes in
Accounting Estimates and Errors'; effective from 1 January 2023;
• Amendments to IAS 1 relating to the disclosure of accounting policy
and materiality judgements, effective from 1 January 2023;
• Amendments to IAS 12: 'Income Taxes'; effective from 1 January
2023; and
• Amendments to IAS 16: 'Property, Plant and Equipment'; effective
from 1 January 2022.
IFRS 17 will be effective from 1 January 2023. The Group currently
has fixed-fee service contracts that it accounts for as insurance
contracts under IFRS 4: ‘Insurance contracts’. The Group is currently
carrying out an assessment of IFRS 17 and expects these contracts
to fall within the scope of IFRS 17 where the Group reflects an
assessment of the risk associated with an individual customer in
setting the price of the contract. The Group expects to apply the
simplified ‘Premium Allocation Approach’ to its contracts on the basis
that the coverage period of the Group’s insurance contracts is not
greater than one year. Whilst work is ongoing, the Group does not
expect a material impact from its application.
Management does not expect other issued but not effective
amendments or standards, or standards not discussed above to have
a material impact on the consolidated Financial Statements.
(d) Restatements
During 2020 the Group’s reportable operating segments were
amended due to a change in the way management review and make
decisions about the business. During 2021 the British Gas segment
has been further refined and separated into two operating segments,
British Gas Energy and British Gas Services & Solutions, reflecting
additional restructuring and management changes that have
occurred. At the same time the results from the supply of energy to
small business customers have been moved to British Gas Energy
from Centrica Business Solutions to reflect how these customers are
managed; comparatives have been restated.
The operating segments are now defined as:
• British Gas Services & Solutions;
• British Gas Energy;
• Centrica Business Solutions;
• Bord Gáis Energy;
• Energy Marketing & Trading;
• Upstream; and
• Direct Energy (Discontinued operation).
Collateral posted/(received) has been removed from the Group’s
definition of net debt. See note 24.
1. Basis of preparation and summary of significant
new accounting policies and reporting changes
Update to certain re-measurements accounting policy
The Group has determined that at the balance sheet date, the future
cost to fulfil certain supply contracts in the Residential and Business
portfolios will exceed the charges recovered from customers under
these contracts. This is because at the reporting date, the Group has
already recognised the gains on the related hedges, as certain re-
measurements in the Income Statement. In applying IAS 37, the
Group has estimated the unavoidable costs of fulfilling customer
contracts, including reversing the hedging gains, and has recognised
the expense as an onerous contract provision within cost of sales,
also in certain re-measurements in the Income Statement.
Further detail on both of these policies is included in the Group’s
critical accounting judgements.
Change in accounting treatment of deferred tax movements
arising from pension balances
IAS 12 allows for the reasonable allocation of current and deferred tax
charges and credits in respect of items where the movements in
those items are recognised outside of the Income Statement, such as
movements on the Group’s pension assets and liabilities. The Group
previously allocated all deferred tax movements arising on the pension
schemes, including those associated with a change in the rate of
deferred tax, to the Income Statement and the Statement of Other
Comprehensive Income, on the basis of the cumulative charges and
credits to those statements. However, the Group has now simplified
its policy, and movements on deferred tax associated with both
actuarial gains and losses, and deficit payments are now recognised
in the Statement of Other Comprehensive Income, including in respect
of tax rate changes, as the majority of timing differences arise from
actuarial movements which are dealt with in the Statement of Other
Comprehensive Income.
The Group has therefore recognised a £19 million debit in the year in
the Statement of Other Comprehensive Income, representing the
impact of tax rate changes in respect of the opening pension scheme
balance, including the impact of previous asset backed contributions,
and payments made during the year. This approach will be
consistently applied to all future re-measurement of the deferred tax
balances in respect of the pension scheme as a result of tax
rate changes.
As a result of this change, current tax associated with in-year pension
deficit payments will also be recognised in the Statement of Other
Comprehensive Income. A credit of £16 million has been recognised
during the year (offset by an equivalent movement in deferred tax).
In 2020, the Group recognised part of the difference due to tax rate
change, arising from the re-measurement of the deferred tax balance
in respect of pension scheme balances, through the income
statement giving rise to a tax charge of £22 million. The Group has not
restated the comparatives as the amount is not material.
(c) Standards and amendments that are issued but not
yet applied by the Group
At the date of authorisation of these consolidated Financial Statements,
the Group has not applied the following new and revised standards
and amendments that have been issued but are not yet effective:
• IFRS 17: 'Insurance contracts', effective from 1 January 2023;
• Amendments to IAS 37; 'Provisions, Contingent Liabilities and
Contingent Assets', effective from 1 January 2022. The
amendments specify which costs an entity should include when
assessing whether a contract is onerous and therefore requires
a provision;
118
Centrica plc Annual Report and Accounts 2021
2. Centrica specific accounting measures
This section sets out the Group’s specific accounting
measures applied in the preparation of the consolidated
Financial Statements. These measures enable the users of the
accounts to understand the Group’s underlying and statutory
business performance separately.
(a) Use of adjusted performance measures
The Directors believe that reporting adjusted measures (revenue,
margin, profit, earnings per share and cash flow) provides additional
useful information on business performance and underlying trends.
These measures are used for internal performance purposes, are not
defined terms under IFRS and may not be comparable with similarly
titled measures reported by other companies.
Management uses adjusted revenue, adjusted gross margin and
adjusted operating profit to evaluate segment performance. They are
defined as revenue/gross margin/operating profit before:
• exceptional items; and
• certain re-measurements.
Exceptional items and certain re-measurements are excluded
because these items are considered by the Directors to distort the
Group’s underlying business performance. See section (b) of this note
for further details.
Adjusted earnings is defined as earnings before:
• exceptional items net of taxation; and
• certain re-measurements net of taxation.
A reconciliation of adjusted earnings and adjusted earnings per share
is provided in note 10.
Free cash flow is used by management to assess the cash generating
performance of each segment. Segmental free cash flow is defined as
net cash flow from operating and investing activities before:
• deficit reduction payments made to the UK defined benefit
pension schemes;
• movements in variation margin and collateral;
• interest received;
• sale, settlement and purchase of securities; and
• taxes paid and refunded.
Segmental free cash flow as assessed by management excludes cash
flows relating to tax. This is because the effect of group relief and
similar reliefs could distort the measure of segment performance. As a
Group-wide measure, free cash flow includes taxes paid and refunded.
Free cash flow gives a measure of the cash generation performance
of the business after taking account of the need to maintain its capital
asset base. By excluding deficit reduction payments and movements
in variation margin and collateral, which are predominantly triggered by
wider market factors and, in the case of collateral and margin
movements, represent timing differences, free cash flow gives a
measure of the underlying performance of the Group.
Interest received and cash flows from the sale, settlement and
purchase of securities are excluded from free cash flow as these items
are included in the Group’s net debt measure (as restated – see note
24) and are therefore viewed by the Directors as related to the manner
in which the Group finances its operations.
(b) 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 users with this clear and consistent presentation, the
effects of ‘certain re-measurements’ of financial instruments, and
‘exceptional items’, are reported in a different column in the Group
Income Statement.
The Group is an integrated energy business. This means that it utilises
its knowledge and experience across the gas and power (and related
commodity) value chains to make profits across the core markets in
which it operates. As part of this strategy, 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 contracts (and similar capacity or off-take arrangements), as well as
to meet the future needs of its customers (downstream demand). These
trades are designed to reduce the risk of holding such assets, contracts
or downstream demand and are subject to strict risk limits and controls.
Primarily because some of these trades include terms that permit net
settlement, they are prohibited from being designated as ‘own use’
and so IFRS 9: ‘Financial Instruments’ requires them to be individually
fair valued.
Fair value movements on these commodity derivative trades do not
reflect the underlying performance of the business because they are
economically related to our upstream assets, capacity/off-take contracts
or downstream demand, which are typically not fair valued. Similarly,
where our downstream customer supply contracts have become
onerous as a result of significant market price movements (and the fact
any associated commodity hedges have separately been recognised at
fair value under IFRS 9 and therefore the onerous supply contract
assessment must reflect the reversal of those gains in subsequent
periods), movements in the required provision are also reflected as a
certain re-measurement in the ‘Cost of sales’ line item and separately
disclosed in note 7. Movements in this provision do not reflect the
underlying performance of the business because they are economically
related to both the hedges and forecast future profitability of the supply
contracts. Therefore, these certain re-measurements are reported
separately and are subsequently reflected in business performance
when the underlying transaction or asset impacts profit or loss.
The effects of these certain re-measurements are presented within
either revenue or cost of sales when recognised in business
performance depending on the nature of the contract. They are
managed separately from proprietary energy trading activities where
trades are entered into speculatively for the purpose of making profits in
their own right. These proprietary trades are included in revenue in the
business performance column of the Group Income Statement.
The Group’s result for the year presents both realised and unrealised
fair value movements on all derivative energy contracts within the ‘Re-
measurement and settlement of energy contracts’ line item. The
Group’s results for the year presents the unrealised onerous supply
contract provision movements within the ‘Cost of sales’ line item.
Centrica plc Annual Report and Accounts 2021
119
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
2. Centrica specific accounting measures
Exceptional items are those items that, in the judgement of the
Directors, need to be disclosed separately by virtue of their nature,
size or incidence. Again, to ensure the business performance column
reflects the underlying results of the Group, these exceptional items
are also reported in the separate column in the Group Income
Statement. Items that may be considered exceptional in nature
include disposals of businesses or significant assets, business
restructurings (including property rationalisation costs), debt
repurchase costs, certain pension past service credits/costs, asset
impairments/write-backs, the tax effects of these items and the effect
of changes in UK upstream tax rates.
The Group distinguishes between business performance asset
impairments/write-backs and exceptional impairments/write-backs
on the basis of the underlying driver of the impairment, as well as the
magnitude of the impairment. Drivers that are deemed to be outside of
the control of the Group (e.g. commodity price changes) give rise to
exceptional impairments. Additionally, impairment charges that are of a
one-off nature (e.g. reserve downgrades or one-time change in intended
use of an asset) and significant enough value to distort the underlying
results of the business are considered to be exceptional. Other
impairments that would be expected in the normal course of business,
such as unsuccessful exploration activity (dry holes), are reflected in
business performance.
120
Centrica plc Annual Report and Accounts 2021
3. Critical accounting judgements and key sources
of estimation uncertainty
This section sets out the key areas of judgement and
estimation that have the most significant effect on the
amounts recognised in the consolidated Financial Statements.
(a) Critical judgements in applying the Group’s
accounting policies
In addition to the judgements described above, management has
made the following key judgements in applying the Group’s
accounting policies that have the most significant effect on the
consolidated Group Financial Statements.
Spirit Energy consolidation
During 2017, the Group acquired Bayerngas Norge’s exploration
and production business and combined this with the Group’s existing
exploration and production business to form the Spirit Energy
business (SE). The Group, through its board majority, can control
decisions that represent Board Reserved Matters and the Directors
consider that these rights provide control over the relevant activities
that most significantly influence the variable returns of the SE
business. The Group has concluded that it controls SE and
consequently SE is fully consolidated with a non-controlling
interest of 31%.
Metering contracts
In both current and previous years, as part of the smart meter roll-out,
the Group renewed meter rental arrangements with third parties. The
Group assessed that these were not leases under IAS 17 and IFRIC 4
because at inception of the contract there were no specified assets,
the Group did not have the right to physically or operationally control
the smart meters and other parties took more than an insignificant
amount of the output from the assets. This assessment was
grandfathered on adoption of IFRS 16.
A reassessment of the contracts was performed in accordance with
IFRS 16, following renegotiations of the meter rental arrangements.
On the basis that the asset has a predetermined use and the Group
neither has the right to operate the asset, nor was involved in its
design, the conclusion that these arrangements are not leases
continues to be appropriate.
LNG contracts
The Group is active in the liquified natural gas (LNG) market, both
procuring long-term LNG supply arrangements and transacting in
shorter-term LNG cargoes. As part of its operations in the market, the
Group optimises its contractual positions in order to meet customer
demand for physical commodity. In response to the continuing
development of the global LNG market which, consistent with prior
years, is not considered to be active, the Group has reviewed its
portfolio of LNG transactions and contracts. It has judged that its
activities are carried out for the purpose of receipt or delivery of
physical commodity in accordance with its expected purchase and
sale requirements. As a result, the Group’s contracts to buy and sell
LNG are outside the scope of IFRS 9 and are accounted for on an
accruals basis.
Assets held for sale and discontinued operations
On 24 July 2020, the Group announced that it had agreed to dispose
of its North American supply, services and trading business, Direct
Energy, to NRG for headline consideration of $3.6 billion (£2.7 billion)
on a debt free, cash free basis. The Group judged that the assets and
liabilities of the business should be classified as a disposal group held
for sale from that date and as at 31 December 2020. Additionally,
because the disposal group represented a separate major line of
business and geographic area of operation, its results have been
presented as discontinued operations. The sale completed on
5 January 2021.
On 8 December 2021 the Group announced that it had agreed to sell
Spirit Energy’s entire Norwegian portfolio plus the Statfjord field to Sval
Energi and Equinor for headline consideration of c.£800m.
Completion is expected in the second quarter of 2022. See note 12.
In applying IFRS 5: ‘Non-current assets held for sale and discontinued
operations’ to the Spirit Energy disposal group, the Group has judged
that the assets and liabilities comprising the disposal group should be
classified as held for sale as at 8 December 2021. This is on the basis
that at that point, the disposal group was available for immediate sale,
subject only to terms that are customary for sales of such assets, and
the sale was highly probable.
The disposal group does not represent a separate major line of
business or geographical operations, because the Upstream
segment retains other European producing fields, and hence the
Group has concluded the disposal group does not constitute a
discontinued operation.
Supplier of Last Resort (SoLR)
During 2021, the Group was appointed as the Supplier of Last
Resort to eight suppliers who ceased trading during the year. Under
Ofgem’s licence conditions, the Group is entitled to make a Last
Resort Supplier Payment (LRSP) 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.
Ofgem published a decision setting out temporary changes to the
process for claiming the LRSP and as a result, the Group submitted
an initial claim, covering a six month period from the date of
appointment, and received confirmation of Ofgem’s acceptance in
December 2021. The claim primarily covers incremental commodity
costs, incurred as a result of procuring gas and electricity to supply
affected customers. The Group expects this claim to be settled in
monthly instalments between April 2022 and April 2023. The Group
will submit a second claim to Ofgem by 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 has not waived the right
to do so. The second claim will be settled between April 2023 and
April 2024. The value recognised for the receivable at 31 December
2021 is £234 million, offsetting costs incurred of £185 million and
customer credit balances of £49 million recognised at that date.
The Group has concluded that the LRSP process represents an
Ofgem support mechanism, enabling energy suppliers to provide
stability to the customers of failed suppliers. The Group determines
that the LRSP is within the scope of IAS 20 ‘Government Grants’
and amounts receivable under the mechanism are recognised as
a credit within cost of sales and operating costs, as the related
expenses are incurred.
Centrica plc Annual Report and Accounts 2021
121
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
3. Critical accounting judgements and key sources
Sensitivities for residential customers are provided in the following table:
of estimation uncertainty
(b) Key sources of estimation uncertainty
The sections below detail the assumptions the Group makes about
the future and other major sources of estimation uncertainty when
measuring its assets and liabilities at the reporting date. The
information given relates to the sources of estimation uncertainty that
have a significant risk of resulting in a material adjustment to those
assets and liabilities in the next financial year.
Estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, including current and expected
economic conditions, and, in some cases, actuarial techniques.
Although these estimates and associated assumptions are based on
management’s best knowledge of current events and circumstances,
actual results may differ.
British Gas Energy and Centrica Business Solutions Onerous
Supply Contracts
The Group operates and manages a hedging strategy to ensure that
the future costs of supplying customers of the British Gas Energy and
Centrica Business Solution portfolios are appropriately managed.
Hedges are measured at fair value under IFRS 9 and 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. Fair value movements on energy purchase contracts entered
to meet the future needs of customers are economically related to
customer demand; the supply contracts for which are measured on
an accrual basis.
Gains arising from hedges have been recognised in the income
statement (within certain re-measurements) in accordance with the
requirements of IFRS 9. Because of this hedge value recognition, the
assessment of whether the supply contracts are onerous must include
the reversal of mark to market gains. The Group determines that at
the reporting date, the future costs to fulfil customer contracts,
including those mark to market reversals, will exceed the charges
recovered from customers because the associated hedging gains
have already been recognised in the income statement.
The Group has recognised an onerous supply contract provision of
£2,530 million at 31 December 2021. This has been calculated by
estimating the expected margins from energy supply customers, and
deducting from this margin the expected costs to fulfil those
arrangements, including energy purchase costs reflecting the mark to
market gains, and directly attributable overhead costs. For customers
where this results in a loss, an onerous contract provision is recorded.
Key sources of estimation uncertainty relate to the expected future
tenure of the Group’s customer portfolio at 31 December 2021, and
the estimated gross margin attributable to them. Estimations are
based on historic experience, adjusted to reflect non-recurring costs.
The British Gas Energy residential element of the provision is
particularly sensitive to movements in tenure and gross margin
assumptions. The model indicates that a customer tenure of eight
years or more is not expected to be onerous. The gross margin for
31 December 2021 can be found in note 4. The element of the
provision relating to business customers is much less sensitive to
the assumptions made.
Assumption
Customer tenure one year longer/(shorter)
Gross margin 10% increase/(decrease)
Decrease/
(increase)
in provision
£m
170/(124)
111/(150)
Impairment and impairment reversals of long-lived assets
The Group makes judgements in considering whether the carrying
amounts of its long-lived assets (principally Upstream gas and oil
assets, Nuclear investment (20% economic interest accounted for
as an investment in associate) and goodwill) or cash generating units
(CGUs) are recoverable and estimates their recoverable amounts.
2021 has seen significant increases in forward commodity prices,
both in terms of observable market prices and forecast forward prices.
As a result, impairment reversals have been booked related to our
retained assets.
Upstream gas and oil assets
The recoverable amount of the Group’s retained gas and oil assets
is determined by discounting the post-tax cash flows expected to be
generated by the assets over their lives taking into account those
assumptions that market participants would consider when assessing
fair value. The cash flows are derived from projected production
profiles of each field, based predominantly on expected 2P reserves
(see gas and liquid reserves below) and take into account forward
prices for gas and liquids over the relevant period. Where forward
market prices are not available, prices are determined based on the
median price of a collection of third-party comparator curves.
Further details of the assumptions used in determining the recoverable
amounts, the impairment reversals booked during the year and
sensitivity to the assumptions are provided in note 7.
Nuclear investment
The recoverable amount of the Nuclear investment is based on the
value of the existing UK nuclear fleet operated by EDF. The existing
fleet value is calculated by discounting pre-tax cash flows derived from
the stations based on forecast power generation and power prices,
whilst taking account of outages and the likely operational lives of
the stations.
Further details of the methodology, assumptions, impairment reversal
booked during the year and related sensitivities are provided in note 7.
Goodwill
Goodwill does not generate independent cash flows and accordingly
is allocated at inception to specific CGUs or groups of CGUs for
impairment testing purposes. The recoverable amounts of these
CGUs are derived from estimates of future cash flows and hence the
goodwill impairment tests are also subject to these key estimates.
The results of these tests may then be verified by reference to external
market valuation data.
The Group has determined that the small business supply portfolio is
more closely aligned to the residential portfolio in terms of customer
profile than the medium and large business portfolio who have more
complex needs. As a result, this portfolio was transferred into the
British Gas Energy segment during the year, and goodwill was
reallocated based on a relative value calculation.
As a result of the proposed Spirit Energy Norway and Statfjord field
disposal (see note 12), the Goodwill associated with exploration and
production in the Upstream segment had to be apportioned between
the retained business and the disposal group.
122
Centrica plc Annual Report and Accounts 2021
3. Critical accounting judgements and key sources
of estimation uncertainty
The Group judged that the entire goodwill balance of £408 million
should be allocated to the Norway disposal group as it was only this
group of assets that had historically justified the recoverable amount.
Following this allocation, £198 million of goodwill has been written
down so that the assets of the disposal group equal the expected
recoverable amount.
Additionally, strategic changes in the Centrica Business Solutions
customer business, with a re-focusing of product offerings and
revised growth forecasts has led to a write-off of its entire goodwill
balance of £103 million.
Further details on the goodwill balances, assumptions used in
determining the recoverable amounts and impairment booked during
the year are provided in notes 7, 15(b) and S2. Sensitivity to the
assumptions is also found in note 7 for goodwill allocated to impaired
CGUs in the year.
Credit provisions for trade and other receivables
The economic effects of the significant increase in wholesale gas and
electricity costs, and resultant increase in consumer tariffs alongside
wider inflationary pressures as well as the ongoing effects of the
COVID-19 pandemic and cost of living pressures have impacted the
ability of the Group’s customers to pay amounts due. The level of
estimation uncertainty in determining the credit provisions required
for customers in different sectors and geographies continues to
be raised.
The methodology for determining provisions for credit losses on trade
and other receivables and the level of such provision, along with
associated sensitivities, are set out in note 17. Although the provisions
recognised are considered appropriate, the use of different
assumptions or changes in economic conditions could lead to
movements in the provisions and therefore impact the Group
Income Statement.
Pensions and other post-employment benefits
The cost of providing benefits under defined benefit pension 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 year 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. The Group is permitted to
recognise a pension scheme asset because it has an unconditional
right to a refund on any winding up of the schemes or if gradual
settlement of liabilities over time is assumed.
The Group’s defined benefit schemes hold part of their plan asset
portfolio as unquoted assets. These include private equity and
property interests that are typically subject to valuation uncertainty.
The valuation of these assets is based on the latest asset manager
views and other relevant benchmarks.
Further details, including sensitivities to these assumptions, are
provided in note 22.
Revenue recognition – unread gas and electricity meters
Revenue for energy supply activities includes an assessment of energy
supplied to customers between the date of the last meter reading and
the year end (known as unread revenue). Unread gas and electricity
comprises both billed and unbilled revenue. It 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. Actual meter readings continue to be
compared to system estimates between the balance sheet date and
the finalisation of the accounts.
An assessment is also made of any factors that are likely to materially
affect the ultimate economic benefits that will flow to the Group,
including bill cancellation and re-bill rates. Estimated revenue is
restricted to the amount the Group expects to be entitled to in
exchange for energy supplied. The judgements applied, and the
assumptions underpinning these judgements, are considered to be
appropriate. However, a change in these assumptions would have an
impact on the amount of revenue recognised. The primary source of
estimation uncertainty relating to unread revenue arises in the respect
of gas and electricity sales to UK downstream customers in British
Gas Energy and Centrica Business Solutions. At 31 December 2021
unread revenue arising from these customers amounted to
£1,740 million (2020: £1,544 million). The judgements applied, and
the assumptions underpinning these judgements in arriving at this
estimated amount, are considered to be appropriate. However,
a change in these assumptions of 2% would impact revenue
by £35 million.
Industry reconciliation process – cost of sales
Industry reconciliation procedures are required as differences arise
between the estimated quantity of gas and electricity the Group
deems to have supplied and billed customers, and the estimated
quantity industry system operators deem the individual suppliers,
including the Group, to have supplied to customers. The difference
in deemed supply is referred to as imbalance. The reconciliation
procedures can result in either a higher or a lower value of industry
deemed supply than has been estimated as being supplied to
customers by the Group, but in practice tends to result in a higher
value of industry deemed supply. The Group reviews the difference
to ascertain whether there is evidence that its estimate of amounts
supplied to customers is inaccurate or whether the difference arises
from other causes. The Group’s share of the resulting imbalance is
included within commodity costs charged to cost of sales.
Management estimates the level of recovery of imbalance that will
be achieved either through subsequent customer billing or through
developing industry settlement procedures. The adjustments for
imbalance at 31 December 2021 are not significant. Changes
resulting from these management estimates can be material with
adjustments of up to £30 million having been made in the last few
years, although it could possibly be higher than these amounts in
the future.
Centrica plc Annual Report and Accounts 2021
123
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
3. Critical accounting judgements and key sources
of estimation uncertainty
Decommissioning costs
The estimated cost of decommissioning at the end of the producing
lives of gas and oil fields is reviewed periodically and is based on
reserves, price levels and technology at the balance sheet date.
Provision is made for the estimated cost of decommissioning at the
balance sheet date. The payment dates of total expected future
decommissioning costs are uncertain and dependent on the lives
of the facilities, but are currently anticipated to be predominantly
incurred by 2030.
The level of provision held is also sensitive to the discount rate used to
discount the estimated decommissioning costs. The real discount rate
used to discount the decommissioning liabilities at 31 December 2021
is 0% (2020: 0%) on the basis that market risk-free rates remain
suppressed. A 1% change in this discount rate would change the
decommissioning liability by approximately £73 million.
Gas and liquids reserves
The volume of proven and probable (2P) gas and liquids reserves is
an estimate that affects the unit of production method of depreciating
producing gas and liquids property, plant and equipment (PP&E) as
well as being a significant estimate affecting decommissioning and
impairment calculations.
The factors impacting gas and liquids estimates, the process for
estimating reserve quantities and reserve recognition is described
on page 223.
The impact of a change in estimated 2P reserves is dealt with
prospectively by depreciating the remaining book value of producing
assets over the expected future production. If 2P reserves estimates
are revised downwards, earnings could be affected by higher
depreciation expense or an immediate write-down (impairment) of the
asset’s book value. A change in reserves estimates could also change
the timing of decommissioning activity, which could change the
carrying value of the Group’s provisions. The complex interaction of
field-specific factors means that it is not possible to give a meaningful
sensitivity of the Group’s financial position or performance to gas and
liquids reserves estimates. Details of the Group’s 2P reserves are
given on page 223. Details of impairments of exploration and
production fields and goodwill, along with associated sensitivities,
are given in note 7.
Determination of fair values – energy derivatives
Fair values of energy derivatives are estimated by reference in part
to published price quotations in active markets and in part by using
valuation techniques. More detail on the assumptions used in
determining fair valuations of energy derivatives is provided in note
S6 and on the sensitivities to these assumptions in note S3.
124
Centrica plc Annual Report and Accounts 2021
4. Segmental analysis
The Group’s reporting segments are those used internally by management to run the business and make decisions. The Group’s
segments are based on products and services as well as the major factors that influence the performance of these products and
services across the geographical locations in which the Group operates.
(a) Segmental structure
During the year the Group’s reportable operating segments have been amended due to a change in the way management review and make
decisions about the business.
The types of products and services from which each reportable segment derived its income during the year are detailed below. Income sources
are reflected in Group revenue unless otherwise stated:
Segment
Description
British Gas Services & Solutions (i) The installation, repair and maintenance of domestic central heating and related appliances, and the provision of fixed-fee
maintenance/breakdown service and insurance contracts in the UK; and
(ii) the supply of new technologies and energy efficiency solutions in the UK.
British Gas Energy
(i) The supply of gas and electricity to residential and small business customers in the UK.
Centrica Business Solutions
Bord Gáis Energy
(i) The supply of gas and electricity and provision of energy-related services to business customers in the UK (i); and
(ii) the supply of energy efficiency solutions, flexible generation and new technologies to commercial and industrial customers
in all geographies in which the Group operates. Flexible merchant generation is also provided to the UK system operator.
(i) The supply of gas and electricity to residential and commercial and industrial customers in the Republic of Ireland;
(ii) the installation, repair and maintenance of domestic central heating and related appliances in the Republic of Ireland; and
(iii) power generation in the Republic of Ireland. (i)
Energy Marketing & Trading
(i) The procurement, trading and optimisation of energy in the UK and Europe (i);
(ii) the global procurement and sale of LNG; and
(iii) the generation of power from the Spalding combined cycle gas turbine tolling contract (the contract ended in 2021).
Upstream
Direct Energy
(Discontinued operation)
(i) The production and processing of gas and oil, principally within Spirit Energy (i); and
(ii) the sale of power generated from nuclear assets in the UK.
(i) The supply of gas and electricity, and provision of energy-related services to residential and business customers in
North America;
(ii) the installation, repair and maintenance of domestic central heating and cooling systems and related appliances, and the
provision of fixed-fee maintenance/breakdown service and insurance contracts in North America; and
(iii) the procurement, trading and optimisation of energy in North America (i).
(i) Where income is generated from contracts in the scope of IFRS 9, this is included in re-measurement and settlement of energy contracts.
Centrica plc Annual Report and Accounts 2021
125
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
4. Segmental analysis
(b) Revenue
Gross segment revenue includes revenue generated from the sale of products and services to other reportable segments of the
Group. Group revenue reflects only the sale of products and services to third parties. Sales between reportable segments are
conducted on an arm’s length basis.
Year ended 31 December
Continuing operations
British Gas Services & Solutions
British Gas Energy
Centrica Business Solutions
Bord Gáis Energy
Energy Marketing & Trading
Upstream
Gross
segment
revenue
£m
1,513
7,513
1,981
1,111
6,082
2,282
Group revenue included in business performance
20,482
2021
Less
inter-
segment
revenue
£m
Group
revenue
£m
Gross
segment
revenue
£m
2020 (restated) (i)
Less
inter-
segment
revenue
£m
(53)
–
(28)
–
(214)
(1,887)
(2,182)
1,460
7,513
1,953
1,111
5,868
395
1,547
7,007
1,526
820
2,917
1,918
18,300
15,735
(64)
–
(8)
–
(175)
(539)
(786)
Group
revenue
£m
1,483
7,007
1,518
820
2,742
1,379
14,949
Discontinued operations
Direct Energy
Business performance revenue arising from continuing
and discontinued operations
Less: revenue arising on contracts in scope of IFRS 9
included in business performance
Less: discontinued operations
Group Revenue
–
–
–
9,483
–
9,483
20,482
(2,182)
18,300
25,218
(786)
24,432
(3,556)
–
14,744
(2,700)
(9,483)
12,249
(i) Segmental revenues have been restated to reflect the new operating structure of the Group. See note 1 for further details.
The table below shows the Group revenue arising from contracts with customers, and therefore in the scope of IFRS 15, and revenue arising
from contracts in the scope of other standards. The key economic factors impacting the nature, timing and uncertainty of revenue and cash
flows are considered to be driven by the type and broad geographical location of the customer. The analysis of IFRS 15 revenue below reflects
these factors.
2021
Revenue from
fixed-fee service
and insurance
contracts in
scope of IFRS 4,
and leasing
contracts in
scope of IFRS 16
£m
Revenue from
contracts with
customers in
scope of IFRS 15
£m
Revenue in
business
performance
arising from
contracts in
scope of IFRS 9
£m
Group Revenue
included in
business
performance
£m
Group Revenue
£m
554
554
7,513
7,513
944
297
1,241
903
903
2,825
2,825
760
760
13,796
–
7
–
906
1,460
7,513
–
–
1,460
7,513
1,248
705
1,953
903
208
1,111
35
2,860
3,008
5,868
–
948
760
14,744
(365)
3,556
395
18,300
Year ended 31 December
Continuing operations
Energy services and solutions
British Gas Services & Solutions
Energy supply – UK
British Gas Energy
Energy supply – UK
Energy services and solutions
Centrica Business Solutions
Energy supply – Republic of Ireland
Bord Gáis Energy
Energy sales to trading and energy procurement counterparties
Energy Marketing & Trading
Gas and oil production
Upstream
126
Centrica plc Annual Report and Accounts 2021
4. Segmental analysis
Year ended 31 December
Continuing operations
Energy services and solutions
British Gas Services & Solutions
Energy supply – UK
British Gas Energy
Energy supply – UK
Energy services and solutions
Centrica Business Solutions
Energy supply – Republic of Ireland
Bord Gáis Energy
Energy sales to trading and energy procurement counterparties
Energy Marketing & Trading
Gas and oil production
Upstream
2020 (restated) (i)
Revenue from
fixed-fee service
and insurance
contracts in
scope of IFRS 4,
and leasing
contracts in
scope of IFRS 16
£m
Revenue from
contracts with
customers in
scope of IFRS 15
£m
Revenue in
business
performance
arising from
contracts in
scope of IFRS 9
£m
Group Revenue
included in
business
performance
£m
Group Revenue
£m
489
489
7,007
7,007
775
262
1,037
725
725
1,317
1,317
672
672
–
8
–
–
–
994
1,483
7,007
–
–
1,483
7,007
1,045
473
1,518
725
95
820
1,317
1,425
2,742
672
12,249
707
2,700
1,379
14,949
11,247
1,002
(i) Segmental revenues have been restated to reflect the new operating structure of the Group. See note 1 for further details. Furthermore, £40 million of prior year revenue relating to British
Gas Services & Solutions has been reclassified from IFRS 15 to IFRS 4 revenue.
Geographical analysis of revenue and non-current assets
The Group monitors and manages performance by reference to its operating segments and not solely on a geographical basis. However,
provided below is an analysis of revenue and certain non-current assets by geography.
i
F
n
a
n
c
a
i
l
Year ended 31 December
Continuing operations
UK
Republic of Ireland
Norway
North America
Rest of the world
Group revenue
(based on location of customer)
Non-current assets
(based on location of assets) (i)
2021
£m
2020
£m
2021
£m
2020
£m
S
t
a
t
e
m
e
n
t
s
10,891
9,787
903
212
413
2,325
14,744
725
265
266
1,206
12,249
4,203
139
–
25
505
4,872
3,691
114
1,149
34
552
5,540
(i) Non-current assets comprise goodwill, other intangible assets, PP&E, interests in joint ventures and associates and non-financial assets within trade and other receivables, and contract-
related assets. Assets of disposal groups held for sale are not included.
Centrica plc Annual Report and Accounts 2021
127
Financial Statements | Notes to the Financial Statements continued
4. Segmental analysis
(c) Adjusted gross margin and adjusted operating profit
The measure of profit used by the Group is adjusted operating profit. Adjusted operating profit is operating profit before
exceptional items and certain re-measurements. This includes business performance results of equity-accounted interests.
This note also details adjusted gross margin. Both measures are reconciled to their statutory equivalents.
Adjusted gross margin
Adjusted operating profit
2021
£m
2020 (restated) (i)
£m
2021
£m
2020 (restated) (i)
£m
574
849
143
136
242
926
664
890
100
154
281
244
121
118
(52)
28
70
663
948
–
948
–
948
(2,530)
1,289
–
1,247
954
191
82
(132)
42
174
90
447
252
699
(252)
447
–
786
(2)
(1,593)
(362)
Year ended 31 December
Continuing operations
British Gas Services & Solutions
British Gas Energy
Centrica Business Solutions
Bord Gáis Energy
Energy Marketing & Trading
Upstream
Adjusted gross margin/adjusted operating profit
2,870
2,333
Discontinued operations
Direct Energy
Total Group adjusted gross margin/adjusted operating profit
Less discontinued operations
Business performance gross margin/operating profit from continuing operations
Certain re-measurements (continuing operations):
Onerous energy supply contract provision
Derivative contracts
Share of re-measurement of certain associates’ energy contracts (net of taxation)
Gross profit
Exceptional items in operating profit (continuing operations)
Operating profit/(loss) after exceptional items and certain re-measurements
–
2,870
–
2,870
(2,530)
1,289
–
1,629
862
3,195
(862)
2,333
–
786
–
3,119
(i) Segmental results have been restated to reflect the new operating structure of the Group. See note 1 for further details.
128
Centrica plc Annual Report and Accounts 2021
4. Segmental analysis
(d) Included within adjusted operating profit
Presented below are certain items included within adjusted operating profit, including a summary of impairments of property, plant
and equipment and write-downs relating to exploration and evaluation assets.
Year ended 31 December
Continuing operations
British Gas Services & Solutions
British Gas Energy
Centrica Business Solutions
Bord Gáis Energy
Energy Marketing & Trading
Upstream
Other (ii)
Discontinued operations
Direct Energy
Depreciation and impairments of PP&E
Amortisation, write-downs and
impairments of intangibles
2021
£m
2020 (restated) (i)
£m
2021
£m
2020 (restated) (i)
£m
(29)
(5)
(14)
(5)
(38)
(461)
(31)
(583)
(38)
(11)
(16)
(5)
(30)
(519)
(40)
(659)
(14)
(91)
(34)
(13)
(11)
(25)
(28)
(34)
(88)
(37)
(12)
(12)
(26)
(44)
(216)
(253)
–
(15)
–
(32)
(i) Segmental results have been restated to reflect the new operating structure of the Group. See note 1 for further details.
(ii) The Other segment includes corporate functions, subsequently recharged.
Impairments of PP&E
During 2021, £3 million of impairments of PP&E (2020: £2 million) were recognised within business performance – £2 million in the Centrica
Business Solutions segment and £1 million in the Upstream segment.
Write-downs and impairments of intangible assets
During 2021, £25 million of write-downs (2020: £24 million) relating to exploration and evaluation asset dry holes were recognised in the
Upstream segment. All such current and prior year write-downs were recognised within business performance as they were not deemed
exceptional in nature. During 2021, £3 million of other intangible assets were impaired within business performance in British Gas Energy,
Energy Marketing & Trading and Other (2020: £3 million).
The recoverable amount of these assets was £nil.
Centrica plc Annual Report and Accounts 2021
129
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
4. Segmental analysis
(e) Capital expenditure
Capital expenditure represents additions, other than assets acquired as part of business combinations, to property, plant and
equipment and intangible assets. Capital expenditure has been reconciled to the related cash outflow.
Year ended 31 December
Continuing operations
British Gas Services & Solutions
British Gas Energy
Centrica Business Solutions
Bord Gáis Energy
Energy Marketing & Trading (ii)
Upstream
Other
Discontinued operations
Direct Energy
Group total capital expenditure
Less Discontinued operations
Related to continuing operations:
Capitalised borrowing costs (note 8)
Inception of new leases and movements in payables and prepayments related
to capital expenditure
Capital expenditure cash outflow subsequent to transfer to held for sale
Purchases of emissions allowances and renewable obligation certificates (note 15) (iii)
Net cash outflow (continuing operations)
Capital expenditure on property,
plant and equipment
Capital expenditure on intangible
assets other than goodwill
2021
£m
2020 (restated) (i)
£m
2021
£m
2020 (restated) (i)
£m
32
–
17
40
–
238
8
335
–
335
–
(8)
(49)
21
–
299
19
–
17
4
206
275
8
529
13
542
(13)
(7)
(230)
–
–
292
20
474
166
6
34
51
–
25
636
239
7
61
62
5
751
1,035
–
751
–
–
24
–
(654)
121
303
1,338
(303)
(6)
43
–
(875)
197
(i) Segmental results have been restated to reflect the new operating structure of the Group. See note 1 for further details.
(ii) During 2020, the Group commenced the lease of two new LNG vessels.
(iii) Purchases of emissions allowances and renewable obligation certificates of £472 million (2020: £597 million) in British Gas Energy, £27 million (2020: £55 million) in Energy
Marketing & Trading, and £155 million (2020: £223 million) in Centrica Business Solutions.
130
Centrica plc Annual Report and Accounts 2021
4. Segmental analysis
(f) Free cash flow
Free cash flow is used by management to assess the cash generating performance of each segment, after taking account of the
need to maintain its capital asset base. By excluding deficit reduction payments and movements in collateral and margin cash,
which are predominantly triggered by wider market factors, and in the case of collateral and margin movements, represent timing
movements, free cash flow gives a measure of the underlying cash generation of the business. Free cash flow excludes investing
cash flows that are related to net debt. This measure is reconciled to the net cash flow from operating and investing activities.
Year ended 31 December
Continuing operations
British Gas Services & Solutions
British Gas Energy
Centrica Business Solutions
Bord Gáis Energy
Energy Marketing & Trading
Upstream
Other (ii)
Segmental free cash flow excluding tax
Discontinued operations
Direct Energy
Group total segmental free cash flow excluding tax
Taxes paid from continuing operations
Taxes paid from discontinued operations
Group total free cash flow
Less Discontinued operations free cash flow (including tax)
Free cash flow from continuing operations
UK Pension deficit payments (note 22)
Movements in variation margin and collateral
Interest received
Sale and settlement of securities
Net cash flow from continuing operating activities
Net cash flow used in continuing investing activities
Total cash flow from continuing operating and investing activities
(i) Segmental results have been restated to reflect the new operating structure of the Group. See note 1 for further details.
(ii) The Other segment includes corporate functions.
2021
£m
2020 (restated) (i)
£m
170
16
22
3
206
835
62
1,314
2,597
3,911
(140)
(9)
3,762
(2,588)
1,174
(368)
481
2
(3)
1,286
1,611
(325)
1,286
260
(29)
(50)
35
241
193
37
687
401
1,088
(2)
(25)
1,061
(376)
685
(175)
56
7
121
694
957
(263)
694
Centrica plc Annual Report and Accounts 2021
131
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
5. Costs
This section details the types of costs the Group incurs and the number of employees in each of our operations.
(a) Analysis of costs by nature
Year ended 31 December
Transportation, distribution, capacity market and metering costs
Commodity costs (i)
Depreciation, amortisation, impairments and write-downs
Employee costs
Other direct costs (i)
2021
2020
Cost of
sales and
settlement of
certain energy
contracts
£m
(3,702)
(9,302)
(497)
(464)
(1,465)
Operating
costs
£m
–
–
(302)
(749)
(652)
Cost of
sales and
settlement of
certain energy
contracts
£m
(3,572)
(6,442)
(554)
(515)
(1,533)
Total
costs
£m
(3,702)
(9,302)
(799)
(1,213)
(2,117)
Operating
costs
£m
–
–
(358)
(685)
(671)
Total
costs
£m
(3,572)
(6,442)
(912)
(1,200)
(2,204)
Costs included within business performance before credit
losses on financial assets
(15,430)
(1,703)
(17,133)
(12,616)
(1,714)
(14,330)
Credit losses on financial assets (net of recovered amounts) (note 17)
–
(116)
(116)
–
(195)
(195)
Total costs included within business performance
(15,430)
(1,819)
(17,249)
(12,616)
(1,909)
(14,525)
2,749
–
2,749
4,118
–
4,118
Adjustment for gross cost of settled energy contracts in the scope of
IFRS 9 and onerous energy supply contract provision (note 7)
Exceptional items and re-measurement and settlement of derivative
energy contracts (note 7)
Total costs within Group operating profit
(13,115)
(572)
(13,687)
(434)
1,247
813
(632)
(9,130)
(1,593)
(3,502)
(2,225)
(12,632)
(i) Commodity costs include a credit of £182m recoverable under the Last Resort Supplier Payment claim, a further credit of £3m is included in other direct operating costs. These credits
offset costs incurred as a result of the Group’s appointment as Supplier of Last Resort to customers of energy suppliers who ceased trading during the year. See notes 1 and 3.
2020
Continuing
operations
£m
Discontinued
operations
£m
Total
£m
(965)
(104)
(166)
(12)
(979)
(108)
(171)
(34)
(1,247)
(1,292)
19
15
–
32
33
27
Total
£m
(1,225)
(129)
(171)
(52)
(1,577)
35
33
27
(246)
(21)
–
(18)
(285)
3
–
–
(1,213)
(1,200)
(282)
(1,482)
(b) Employee costs
The below employee costs exclude the costs of redundancy and similar termination benefits.
Year ended 31 December
Wages and salaries
Social security costs
Pension and other post-employment benefits costs
Share scheme costs (note S4)
Capitalised employee costs
Employee costs included in exceptional items
Cost recovery via Coronavirus government support programmes
Employee costs recognised in business performance in the
Group Income Statement
2021
Continuing
operations
£m
Discontinued
operations
£m
(965)
(104)
(166)
(12)
(1,247)
19
15
–
(1,213)
–
–
–
–
–
–
–
–
–
132
Centrica plc Annual Report and Accounts 2021
5. Costs
(c) Average number of employees during the year
Year ended 31 December
British Gas Services & Solutions
British Gas Energy
Energy Marketing & Trading
Centrica Business Solutions
Bord Gáis Energy
Upstream
Group Functions
Direct Energy
2021
Number
12,178
3,006
478
1,706
323
863
1,150
–
2020
Number
13,605
3,483
361
2,295
281
912
2,183
2,633
19,704
25,753
6. Share of results of joint ventures and associates
Share of results of joint ventures and associates represents the results of businesses where we exercise joint control or significant
influence and generally have an equity holding of up to 50%.
Share of results of joint ventures and associates
The Group’s share of results of joint ventures and associates for the year ended 31 December 2021 principally arises from its interest in Nuclear
– Lake Acquisitions Limited, an associate, reported in the Upstream segment.
Year ended 31 December
Income
Expenses before exceptional items and re-measurement
of certain contracts
Exceptional items and re-measurement of certain contracts
Operating (loss)/profit
Financing income/(cost)
Taxation on (loss)/profit
Share of post-taxation results of joint ventures
and associates
2021
Share of
exceptional
items and
certain re-
measurements
£m
Share of
business
performance
£m
334
(459)
–
(125)
1
21
(103)
–
–
–
–
–
–
–
2020
Share of
exceptional
items and
certain re-
measurements
£m
Share of
business
performance
£m
557
(501)
–
56
(8)
(25)
23
–
–
(2)
(2)
–
–
(2)
Share of
results for
the year
£m
334
(459)
–
(125)
1
21
(103)
Share of
results for
the year
£m
557
(501)
(2)
54
(8)
(25)
21
Further information on the Group’s investments in joint ventures and associates is provided in notes 14 and S10.
Centrica plc Annual Report and Accounts 2021
133
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
7. Exceptional items and certain re-measurements
(a) Certain re-measurements
Certain re-measurements are the fair value movements on energy contracts entered into to meet the future needs of our
customers or to sell the energy produced from our upstream assets. These contracts are economically related to our upstream
assets, capacity/off-take contracts or downstream demand, which are typically not fair valued, and are therefore separately
identified in the current period and reflected in business performance in future periods when the underlying transaction or asset
impacts the Group Income Statement.
In the current year, as a result of the significant market price increases and the consequent gains recognised on energy contracts
entered into to meet the future needs of our customers, an onerous supply contract provision has also been recognised in certain
re-measurements related to downstream demand.
Year ended 31 December
Certain re-measurements recognised in relation to energy contracts:
Net (losses)/gains arising on delivery of contracts
Net gains arising on market price movements and new contracts
Net re-measurements included within gross profit before onerous supply contract provision
Onerous energy supply contract provision (i)
Net re-measurements included within gross profit
Net losses arising on re-measurement of certain associates’ contracts (net of taxation)
Net re-measurements included within Group operating profit
Taxation on certain re-measurements (note 9) (ii)
Net re-measurements after taxation for continuing operations
Discontinued operations
Net re-measurements from discontinued operations before taxation
Taxation on certain re-measurements in discontinued operations
Net re-measurements after taxation from discontinued operations
Total certain re-measurements
2021
£m
2020
£m
(259)
1,548
1,289
(2,530)
(1,241)
–
(1,241)
486
(755)
–
–
–
(755)
520
266
786
–
786
(2)
784
(86)
698
184
(46)
138
836
(i) The onerous supply contract provision represents the future costs to fulfil customer contracts on a current market price basis. The associated hedging gains are separately recognised
within the gains arising on market price movements and new contracts.
(ii) Taxation on onerous energy supply contracts amounted to a £481 million credit (2020: £nil) and taxation on other certain re-measurements amounted to £5 million (2020: £(86) million).
Year ended 31 December
Total re-measurement and settlement of derivative energy contracts excluding:
IFRS 9 business performance revenue
IFRS 9 business performance cost of sales
Unrealised certain re-measurements recognised in relation to energy contracts included in gross profit
Onerous contract provision (cost of sales)
Total certain re-measurements
The table below reflects the certain re-measurement derivative movements by business segment:
Year ended 31 December
UK Energy Supply (British Gas Energy and Centrica Business Solutions)
Upstream/Energy Marketing & Trading/Bord Gáis
Unrealised certain re-measurements recognised in relation to energy contracts included in gross profit
2021
£m
(434)
(3,556)
5,279
1,289
(2,530)
(1,241)
2021
£m
3,917
(2,628)
1,289
2020
£m
(632)
(2,700)
4,118
786
–
786
2020
£m
1,382
(596)
786
134
Centrica plc Annual Report and Accounts 2021
7. Exceptional items and certain re-measurements
(b) Exceptional items
Exceptional items are those items that, in the judgement of the Directors, need to be disclosed separately by virtue of their nature,
size or incidence. Items which may be considered exceptional in nature include disposals of businesses or significant assets,
business restructurings, pension change costs or credits, significant debt repurchase costs and asset write-downs/impairments
and write-backs.
Year ended 31 December
Exceptional items recognised in continuing operations
Impairment of E&P Norway disposal group assets (including disposal related costs) and related asset write-downs (i)
Write-back/(impairment) of other exploration and production assets (including completed field disposals) (ii)
Write-back/(Impairment) of power assets (iii)
Impairment of Centrica Business Solutions (iv)
Impairment of Centrica Home Solutions
Fair value uplift on minority investment prior to transfer to asset held for sale (v)
Restructuring credit/(cost) (vi)
Exceptional items included within Group operating profit (vii)
Net taxation on exceptional items (note 9)
Net exceptional items recognised in continuing operations after taxation
Net exceptional items recognised in discontinued operations after taxation
Total exceptional items recognised after taxation
Exceptional items recognised in discontinued operations
Profit on disposal of Direct Energy (including disposal related costs) (viii)
Restructuring credit
Exceptional items before taxation
Net taxation on exceptional items (ix)
Net exceptional items recognised in discontinued operations after taxation
2021
£m
(244)
838
747
(123)
–
15
14
1,247
(250)
997
624
1,621
613
–
613
11
624
2020
£m
–
(644)
(525)
(78)
(72)
–
(274)
(1,593)
273
(1,320)
(36)
(1,356)
(29)
7
(22)
(14)
(36)
(i)
In the Upstream segment, the proposed divestment of the exploration and production Norwegian and Statfjord field disposal group (see note 12), and the consequent strategic decision to
focus the remaining Spirit Energy business on its retained producing fields rather than exploration and evaluation, gave rise to a goodwill impairment of £198 million (post-tax £198 million)
and the write-off of the remaining exploration and evaluation assets of £33 million (post-tax £20 million), together with a related onerous provision for exploration spend of £4 million (post-
tax £2 million). Also included within this exceptional item is £9 million (post-tax £9 million) of costs incurred during the year for professional assistance related to the divestment.
(ii) In the Upstream segment, net impairment write-backs of exploration and production assets have been booked relating to the value of certain UK, Netherlands and Norwegian gas and
oil fields. This amounted to £829 million (post-tax £476 million) and was predominantly due to the increase in near-term liquid commodity prices. Also included is the net reduction in
decommissioning provisions (pre-tax £40 million, post-tax £24 million) related to assets previously impaired through exceptional items. Separately, in the taxation line, a credit of
£101 million has been recorded associated with deferred tax positions related to exploration and production tax losses and decommissioning carry-back, due to the increase in forecast
prices. The partial disposal of the Pegasus field and an update to the prior year Danish gas and oil asset disposal amounted to a loss on disposal (including related asset impairments)
of £31 million (post-tax £22 million).
(iii) In the Upstream segment, an impairment write-back of the nuclear investment of £747 million (post-tax £747 million) has been recorded predominantly as a result of an increase in near-
term liquid commodity prices, partially offset by reduced output assumptions, following generation issues at a number of stations during the year.
(iv) The Centrica Business Solutions energy solutions cash generating unit (i.e. excluding energy supply) fully impaired its goodwill by £103 million (post-tax £103 million), as well as impairing
specific assets of £20 million (post-tax £20 million) following strategic changes, and revised growth forecasts.
(v) A minority investment made by the former Centrica Innovations business unit in Driivz (an electric vehicle charging software provider), previously reflected in Securities and accounted for
as fair value through profit and loss, is subject to a signed disposal agreement at the year-end. As a result, the fair value of the investment has been uplifted (post-tax £12 million) to equal
the expected disposal proceeds and the investment reclassified to Assets Held for Sale.
(vi) The net restructuring credit relates to the reversal of a prior year provision predominantly related to pension strain estimates, partially offset by property impairments and other run-off costs
from the Group’s restructuring programme (post-tax £11 million) which is not expected to recur. The Group’s restructuring programme is now substantially complete and therefore we do
not expect to recognise any further exceptional restructuring costs/credits in relation to this programme.
(vii) Continuing operation exceptional items for 2021 are all non-cash, with the exception of disposal costs associated with the Norwegian and Statfjord field divestment and legacy project
restructuring costs. The cashflows related to exceptional items of £76 million in the Group Cashflow statement relate to these items, together with cashflows associated with previous year
exceptional restructuring costs.
(viii) The disposal of Direct Energy completed on 5 January 2021. See note 12 for further details.
(ix) Taxation on exceptional items in discontinued operations predominantly relates to the release of an uncertain tax provision associated with North American transfer pricing.
Centrica plc Annual Report and Accounts 2021
135
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
7. Exceptional items and certain re-measurements
(c) Impairment accounting policy, process and sensitivities
The information provided below relates to the assets and CGUs (or groups of CGUs) that have been subject to impairment write-backs during
the year.
Exceptional (impairments)/write-back of assets measured on a FVLCD basis
Segment
Upstream
Asset/CGU (or group of CGUs)
Basis for (impairment)/write-back
Goodwill
Allocation to E&P Norway disposal group and re-
measurement prior to reclassification to Assets held for sale
Exploration and Evaluation assets Decision to scale back exploration and development activities
UK and Netherlands fields (ii)
Increase in liquid commodity prices
Norwegian fields (iii)
Increase in liquid commodity prices in H1
Energy solutions CGU – Goodwill Strategic changes and revised growth forecasts
Centrica Business
Solutions
Energy solutions CGU – Intangible
assets/PPE
Strategic changes and revised growth forecasts impacting
certain asset values
Other
Property
Reduction in forecast sub-lease potential
Recoverable
amount (i)
£m
FV hierarchy
(Impairment)/
Write-back
£m
–
–
817
N/A
–
–
–
L3
L3
L3
L3
L3
L3
L3
(198)
(33)
771
58
(103)
(20)
(8)
(i) Recoverable amounts include the impact of decommissioning and tax when related to Upstream assets. For fully written off assets (including Goodwill), the recoverable amount is stated
as £nil.
(ii) Relates to 8 individual fields or cash-generating units that were subject to impairment/write-back. Recoverable amount disclosed relates to those 8 fields.
(iii) The Norwegian field write-back was recognised in the Interim accounts but the field is now part of the Norwegian and Statfjord disposal group (see note 12) and therefore no separate
recoverable amount has been disclosed.
Fair value less costs of disposal (FVLCD) is determined by discounting the post-tax cash flows expected to be generated by the assets or CGU,
net of associated selling costs, taking into account those assumptions that market participants would use in estimating fair value. Post-tax cash
flows used in the FVLCD calculation are based on the Group’s Board-approved business plans and strategic shape assumptions, together with,
where relevant, long-term production and cash flow forecasts.
Upstream gas and oil assets
For Upstream gas and oil assets post-tax cash flows are derived from projected production profiles of each field, taking into account forward
prices for gas and liquids over the relevant period. Where forward market prices are not available (i.e. outside the active period for each
commodity), prices are determined based on the median of third-party market comparator curves. The date of cessation of production depends
on the interaction of a number of variables, such as the recoverable quantities of hydrocarbons, production costs, the contractual duration of the
licence area and the selling price of the gas and liquids produced. As each field has specific reservoir characteristics and economic
circumstances, the post-tax cash flows for each field are computed using individual economic models. Price assumptions are critical and use
liquid market prices for 2022 to 2025, blended over a one-year period to long-term price forecasts. Long-term price assumptions derived from
third-party market comparator median curves are deemed best aligned with pricing that a reasonable market participant would use.
The future post-tax cash flows are discounted using a post-tax nominal discount rate of 10.0% (2020: 10.0%).
As forward commodity prices are a key assumption in these valuations, average prices and associated impairment sensitivities for the Group’s
upstream gas and oil assets (including Goodwill) for the relevant periods are shown below. Note that following the reclassification of the
exploration and production Norwegian and Stratfjord field disposal group into Assets and Liabilities held for sale (see note 12), the below
sensitivities for 2021 do not include these assets.
Five-year liquid and blended-
period price (i)
Ten-year long-term
average price (i)
2022-2026
2021-2025
2027-2036
2026-2035
2021
83
64
2020
40
47
2021
44
63
2020
47
68
Change in post-tax write-back/(impairment) (ii) (iii)
+10%
-10%
2021
£m
8
2020
£m
289
2021
£m
2020
£m
(7)
(266)
NBP (p/th)
Brent ($/bbl)
-50%
Five-year liquid
and blended-
period only
(340)
(i) Prices are shown in 2020 real terms.
(ii) Sensitivity relates to Upstream exploration and production assets and CGUs. A 10% change was historically deemed to represent a reasonably possible variation across the entire period
covered by both the liquid market and longer-term comparator curves used in upstream gas and oil impairment tests. Given the increases in commodity prices during 2021, a further
sensitivity has been included based on a 50% fall in liquid and blend-period commodity prices only. The changes shown relate to further write-backs or impairments and are restricted
because the most material fields have already been written back to their depreciated historic cost and have excess impairment headroom. The post-tax NPV movements of the fields
in +/-10% scenario are £235 million/£(232) million and in the -50% liquid price period scenario are £(1,099) million.
(iii) In the -10% scenario, the 31 December 2020 sensitivity includes £199 million of goodwill.
136
Centrica plc Annual Report and Accounts 2021
7. Exceptional items and certain re-measurements
Furthermore, there is also uncertainty due to climate change and international governmental intervention to reduce CO2 emissions and the likely
impact this will have on both gas and oil demand and forecast prices. As a result, a further sensitivity is disclosed below based on forecast
prices aligned to the International Energy Agency’s (‘IEA’) Net Zero Emissions by 2050, which assumes governmental policies are put in place to
achieve the temperature and net zero goals by 2050. This sensitivity retains the prices for the liquid period (4 years) but replaces the longer term
thereafter with the IEA’s forecast prices for Net Zero Emissions by 2050.
NBP (p/th)
Brent ($/bbl)
Change in
post-tax
write-back/
(impairment) (ii)
Ten-year
long-term
average price (i)
2027-2036
2021
36
45
£m
(2)
(i) Prices shown in 2020 real terms.
(ii) Change in impairment restricted due to the most material fields having already been written back to their depreciated historic cost and having excess impairment headroom. The post-tax
NPV movements of the fields is £(28) million.
Centrica Business Solutions Energy solutions CGU
A FVLCD calculation has been used to assess the recoverable amount of Centrica Business Solutions Energy solutions CGU (i.e. excluding
energy supply) following an internal review of the business resulting in certain strategic changes and revised growth forecasts. Cashflows have
been projected over a 5-year period for each region and a terminal value has been applied to the 2026 cashflows using a growth rate in the
range 1.5-3.0% which is jurisdictional and product specific. The future post-tax cashflows are predominantly discounted using a post-tax
nominal discount rate of 6.5% (2020: 7.5%). Were the cashflows used in the terminal value calculation reduced by 10%, a further impairment
to Property, Plant and Equipment of £25 million would be required.
Goodwill in the Centrica Business Solutions Energy Supply CGU is not affected.
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
137
Financial Statements | Notes to the Financial Statements continued
7. Exceptional items and certain re-measurements
Exceptional impairments/write-back assessments of assets measured on a VIU basis
Segment
Upstream
Asset/CGU (or group of CGUs) Basis for write-back assessment
Nuclear
Increase in short-term baseload power prices partially offset by a reduction in
volumes following the closure of Dungeness and other generation issues
Recoverable
amount
£m
Write-back
£m
1,625
747
Nuclear
A VIU calculation has been used to determine the recoverable amount of the Group’s investment in Nuclear. The cash flows incorporated in the
valuation are based on detailed business forecasts in the short term, extrapolated to future years to account for the expected generation profile
of the fleet for its remaining life. Assumptions include forward commodity prices, capacity rates, fuel and network costs, operating and capital
expenditure requirements. Price assumptions are based on liquid market prices for 2022 to 2025 which are then blended over a one-year
period to long-term price forecasts. Long-term price assumptions derived from third-party market comparator median curves are used due
to alignment with pricing that a reasonable market participant would use.
The VIU calculation assumes that the Sizewell plant operates until 2055, reflecting a 20-year extension beyond its original design life. In the
absence of this extension, the carrying value of the Group’s investment in Nuclear would be reduced by £142 million.
The VIU calculation is also sensitive to changes in outage assumptions, and the base level generation volumes assumed for the fleet were
reduced during the period based on a review of outage levels in recent years. A further movement of 5% in the unplanned outage rate applied
to volumes across the nuclear fleet would lead to a write-back movement of £170 million.
The future pre-tax cash flows generated by the investment in the associate are discounted using a pre-tax nominal discount rate 14.7%
(2020: 8.0%). This equated to a post-tax rate of 5.75% (2020: 6.5%). The post-tax discount rate is initially derived from the Group weighted
average cost of capital as adjusted for the risks associated with the asset and with reference to comparator companies. The pre-tax rate is then
back-calculated by removing tax cash flows and assessing the rate that would give the same result as the post-tax rate. Timing of cash flows
has caused a significant increase in the pre-tax discount rate. A 1% increase in the post-tax discount rate would lead to a write-back reduction
of £54 million. A 1% reduction in the post-tax discount rate would lead to an increased write-back of £64 million.
The asset is particularly sensitive to changes in commodity price and the table below details average prices for the relevant periods and
associated sensitivities.
Five-year liquid and blended-
period price (i)
Ten-year long-term
average price (i)
2022-2026
2021-2025
2027-2036
2026-2035
Change in pre/post-tax write-back/(impairment) (ii)
+10%
-10%
31 December
2021
£/MWh
31 December
2020
£/MWh
31 December
2021
£/MWh
31 December
2020
£/MWh
31 December
2021
£m
31 December
2020
£m
31 December
2021
£m
31 December
2020
£m
Baseload power
93
48
49
53
319
295
(317)
(293)
-50%
Five-year liquid
and blended-
period only
(1,073)
(i) Prices are shown in 2020 real terms.
(ii) A 10% change was historically deemed to represent a reasonably possible variation across the entire period covered by the liquid market and comparator curves used in the nuclear
impairment test. Given the increases in commodity prices during 2021, a further sensitivity has been included based on a 50% fall in liquid and blend-period commodity prices only.
Note that due to current forecast baseload prices being higher in the near-term, coupled with the requirement for the nuclear fleet depreciation
to be calculated on a production/time basis rather than economic value, there is a higher likelihood of impairment being required in 2022 as
these items outturn.
Furthermore, there is also uncertainty due to climate change and international governmental intervention to reduce CO2 emissions and the likely
impact this will have on both power demand and forecast prices. As a result, a further sensitivity is disclosed below based on forecast prices
aligned to Aurora’s Net Zero price curve, which assumes governmental policies are put in place to achieve the temperature and net zero goals
by 2050. This sensitivity retains the prices for the liquid period (4 years) but replaces the longer term thereafter with Aurora’s forecast prices for
Net Zero.
Baseload power (£/MWh)
(i) Prices shown in 2020 real terms.
(ii) Change would lead to a further write-back in the carrying value.
138
Centrica plc Annual Report and Accounts 2021
Ten-year
long-term
average price (i)
Change in
post-tax
write-back (ii)
2027-2036
2021
64
£m
119
8. Net finance cost
Financing costs mainly comprise interest on bonds and bank debt, the results of hedging activities used to manage foreign
exchange and interest rate movements on the Group’s borrowings and notional interest arising from the discounting of
decommissioning provisions and pensions. An element of financing cost is capitalised on qualifying projects.
Investment income predominantly includes interest received from short-term investments in money market funds, bank deposits
and government bonds.
Continuing operations
Year ended 31 December
Cost of servicing net debt:
Interest income
Interest cost on bonds, bank loans and overdrafts
Interest cost on lease liabilities
Net gains on revaluation
Notional interest arising from discounting
Capitalised borrowing costs (i)
Financing (cost)/income
(i) Borrowing costs have been capitalised using an average rate of 4.49% (2020: 4.47%).
2021
Financing
costs
£m
Investment
income
£m
–
(191)
(6)
(197)
–
(7)
(204)
8
(196)
5
–
–
5
4
–
9
–
9
2020
Financing
costs
£m
Investment
income
£m
–
(206)
(10)
(216)
–
(23)
(239)
13
(226)
7
–
–
7
4
–
11
–
11
Total
£m
5
(191)
(6)
(192)
4
(7)
(195)
8
(187)
Total
£m
7
(206)
(10)
(209)
4
(23)
(228)
13
(215)
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
139
Financial Statements | Notes to the Financial Statements continued
9. Taxation
The taxation note details the different tax charges and rates, including current and deferred tax arising in the Group. The current
tax charge is the tax payable on this year’s taxable profits together with amendments in respect of tax provisions made in earlier
years. This tax charge excludes the Group’s share of taxation on the results of joint ventures and associates. Deferred tax
represents the tax on differences between the accounting carrying values of assets and liabilities and their tax bases. These
differences are temporary and are expected to unwind in the future.
(a) Analysis of tax charge
Year ended 31 December
Continuing operations:
Current tax
UK corporation tax
UK petroleum revenue tax
Non-UK tax
Adjustments in respect of prior years – UK
Adjustments in respect of prior years – non-UK
Total current tax
Deferred tax
Origination and reversal of temporary differences – UK
UK petroleum revenue tax
Origination and reversal of temporary differences – non-UK
Change in UK tax rate
Adjustments in respect of prior years – UK
Adjustments in respect of prior years – non-UK
Total deferred tax
Total taxation on profit/(loss) from continuing operations (i)
Discontinued operations:
Current tax – non-UK
Deferred tax – origination and reversal of temporary
differences – non-UK
Total taxation on profit from discontinued operations
Total taxation on profit/(loss) for the year
2021
Exceptional
items
and certain
re-measurements
£m
Business
performance
£m
Results for
the year
£m
Business
performance
£m
2020
Exceptional
items
and certain
re-measurements
£m
Results for
the year
£m
(7)
24
(386)
(1)
6
(364)
(63)
(9)
(63)
6
36
3
(90)
(454)
–
–
–
(454)
(80)
–
(21)
18
–
(83)
520
(129)
(45)
(9)
(18)
–
319
236
11
–
11
247
(87)
24
(407)
17
6
(12)
71
47
42
7
(447)
155
457
(138)
(108)
(3)
18
3
229
(218)
11
–
11
(207)
(38)
(22)
(38)
(28)
(52)
(19)
(197)
(42)
(23)
(10)
(33)
(75)
7
–
(7)
8
–
8
102
1
77
8
(9)
–
179
187
6
(66)
(60)
127
(5)
71
40
50
7
163
64
(21)
39
(20)
(61)
(19)
(18)
145
(17)
(76)
(93)
52
(i) Total taxation on profit/(loss) excludes taxation on the Group’s share of profits of joint ventures and associates.
UK tax rates
Most activities in the UK are subject to the standard rate for UK corporation tax of 19% (2020: 19%). Upstream gas and oil production activities
are taxed at a rate of 30% (2020: 30%) plus a supplementary charge of 10% (2020: 10%) to give an overall rate of 40% (2020: 40%). Certain
upstream assets in the UK under the petroleum revenue tax (PRT) regime have a current rate of 0% (2020: 0%).
The UK corporation tax rate will increase to 25% with effect from 1 April 2023. At 31 December 2021, the relevant UK deferred tax assets and
liabilities included in these consolidated Group Financial Statements were based on the increased rate having regard to their reversal profiles.
Non-UK tax rates
Norwegian upstream profits are taxed at the standard rate of 22% (2020: 22%) plus a special tax of 56% (2020: 56%) resulting in an aggregate
tax rate of 78% (2020: 78%).
Taxation in other jurisdictions, where the Group has a substantial presence, is calculated at the rate prevailing in those respective jurisdictions.
Jurisdictions and rates include the Republic of Ireland 12.5%, Denmark 22% and the US 21%. The tax charges were not material in such
jurisdictions.
Prior year adjustments reflect changes made to estimates or to judgements when further information becomes available.
Movements in deferred tax liabilities and assets are disclosed in note 16. Tax on items taken directly to equity is disclosed in note S4.
140
Centrica plc Annual Report and Accounts 2021
9. Taxation
(b) Factors affecting the tax charge
The Group is expected to continue carrying out most of its business activities in the UK and accordingly considers the standard UK rate
to be the appropriate reference rate.
The differences between the total taxation shown above and the amount calculated by applying the standard rate of UK corporation tax
to the profit/(loss) before taxation are as follows:
Year ended 31 December
Profit/(loss) before taxation from continuing operations
Add back/(deduct) share of losses/(profits) of joint ventures
and associates, net of interest and taxation
Tax on profit/(loss) at standard UK corporation tax rate
of 19% (2020: 19%)
Effects of:
Depreciation/impairment on non-qualifying assets
Higher rates applicable to Upstream profits/losses
Non-UK tax rates
Upstream investment incentives
Movements in uncertain tax provisions
Changes in UK tax rate
Impairment/(write-back) of deferred tax assets relating to
Upstream losses and decommissioning
Petroleum revenue tax
Prior year adjustment (i)
Other
Taxation on profit/(loss) from continuing operations
Less: movement in deferred tax
Total current tax from continuing operations
Current tax from discontinued operations
Total current tax on profit/(loss) for the year
2021
Exceptional
items
and certain
re-measurements
£m
Business
performance
£m
761
103
864
(164)
(20)
(347)
(14)
30
1
6
(8)
11
44
7
(454)
90
(364)
–
(364)
6
–
6
(1)
39
98
8
–
–
(9)
178
(77)
–
–
236
(319)
(83)
11
(72)
Results for
the year
£m
767
103
870
(165)
19
(249)
(6)
30
1
(3)
170
(66)
44
7
(218)
(229)
(447)
11
(436)
2020
Exceptional
items
and certain
re-measurements
£m
Business
performance
£m
Results for
the year
£m
(577)
(21)
(598)
(809)
2
(807)
153
113
(100)
203
17
–
–
8
(79)
2
(1)
(16)
187
(179)
8
6
14
(120)
175
29
39
12
(20)
(89)
42
(23)
(13)
145
18
163
(17)
146
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
232
(23)
209
(40)
(20)
(28)
12
39
12
(28)
(10)
40
(22)
3
(42)
197
155
(23)
132
(i) The 2021 prior year adjustment includes £30m relating to the adjustment of deferred tax balances to reflect the higher rate of tax at which decommissioning liabilities are expected to
be recovered.
The Group is subject to taxation in a number of jurisdictions. The complexity of applicable rules may result in legitimate differences of
interpretation between the Group and taxing authorities (or between different taxing authorities) especially where an economic judgement
or valuation is involved. Resolution of these differences typically takes many years. The uncertain tax provisions represent multiple layers
of estimation for different time periods and different jurisdictions.
The Group has applied IFRIC 23: ‘Uncertainty over income tax treatments’. The interpretation requires consideration of the likelihood that the
relevant taxing authority will accept an uncertain tax treatment in order to determine the measurement basis. The value is calculated in
accordance with the rules of the relevant tax authority when acceptance is deemed probable.
The principal element of the Group’s uncertain tax position relates to transfer pricing challenges in jurisdictions outside the UK. While the
Group applies the arm’s length principle to all intra-group transactions, taking OECD guidance into account, taxing authorities may take different
views. The outcome of resolving any disputes is not predictable and therefore in order to reflect the effect of uncertainties, the provisions
represent management’s assessment of the most likely outcome of each issue. The assessment is reviewed and updated on a regular basis.
At 31 December 2021, the Group held uncertain tax provisions of £157 million (2020: £180 million), of which £116 million is included in the
disposal group held for sale.
Centrica plc Annual Report and Accounts 2021
141
Financial Statements | Notes to the Financial Statements continued
9. Taxation
(c) Factors that may affect future tax charges
The Group’s effective tax rates are impacted by changes to the mix of activities and production across the territories in which it operates.
Effective tax rates may also fluctuate where profits and losses cannot be offset for tax purposes. Losses arising in one territory cannot be
offset against profits in another.
Profits from gas and oil production in the UK continue to be taxed at rates above the UK statutory rate (40% versus 19%). PRT is now set
at 0% but may still give rise to historic refunds from the carry-back of excess reliefs (for example, from decommissioning).
Following the disposal of the Group’s Norwegian fields and the UK Statfjord field, it is expected that the Group effective tax rate will reduce.
The effective tax rate is dependent on the proportion of Group profits and losses arising from its remaining UK Upstream activities relative
to lower taxed UK and other jurisdictions profits and losses.
Globally, continuing tax reform has significant potential to change tax charges, particularly in relation to the OECD’s Base Erosion and Profit
Shifting (BEPS) project, including the recent proposals for a minimum corporate tax rate of 15%. The Group does not expect its tax position
to be impacted materially.
(d) Relationship between current tax charge and taxes paid
Year ended 31 December
Current tax charge/(credit): (continuing and discontinuing activities)
Corporation tax
Petroleum revenue tax
Total tax on results for the year per note 9(b)
Current tax included in Other comprehensive income (i)
Total tax charge/(credit)
Taxes paid/(refunded):
Corporation tax
Petroleum revenue tax
Included in the following lines of the Group Cash Flow Statement:
Taxes paid in net cash flows from continuing operating activities
Net cash flow from discontinued operating activities
Net cash inflow from discontinued investing activities
UK
£m
70
(24)
46
(16)
30
113
(49)
64
2021
Non-UK
£m
Total
£m
UK
£m
Non-UK
£m
2020
(45)
(71)
(116)
–
(116)
1
(36)
(35)
(30)
–
(30)
–
(30)
62
–
62
390
–
390
–
390
85
–
85
460
(24)
436
(16)
420
198
(49)
149
140
–
9
Total
£m
(75)
(71)
(146)
–
(146)
63
(36)
27
2
25
–
(i) Current tax movements relating to pension deficit payments are reported in other comprehensive income. See note 1 for further details.
Differences between current tax charged and taxes paid arose principally due to the following factors:
• Corporation tax payments are generally made by instalment, based on estimated taxable profits, or the prior period’s profits. Payments are
made on account and the final liability is settled as the tax return is filed. Fluctuations in profits from year to year, one-off items and mark-to-
market movements within the year may therefore give rise to divergence between the charge for the year and the taxes paid. In certain
jurisdictions advance tax payments are required (based on estimated tax liabilities) which can result in overpayments. These are included
as tax assets, to be refunded in a subsequent period; and
• PRT refunds are based on results in the preceding six-monthly PRT period, therefore PRT cash movements will reflect refunds on a six-
month delay.
142
Centrica plc Annual Report and Accounts 2021
10. Earnings per ordinary share
Earnings per share (EPS) is the amount of profit or loss attributable to each share. Basic EPS is the amount of profit or loss for the
year divided by the weighted average number of shares in issue during the year. Diluted EPS includes the impact of outstanding
share options.
Basic earnings per ordinary share has been calculated by dividing the profit attributable to equity holders of the Company for the year of £1,210
million (2020: £41 million) by the weighted average number of ordinary shares in issue during the year of 5,836 million (2020: 5,825 million). The
number of shares excludes 35 million ordinary shares (2020: 11 million), being the weighted average number of the Company’s own shares held
in the employee share trust and treasury shares purchased by the Group as part of the share repurchase programme.
The Directors believe that the presentation of adjusted basic earnings per ordinary share, being the basic earnings per ordinary share adjusted
for certain re-measurements and exceptional items, assists with understanding the underlying performance of the Group, as explained in note 2.
Information presented for diluted and adjusted diluted earnings per ordinary share uses the weighted average number of shares as adjusted for
69 million (2020: 91 million) potentially dilutive ordinary shares as the denominator, unless it has the effect of increasing the profit or decreasing
the loss attributable to each share.
Continuing and discontinued operations
Year ended 31 December
Earnings – basic
Net exceptional items after taxation (notes 2 and 7) (i)
Certain re-measurement losses/(gains) after taxation (notes 2 and 7) (i)
Earnings – adjusted basic
Earnings – diluted
Earnings – adjusted diluted
Continuing operations
Year ended 31 December
Earnings – basic
Net exceptional items after taxation (notes 2 and 7) (i)
Certain re-measurement losses/(gains) after taxation (notes 2 and 7) (i)
Earnings – adjusted basic
Earnings – diluted (ii)
Earnings – adjusted diluted
Discontinued operations
Year ended 31 December
Earnings – basic
Net exceptional items after taxation (notes 2 and 7)
Certain re-measurement gains after taxation (notes 2 and 7)
Earnings – adjusted basic
Earnings – diluted
Earnings – adjusted diluted
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
2021
2020
Pence per
£m
ordinary share
1,210
(1,521)
548
237
20.7
(26.0)
9.4
4.1
£m
41
1,220
(883)
378
1,210
20.5
41
237
4.0
378
Pence per
ordinary share
0.7
21.0
(15.2)
6.5
0.7
6.4
2021
2020
Pence per
£m
ordinary share
£m
(274)
1,184
(745)
165
Pence per
ordinary share
(4.7)
20.3
(12.8)
2.8
10.0
(15.3)
9.4
4.1
9.9
(274)
(4.7)
4.0
165
2.8
586
(897)
548
237
586
237
2021
2020
Pence per
£m
ordinary share
624
(624)
–
–
10.7
(10.7)
–
–
624
10.6
–
–
£m
315
36
(138)
213
315
213
Pence per
ordinary share
5.4
0.7
(2.4)
3.7
5.3
3.6
(i) Net exceptional items after taxation and certain re-measurement losses/(gains) after taxation are adjusted to reflect the share attributable to non-controlling interests.
(ii) Potential ordinary shares are not treated as dilutive when they would decrease a loss per share.
Centrica plc Annual Report and Accounts 2021
143
Financial Statements | Notes to the Financial Statements continued
11. Dividends
Dividends represent the return of profits to shareholders. Dividends are paid as an amount per ordinary share held. The Group
retains part of the profits generated to meet future investment plans or to fund share repurchase programmes.
Prior year final dividend
Interim dividend
2021
Pence per
share
Date of
payment
–
–
–
–
–
–
£m
–
–
–
2020
Pence per
share
–
–
–
£m
–
–
–
Date of
payment
–
–
–
On 2 April 2020 the Directors announced that the Board had taken the decision to cancel the 2019 final dividend payment of 3.5p per share,
or £204 million, which was due to be paid in June 2020. The Directors did not propose the payment of an interim or final dividend for 2021.
The Group has sufficient distributable reserves to pay dividends to its ultimate shareholders. Distributable reserves are calculated on an
individual legal entity basis and the ultimate parent company, Centrica plc, currently has adequate levels of realised profits within its retained
earnings to support dividend payments. Refer to the Centrica plc Company Balance Sheet on page 212. At 31 December 2021, Centrica plc’s
company-only distributable reserves were c.£2.5 billion (2020: c.£1.5 billion). On an annual basis, the distributable reserve levels of the Group’s
subsidiary undertakings are reviewed and dividends paid up to Centrica plc as appropriate to replenish its reserves.
144
Centrica plc Annual Report and Accounts 2021
12. Acquisitions, disposals and disposal groups classified as held for sale
(a) Business combinations and asset acquisitions
During the year, the Group have been appointed by Ofgem as the Supplier of Last Resort for eight energy companies who have ceased trading.
These have not been accounted for as business combinations or asset acquisitions as the incremental costs associated with supplying the
affected customers will be recoverable through the established Last Resort Supplier Payment (LRSP) claim mechanism under Ofgem supplier
licence conditions. A customer intangible asset of £10 million has been recognised in 2021 in respect of certain customer credit balances that
the Group did not include in their LRSP claims.
There have been no material acquisitions during the period. No material measurement period adjustments have been made to acquisitions
completed in prior periods.
(b) Disposals and discontinued operations
On 24 July 2020, the Group announced that it had agreed to sell its North American energy supply, services and trading business, Direct
Energy, to NRG Energy Inc, for $3.6 billion in cash on a debt free, cash free basis. The transaction received all necessary approvals prior to
31 December 2020 and completed on 5 January 2021. The working capital adjustment has been finalised and led to a further receipt of
$22 million in December 2021.
Details of the assets and liabilities of the disposal group at 5 January 2021 are shown below.
Non-current assets
Property, plant and equipment
Other intangible assets
Goodwill
Deferred tax assets
Derivative financial instruments
Other non-current financial assets
Current assets
Trade and other receivables, and contract-related assets
Inventories
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Assets of disposal groups classified as held for sale
Current liabilities
Derivative financial instruments
Trade and other payables, and contract-related liabilities
Current tax liabilities
Provisions for other liabilities and charges
Lease liabilities
Non-current liabilities
Deferred tax liabilities
Derivative financial instruments
Provisions for other liabilities and charges
Retirement benefit obligations
Lease liabilities
Liabilities of disposal groups classified as held for sale
Net assets of disposal groups classified as held for sale
Consideration received (net of transaction costs of £31 million) (i)
Recycling of foreign currency translation and net investment hedge reserves on disposal
Gain on disposal before taxation
Direct Energy
£m
82
228
1,490
342
93
14
2,249
1,543
79
67
79
132
1,900
4,149
(181)
(1,236)
(20)
(21)
(12)
(1,470)
(404)
(59)
(12)
(21)
(24)
(520)
(1,990)
2,159
2,703
69
613
(i) The net cash inflow from the disposal of Direct Energy of £2,588 million reported in the Group Cash Flow Statement is stated net of cash disposed of £132 million and hedging receipts
net of tax £17 million
Centrica plc Annual Report and Accounts 2021
145
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
12. Acquisitions, disposals and disposal groups classified as held for sale
The results of the Direct Energy business for 2021 and 2020 are as follows:
Year ended 31 December
Revenue
Cost of sales
Re-measurement and settlement of energy contracts
Gross profit
Operating costs
Operating profit
Finance costs
Profit before taxation
Taxation on profit (i)
Profit from discontinued operations, net of tax
2021
Exceptional
items
and certain
re-measurements
£m
Business
performance
£m
Results for
the year
£m
Business
performance
£m
2020
Exceptional
items
and certain
re-measurements
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
613
613
–
613
11
624
–
–
–
–
613
613
–
613
11
624
9,483
(8,621)
–
862
(610)
252
(6)
246
(33)
213
(912)
1,495
(399)
184
(22)
162
–
162
(60)
102
Results for
the year
£m
8,571
(7,126)
(399)
1,046
(632)
414
(6)
408
(93)
315
(i) During 2020 a historic Canadian exploration and production deferred tax asset was written off. The associated charge of £20 million is included as an exceptional item within discontinued
operations. See note 7 for further details.
Because the disposal group represents a separate major line of business and geographical operations, its results have been presented as
discontinued operations in the Group Income Statement, Group Statement of Other Comprehensive Income and Group Cash Flow Statement.
Set out below are the cash flows arising from discontinued operations, which have been presented net within the Group Cash Flow Statement.
Year ended 31 December
Group operating profit including share of results of joint ventures and associates
Add back/(deduct):
Depreciation, amortisation, write-downs, impairments and write-backs
Decrease in provisions
Employee share scheme costs
Unrealised gains arising from re-measurement of energy contracts
Exceptional charges reflected directly in operating profit
Operating cash flows before movements in working capital relating to business performance and payments relating to taxes
and exceptional charges
Decrease in inventories
Decrease in trade and other receivables and contract-related assets relating to business performance
Decrease in trade and other payables and contract-related liabilities relating to business performance
Operating cash flows before payments relating to taxes and exceptional charges
Taxes paid
Payments relating to exceptional charges in operating costs
Net cash flow from operating activities
Purchase of property, plant and equipment and intangible assets
Sale of businesses
Net cash flow from investing activities
Financing interest paid
Repayment of borrowings and capital element of leases
Net cash flow from financing activities
Net increase in cash and cash equivalents
2021
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,588
2,588
–
–
–
2,588
2020
£m
414
57
(4)
18
(100)
20
405
17
139
(81)
480
(25)
(12)
443
(22)
–
(22)
(4)
(12)
(16)
405
Continuing operations disposals
On 31 July 2021 the Group sold its Peterborough site, which comprises freehold land, the 245MW Peterborough open cycle gas turbine
(OCGT) and the 49MW reciprocating gas engine to Whitetower Holdings UK Limited, an affiliate of Rockland Capital, LP. The consideration
amounted to £21 million and resulted in a £nil profit on disposal.
The Spirit Energy disposal of the Norway portfolio has resulted in an upfront payment of $50 million (£35 million). All other disposals undertaken
by the Group were immaterial, both individually and in aggregate. The overall net cash inflow was £70 million, including the above.
146
Centrica plc Annual Report and Accounts 2021
12. Acquisitions, disposals and disposal groups classified as held for sale
(c) Assets and liabilities of disposal groups held for sale
On 8 December 2021 the Group announced that it had agreed to sell Spirit Energy’s entire Norwegian portfolio excluding the Statfjord fields to
Sval Energi for a headline consideration of $1,026 million (£758 million), and the Statfjord fields to Equinor for headline consideration of $50 million
(£37 million). Further, deferred commodity price linked contingent payment will be payable post completion currently valued at £47 million.
The sales have a commercial effective date of 1 January 2021, and the consideration payable at closing will be reduced for the net cash flows
generated by the sale business and interests since 1 January 2021. At 31 December 2021 net consideration receivable (including costs to
dispose) has reduced to £574 million from Sval Energi, with a net consideration payable to Equinor of £(17) million. Further, upon completion
a tax indemnity will be provided to Sval Energi, currently valued at £(116) million. Distribution of the net consideration and net cash flows
generated will be pro-rata to the ownership share, with 31% attributable to the non-controlling interests. Completion is expected in the second
quarter of 2022.
In applying IFRS 5: ‘Non-current assets held for sale and discontinued operations’, the Group has judged that there are two separate disposal
groups being the Statfjord fields and the remainder of the Norwegian portfolio. The assets and liabilities comprising the disposal groups are to
be classified as held for sale as at 8 December 2021. This is on the basis that at that point, the disposal groups were available for immediate
sale, subject only to terms that are customary for sales of such assets, and the sale was highly probable.
The disposal groups do not represent a separate major line of business or geographical operations and hence the Group has concluded that
they do not constitute discontinued operations.
Details of the assets and liabilities of the disposal groups at 31 December 2021 are shown below.
Non-current assets
Property, plant and equipment
Other intangible assets
Goodwill (i)
Deferred tax assets (ii)
Other non-current financial assets
Current assets
Trade and other receivables, and contract-related assets
Inventories
Cash and cash equivalents
Assets of disposal groups classified as held for sale
Current liabilities
Trade and other payables, and contract-related liabilities
Current tax liabilities (iii)
Provisions for other liabilities and charges
Lease liabilities
Non-current liabilities
Deferred tax liabilities (ii)
Provisions for other liabilities and charges
Lease liabilities
Liabilities of disposal groups classified as held for sale
Net (liabilities)/assets of disposal groups classified as held for sale
Norway portfolio
excluding
Statfjord
£m
Statfjord
£m
254
–
19
58
–
331
43
18
–
61
392
(45)
–
(3)
–
(48)
146
(522)
–
(376)
(424)
(32)
900
63
191
–
8
1,162
64
15
18
97
1,259
(94)
(116)
(1)
(3)
(214)
(348)
(236)
(3)
(587)
(801)
458
Total
£m
1,154
63
210
58
8
1,493
107
33
18
158
1,651
(139)
(116)
(4)
(3)
(262)
(202)
(758)
(3)
(963)
(1,225)
426
(i) The proposed divestment of the entire Norwegian portfolio, and attributing exploration and production goodwill of £408 million, has resulted in an impairment of £198 million, before
transfer of the remaining balance of £210 million to assets of disposal groups classified as held for sale.
(ii) Deferred tax assets of £58 million represents tax attributable to Statfjord UK, part of a UK tax group. Deferred tax liabilities are categorised between Statfjord Norway, and the portfolio
excluding Statfjord purely for presentational purposes. The net deferred tax liability being transferred to held for sale is £202 million.
(iii) Spirit Energy Norway is providing a tax indemnity, the potential liabilities under which Centrica has valued at £116 million, to be recognised upon completion as a provision for other
liabilities and charges.
Included within the Group’s foreign currency translation reserve is £270 million loss in respect of the disposal groups. These amounts have
previously been recognised in the Group Statement of Comprehensive Income and will be recycled to the Group Income Statement on disposal.
Additionally, within the Other segment a minority investment made by the former Centrica Innovations business unit in Driivz (an electric vehicle
charging software provider), previously reflected in Securities and accounted for as fair value through profit and loss, is subject to a signed
disposal agreement at the year-end. As a result, the fair value of the investment has been included in assets held for sale, amounting to
£21 million of assets and £3 million of associated tax liabilities.
Centrica plc Annual Report and Accounts 2021
147
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
13. Property, plant and equipment
PP&E includes significant investment in power stations and gas and liquid production assets. Once operational, all assets are
depreciated over their useful lives.
(a) Carrying amounts
Cost
1 January
Additions and capitalised borrowing costs
Disposals/retirements
Transfers
Transfers to disposal groups held for sale
Decommissioning liability and dilapidations
revisions and additions (note 21)
Lease modifications and re-measurements
Exchange adjustments
31 December
Accumulated depreciation and
impairment
1 January
Charge for the year
Impairments/(write-backs)
Disposals/retirements
Transfers to disposal groups held for sale
Exchange adjustments
31 December
NBV at 31 December
2021
2020
Land and
buildings
£m
Plant,
equipment
and vehicles
£m
Power
generation
£m
Gas
production
and storage
£m
Land and
buildings
£m
Plant,
equipment
and vehicles
£m
Power
generation
£m
Gas
production
and storage
£m
Total
£m
Total
£m
843
15,296
17,018
361
237
(7)
10
335
(759)
10
4
(7)
–
(4,017)
(4,034)
(39)
(152)
303
3
(28)
–
(11)
2
(8)
(2)
576
42
(37)
–
(6)
–
1
(1)
53
(687)
–
–
–
–
(12)
(2)
(10)
(9)
(4)
(166)
(173)
–
(17)
1
259
575
205
11,339
12,378
303
528
242
(36)
–
–
8
(14)
576
953
14,926
16,768
16
(124)
–
(6)
5
–
(1)
274
(133)
3
536
(300)
3
(120)
(317)
252
–
94
257
(9)
80
843
15,296
17,018
113
27
8
(9)
(5)
(3)
131
128
257
707
13,298
14,375
83
1
(23)
(6)
17
329
246
18
8
(666)
–
(4)
63
142
452
(829)
(5)
580
(812)
(703)
(2,903)
(2,914)
(143)
(133)
9,870
10,393
1,469
1,985
90
38
8
(7)
(16)
–
113
190
279
762
12,504
13,635
97
8
(30)
(97)
–
257
319
29
23
(102)
(5)
–
707
136
508
443
(133)
(116)
92
672
482
(272)
(234)
92
13,298
14,375
1,998
2,643
(b) Assets in the course of construction included in above carrying amounts
31 December
Plant, equipment and vehicles
Gas production and storage
Power generation
2021
£m
8
26
11
(c) Additional information relating to right-of-use assets included in the above
Additions
Depreciation charge for the year
NBV at 31 December (i)
2021
Plant,
equipment
and
vehicles
£m
Land and
buildings
£m
Gas
production
and
storage
£m
Power
generation
£m
3
(25)
106
31
(62)
208
–
(8)
–
6
(21)
28
Plant,
equipment
and
vehicles
£m
2020
Power
generation
£m
Gas
production
and
storage
£m
234
(55)
239
–
(11)
8
10
(21)
47
Total
£m
40
(116)
342
Land and
buildings
£m
4
(37)
145
(i)
In 2021 £5 million (2020: £36 million) of transfers to held for sale have taken place, in addition to other movements relating to right-of-use assets not disclosed individually.
Further information on the Group’s leasing arrangements is provided in note 23.
2020
£m
10
232
7
Total
£m
248
(124)
439
148
Centrica plc Annual Report and Accounts 2021
14. Interests in joint ventures and associates
Investments in joint ventures and associates represent businesses where we exercise joint control or significant influence and
generally have an equity holding of up to 50%. These include the investment in Lake Acquisitions Limited, which owns the existing
EDF UK nuclear power station fleet.
(a) Interests in joint ventures and associates
2021
2020
Investments in
joint ventures
and associates
£m
Investments in
joint ventures
and associates
£m
1 January
Additions
Write-backs/(Impairment) (i)
Share of (loss)/profit for the year
Share of other comprehensive income
Dividends (ii)
Disposals (iii)
Other movements
31 December
843
–
747
(103)
152
(2)
(2)
(7)
1,628
(i) The £747 million in 2021 relates to nuclear investment impairment write-back (2020: nuclear investment impairment £(481) million). See note 7 for further details.
(ii)
(iii) In 2021, the group sold its 50% equity stake in Barrow Shipping Limited.
In 2020, a non-cash £10 million tax credit was received in lieu of payment of a dividend.
(b) Share of joint ventures’ and associates’ assets and liabilities
31 December
Share of non-current assets
Share of current assets
Share of current liabilities
Share of non-current liabilities
Cumulative impairment
Interests in joint ventures and associates
Net cash included in share of net assets
Associates
Nuclear
£m
2021
Other
£m
5,109
705
5,814
(358)
(3,139)
(3,497)
(692)
1,625
50
4
1
5
(1)
(1)
(2)
–
3
–
Further information on the Group’s investments in joint ventures and associates is provided in notes 6 and S10.
Total
£m
5,113
706
5,819
(359)
(3,140)
(3,499)
(692)
1,628
1,306
10
(483)
21
58
(72)
–
3
843
2020
Total
£m
4,457
755
5,212
(205)
(2,720)
(2,925)
(1,444)
843
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
50
105
Centrica plc Annual Report and Accounts 2021
149
Financial Statements | Notes to the Financial Statements continued
15. Other intangible assets and goodwill
The Group Balance Sheet contains significant intangible assets. Goodwill, customer relationships and brands usually arise when
we acquire a business. Goodwill is attributable to enhanced geographical presence, cost savings, synergies, growth opportunities,
the assembled workforce and also arises from items such as deferred tax. Goodwill is not amortised but is assessed for
recoverability each year.
The Group uses European Union Allowances (EUAs) and Renewable Obligation Certificates/Renewable Energy Certificates
(ROCs/RECs) to satisfy its related obligations.
Upstream exploration and evaluation expenditure is capitalised as an intangible asset until development of the asset commences,
at which point it is transferred to PP&E or is deemed not commercially viable and is written down.
(a) Carrying amounts
Cost
1 January
Additions and capitalised
borrowing costs
Acquisitions
Disposals/retirements and
surrenders
Write-downs
Transfers
Transfers to disposal groups
held for sale
Exchange adjustments
31 December
Accumulated amortisation
1 January
Amortisation (iii)
Disposals/retirements and
surrenders
Impairments
Transfers to disposal groups
held for sale
Exchange adjustments
31 December
–
13
46
–
654
–
(9)
(215)
(648)
–
–
–
(6)
–
–
–
1
–
–
–
91
13
1,166
175
(9)
(211)
–
–
–
17
–
(4)
95
1,143
–
–
–
–
–
–
–
2021
2020
Customer
relation-
ships and
brands
£m
Application
software
(i) (ii)
£m
EUA/
ROC/RECs
£m
Exploration
and
evaluation
expenditure
£m
Goodwill
£m
Total
£m
Customer
relation-
ships and
brands
£m
Application
software
(i) (ii)
£m
EUA/
ROC/RECs
£m
Exploration
and
evaluation
expenditure
£m
Goodwill
£m
Total
£m
203
1,752
208
352
1,651
4,166
764
2,021
179
320
3,171
6,455
51
–
(26)
(58)
(10)
–
–
–
–
–
751
13
(898)
(58)
(10)
9
–
(3)
–
–
99
–
1,047
–
(10)
(818)
–
–
–
–
(187)
(968)
(1,155)
(576)
(360)
(195)
61
–
–
(24)
(3)
(1)
(1)
–
3
–
–
–
1,216
3
(831)
(24)
(3)
(1,538)
(2,670)
15
20
(1)
(1)
(18)
(25)
9
2
(5)
201
1,584
213
121
665
2,784
203
1,752
208
352
1,651
4,166
247
722
2,226
–
–
–
–
–
301
188
(220)
318
580
27
1,132
231
(3)
–
(9)
83
(124)
(758)
(882)
(520)
(269)
(2)
(1)
(7)
121
–
264
401
1,623
1,161
7
91
(2)
1,166
–
–
–
–
–
–
–
117
593
2,422
–
–
–
–
130
140
258
(12)
353
–
–
247
105
(10)
(1)
722
929
(799)
4
2,226
1,940
NBV at 31 December
106
441
213
112
586
208
(i) Application software includes assets under construction with a cost of £71 million (2020: £130 million).
(ii) The remaining amortisation period of individually material application software assets, which had a carrying value of £171 million (2020: £239 million), is between two and four years.
(iii) Amortisation of £188 million (2020: £258 million) has been recognised in operating costs from continuing and discontinued operations before exceptional items.
150
Centrica plc Annual Report and Accounts 2021
15. Other intangible assets and goodwill
(b) Carrying amount of goodwill and intangible assets with indefinite useful lives allocated to CGUs
Goodwill acquired through business combinations, and indefinite-lived intangible assets, have been allocated for impairment testing purposes
to individual CGUs or groups of CGUs, each representing the lowest level within the Group at which the goodwill or indefinite-lived intangible
asset is monitored for internal management purposes.
31 December
CGUs
Continuing operations:
British Gas Services &
Solutions
Principal acquisitions to which
goodwill and intangibles with indefinite
useful lives relate
AlertMe/Dyno-Rod
British Gas Energy
Enron Direct/Electricity Direct
Centrica Business Solutions
– Energy solutions
ENER-G/Panoramic Power/
REstore/SmartWatt
– Energy supply
Enron Direct/Electricity Direct
Bord Gáis Energy
Bord Gáis Energy
Energy Marketing & Trading Neas Energy
Upstream
Newfield/Heimdal/Venture/Bayerngas
2021
Carrying
amount of
indefinite-
lived
intangible
assets (ii)
£m
Carrying
amount of
goodwill
£m
2020 (i)
Carrying
amount of
indefinite-
lived
intangible
assets (ii)
£m
Carrying
amount of
goodwill
£m
Total
£m
63
121
–
60
15
142
–
401
57
–
–
–
–
–
–
57
120
121
–
60
15
142
–
458
63
121
104
60
16
151
414
929
57
–
–
–
–
–
–
57
Total
£m
120
121
104
60
16
151
414
986
(i) Segmental results have been restated to reflect the new operating structure of the Group (see note 1).
(ii) The indefinite-lived intangible assets relate mainly to the Dyno-Rod brand.
The Group has considered the impact of climate change on the carrying value of goodwill, including the impact of the risks and opportunities
included within the TCFD disclosure on page 34. Given the relatively low carrying value of goodwill within each CGU, the Group has concluded
that the climate risks and opportunities do not give rise to an impairment.
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
151
Financial Statements | Notes to the Financial Statements continued
16. Deferred tax assets and liabilities
Deferred tax is an accounting adjustment to provide for tax that is expected to arise in the future as a result of differences in the
accounting and tax bases of assets and liabilities. The principal deferred tax assets and liabilities recognised by the Group relate
to capital investments, decommissioning assets and provisions, tax losses, fair value movements on derivative financial
instruments, PRT and pensions.
1 January 2020
Credit/(charge) to income
(Charge)/credit to equity
Transferred to held for sale
Exchange and other adjustments
31 December 2020
(Charge)/credit to income
Credit/(charge) to equity
Transferred to held for sale
Exchange and other adjustments
31 December 2021
Accelerated tax
depreciation
(corporation tax)
£m
Net
decommissioning
(i)
£m
Losses carried
forward (ii)
£m
Other timing
differences (iii)
£m
Marked to
market
positions
£m
Net deferred
PRT (iv)
£m
Retirement
benefit
obligation and
other provisions
£m
(924)
225
–
37
–
(662)
(383)
–
582
5
(458)
867
9
–
–
–
876
109
–
(428)
(1)
556
255
(114)
–
(6)
1
136
51
–
–
–
187
15
(18)
–
69
6
72
(36)
–
(6)
1
31
134
(153)
(12)
(33)
–
(64)
601
8
–
–
545
138
(13)
–
–
–
125
(83)
–
–
–
42
(83)
(30)
122
(5)
–
4
(30)
(90)
–
–
(116)
Total
£m
402
(94)
110
62
7
487
229
(82)
148
5
787
(i) Net decommissioning includes deferred tax assets of £638 million (2020: £1,145 million) in respect of decommissioning provisions.
(ii) The losses arise principally from accelerated allowances for upstream investment expenditure, for which equivalent deferred tax liabilities are included under accelerated tax depreciation.
(iii) Other timing differences include a deferred tax asset of £27 million (2020: £60 million) in respect of unrelieved interest costs.
(iv) The deferred PRT amounts include the effect of deferred corporation tax as PRT is chargeable to corporation tax.
Certain deferred tax assets and liabilities have been offset where there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income taxes relate to the same fiscal authority.
31 December
Gross deferred tax balances
Offsetting deferred tax balances
Net deferred tax balances (after offsetting for financial reporting purposes)
2021
Assets
£m
1,404
(581)
823
Liabilities
£m
(617)
581
(36)
2020
Assets
£m
1,655
(1,019)
636
Liabilities
£m
(1,168)
1,019
(149)
Deferred tax assets arise typically on decommissioning provisions, trading losses carried forward, retirement benefit obligations and marked
to market positions. Forecasts indicate that there will be suitable taxable profits to utilise those deferred tax assets not offset against deferred
tax liabilities. Specific legislative provisions applicable to gas and oil production provide assurance that deferred tax assets relating to
decommissioning costs and certain trading losses will be utilised.
At the balance sheet date, the Group had certain unrecognised deductible temporary differences of £1,762 million (2020: £2,205 million),
of which £1,762 million (2020: £2,089 million) related to carried forward tax losses available for utilisation against future taxable profits. In 2020
£2 million of these losses were expected to expire within one to five years, however due to a change in tax legislation the losses no longer have
an expiry date.
No deferred tax asset has been recognised in respect of these temporary differences, due to the unpredictability of future profit streams. At the
balance sheet date, no taxable temporary differences existed in respect of the Group’s overseas investments (2020: £nil).
152
Centrica plc Annual Report and Accounts 2021
17. Trade and other receivables, and contract-related assets
Trade and other receivables include accrued income, and are amounts owed by our customers for goods we have delivered or
services we have provided. These balances are valued net of provisions for bad debt. Other receivables include payments made
in advance to our suppliers. Contract-related assets are balances arising as a result of the Group’s contracts with customers in
the scope of IFRS 15.
31 December
Financial assets:
Trade receivables
Unbilled downstream energy income
Trading and energy procurement accrued income (i)
Other accrued energy income
Other accrued income
Cash collateral posted
Other receivables (including loans and contract assets) (ii)
Less: provision for credit losses
Non-financial assets: prepayments, other receivables and costs to obtain or fulfil a contract
with a customer
2021
2020
Current
£m
Non-current
£m
Current
£m
Non-current
£m
1,546
726
2,546
175
108
888
333
6,322
(633)
5,689
192
5,881
–
–
–
–
–
–
135
135
–
135
98
233
1,379
532
731
60
114
56
219
3,091
(591)
2,500
301
2,801
–
–
–
–
–
–
31
31
–
31
114
145
(i) Trading and energy procurement counterparty receivables are typically with customers with external, published credit ratings. Such receivables have typically much lower credit risk than
downstream counterparties and expected credit losses are not significant.
(ii) Other receivables include £234 million (2020: £nil) of SoLR claims, see note 3(a) for further details.
The amounts above include gross amounts receivable arising from the Group’s IFRS 15 contracts with customers of £1,419 million (2020:
£1,302 million). Additionally, accrued income of £797 million (2020: £624 million) arising under IFRS 15 contracts is included.
Trade and other receivables include financial assets representing the contractual right to receive cash or other financial assets from residential
customers, business customers and treasury, trading and energy procurement counterparties as follows:
31 December
Financial assets by class:
Residential customers
Business customers
Treasury, trading and energy procurement counterparties
Less: provision for credit losses
2021
2020
Current
£m
Non-current
£m
Current
£m
Non-current
£m
1,664
1,019
3,639
6,322
(633)
5,689
110
21
4
135
–
135
1,249
930
912
3,091
(591)
2,500
–
25
6
31
–
31
Centrica plc Annual Report and Accounts 2021
153
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
17. Trade and other receivables, and contract-related assets
Credit loss charge for trade and other receivables
The impairment charge in trade receivables is stated net of credits for the release of specific provisions made in previous years, which are no
longer required. These relate primarily to residential customers in the UK. Movements in the provision for credit losses by class are as follows:
2021
2020 (v)
Residential
customers
£m
Business
customers
£m
Treasury,
trading
and energy
procurement
counterparties
£m
1 January
(400)
(187)
(4)
Increase in impairment of trade receivables (predominantly
related to credit impaired trade receivables) (i) (ii) (iii)
Receivables written off (iv)
31 December
(84)
58
(39)
19
(426)
(207)
–
4
–
Total
£m
(591)
(123)
81
(633)
Residential
customers
£m
Business
customers
£m
(346)
(165)
(132)
78
(400)
(78)
56
(187)
Treasury,
trading
and energy
procurement
counterparties
£m
(4)
–
–
(4)
Total
£m
(515)
(210)
134
(591)
Includes £107 million (2020: £182 million) of credit losses related to trade receivables resulting from contracts in the scope of IFRS 15.
(i)
(ii) All loss allowances reflect the lifetime expected credit losses on trade receivables and contract assets.
(iii) Excludes recovery of previously written-off receivables of £7 million (2020: £15 million). Due to the large number of individual receivables and the matrix approach employed, any reduction
in provision is reflected in a reduced charge for the relevant period, rather than in separately identifiable reversals of previous provisions.
(iv) Materially all write-offs relate to trade receivables where enforcement activity is ongoing.
(v) 2020 has been presented excluding discontinued operations.
Year ended 31 December
Increase in impairment provision for trade receivables (per above)
Less recovery of previously written-off receivables
Credit losses on financial assets (per Group Income Statement)
(i) 2020 has been presented excluding discontinued operations.
2021
£m
(123)
7
(116)
2020 (i)
£m
(210)
15
(195)
Enforcement activity continues in respect of balances that have been written off unless there are specific known circumstances (such as bankruptcy)
that render further action futile.
154
Centrica plc Annual Report and Accounts 2021
17. Trade and other receivables, and contract-related assets
Credit losses and provisions for Trade and other receivables
Receivables from residential and business customers are generally considered to be credit impaired when the payment is past the contractual
due date. The Group applies different definitions of default for different groups of customers, ranging from sixty days past the due date to six to
twelve months from the issuance of a final bill. Receivables are generally written off only once a period of time has elapsed since the final bill.
Contractual due dates range from falling due upon receipt to falling due in thirty days from receipt.
The table below shows credit impaired balances in gross receivables (those that are past due) and those that are not yet due and therefore not
considered to be credit impaired.
Gross trade and other receivables
31 December
Balances that are not past due
Balances that are past due
(i) 2020 has been presented excluding discontinued operations.
2021
£m
5,032
1,290
6,322
2020 (i)
£m
2,029
1,062
3,091
The IFRS 9 impairment model is applicable to the Group’s financial assets including trade receivables, contract assets and other financial assets
as described in note S3. As the majority of the relevant balances are trade receivables and contract assets to which the simplified model
applies, this disclosure focuses on these balances.
The provision for credit losses for trade receivables and contract assets is based on an expected credit loss model that calculates the expected
loss applicable to the receivable balance over its lifetime. Expected credit losses on receivables due from treasury, trading and energy
procurement counterparties are not significant (see note S3 for further analysis of this determination). For residential and business customers
default rates are calculated initially by considering historical loss experience and applied to trade receivables within a provision matrix. The matrix
approach allows application of different default rates to different groups of customers with similar characteristics. These groups are determined
by a number of factors including; the nature of the customer, the payment method selected and where relevant, the sector in which they
operate. The characteristics used to determine the groupings of receivables are the factors that have the greatest impact on the likelihood of
default. The rate of default increases once the balance is thirty days past due.
Concentration of credit risk in Trade and other receivables
Treasury, trading and energy procurement counterparty receivables are typically with customers with external, published credit ratings. Such
receivables have typically much lower credit risk than downstream counterparties, and that risk is assessed primarily by reference to the credit
ratings rather than to the ageing of the relevant balance. Counterparty credit rating information is given in note S3.
The Group was appointed as a Supplier of Last Resort to a number of energy suppliers who have ceased to trade. Under Ofgem licence
conditions, the Group is entitled to make a Last Resort Supplier Payment claim for incremental costs reasonably incurred to supply affected
customers; a total of £234 million has been recognised in other receivables at 31 December 2021. This, together with further costs incurred
in the first three months of 2022 will be recovered as part of a two-step claim process. An initial claim, based on expected costs, has been
submitted and approved by Ofgem, and will be recovered between April 2022 and April 2023. A second claim, based on actual costs will be
submitted in Autumn 2022 and recovered between April 2023 and April 2024. The claims are settled by network operators who have strong
credit ratings, and Ofgem have the power under licensing conditions to take enforcement action against default.
The Group’s cash collateral balance has increased to £888 million in 2021 (2020: £56 million) as a result of higher commodity prices. The
related liability for collateral received has increased by a similar proportion. Collateral counterparties typically have strong credit ratings and
accordingly have low credit risk; the Group does not expect credit losses to arise on these balances.
The majority of the Group’s credit exposure arises in the British Gas Energy and Centrica Business Solutions segments and relates to residential
and business energy customers. The credit risk associated with these customers is assessed as described above, using a combination of the
age of the receivable in question, internal ratings based on a customer’s payment history, and external data from credit rating agencies.
The disclosures below reflect the information that is reported internally for credit risk management purposes in these segments.
Centrica plc Annual Report and Accounts 2021
155
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
17. Trade and other receivables, and contract-related assets
British Gas Energy credit risk
Of the Group total of £1,546 million billed trade receivables, the British Gas Energy reporting segment contributes £1,033 million. British Gas
Energy now includes small business customers previously included within Centrica Business Solutions on the basis that their profile closely
matches those of residential customers. As described above, credit risk is concentrated in receivables from energy customers who pay in
arrears. Gross receivables from British Gas Energy residential customers amount to £601 million (2020: £562 million) and are analysed below.
Trade receivables due from British Gas residential
energy customers as at 31 December (i)
Days beyond invoice date (ii)
Risk profile
Direct debits (iii)
Gross receivables
Provision
Net
Payment on receipt of bill (iii)
Gross receivables
Provision
Net
Final bills (iv)
Gross receivables
Provision
Net
2021
2020
< 30 days
£m
30-90 days
£m
>90 days
£m
Total
£m
< 30 days
£m
30-90 days
£m
>90 days
£m
Total
£m
55
–
55
87
(3)
84
7
(2)
5
28
–
28
22
(4)
18
8
(4)
4
53
(2)
51
194
(102)
92
147
(122)
25
136
(2)
134
303
(109)
194
162
(128)
34
28
–
28
76
(2)
74
11
(2)
9
20
–
20
21
(3)
18
10
(5)
5
34
(2)
32
222
(106)
116
140
(114)
26
82
(2)
80
319
(111)
208
161
(121)
40
Total net British Gas residential energy customers
trade receivables
144
50
168
362
111
43
174
328
(i) The receivables information presented in this table relates to downstream customers who pay energy bills using the methods presented. It excludes low residual credit risk amounts, such
as balances in the process of recovery through pay-as-you-go energy (PAYGE) arrangements and amounts receivable from PAYGE energy vendors. Gross amounts in the process of
recovery through PAYGE arrangements at 31 December 2021 are £201 million (2020: £168 million), against which a provision of £136 million is held (2020: £126 million). The credit risk
associated with PAYGE arrangements has improved due to enforcement activity returning to pre-COVID levels.
(ii) This ageing analysis is presented relative to invoicing date and presents receivables according to the oldest invoice outstanding with the customer. There are a range of payment terms
extended to residential energy customers. Amounts paid on receipt of a bill (PORB), which are settled using bank transfers, cash or cheques are typically due within fourteen days of
invoicing. Direct debit customers typically pay in equal instalments over a twelve-month period.
(iii) Receivables settled by direct debit are deemed to present a lower credit risk than PORB amounts. This is reflected in the relative level of provision held for these types of receivables.
(iv) Final bill customers are those who are no longer customers of the Group and have switched energy supplier. These balances are deemed to have the highest credit risk.
During 2021 the British Gas segment has been further refined and separated into two operating segments, British Gas Energy and British Gas
Services & Solutions. As a result of this change, small business customers in the UK are now included in British Gas Energy. Gross receivables
from British Gas Energy small business customers amount to £232 million (2020: £176 million) and are analysed below.
Trade receivables due from British Gas small
business energy customers as at 31 December
Days beyond invoice date (i)
Risk profile
Small businesses
Gross receivables
Provision
Total net British Gas small business energy
customers trade receivables
2021
2020
< 30 days
£m
30-90 days
£m
>90 days
£m
Total
£m
< 30 days
£m
30-90 days
£m
>90 days
£m
Total
£m
48
–
48
18
(1)
17
166
(128)
232
(129)
38
103
23
–
23
12
(1)
11
141
(100)
176
(101)
41
75
(i) This ageing analysis is presented relative to invoicing date and presents receivables according to the oldest invoice outstanding with the customer. There are a range of payment terms
extended to business energy customers. Average credit terms for small business customers are ten working days.
Unbilled downstream energy income at 31 December 2021 includes gross balances of £535 million in respect of British Gas energy customers
(2020: £373 million), against which a provision of £21 million is held (2020: £20 million).
156
Centrica plc Annual Report and Accounts 2021
17. Trade and other receivables, and contract-related assets
Centrica Business Solutions energy credit risk
Of the Group total of £1,546 million billed trade receivables, the Centrica Business Solutions reporting segment contributes £299 million.
As described above, credit risk is concentrated in receivables from business energy customers who pay in arrears. Gross receivables from
these customers amount to £251 million (2020: £199 million) and are analysed below.
Trade receivables due from Centrica Business
Solutions business energy customers as at
31 December
Days beyond invoice date (i)
Risk profile
Commercial and industrial (ii)
Gross receivables
Provision
Net
Medium-sized entities (ME)
Gross receivables
Provision
Net
2021
2020
< 30 days
£m
30-90 days
£m
>90 days
£m
Total
£m
< 30 days
£m
30-90 days
£m
>90 days
£m
Total
£m
116
–
116
22
–
22
3
–
3
7
–
7
47
(18)
29
56
(36)
20
166
(18)
148
85
(36)
49
18
–
18
13
–
13
31
35
–
35
7
–
7
76
(27)
49
50
(32)
18
129
(27)
102
70
(32)
38
42
67
140
Total net Centrica Business Solutions business
energy customers trade receivables
138
10
49
197
(i) This ageing analysis is presented relative to invoicing date and presents receivables according to the oldest invoice outstanding with the customer. There are a range of payment terms
extended to business energy customers. Average credit terms for ME customers are ten working days. Credit terms for Commercial and Industrial customers are bespoke and are set
based on the commercial agreement with each customer.
(ii) This category includes low credit risk receivables, including those from public sector and customers with high turnover (greater than £100 million).
Unbilled downstream energy income at 31 December 2021 includes gross balances of £193 million in respect of Centrica Business Solutions
business energy customers (2020: £118 million), against which a provision of £5 million is held (2020: £5 million).
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
157
Financial Statements | Notes to the Financial Statements continued
17. Trade and other receivables, and contract-related assets
Sensitivity to changes in assumptions
Typically, the most significant assumption included within the expected credit loss provisioning model that gives rise to estimation uncertainty is
that future performance will be reflective of past performance and that there will be no significant change in the payment profile or recovery rates
within each identified group of receivables. To address this risk, the Group reviews and updates default rates, by group, on a regular basis to
ensure they incorporate the most up to date assumptions along with forward-looking information where available and relevant. The Group
also considers regulatory changes and customer segment specific factors that may have an impact, now or in the future, on the recoverability
of the balance.
The specific consideration of forward-looking information in the impairment model does not usually give rise to significant changes in the levels
of credit losses. However, inflationary pressures, increasing wholesale gas and electricity costs and the impacts of the global COVID-19
pandemic, continue to cause uncertainty in economic outlook. The economic recovery remains vulnerable and there remains a level of
estimation uncertainty inherent in determining credit loss provisions for the Group’s trade receivables.
Where customers experience difficulties in settling balances, the increased ageing of these amounts results in an increase in provisions held
in respect of them under the provision matrix approach employed. The Group has also considered changes in customer payment patterns,
the specific circumstances of the customers and the economic impacts of the factors identified above, on the sectors in which they operate.
Whilst economic recovery is expected, a level of unpredictability remains apparent.
The Group has considered macroeconomic forecasts in determining the level of provisions for credit losses. Customers are facing increases
to their cost of living, including increased energy bills, higher inflation and higher interest rates. Support received under COVID-19 assistance
programmes has now been withdrawn. Unbilled energy income is more susceptible to credit risk from such forward-looking factors due to the
length of time between the balance sheet date and collection of the amounts in cash. The Group considers that future economic growth
remains modest.
During 2021 the Group recognised impairment charges of £116 million (2020: £195 million) in respect of financial assets, representing 0.8%
of Group revenue (2020: 1.6%) and 0.6% of Group revenue from business performance (2020: 1.3%). The lower impairment charges in 2021
are driven by a reversion to a normalised level of bad debt charges. The prior year included a £30 million macroeconomic uplift. As described
above, the majority of the Group’s credit exposure arises in respect of downstream energy receivables in British Gas Energy and Centrica
Business Services. Credit losses in respect of these assets amounted to £104 million (2020: £179 million). This represents 1.1% (2020: 2.2%)
of total UK downstream energy supply revenue from these segments of £9,162 million (2020: £8,262 million). Further details of segmental
revenue are provided in note 4.
Due to the different level of risks presented by billed and unbilled receivables, these asset groups are considered separately in the analysis below.
Billed trade receivables
Gross billed receivables
Provision
Net balance
Provision coverage
Sensitivity
31 December
2021
£m
31 December
2020
£m
1,546
(607)
939
1,379
(566)
813
31 December
2021
%
31 December
2020
%
39
£m
41
£m
Impact on billed receivables/operating profit from 1 percentage point (increase)/decrease in provision coverage (i)
(16)/16
(14)/14
(i) Credit risk in the Group is impacted by a large number of interacting factors.
Cash collection relative to billing has remained strong throughout the whole of 2021, continuing the trends seen during the first year of the
pandemic. Provision rates by customers in the Group’s downstream operations have fallen marginally, as both ageing and deemed credit
quality improved. This is driven by improved macroeconomic conditions and partly benefiting from field activity resuming with fewer COVID
restrictions. However, the credit risk arising from the macroeconomic outlook remains challenging; with significantly higher energy bills expected,
rising inflation and higher interest rates expected. These factors are yet to be reflected to date in the underlying matrix output model used to
book provision coverage, due in part to protection offered to domestic consumers via the Price Cap. However there remains significant
uncertainty around the possible increase in bad debt as a result of these factors. Therefore, as part of management’s assessment of the
adequacy of bad debt provisions, no material change has been made to the £30 million macroeconomic provision that was booked for the
year ended 31 December 2020. It remains highly uncertain when and how these factors will reduce the collectability of debt and what impact
proposals by Ofgem or future interventions by Government may have to limit the impact of these. The table above and the unbilled section
below provides details of the sensitivity of moving the bad debt provision by a further 1%.
The Group’s services, upstream and trading operations are less susceptible to credit risk. No significant deterioration of credit risk has been
experienced or is expected in the relevant segments in respect of billed trade receivables recognised at 31 December 2021, taking into account
cash collection cycles in those areas of the Group and credit rating information (see note S3).
158
Centrica plc Annual Report and Accounts 2021
17. Trade and other receivables, and contract-related assets
Unbilled downstream energy income
The table below shows the IFRS 15 unbilled downstream energy income for the Group as a whole.
Gross unbilled receivables
Provision
Net balance
Provision coverage
Sensitivity
Impact on unbilled receivables/operating profit from 1 percentage point (increase)/decrease in provision coverage (i)
(i) Credit risk in the Group is impacted by a large number of interacting factors.
31 December
2021
£m
31 December
2020
£m
726
(26)
700
532
(25)
507
31 December
2021
%
31 December
2020
%
4
£m
(7)/7
5
£m
(5)/5
Unbilled downstream energy income is typically provided at a significantly lower rate than billed debt. This is because a large proportion of this
debt once billed will be subject to the very short cash collection cycles of the Group’s downstream energy supply businesses.
18. Inventories
Inventories represent assets that we intend to use in future periods, either by selling the asset itself (for example gas in storage)
or by using it to provide a service to a customer.
31 December
Gas and oil in storage and transportation (i)
Other raw materials and consumables
Finished goods and goods for resale
2021
£m
486
99
59
644
2020
£m
103
169
52
324
i
F
n
a
n
c
a
i
l
(i)
Includes oil inventory and gas in storage held at fair value of £331 million (2020: £83 million).
Excluding discontinued operations, the Group consumed £560 million of inventories (2020: £423 million) during the year. Write-downs
amounting to £23 million (2020: £15 million) were charged to the Group Income Statement in the year.
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
159
Financial Statements | Notes to the Financial Statements continued
19. Derivative financial instruments
The Group generally uses derivative financial instruments to manage the risk arising from fluctuations in the value of certain assets or liabilities associated with
treasury management and energy sales and procurement, and for proprietary energy trading purposes. The Group also used derivatives to hedge the exchange
risk arising on the net assets of its US dollar Direct Energy subsidiaries which were sold in January 2021. Derivatives are held at fair value.
For accounting purposes, derivatives are either classified as held for trading, in which case changes in their fair value are recognised in the Group Income
Statement, or they are designated in hedging relationships. Where derivatives are in hedging relationships, the treatment of changes in their fair value depends
on the nature of that relationship, and whether it represents a fair value hedge, a cash flow hedge, or a net investment hedge. Note S5 provides further detail
on the Group’s hedge accounting. The table below gives a high-level summary of the Group’s accounting for its derivative contracts.
Purpose
Classification Accounting treatment
Proprietary energy trading and treasury
management.
Treasury management and hedging of
exchange risk on net assets of US dollar
Direct Energy subsidiaries.
Held for trading
and fair value
hedges.
Cash flow and
net investment
hedges.
Changes in fair value recognised in the Group’s business performance results for the year.
Effective portion of hedge initially recognised in the Group Statement of Other
Comprehensive Income. Gains and losses are recycled to the Group Income Statement
when the hedged item impacts profit or loss. Ineffective portions of the hedge are
recognised immediately in the Group’s business performance results for the year.
Energy procurement and optimisation.
Held for trading. Changes in fair value recognised in the Group’s exceptional items and certain
re-measurements results for the year.
The carrying values of derivative financial instruments by product type for accounting purposes are as follows:
31 December
Derivative financial instruments – held for trading under IFRS 9:
Energy derivatives – for procurement/optimisation
Energy derivatives – for proprietary trading
Interest rate derivatives
Foreign exchange derivatives
Derivative financial instruments in hedge accounting relationships:
Interest rate derivatives
Foreign exchange derivatives
Total derivative financial instruments
Included within:
Derivative financial instruments – current
Derivative financial instruments – non-current
Assets and liabilities held for sale
2021
Assets
£m
Liabilities
£m
2020
Assets
£m
Liabilities
£m
3,611
3,775
4
60
67
33
(2,203)
(3,749)
–
(50)
–
(7)
585
726
3
49
182
204
(445)
(667)
–
(46)
(1)
(9)
7,550
(6,009)
1,749
(1,168)
6,545
1,005
–
(4,929)
(1,080)
–
1,224
366
159
(747)
(181)
(240)
Included in derivative liabilities above is £nil (2020: £77 million) relating to virtual gas storage arrangements. These contracts give the parties
rights to put and call gas volumes over their term, economically mirroring physical storage arrangements. Optimisation of virtual storage
contracts under related commodity sale and purchase arrangements with the same parties has given rise to net operating cash inflows of £nil
during 2021 (2020: £40 million). These cash flows arise from the normal commodity trading activities of the Group, and are therefore operating
in nature, but are separately disclosed because the timing of cash flows under the arrangements can give rise to a cash flow benefit akin to
a financing arrangement.
160
Centrica plc Annual Report and Accounts 2021
19. Derivative financial instruments
The contracts included within energy derivatives are subject to a wide range of detailed specific terms, but comprise the following general
components, analysed on a net carrying value basis:
31 December
Short-term forward market purchases and sales of gas and electricity:
UK and Europe
North America (i)
Other derivative contracts including structured gas sale and purchase arrangements
Net total
(i) Derivatives held by the Direct Energy business were classified as assets and liabilities held for sale at 31 December 2020.
Net gains/(losses) on derivative financial instruments due to re-measurement
31 December
Financial assets and liabilities measured at fair value:
Derivative financial instruments – held for trading
Derivative financial instruments in hedge accounting relationships
20. Trade and other payables, and contract liabilities
2021
Income
Statement
£m
1,263
(95)
1,168
Equity
£m
–
(42)
(42)
2021
£m
69
–
1,365
1,434
2020
Income
Statement
£m
346
73
419
2020
£m
(26)
(81)
306
199
Equity
£m
–
102
102
Trade and other payables include accruals and are principally amounts we owe to our suppliers. Financial deferred income
represents monies received from customers in advance of the delivery of goods or services that may be returned to the customer
if future delivery does not occur. For example, downstream customers with a credit balance may request repayment of the
outstanding amount in cash, rather than taking delivery of commodity. By contrast, contract liabilities and non-financial deferred
income arise when the Group receives consideration from a customer in advance of performance, and has a non-financial liability
to deliver future goods or services in return.
31 December
Financial liabilities:
Trade payables
Deferred income (i)
Capital payables
Cash collateral received
Other payables
Accruals:
Commodity costs
Transportation, distribution and metering costs
Operating and other accruals
Non-financial liabilities:
Other payables and accruals
Contract liabilities
Deferred income
(i)
Includes downstream customer credit balances for amounts billed in advance of energy supply.
Maturity profile of financial liabilities within current trade and other payables
31 December
Less than 90 days
90 to 182 days
183 to 365 days
2021
2020
Current
Non-current
£m
£m
Current
£m
Non-current
£m
(542)
(281)
(85)
(1,185)
(164)
(3,462)
(258)
(775)
(4,495)
(6,752)
(661)
(33)
(67)
(2)
–
–
–
(100)
–
–
–
–
(102)
(3)
(15)
–
(440)
(331)
(114)
(68)
(225)
(1,019)
(258)
(584)
(1,861)
(3,039)
(589)
(26)
(68)
(7,513)
(120)
(3,722)
–
–
–
–
(92)
–
–
–
–
(92)
(2)
(20)
–
(114)
2021
£m
2020
£m
(6,531)
(2,817)
(134)
(87)
(90)
(132)
(6,752)
(3,039)
Centrica plc Annual Report and Accounts 2021
161
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
21. Provisions for other liabilities and charges
Provisions are recognised when an obligation exists that can be reliably measured, but where there is uncertainty over the timing
and/or amount of the payment. The main provisions relate to decommissioning costs for upstream assets we own, or have owned,
which require restoration or remediation. Further provisions relate to sale and purchase contracts we have entered into that are
now onerous, restructuring costs, and legal and regulatory matters. During the year we have recognised a material onerous supply
contract provision within sale/purchase contract loss provision.
(12)
(1,372)
(24)
(46)
(1,454)
(1)
22
–
1
22
2020
Current
£m
Non-current
£m
(64)
(43)
(107)
(6)
(83)
(89)
Current
Restructuring costs
Decommissioning costs (i) (ii)
Sale/purchase contract
loss provision(iii)
Other(iv)
Non-current
Restructuring costs
Decommissioning costs (i) (ii)
Sale/purchase contract
loss provision
Other(iv)
1 January
2021
£m
Charged in
the year
£m
Notional
interest
£m
Unused and
reversed in
the year
£m
Utilised
£m
Transfers (v)
£m
Exchange
adjustments
£m
31 December
2021
£m
(64)
(73)
(8)
(43)
(23)
–
(2,531)
(34)
(188)
(2,588)
–
–
–
–
–
1 January
2021
£m
Acquisitions
and disposals
£m
Charged in
the year
£m
Notional
interest
£m
8
–
3
8
43
55
4
43
19
145
Unused and
reversed in
the year
£m
Revisions
and
additions
£m
6
(132)
(3)
(28)
(157)
1
1
–
(2)
–
(29)
(149)
(2,535)
(56)
(2,769)
Transfers (v)
£m
Exchange
adjustments
£m
31 December
2021
£m
(6)
(2,335)
(27)
(70)
(2,438)
–
4
–
–
4
(3)
(15)
–
(3)
(21)
–
–
–
(1)
(1)
4
53
–
1
58
–
12
–
(2)
10
(6)
887
3
28
912
Included within the above liabilities are the following financial liabilities:
31 December
Restructuring costs
Provisions other than restructuring costs
2021
Current
£m
(29)
(2,580)
(2,609)
Non-current
£m
(12)
(57)
(69)
(i) Provision has been made for the estimated net present cost of decommissioning gas production facilities at the end of their useful lives. The estimate has been based on 2P reserves,
price levels and technology at the balance sheet date. The payment dates of decommissioning costs are dependent on the lives of the facilities, but utilisation of the provision is expected
to occur until the 2040s. The maturity profile of total decommissioning provisions is analysed below:
Maturity profile of decommissioning provisions
31 December
2022-2026
2027-2031
2032-2036
2037-2041
2042-2046
2021
£m
(741)
(619)
(143)
(12)
(6)
(1,521)
Included in the provision balance as at 31 December 2021 is £1,173 million held in Spirit Energy, £332 million in relation to the Rough field, and £16 million in the remainder of the business.
During the year the rate used to discount decommissioning provisions remained at 0% on the basis that market risk-free rates remain suppressed. See note 3.
(ii)
(iii) Includes onerous supply contract provision, see notes 3 and 7.
(iv) Other provisions have been made for dilapidations, insurance, legal, warranty and various other claims.
(v)
Includes amounts transferred between current and non-current and transfers to disposal groups held for sale. The split is shown on the next page.
162
Centrica plc Annual Report and Accounts 2021
21. Provisions for other liabilities and charges
Transfers
31 December 2021
Restructuring costs (a)
Decommissioning costs (b)
Sale/purchase contract loss provision
Other
(a) Certain restructuring projects have been deferred into 2023.
(b) Transfers to held for sale relates to the disposal of the Norway business. See note 12.
Current
Non-current
Transfer
to/(from)
non-current
£m
Transfer to
disposal groups
held for sale
£m
Transfer
(from)/to
current
£m
Transfer to
disposal groups
held for sale
£m
6
(137)
(3)
(28)
(162)
–
5
–
–
5
(6)
137
3
28
162
–
750
–
–
750
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
163
Financial Statements | Notes to the Financial Statements continued
22. Post-retirement benefits
The Group manages a number of final salary and career average defined benefit pension schemes. It also has defined contribution
schemes. The majority of these schemes are in the UK.
(a) Summary of main post-retirement benefit schemes
Name of scheme
Centrica Engineers
Pension Scheme
Type of benefit
Status
Country
Defined benefit final salary pension
Closed to new members in 2006
Defined benefit career average pension
Open to service engineers only
Centrica Pension Plan
Defined benefit final salary pension
Closed to new members in 2003
Centrica Pension Scheme
Defined benefit final salary pension
Closed to new members in 2003
Bord Gáis Energy Company
Defined Benefit Pension Scheme
Bord Gáis Energy Company
Defined Contribution Pension Plan
Defined benefit career average pension
Closed to new members in 2008
Defined contribution pension
Open to new members
Defined benefit final salary pension
Closed to new members in 2014
Defined contribution pension
Open to new members
Number of
active members
as at
31 December
2021
Total
membership
as at
31 December
2021
1,756
2,791
1,566
1
795
9,718
99
8,465
6,477
8,491
10,278
4,220
18,935
171
230
357
UK
UK
UK
UK
UK
UK
Republic
of Ireland
Republic
of Ireland
The Centrica Engineers Pension Scheme (CEPS), Centrica Pension Plan (CPP) and Centrica Pension Scheme (CPS) form the significant majority
of the Group’s defined benefit obligation and are referred to below as the ‘Registered Pension Schemes’. The other schemes are individually,
and in aggregate, immaterial.
Independent valuations
The Registered Pension Schemes are subject to independent valuations at least every three years, on the basis of which the qualified actuary
certifies the rate of employer contributions, which together with the specified contributions payable by the employees and proceeds from the
schemes’ assets, are expected to be sufficient to fund the benefits payable under the schemes.
The latest full actuarial valuations agreed and finalised with the Pension Trustees were carried out at the following dates: the Registered Pension
Schemes at 31 March 2018 and the Bord Gáis Energy Company Defined Benefit Pension Scheme at 1 January 2020. For the Registered
Pension Schemes, a full actuarial valuation as at 31 March 2021 is currently being undertaken. These valuations (including insights from the
current in-progress valuation) have been updated to 31 December 2021 for the purpose of meeting the requirements of IAS 19. Investments
held in all schemes have been valued for this purpose at market value.
Governance
The Registered Pension Schemes are managed by trustee companies whose boards consist of both company-nominated and member-
nominated Directors. Each scheme holds units in the Centrica Combined Common Investment Fund (CCCIF), which holds the majority of the
combined assets of the Registered Pension Schemes. The board of the CCCIF is currently comprised of nine directors: three independent
directors, three directors appointed by Centrica plc (including the Chairman) and one director appointed by each of the three Registered
Pension Schemes.
Under the terms of the Pensions Act 2004, Centrica plc and each trustee board must agree the funding rate for its defined benefit pension
scheme and a recovery plan to fund any deficit against the scheme-specific statutory funding objective. This approach was first adopted for
the triennial valuations completed at 31 March 2006, and has been reflected in subsequent valuations, including the 31 March 2018 valuation.
164
Centrica plc Annual Report and Accounts 2021
22. Post-retirement benefits
(b) Risks
The Registered Pension Schemes expose the Group to the following risks:
Asset volatility
The pension liabilities are calculated using a discount rate set with reference to AA corporate bond yields. If the growth in plan assets is lower
than this, this will create an actuarial loss within other equity. The CCCIF is responsible for managing the assets of each scheme in line with the
risk tolerances that have been set by the trustees of the schemes, and invests in a diversified portfolio of assets. The schemes are relatively
young in nature (the schemes opened in 1997 on the formation of Centrica plc on demerger from BG plc (formerly British Gas plc)), and only
took on past service liabilities in respect of active employees. The trustees significantly reduced their risk tolerance in 2019, increasing inflation
and interest rate hedges from one third to two thirds, and have further de-risked since then to around an 85% hedge level at the 2021 year-end.
This has resulted in a significant reduction of return-seeking assets within the portfolio, as well as a higher weighting to assets that better
manage downside risk.
Interest rate
A decrease in bond interest rates will increase the net present value of the pension liabilities. The relative immaturity of the schemes means that
the duration of the liabilities is longer than average for typical UK pension schemes, resulting in a relatively higher exposure to interest rate risk.
This risk is reduced via the hedging referred to in the Asset volatility section.
Inflation
Pensions in deferment, pensions in payment and pensions accrued under the career average schemes increase in line with the Retail Prices
Index (RPI) and the Consumer Prices Index (CPI). Therefore, scheme liabilities will increase if inflation is higher than assumed, although in some
cases caps are in place to limit the impact of significant movements in inflation. Furthermore, a pension increase exchange (PIE) option
implemented in 2015 is available to future retirees, which gives the choice to receive a higher initial pension in return for giving up certain future
increases linked to RPI, again limiting the impact of significant movements in inflation.
Longevity
The majority of the schemes’ obligations are to provide benefits for the life of scheme members and their surviving spouses; therefore increases
in life expectancy will result in an increase in the pension liabilities. The relative immaturity of the schemes means that there is comparatively little
observable mortality data to assess the rates of mortality experienced by the schemes, and means that the schemes’ liabilities will be paid over
a long period of time, making it particularly difficult to predict the life expectancy of the current membership. Furthermore, pension payments are
subject to inflationary increases, resulting in a higher sensitivity to changes in life expectancy.
Salary
Pension liabilities are calculated by reference to the future salaries of active members, and hence salary rises in excess of assumed increases
will increase scheme liabilities. During 2011, changes were introduced to the final salary sections of CEPS and CPP such that annual increases
in pensionable pay are capped to 2%, resulting in a reduction in salary risk. During 2016, a salary cap on pensionable pay for the CPS career
average and CPP schemes was implemented, and in 2019 a similar change took place for CEPS. All of the 2011, 2016 and 2019 changes
result in a reduction in salary risk.
Foreign exchange
Certain assets held by the CCCIF are denominated in foreign currencies, and hence their values are subject to exchange rate risk.
The CCCIF has long-term hedging policies in place to manage interest rate, inflation and foreign exchange risks.
The table below analyses the total liabilities of the Registered Pension Schemes, calculated in accordance with accounting principles, by type
of liability, as at 31 December 2021.
Total liabilities of the Registered Pension Schemes
31 December
Actives – final salary – capped
Actives – final salary – uncapped and crystallised benefits
Actives – career average
Deferred pensioners
Pensioners
2021
%
18
4
6
33
39
100
Centrica plc Annual Report and Accounts 2021
165
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
22. Post-retirement benefits
(c) Accounting assumptions
The accounting assumptions for the Registered Pension Schemes are given below:
Major assumptions used for the actuarial valuation
31 December
Rate of increase in employee earnings:
Subject to 2% cap
Other not subject to cap
Rate of increase in pensions in payment
Rate of increase in deferred pensions:
In line with CPI capped at 2.5%
In line with RPI
Discount rate
2021
%
2020
%
1.8
2.6
3.1
2.4
3.1
1.8
1.6
2.2
2.8
2.0
2.8
1.5
The assumptions relating to longevity underlying the pension liabilities at the balance sheet date have been based on a combination of standard
actuarial mortality tables, scheme experience and other relevant data, and include an allowance for future improvements in mortality. The
longevity assumptions for members in normal health are as follows:
Life expectancy at age 65 for a member
31 December
Currently aged 65
Currently aged 45
2021
Male
Years
22.5
23.8
Female
Years
24.0
25.1
2020
Male
Years
22.6
24.0
Female
Years
24.0
25.2
The other demographic assumptions have been set having regard to the latest trends in scheme experience and other relevant data.
The assumptions are reviewed and updated as necessary as part of the periodic actuarial valuations of the pension schemes.
For the Registered Pension Schemes, marginal adjustments to the assumptions used to calculate the pension liability, or significant swings in
bond yields or stock markets, can have a large impact in absolute terms on the net assets of the Group. Reasonably possible changes as at
31 December to one of the actuarial assumptions would have affected the scheme liabilities as set out below:
Impact of changing material assumptions
31 December
Rate of increase in employee earnings subject to 2% cap
Rate of increase in pensions in payment and deferred pensions
Discount rate
Inflation assumption
Longevity assumption
2021
2020
Increase/
decrease in
assumption
Indicative effect
on scheme
liabilities
%
Increase/
decrease in
assumption
Indicative effect
on scheme
liabilities
%
0.25%
0.25%
0.25%
0.25%
1 year
+/-0
+/-4
-/+5
+/-5
+/-4
0.25%
0.25%
0.25%
0.25%
1 year
+/-0
+/-4
-/+6
+/-5
+/-4
The indicative effects on scheme liabilities have been calculated by changing each assumption in isolation and assessing the impact on the
liabilities. For the reasonably possible change in the inflation assumption, it has been assumed that a change to the inflation assumption would
lead to corresponding changes in the assumed rates of increase in uncapped pensionable pay, pensions in payment and deferred pensions.
The remaining disclosures in this note cover all of the Group’s defined benefit schemes.
(d) Amounts included in the Group Balance Sheet
31 December
Fair value of plan assets
Present value of defined benefit obligation
Net liability recognised in the Group Balance Sheet
Pension liability presented in the Group Balance Sheet as:
Retirement benefit assets
Retirement benefit liabilities
2021
£m
10,666
(10,666)
–
2020
£m
10,070
(10,671)
(601)
231
(231)
–
(601)
The Trust Deed and Rules for the Registered Pension Schemes provide the Group with a right to a refund of surplus assets assuming the full
settlement of scheme liabilities. No asset ceiling restrictions have been applied in the consolidated Financial Statements.
166
Centrica plc Annual Report and Accounts 2021
22. Post-retirement benefits
(e) Movements in the year
1 January
Items included in the Group Income Statement:
Current service cost
Contributions by employer in respect of employee salary sacrifice arrangements (i)
Total current service cost
Past service credit
Interest (expense)/income
Termination benefit/(cost)
Items included in the Group Statement of Comprehensive Income:
Returns on plan assets, excluding interest income
Actuarial (loss)/gain from changes to demographic assumptions
Actuarial gain/(loss) from changes in financial assumptions
Actuarial loss from experience adjustments
Items included in the Group Cash Flow Statement:
Employer contributions
Contributions by employer in respect of employee salary sacrifice arrangements
Other movements:
Benefits paid from schemes
Other
Transferred to held for sale
31 December
2021
Pension
liabilities
£m
(10,671)
Pension
assets
£m
10,070
2020
Pension
liabilities
£m
(9,162)
Pension
assets
£m
8,999
(85)
(20)
(105)
1
(155)
52
–
(12)
123
(194)
–
–
297
(2)
–
–
–
–
–
150
–
301
–
–
–
420
20
(297)
2
–
(79)
(28)
(107)
–
(197)
(120)
–
55
(1,434)
(58)
–
–
286
(3)
69
–
–
–
–
197
–
936
–
–
–
241
28
(286)
3
(48)
(10,666)
10,666
(10,671)
10,070
(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.
In addition to current service cost on the Group’s defined benefit pension schemes, the Group also charged £61 million (2020: £64 million)
to operating profit in respect of defined contribution pension schemes. This included contributions of £15 million (2020: £20 million) paid via
a salary sacrifice arrangement.
Centrica plc Annual Report and Accounts 2021
167
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
22. Post-retirement benefits
(f) Pension scheme assets
The market values of plan assets were:
31 December
Equities
Corporate bonds
High-yield debt
Liability matching assets
Property
Cash pending investment
Quoted
£m
20
2,393
2,720
1,963
–
85
2021
Unquoted
£m
462
31
1,197
1,356
439
–
Total
£m
482
2,424
3,917
3,319
439
85
Quoted
£m
19
2,649
2,069
2,192
–
38
2020
Unquoted
£m
396
–
1,286
1,069
352
–
Total
£m
415
2,649
3,355
3,261
352
38
7,181
3,485
10,666
6,967
3,103
10,070
Unquoted private equity and debt funds are valued at fair value as calculated by the investment manager at the latest valuation date in accordance
with generally accepted guidelines, adjusted for cash flow in the intervening period. Investment properties are valued in accordance with guidelines
by independent valuers. These valuations are reviewed annually as part of the CCCIF audit. Included within equities are £nil of ordinary shares of
Centrica plc (2020: £nil) via pooled funds that include a benchmark allocation to UK equities. Included within corporate bonds are £nil (2020: £nil)
of bonds issued by Centrica plc, albeit minor exposure may be held within pooled funds over which the CCCIF has no ability to direct investment
decisions. Apart from the investment in the Scottish Limited Partnerships which form part of the asset-backed contribution arrangements
described in section (g) of this note, no direct investments are made in securities issued by Centrica plc or any of its subsidiaries or property leased
to or owned by Centrica plc or any of its subsidiaries. The corporate bond, high-yield debt and liability matching asset categories headings above
have segregated portfolio mandates which include the cash, cash funds and derivatives associated with the mandates.
Included within the Group Balance Sheet within non-current securities are £111 million (2020: £108 million) of investments, held in trust on
behalf of the Group, as security in respect of the Centrica Unfunded Pension Scheme. Of the pension scheme liabilities above, £66 million
(2020: £66 million) relate to this scheme. More information on the Centrica Unfunded Pension Scheme is included in the Remuneration Report
on pages 71 to 81.
(g) Pension scheme contributions
The Group estimates that it will pay £59 million of ordinary employer contributions during 2022 for its defined benefit schemes, at an average
rate of 23% of pensionable pay, together with £22 million of contributions paid via a salary sacrifice arrangement. At 31 March 2021 (the date
of the current in-progress actuarial valuations) the weighted average duration of the liabilities of the Registered Pension Schemes was 22 years.
For the Registered Pension Schemes the last actuarial valuation agreed with the Pension Trustees was as at 31 March 2018. The technical
provisions deficit (funding basis) at that time was £1,402 million. The Group committed to additional annual cash contributions to fund this
pension deficit. The overall deficit contributions, including the previously disclosed asset-backed contribution arrangements, totalled £235 million
in 2019, £175 million in 2020 and 2021 and will amount to £175 million per annum from 2022 to 2025, with a balancing payment of £93 million
in 2026. As part of this agreement, a deferral arrangement was also agreed for pension strain liabilities resulting from redundancies made
between 1 July 2019 and 30 June 2021, up to a limit of £240 million. A security package over the Group’s equity shareholding in the Direct
Energy business, enforceable in the unlikely event the Group was unable to meet its obligations, was also provided and amounted to
£1,235 million.
In January 2021, as part of the Direct Energy disposal, this security package was released by the Pension Trustees. In exchange, the Group
provided replacement security of £745 million of letters of credit and £250 million cash in escrow. The pension strain liability deferral
arrangement was cancelled, resulting in payments to the Schemes of £193 million during 2021, with further amounts expected in the future
as other redundancies are finalised.
On a pure roll-forward basis, from 31 March 2018, using the same methodology and consequent assumptions, the technical provisions deficit
(funding basis) would be c.£1.3 billion on 31 December 2021. Note that the current, in process triennial review has an effective date of 31 March
2021, and the valuation methodology and assumptions used for that assessment may differ from those previously used.
168
Centrica plc Annual Report and Accounts 2021
23. Leases, commitments and contingencies
(a) Commitments and leases
Commitments are not held on the Group’s Balance Sheet as these are executory arrangements, and relate to amounts that we
are contractually required to pay in the future as long as the other party meets its contractual obligations.
The Group’s commitments in relation to commodity purchase contracts disclosed below are stated net of amounts receivable under commodity
sales contracts where there is a right of offset with the counterparty, and are based on the expected minimum quantities of gas and other
commodities that the Group is contracted to buy at estimated future prices.
The commitments in this note differ in scope and in basis from the maturity analysis of energy derivatives disclosed in note S3, as only certain
procurement and sales contracts are within the scope of IFRS 9 and included in note S3 and the volumes used in calculating the maturity
analysis in note S3 are estimated using valuation techniques, rather than being based on minimum contractual quantities.
The Group’s 20-year agreement with Cheniere to purchase 89bcf per annum of LNG volumes for export from the Sabine Pass liquefaction plant
in the US commits the Group to capacity payments of £3.5 billion (included in ‘LNG capacity’ below) between 2021 and 2039. It also allows the
Group to make up to £6.0 billion of commodity purchases based on market gas prices and foreign exchange rates as at the balance sheet date.
During 2019, the Group signed a 20-year agreement to purchase LNG volumes from Mozambique LNG1 Company. The commercial start date
is 2025 and under this agreement the Group is committed to make commodity purchases expected to amount to £6.2 billion based on market
gas and oil prices at the reporting date.
These LNG contracts are deemed to be own use and therefore are accounted for on an accruals basis. Based on forecast gas spreads, they
are predicted to be profitable, and remain so even under net zero scenario analysis, but due to their duration are exposed over a long period
of time to the impact of climate change governmental policy decisions.
31 December
Commitments in relation to the acquisition of PP&E
Commitments in relation to the acquisition of intangible assets:
Renewable obligation certificates
Other intangible assets
Other commitments:
Commodity purchase contracts
LNG capacity
Transportation capacity
Other long-term commitments (ii)
(i) Of the commitments at 31 December 2020 £5,649 million related to discontinued operations, predominantly from commodity purchase contracts.
(ii) Other long-term commitments include amounts in respect of executory contracts and the smart meter roll-out programme.
The maturity analysis for commodity purchase contract commitments at 31 December is given below:
2021
£m
255
3,289
250
44,443
3,892
292
526
2020 (i)
£m
146
3,624
827
34,819
4,086
1,093
600
31 December
<1 year
1–2 years
2–3 years
3–4 years
4–5 years
>5 years
Commodity purchase contract commitments
Fixed price
commodity commitments
Commodity commitments
that float with indices
2021
£billion
2020
£billion
2021
£billion
2020
£billion
6.8
1.5
0.3
0.1
–
–
8.7
5.2
1.8
0.6
0.2
0.1
0.4
8.3
9.2
7.3
4.4
3.1
1.3
10.4
35.7
4.4
3.3
3.0
2.5
2.1
11.2
26.5
Centrica plc Annual Report and Accounts 2021
169
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
23. Leases, commitments and contingencies
The Group enters into lease arrangements for assets including property, vehicles, vessels and assets used within the exploration and
production business.
The carrying amount, additions and depreciation charge associated with right-of-use assets is disclosed in note 13 and the interest expense
arising on the Group’s lease liability is disclosed in note 8. The total Group cash outflow in the year for capital and interest from lease
arrangements was £203 million, and the maturity analysis of cash flows associated with the Group’s lease liability at the reporting date
is shown in note S3.
The table below provides further information on amounts not included in the lease liability and charged to the Group Income Statement during
the year.
Year ended 31 December
Expense related to short-term leases
Expense related to variable lease payments
2021
£m
9
26
2020
£m
47
32
During the year, the Group’s expense related to short-term lease commitments predominantly related to the hire of LNG vessels and exploration
and production drilling rigs. The commitment at the balance sheet date also relates to assets of a similar nature. The Group has £17 million sub-
lease arrangements mainly for LNG vessels. The Group does not have any material arrangements in which it acts as a lessor.
(b) Guarantees and indemnities
This section discloses any guarantees and indemnities that the Group has given, where we may have to provide security in the
future against existing and future obligations that will remain for a specific period.
In connection with the Group’s energy trading, transportation and upstream activities, certain Group companies have entered into contracts
under which they may be required to prepay, provide credit support or provide other collateral in the event of a significant deterioration in
creditworthiness. The extent of credit support is contingent upon the balance owing to the third party at the point of deterioration.
As at 31 December 2021, £525 million (2020: £665 million) of letters of credit and on-demand payment bonds have been issued in respect
of decommissioning obligations included in the Group Balance Sheet.
(c) Contingent liabilities
The Group has no material contingent liabilities.
170
Centrica plc Annual Report and Accounts 2021
24. Sources of finance
(a) Capital structure
The Group seeks to maintain an efficient capital structure with a balance of net debt and equity as shown in the table below:
31 December
Net debt
Shareholders’ equity
Capital
2021
£m
2020 (restated) (i)
£m
(680)
2,365
1,685
2,998
957
3,955
(i) Net debt has been restated to remove the adjustment for collateral posted/(received). See part (c) of this note.
Debt levels are restricted to limit the risk of financial distress and, in particular, to maintain a strong credit profile. The Group’s credit standing is
important for several reasons: to maintain a low cost of debt, limit collateral requirements in energy trading, hedging and decommissioning
security arrangements, and to ensure the Group is an attractive counterparty to energy producers and long-term customers.
The Group monitors its current and projected capital position on a regular basis, considering a medium-term view of at least three years, and
different stress case scenarios, including the impact of changes in the Group’s credit ratings and significant movements in commodity prices.
A number of financial ratios are monitored, including those used by the credit rating agencies.
The level of debt that can be raised by the Group is restricted by the Company’s Articles of Association. Borrowing is limited to the higher of
£10 billion and a gearing ratio of three times adjusted capital and reserves. The Group funds its long-term debt requirements through issuing
bonds in the capital markets and taking bank debt. Short-term debt requirements are met primarily through commercial paper or short-term
bank borrowings. The Group maintains substantial committed facilities and uses these to provide liquidity for general corporate purposes,
including short-term business requirements and back-up for commercial paper.
British Gas Insurance Limited (BGIL) is required to hold a minimum capital amount under PRA regulations and has complied with this
requirement since its inception. BGIL’s capital management policy and plan are subject to review and approval by the BGIL board. Reporting
processes provide relevant and timely capital information to management and the board. A medium-term capital management plan forms part
of BGIL’s planning and forecasting process, embedded into approved timelines, management reviews and board approvals.
(b) Liquidity risk management and going concern
The Group has a number of treasury and risk policies to monitor and manage liquidity risk. Cash forecasts identifying the Group’s liquidity
requirements are produced regularly and are stress tested for different scenarios, including, but not limited to, reasonably possible increases
or decreases in commodity prices and the potential cash implications of a credit rating downgrade. The Group seeks to ensure that sufficient
financial headroom exists for at least a 12-month period to safeguard the Group’s ability to continue as a going concern, and as at the reporting
date, the analysis performed by the Group extends to 31 December 2023. It is the Group’s policy to maintain committed facilities and/or
available surplus cash resources of at least £1,200 million, raise at least 75% of its gross debt (excluding non-recourse debt) in the capital
market and to maintain an average term to maturity in the recourse long-term debt portfolio greater than five years.
At 31 December 2021 the Group had undrawn committed credit facilities of £3,006 million (2020: £3,637 million) and £3,875 million (2020:
£1,139 million) of unrestricted cash and cash equivalents, net of outstanding overdrafts. A further £18 million (2020: £107 million) of cash and
cash equivalents is included in assets held for sale. 89% (2020: 93%) of the Group’s gross debt has been raised in the long-term debt market
and the average term to maturity of the long-term debt portfolio was 10.9 years (2020: 10.3 years). The completion of the disposal of the Direct
Energy business on 5 January 2021 led to a cash receipt of $3.6 billion (£2.7 billion), significantly improving the Group’s net debt position.
The Group’s liquidity is impacted by the cash posted or received under margin and collateral agreements. The terms and conditions of these
agreements depend on the counterparty and the specific details of the transaction. Cash is generally returned to the Group or by the Group
within two days of trade settlement.
The level of undrawn committed bank facilities and available cash resources has enabled the Directors to conclude that the Group has sufficient
headroom to continue as a going concern. The statement of going concern is included in the Governance section – Other Statutory Information,
on page 97.
Centrica plc Annual Report and Accounts 2021
171
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
24. Sources of finance
(c) Net debt summary
Net debt predominantly includes capital market borrowings offset by cash, securities and certain hedging financial instruments
used to manage interest rate and foreign exchange movements on borrowings.
Presented in the derivatives and current and non-current borrowings, leases and interest accruals columns shown below are the
assets and liabilities that give rise to financing cash flows.
Other assets and liabilities
Current and non-
current
borrowings, leases
and interest
accruals
£m
Derivatives
£m
Gross debt
£m
Cash and cash
equivalents, net
of bank
overdrafts (i) (ii)
£m
1 January 2020
(4,795)
234
(4,561)
Cash inflow from settlement and purchase of securities
Cash outflow for payment of capital element of leases
Cash outflow for repayment of borrowings
Remaining cash inflow and movement in cash posted/received
under margin and collateral agreements
Revaluation
Financing interest paid
Increase in interest payable and amortisation of borrowings
New lease agreements and re-measurement of existing
lease liabilities
Exchange adjustments
–
184
63
–
(79)
213
(218)
(239)
(6)
–
–
–
–
132
(20)
–
–
–
–
184
63
–
53
193
(218)
(239)
(6)
794
121
(184)
(63)
963
–
(204)
–
–
(34)
Group net debt at 31 December 2020
(4,877)
346
(4,531)
1,393
Disposal of business (iv)
Cash outflow from settlement and purchase of securities
Cash outflow for payment of capital element of leases
Cash outflow for repayment of borrowings (v)
Remaining cash inflow and movement in cash posted/received
under margin and collateral agreements
Revaluation
Financing interest paid
Increase in interest payable and amortisation of borrowings
New lease agreements and re-measurement of existing
lease liabilities
Exchange adjustments
Group net debt at 31 December 2021
Less assets and liabilities held for sale
Net debt excluding disposal groups held for sale at
31 December 2021
36
–
162
650
–
122
206
(195)
(28)
25
(3,899)
6
(3,893)
–
–
–
(106)
–
(133)
(14)
–
–
–
93
–
93
36
–
162
544
–
(11)
192
(195)
(28)
25
(132)
(3)
(162)
(544)
4,010
–
(233)
–
–
(1)
(3,806)
4,328
6
(18)
(3,800)
4,310
Current and
non-current
securities (iii)
£m
255
(121)
–
–
–
5
–
–
–
(1)
138
(4)
3
–
–
–
19
–
–
–
–
156
(21)
135
Sub-lease
assets
£m
5
–
–
–
(3)
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
2
–
2
Net debt (vi)
£m
(3,507)
–
–
–
960
58
(11)
(218)
(239)
(41)
(2,998)
(100)
–
–
–
4,010
8
(41)
(195)
(28)
24
680
(33)
647
(i) Cash and cash equivalents includes £435 million (2020: £147 million) of restricted cash, of which £250 million relates to cash on escrow in favour of the UK defined benefit pension
schemes. This includes cash totalling £31 million (2020: £11 million) within the Spirit Energy business that is not restricted by regulation but is managed by Spirit Energy’s own
treasury department.
(ii) Cash and cash equivalents are net of £750 million bank overdrafts (2020: £534 million).
(iii) Securities balances include £83 million (2020: £84 million) debt instruments and £52 million (2020: £50 million) equity instruments, all measured at fair value.
(iv) Disposal of business relates to the net debt items disposed of with the sale of Direct Energy in January 2021.
(v) Bond repayment comprises £650 million repayment of a 3% Euro bond which the Group had the right to repay at par on 10 April 2021 net of £106 million foreign exchange gain
on a Euro bond derivative.
(vi) Net debt has been restated to remove the adjustment for collateral posted/(received), in order, to better align to external net debt definitions. The impact of the change is set out on the
following page.
172
Centrica plc Annual Report and Accounts 2021
24. Sources of finance
Collateral is posted or received to support energy trading and procurement activities. It is posted when contracts with marginable counterparties
are out of the money and received when contracts are in the money. These positions reverse when contracts are settled and the collateral is
returned. The below table highlights the net cash collateral posted by item on group balance sheet at 31 December 2020. Net debt was
restated for these items.
31 December
Collateral (received)/posted included within:
Trade and other payables
Trade and other receivables
Net derivative liabilities
Continuing operations net collateral posted
Discontinued operations net collateral posted
Group collateral posted
Disclosed net debt at 31 December 2020
Remove collateral posted
Restated net debt at 31 December 2020
(d) Borrowings, leases and interest accruals summary
31 December
Bank overdrafts
Bank loans (> 5 year maturity)
Bonds (by maturity date):
22 February 2022
10 March 2022 (i)
16 October 2023 (i)
4 September 2026 (i)
16 April 2027
13 March 2029 (i)
5 January 2032 (ii)
19 September 2033 (i)
16 October 2043
12 September 2044
25 September 2045
10 April 2075 (i) (iii)
10 April 2076 (iv)
Obligations under lease arrangements
Interest accruals
Coupon rate
%
Principal
m
Current
£m
Non-current
£m
2021
(750)
–
(43)
(241)
–
–
–
–
–
–
–
–
–
–
–
–
(137)
–
–
(228)
(55)
(51)
(559)
(63)
(788)
(267)
(538)
(36)
(455)
–
3.680
6.375
4.000
6.400
5.900
4.375
Zero
7.000
5.375
4.250
5.250
5.250
3.000
HK$450
£246
US$302
£52
US$70
£552
€50
£770
US$367
£550
US$50
£450
€750
Total
£m
(750)
(137)
(43)
(241)
(228)
(55)
(51)
(559)
(63)
(788)
(267)
(538)
(36)
(455)
–
(284)
(102)
(68)
(3,040)
(3,324)
(262)
–
(364)
(68)
(1,204)
(3,439)
(4,643)
(i) Bonds or portions of bonds maturing in 2022, 2023, 2026, 2029, 2033 and 2075 have been designated in a fair value hedge relationship.
(ii) €50 million of zero coupon notes have an accrual yield of 4.2%, which will result in a €114 million repayment on maturity.
(iii) The Group has the right to repay at par on 10 April 2025 and every interest payment date thereafter.
(iv) The Group had the right to repay at par on 10 April 2021 and that right was exercised.
2020
£m
(68)
56
86
74
155
229
2,769
229
2,998
Total
£m
(534)
(144)
(42)
(253)
(233)
(59)
(51)
(604)
(65)
(823)
(264)
(538)
(36)
(472)
(671)
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
2020
Current
£m
Non-current
£m
–
(144)
(42)
(253)
(233)
(59)
(51)
(604)
(65)
(823)
(264)
(538)
(36)
(472)
(671)
(534)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(171)
(82)
(787)
(4,111)
(4,111)
(334)
–
(505)
(82)
(4,589)
(5,376)
Centrica plc Annual Report and Accounts 2021
173
Financial Statements | Notes to the Financial Statements continued
25. Share capital
Ordinary share capital represents the total number of shares issued which are publicly traded. We also disclose the number of own
and treasury shares the Company holds, which the Company has bought, principally as part of share repurchase programmes.
Allotted and fully paid share capital of the Company
31 December
5,881,438,431 ordinary shares of 614/81 pence each (2020: 5,842,518,658)
2021
£m
363
2020
£m
361
During the year 39 million ordinary shares were issued at an average original purchase price of 84 pence for employee share awards.
The closing price of one Centrica ordinary share on 31 December 2021 was 71.5 pence (2020: 46.6 pence). Centrica employee share
ownership trusts purchase Centrica ordinary shares from the open market and receive treasury shares to satisfy future obligations of certain
employee share schemes. The movements in own and treasury shares during the year are shown below:
1 January
Shares purchased
Treasury shares placed into trust
Shares released to employees on vesting (ii)
31 December (i)
Own shares (i)
Treasury shares (i) (ii)
2021
million
shares
59.6
–
–
(25.8)
33.8
2020
million
shares
3.7
60.7
1.0
(5.8)
59.6
2021
million
shares
–
–
–
–
–
2020
million
shares
10.2
–
(1.0)
(9.2)
–
(i) The closing balance in the treasury and own share reserve of own shares was £18 million (2020: £31 million) and treasury shares was £nil (2020: £nil).
(ii)
Includes shares purchased by employees under share purchase schemes for a value of £1 million.
26. Events after the balance sheet date
The Group updates disclosures in light of new information being received, or a significant event occurring, in the period between
31 December 2021 and the date of this report.
Together Energy Retail Limited
On 24 January 2022, as part of Ofgem’s Supplier of Last Resort (SoLR) process, British Gas was appointed to supply energy to the c.176,000
customers of Together Energy Retail Limited, which ceased trading on 18 January 2022. This takes the cumulative total of customers acquired
through the SoLR process in 2021 and 2022 to around 700,000 customers.
Disposal of Spirit Energy Norway and Statfjord field
On 13 January 2022, the Group held a general meeting in relation to the proposed sale of its Norwegian portfolio plus the Statfjord field. See
note 12. The resolution to proceed with the transaction was approved by Centrica shareholders, and is subject to our partners SWM also
receiving approval. Completion is now expected to occur in the second quarter of 2022.
174
Centrica plc Annual Report and Accounts 2021
Supplementary information
Supplementary information includes additional information and disclosures we are required to make by accounting standards
or regulation.
S1. General information
Centrica plc (the ‘Company’) is a public company limited by shares, domiciled and incorporated in the UK, and registered in England and Wales.
The address of the registered office is Millstream, Maidenhead Road, Windsor, Berkshire, SL4 5GD. The Company, together with its
subsidiaries comprise the ‘Group’. The nature of the Group’s operations and principal activities are set out in note 4(a) and on pages 1 to 46.
The consolidated Financial Statements of Centrica plc are presented in pounds sterling. Operations and transactions conducted in currencies
other than pounds sterling are included in the consolidated Financial Statements in accordance with the foreign currencies accounting policy set
out in note S2.
S2. Summary of significant accounting policies
This section sets out the Group’s significant accounting policies in addition to the critical accounting policies applied in the
preparation of these consolidated Financial Statements. Unless otherwise stated, these accounting policies have been
consistently applied to the years presented.
Basis of consolidation
The Group Financial Statements consolidate the Financial Statements of the Company and entities controlled by the Company. Subsidiaries
are all entities (including structured entities) over which the Group has control. Control is exercised over an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that
control ceases. Transactions with non-controlling interests that relate to their ownership interests and do not result in a loss of control are
accounted for as equity transactions.
The results of subsidiaries acquired or disposed of during the year are consolidated from the effective date of acquisition (at which point the
Group gains control over a business as defined by IFRS 3, and applies the acquisition method to account for the transaction as a business
combination) or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of
subsidiaries, associates and joint ventures to align the accounting policies with those used by the Group.
When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value with the change in carrying amount
recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained
interest as a joint venture, associate or financial asset.
Segmental reporting
The Group’s operating segments are reported in a manner consistent with the internal reporting provided to and regularly reviewed by the
Group’s Executive Committee (which is the Group’s Chief Operating Decision Maker as defined by IFRS 8: ‘Operating segments’) for the
purposes of evaluating segment performance and allocating resources.
Revenue
Energy supply to business and residential customers
The vast majority of contractual energy supply arrangements have no fixed duration, and require no minimum consumption by the customer.
No enforceable rights and obligations exist at inception of the contract and arise only once the cooling off period is complete and the Group is
the legal supplier of energy to the customer. The performance obligation is the supply of energy over the contractual term; the units of supply
represent a series of distinct goods that are substantially the same with the same pattern of transfer to the customer. The performance
obligation is considered to be satisfied as the customer consumes based on the units of energy delivered. This is the point at which revenue is
recognised. In respect of energy supply contracts, the Group considers that it has the right to consideration from the customer for an amount
that corresponds directly with the invoiced value delivered to the customer through their consumption. The Group’s assessment of the amount
that it has a right to invoice includes an assessment of energy supplied to customers between the date of the last meter reading and the year
end (known as unread revenue). Unread gas and electricity comprises both billed and unbilled revenue and 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. Actual meter readings continue to be compared to system
estimates between the balance sheet date and the finalisation of the accounts.
The Group holds a number of energy supply contracts that specify a minimum consumption volume over a specified contractual term. The
transaction price for these contracts is the minimum supply volume multiplied by the contractually agreed price per unit of energy. Revenue from
the sale of additional volumes is considered to be variable and not included in the transaction price. Revenue for these contracts continues to be
recognised as invoiced.
In making disclosures under IFRS 15, the Group applies the practical expedient in paragraph 121 of IFRS 15 and therefore does not disclose
information related to the transaction price allocated to remaining performance obligations on the basis that the Group recognises revenue from
the satisfaction of the performance obligations within energy supply contracts in accordance with Paragraph b16.
Centrica plc Annual Report and Accounts 2021
175
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S2. Summary of significant accounting policies
Energy services provided to business and residential customers
Energy services relate to the installation, repair and maintenance of central heating, ventilation and air conditioning systems.
In the UK, delivery of an item is considered a separate performance obligation to the installation of the item, both satisfied at a point in time.
Delivery is the point at which control passes to the customer as the customer takes physical possession of the asset. It is also the point at which
the Group has the right to consideration. Delivery and installation usually occur at the same point in time and consequently revenue is recognised
for both performance obligations simultaneously.
Certain heating, ventilation and air conditioning (HVAC) system installations in North America are considered to be a single performance
obligation satisfied over time, representing the Group’s promise to deliver to the customer a functioning HVAC system. Revenue is recognised
on an input basis with reference to costs incurred.
Sales of LNG
Revenue arising from sales of LNG is recognised when control of the commodity passes to the counterparty, with each cargo representing
a separate performance obligation satisfied at a point in time.
Sales of own gas and liquid production
Revenue arising from the sale of produced gas is recognised in a manner consistent with energy supply contracts with the revenue recognition
profile reflecting the supply of gas to the customer. In respect of oil sales, each barrel of oil is considered a separate performance obligation
satisfied at a point in time – on delivery.
The rights and obligations identifiable within a contract where the Group holds sellers’ nomination rights are considered to be enforceable from
inception of the contract. The transaction price for the contract will include variable consideration based on forecast production and market
prices. The point at which the performance obligation is satisfied and revenue recognised is the point at which control of the commodity passes
to the customer according to the contractual trading terms, usually on shipment or delivery to a specified location.
Revenue arising from contracts outside the scope of IFRS 15
Revenue from sources other than the Group’s contracts with customers is recognised in accordance with the relevant standard,
as detailed below:
Fixed-fee service and insurance contracts: revenue from these contracts is recognised in the Group Income Statement with regard to the
incidence of risk over the life of the contract, reflecting the seasonal propensity of claims to be made under the contracts and the benefits
receivable by the customer, which span the life of the contract as a result of emergency maintenance being available throughout the
contract term.
Power generation: revenue is recognised on the basis of power supplied during the year.
Amounts paid in advance are treated as deferred income, with any amounts in arrears recognised as accrued income.
Cost of sales
Energy supply includes the cost of gas and electricity produced and purchased during the year for own-use contracts, taking into account the
industry reconciliation process for total gas and total electricity usage by supplier and related transportation, distribution, royalty costs and
bought-in materials and services.
Cost of sales relating to fixed-fee service and insurance contracts includes direct labour and related overheads on installation work, repairs and
service contracts in the year.
Cost of sales relating to gas and oil production includes depreciation of assets used in production of gas and oil, royalty costs and direct
labour costs.
Cost of sales within power generation businesses includes the depreciation of assets included in generating power, fuel purchase costs, direct
labour costs and carbon emissions costs.
Re-measurement and settlement of energy contracts
Re-measurement and settlement of energy contracts includes both realised (settled) commodity sales and purchase contracts in the scope
of IFRS 9, as well as unrealised (fair value changes) on active contracts, as detailed further in note 2.
Financing costs
Financing costs that arise in connection with the acquisition, construction or production of a qualifying asset are capitalised and subsequently
amortised in line with the depreciation of the related asset. Financing costs not arising in connection with the acquisition, construction or
production of a qualifying asset are expensed.
176
Centrica plc Annual Report and Accounts 2021
S2. Summary of significant accounting policies
Foreign currencies
The consolidated Financial Statements are presented in pounds sterling, the functional currency of the Company and the Group’s presentational
currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are
measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency of the entity at the
exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency of the relevant entity at the rate
of exchange ruling at the balance sheet date and exchange movements included in the Group Income Statement for the period.
Non-monetary items that are measured at historical cost in a currency other than the functional currency of the entity concerned are translated
using the exchange rate prevailing at the date of the initial transaction.
For the purpose of presenting consolidated Financial Statements, the assets and liabilities of the Group’s non-sterling functional currency
subsidiary undertakings, joint ventures and associates are translated into pounds sterling at exchange rates prevailing at the balance sheet date.
The monthly results of these (generally foreign) subsidiary undertakings, joint ventures and associates are translated into pounds sterling each
month at the average rates of exchange for that month. The closing exchange rates, and the average of the rates used to translate the results
of foreign operations to pounds sterling are shown below.
Exchange rate per pounds sterling (£)
US dollars
Canadian dollars
Euro
Norwegian krone
Danish krone
Closing rate at
31 December
Average rate for the year ended
31 December
2021
1.35
1.71
1.19
11.93
8.85
2020
1.37
1.74
1.12
11.72
8.31
2021
1.37
1.72
1.16
11.85
8.65
2020
1.29
1.73
1.13
12.13
8.42
Exchange adjustments arising from the retranslation of the opening net assets and results of non-sterling functional currency operations are
transferred to the Group’s foreign currency translation reserve, a separate component of equity, and are reported in other comprehensive
income. In the event of the disposal of a non-sterling functional currency subsidiary, the cumulative translation difference arising in the foreign
currency translation reserve is charged or credited to the Group Income Statement on disposal. Where the Group utilises net investment
hedging, changes in the fair value of the hedging instrument are recognised in equity and remain there until the disposal of the specific, related
investments, at which point the gains and losses are recycled to profit or loss. The Group previously employed net investment hedging but
ceased in 2009, with historic hedging gains and losses remaining in equity until the disposal of the related investment. During 2020 the Group
recommenced net investment hedging in respect of the US dollar functional currency subsidiaries in its Direct Energy business up until the date
of disposal in January 2021.
Employee share schemes
The Group operates a number of employee share schemes, detailed in the Remuneration Report on pages 71 to 81, under which it makes
equity-settled share-based payments to certain employees. 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 majority of the share-based payment charge arises from the On Track Incentive Plan. This scheme is applicable to senior executives, and
senior and middle management. Shares issued under the scheme vest subject to continued employment within the Group in two stages (half
after two years and the other half after three years). Employees leaving prior to the vesting date will normally forfeit their rights to unvested share
awards. The fair value of the awards is measured using the market value at the date of grant.
More information is included in the Remuneration Report on pages 71 to 81.
Centrica plc Annual Report and Accounts 2021
177
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S2. Summary of significant accounting policies
Business combinations and goodwill
The acquisition of subsidiaries is accounted for using the acquisition method (at the point the Group gains control over a business as defined by
IFRS 3). The cost of the acquisition is measured as the cash paid and the aggregate of the fair values, at the date of exchange, of other assets
transferred, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. The consideration
transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement at the acquisition date.
Acquisition-related costs are expensed as incurred. The identifiable assets, liabilities and contingent liabilities are recognised at their fair value at
the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5. The Group
recognises any non-controlling interests in the acquiree either at fair value or at the non-controlling interests’ proportionate share of the
recognised amounts of the acquiree’s identifiable net assets.
Goodwill arising on a business combination represents the excess of the consideration transferred, the amount of the non-controlling interests
and the acquisition date fair value of any previously held interest in the acquiree over the Group’s interest in the fair value of the identifiable net
assets acquired. Goodwill arising on the acquisition of a stake in a joint venture or an associate represents the excess of the consideration
transferred over the Group’s interest in the fair value of the identifiable assets and liabilities of the investee at the date of acquisition. Goodwill is
initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. The goodwill arising on
an investment in a joint venture or in an associate is not recognised separately, but is shown under ‘Interests in joint ventures and associates’
in the Group Balance Sheet. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the Group Income Statement.
Acquisitions of joint operations that meet the definition of a business as defined in IFRS 3 are accounted for as business combinations.
On disposal of a subsidiary, associate or joint venture entity, any amount of goodwill attributed to that entity is included in the determination
of the profit or loss on disposal. A similar accounting treatment is applied on disposal of assets that represent a business.
Other intangible assets
Intangible assets acquired separately are measured on initial recognition at cost.
Capitalisation begins when expenditure for the asset is being incurred and activities necessary to prepare the asset for use are in progress and
ceases when substantially all the activities that are necessary to prepare the asset for use are complete. Amortisation commences at the point
of commercial deployment. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Intangible assets with finite lives are amortised over their useful lives and are tested for impairment, as part of the CGU to which they relate
where necessary, annually and whenever there is an indication that the asset could be impaired. The amortisation period and method for an
intangible asset are reviewed at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are accounted for on a prospective basis by changing the amortisation period or method, as
appropriate, and treated as changes in accounting estimates.
Intangible assets are derecognised on disposal, or when no future economic benefits are expected from their use.
Intangible assets with indefinite useful lives are not amortised but tested for impairment annually, and whenever there is an indication that the
intangible asset could be impaired, either individually or at the CGU level. The indefinite life assessment is reviewed annually and, if not
supportable, the change in the useful life assessment from indefinite to finite is made on a prospective basis.
The useful economic lives for the principal categories of intangible assets are as follows:
Customer relationships and other contractual assets
Strategic identifiable acquired brands
Application software
Up to 20 years
Indefinite
Up to 15 years
Strategic identifiable acquired brands are deemed to have indefinite lives where evidence suggests that the brand will generate net cash inflows
for the Group for an indefinite period.
Cloud computing arrangements
The Group has a number of contracts for Software as a Service (SaaS) and Platform as a Service (PaaS) Cloud Computing Arrangements.
These contracts permit the Group to access vendor-hosted software and platform services over the term of the arrangement. The Group does
not control the underlying assets in these arrangements and costs are expensed as incurred.
The Group also incurs implementation costs in respect of these contracts. Implementation costs are capitalised as intangible assets where
costs meet the definition and recognition criteria of an intangible asset under IAS 38. Such costs typically relate to software coding which is
capable of providing benefit to the Group on a standalone basis. Other implementation costs, primarily relating to the configuration and
customisation of the Cloud software solution, are assessed to determine whether the implementation activity relating to these costs is distinct
from the Cloud Arrangement, in which case costs are expensed as the activity occurs. If the configuration and customisation costs relate to
activity which is integral to the Cloud Arrangement such that the activity is received over the term of the Cloud Arrangement, costs are
recognised as a prepayment and expensed over the term of the Cloud Arrangement.
178
Centrica plc Annual Report and Accounts 2021
S2. Summary of significant accounting policies
UK & EU Emissions Trading Scheme
Purchased carbon dioxide emissions allowances are recognised initially at cost (purchase price) within intangible assets. The liability is measured
at the cost of purchased allowances up to the level of purchased allowances held, and then at the market price of allowances ruling at the
balance sheet date, with movements in the liability recognised in operating profit.
Forward contracts for the purchase or sale of carbon dioxide emissions allowances are measured at fair value with gains and losses arising from
changes in fair value recognised in the Group Income Statement. The intangible asset is surrendered and the liability is extinguished at the end
of the compliance period to reflect the consumption of economic benefits.
Renewable certificates
The Group purchases renewable certificates both on a standalone basis, and through Power Purchase Agreements. The main types of
renewable certificates acquired are Renewable Energy Guarantees of Origin (REGOs) which are certificates issued by Ofgem certifying that
electricity has been produced from renewable sources, Renewable Obligation Certificates (ROCs) which are issued to accredited generators
for the eligible renewable electricity they generate and Guarantees of Origin (GoOs) which are the EU equivalent of REGOs. The Group uses
renewable certificates to meet their obligations under a number of Ofgem schemes, namely the Feed-in Tariff (FIT), the Contracts for Difference
(CFD), the Fuel Mix Disclosure (FMD) and the Renewables Obligation (RO) schemes.
Purchased renewable certificates are recognised initially at cost within intangible assets. A liability for the RO is recognised based on the level
of electricity supplied to customers, and is calculated in accordance with percentages set by the UK Government and the renewable obligation
certificate buyout price for that period.
The intangible asset is surrendered and the liability is extinguished at the end of the compliance period to reflect the consumption of economic
benefits. Any recycling benefit related to the submission of renewable obligation certificates is recognised in the Group Income Statement when
received. The Group also recognises supplier obligations for CFD and FIT schemes; renewable certificates are used to offset these liabilities.
Cash flows relating to renewable obligation certificates and similar schemes are recognised within cash flows from operating activities.
Exploration, evaluation, development and production assets
The Group uses the successful efforts method of accounting for exploration and evaluation expenditure. Exploration and evaluation
expenditures associated with an exploration well, including acquisition costs related to exploration and evaluation activities, are capitalised
initially as intangible assets. Certain expenditures such as geological and geophysical exploration costs are expensed. If the prospects are
subsequently determined to be successful on completion of evaluation, the relevant expenditure is transferred to PP&E. If the prospects are
subsequently determined to be unsuccessful, the associated costs are expensed in the period in which that determination is made.
All field development costs are capitalised as PP&E. Such costs relate to the acquisition and installation of production facilities and include
development drilling costs, project-related engineering and other technical services costs. PP&E, including rights and concessions related
to production activities, are depreciated from the commencement of production in the fields concerned, using the unit of production method,
based on all of the 2P reserves of those fields. Changes in these estimates are dealt with prospectively.
The net carrying value of fields in production and development is compared annually on a field-by-field basis with the likely discounted future
net revenues to be derived from the remaining commercial reserves. An impairment loss is recognised where it is considered that recorded
amounts are unlikely to be fully recovered from the net present value of future net revenues. Exploration assets are reviewed annually for
indicators of impairment and production and development assets are tested annually for impairment.
Interests in joint arrangements and associates
The Group’s joint ventures and associates (as defined in note 6) are accounted for using the equity method.
The Group’s interests in joint operations (gas and oil exploration and production licence arrangements) are accounted for by recognising its
assets (including its share of assets held jointly), its liabilities (including its share of liabilities incurred jointly), its revenue from the sale of its share
of the output arising from the joint operation, its share of the revenue from the sale of the output by the joint operation and its expenses
(including its share of any expenses incurred jointly).
Where the Group has an equity stake or a participating interest in operations governed by a joint arrangement for which it is acting as operator,
an assessment is carried out to confirm whether the Group is acting as agent or principal. As the terms and conditions negotiated between
business partners usually provide joint control to the parties over the relevant activities of the gas and oil fields that are governed by joint
arrangements, the Group is usually deemed to be an agent when it is appointed as operator and not as principal as the contracts entered
into presents gross liabilities and gross receivables of joint operations (including amounts due to or from non-operating partners) in the Group
Balance Sheet in accordance with the netting rules of IAS 32: ‘Financial instruments – presentation’.
Property, plant and equipment
PP&E is included in the Group Balance Sheet at cost, less accumulated depreciation and any provisions for impairment.
Subsequent expenditure in respect of items of PP&E, such as the replacement of major parts, major inspections or overhauls, are capitalised
as part of the cost of the related asset where it is probable that future economic benefits will arise as a result of the expenditure and the cost
can be reliably measured. All other subsequent expenditure is expensed as incurred.
Centrica plc Annual Report and Accounts 2021
179
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S2. Summary of significant accounting policies
Freehold land is not depreciated. Other PP&E, with the exception of upstream production assets (see above), are depreciated on a straight-line
basis at rates sufficient to write off the cost, less estimated residual values, of individual assets over their estimated useful lives. The depreciation
periods for the principal categories of assets are as follows:
Freehold and leasehold buildings
Plant
Equipment and vehicles
Power generation assets
Up to 50 years
5 to 20 years
3 to 10 years
Up to 30 years
The carrying values of PP&E are tested annually for impairment and are reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. Residual values and useful lives are reassessed annually and, if necessary, changes are
accounted for prospectively.
Impairment assumptions
The Group tests the carrying amounts of goodwill, PP&E and intangible assets (with the exception of exploration assets) for impairment at least
annually. Interests in joint ventures and associates and exploration assets are reviewed annually for indicators of impairment and tested for
impairment where such an indicator arises. Where an asset does not generate cash flows that are independent from other assets, the Group
estimates the recoverable amount of the CGU to which the asset belongs. The recoverable amount is the higher of value in use (VIU) and fair
value less costs of disposal (FVLCD).
At inception, goodwill is allocated to each of the Group’s CGUs or groups of CGUs that expect to benefit from the business combination in
which the goodwill arose. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount
of the asset (or CGU) is reduced to its recoverable amount. Any impairment is expensed immediately in the Group Income Statement. Any CGU
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU
pro rata on the basis of the carrying amount of each asset in the CGU.
Further information on the assumptions used in the VIU calculations and FVLCD calculations that resulted in impairment or impairment reversals
during the year can be found in note 7.
VIU – Key assumptions used
Pre-tax cash flows used in the VIU calculations are derived from the Group’s Board-approved business plans, and assumptions specific to the
nature and life of the asset. The Group’s business plans and assumptions are based on past experience and adjusted to reflect market trends,
economic conditions and key risks. Commodity prices used in the planning process are based in part on observable market data and in part
on estimates. Note S6 provides additional detail on the active period of each of the commodity markets in which the Group operates.
(a) VIU – Growth rates and discount rates
Unless stated otherwise in the table below, cash flows beyond the planned period have been extrapolated using long-term growth rates in the
market where the CGU operates. Long-term growth rates are determined using a blend of publicly available historical data and long-term
growth rate forecasts published by external analysts. Cash flows are discounted using a discount rate specific to each CGU. Discount rates
reflect the current market assessments of the time value of money and are based on the estimated cost of capital of each CGU. Additionally,
risks specific to the cash flows of the CGUs are reflected within cash flow forecasts. Each CGU’s weighted average cost of capital is then
adjusted to reflect the impact of tax in order to calculate an equivalent pre-tax discount rate.
Long-term growth rates and pre-tax discount rates used in the VIU calculations for each of the Group’s CGUs are shown below.
Centrica
Business
Solutions
Energy
Supply
%
British Gas
%
Bord Gáis
Energy
%
North America
Home (i)
%
North America
Business (i)
%
Centrica Home
Solutions
%
Centrica Business
Solutions
(turbines/engines/
battery/solar) (ii)
%
Energy
Marketing &
Trading
%
Nuclear (ii)
%
2.0
8.0
2.0
8.7
1.5
7.1
N/A
N/A
N/A
N/A
2.0
8.0
N/A
6.7/5.3 (iii)
2.0
8.7
N/A
14.7
Centrica
Business
Solutions
Energy
Supply
%
British Gas
%
Bord Gáis
Energy
%
North America
Home (i)
%
North America
Business (i)
%
Centrica Home
Solutions
%
Centrica Business
Solutions
(turbines/engines/
battery) (ii)
%
Energy
Marketing &
Trading
%
Nuclear (ii)
%
1.4
7.4
1.4
7.4
0.8
6.9
N/A
N/A
N/A
N/A
1.4
11.1
N/A
8.0
1.4
8.6
N/A
8.0
2021
Growth rate to perpetuity
(including inflation)
Pre-tax discount rate
2020
Growth rate to perpetuity
(including inflation)
Pre-tax discount rate
(i)
In 2020, the impairment review for Direct Energy (North America Business and North America Home) had been performed using the FVLCD methodology, based on the agreed sales
consideration for the business. No impairment was required.
(ii) Cash flows arising after the plan period have been derived from forecasts to the end of the asset lives. Due to the nature of these finite-lived assets this provides a more appropriate
valuation in later years.
(iii) Battery and solar discount rates respectively.
180
Centrica plc Annual Report and Accounts 2021
S2. Summary of significant accounting policies
(b) VIU – Inflation rates
Inflation rates used in the business plan were based on a blend of publicly available inflation forecasts and range from 1.5% to 2.0%.
(c) Key operating assumptions by CGUs using VIU
The key operating assumptions across all CGUs are gross margin, revenues and operating costs. These assumptions are tailored to the specific
CGU using management’s knowledge of the environment, as shown in the table below:
CGU
All – base
assumptions
Gross margin
Revenues
Operating costs
Existing customers: based on
contractual terms.
Losses are forecast based on historic
data and future expectations of
the market.
New customers and renewals: based
on gross margins achieved in the period
leading up to the date of the business
plan. Both adjusted for current market
conditions and cost of goods inflation.
For the Services business, future sales
and related gross margins are based
on planned future product sales and
contract losses based upon past
performance and future expectations
of the competitive environment.
Existing customers: based on
contractual terms.
Losses are forecast based on historic
data and future expectations of
the market.
Adjusted for: growth forecasts which are
based on sales and marketing activity,
recent customer acquisitions and the
current economic environment in the
relevant geography.
Gas and electricity revenues based
on forward market prices.
Market share: percentage immediately
prior to business plan.
Wages: projected headcount in line with
expected efficiency programme. Salary
increases based on inflation expectations.
Credit losses: historical assumptions
regarding realised cash losses have
been updated to reflect the current
environment.
Energy Marketing & Trading Existing and new markets:
As above.
management’s estimate of future
trading performance.
Centrica Business
Solutions (turbines/
engines/battery/solar)
Based on forecast revenues, operations
and maintenance costs, grid network
and balancing system charges for the
asset life.
Based on forward and contracted prices
for commodity, capacity market and
grid ancillary service contracts for the
asset life.
Future development: increase in costs to
support growth forecasts, adjusted for
planned business process efficiencies.
Based on run-rate and forecast changes,
including expected inflation for the
asset life.
Overlift and underlift
Off-take arrangements for gas and oil produced from joint operations are often such that it is not practical for each participant to receive or sell
its precise share of the overall production during the period. This results in short-term imbalances between cumulative production entitlement
and cumulative sales, referred to as overlift and underlift.
An overlift payable, or underlift receivable, is recognised at the balance sheet date within trade and other payables or trade and other receivables
respectively, and is measured at market value, with movements in the period recognised within cost of sales.
Centrica plc Annual Report and Accounts 2021
181
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S2. Summary of significant accounting policies
Leases
The Group assesses its contractual arrangements to determine whether they are or contain leases based on whether they convey the right
to control the use of an identified asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the
site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same
basis as those of PP&E. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-
measurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using
the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. The liabilities for the
majority of the Group’s lease portfolio are calculated using the incremental borrowing rate. This rate is calculated on a lease-by-lease basis,
taking into account the credit rating of the Group at the inception of the lease and the lease term. The credit adjustment used in this calculation
is modified to reflect the security implicit in a lease arrangement based on the specific class of asset being leased.
Lease payments included in the measurement of the lease liability comprise: fixed payments (including in-substance fixed payments), variable
lease payments that depend on an index or a rate (initially measured using the index or rate as at the commencement date), amounts expected
to be payable under a residual value guarantee, the exercise price under a purchase option that the Group is reasonably certain to exercise, lease
payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of
a lease unless the Group is reasonably certain not to terminate early. When considering whether the Group is reasonably certain to exercise
extension or termination options, various factors are considered, such as the level of lease payments relative to the market rate, the importance of
the specific asset to the Group’s operations and the period remaining until the option becomes exercisable. Such judgements are reconsidered
when there is a significant event or change of circumstances that is within the control of the Group. Variable lease payments that do not depend
on an index or rate are recognised in profit or loss in the period in which the event or condition that triggers those payments occurs.
The lease liability is subsequently measured at amortised cost using the effective interest method. It is re-measured when there is a change
in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be
payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, lease-term extension
or termination option. Cash flows reflecting payment of capital and interest on leases are shown in cash flows from financing activities.
When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use of asset
or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group recognises the lease payments associated with short-term leases (leases expiring within twelve months from commencement)
and leases of low value assets (underlying asset value less than £5,000) on a straight-line basis over the lease term.
The Group holds interests in a number of joint operations within its exploration and production business. The Group has applied judgement
in identifying the customer where a lease arrangement is to be used by a jointly controlled operation.
If the leased asset is dedicated to a specific joint operation and its usage is dictated by the joint operating agreement, the joint operation
is deemed the customer. In such instances:
• When the Group signs a lease agreement on behalf of a joint operation and has primary responsibility for payments to the lessor, the Group
recognises 100% of the lease liability and a right-of-use asset on its balance sheet. When the partner is obliged to reimburse the Group for
its share of lease payments, a sub-lease receivable is recognised and an equal adjustment to the right-of-use asset is made.
• When the partner has the primary responsibility for payments to the lessor and the Group is obliged to reimburse its share of the lease
payments, a lease liability due to the partner and equal right-of-use asset are recognised.
If the leased asset is not dedicated to a specific joint operation or its usage is not dictated by the joint operating agreement of a joint operation
to which it is dedicated, the signatory to the lease agreement is deemed the customer. If this is the Group, the lease liability and right-of-use
asset are recognised in full. If it is the partner, no lease liability or right-of-use asset is recognised.
182
Centrica plc Annual Report and Accounts 2021
S2. Summary of significant accounting policies
Inventories
Inventories of finished goods are valued at the lower of cost (using weighted-average cost) or estimated net realisable value after allowance
for redundant and slow-moving items. The cost of inventories includes the purchase price plus costs of conversion incurred in bringing the
inventories to their present location and condition.
Inventory of gas in storage is valued either on a weighted-average cost basis or at fair value less any costs to sell depending on the business
model for holding the inventory. Changes in fair value less costs to sell are recognised in the Group Income Statement.
Oil inventory is measured at fair value, being the spot price at the balance sheet date.
Securities
The Group holds debt and equity securities predominantly in respect of the Centrica Unfunded Pension Scheme (see note 22). Debt securities
are required to be measured at fair value through profit or loss under IFRS 9, as the assets are not held solely for the purpose of collecting
contractual cash flows related to principal and interest. The Group has elected to recognise the changes in fair value of the equity securities
in other comprehensive income. The Group has also elected to recognise the changes in fair value of certain equity trade investments held
by Centrica Innovations in other comprehensive income. Further details can be found in the accounting policy on financial instruments.
Government Grants
Government grants are transfers of resources to the Group in return for past or future compliance with certain conditions relating to the
operating activities of the entity. Government assistance is designed to provide an economic benefit that is specific to an entity qualifying under
certain criteria. The Group recognises government grants only when there is reasonable assurance that the Group will comply with the
conditions attached to them and the grant will be received. Government grants are recognised in profit and loss on a systematic basis over the
periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants
related to assets are deducted from the carrying amount of the asset.
In 2021 the Group recognised a SoLR receivable in relation to amounts recoverable under the Last Resort Supplier Payment mechanism
administered by Ofgem, a government body, which is detailed in note 1. This process allows suppliers, appointed as Supplier of Last Resort, to
recover costs reasonably incurred in supplying affected customers. The receivable recognised reflects amounts incurred primarily on commodity
costs up to the reporting date which are recoverable under the LRSP claim. The associated credit has been recognised in cost of sales and
operating costs.
Decommissioning costs
A provision is made for the net present value of the estimated cost of decommissioning gas and oil production facilities at the end of the
producing lives of fields and power stations at the end of their useful lives, based on price levels and technology at the balance sheet date.
i
F
n
a
n
c
a
i
l
When this provision relates to an asset with sufficient future economic benefits, a decommissioning asset is recognised and included as part
of the associated PP&E and depreciated accordingly. The asset is subject to impairment review as detailed above. Changes in estimates and
discount rates are dealt with prospectively and reflected as an adjustment to the provision and corresponding decommissioning asset included
within PP&E. The discount rate used to calculate the provision remains at 0% as discussed in note 3. The unwinding of the discount on the
provision is included in the Group Income Statement within financing costs.
Non-current assets and disposal groups held for sale and discontinued operations
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs of
disposal. No depreciation is charged in respect of non-current assets classified as held for sale.
S
t
a
t
e
m
e
n
t
s
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather
than through continuing use. This condition is regarded as met only when the sale is highly probable, the asset or disposal group is available for
immediate sale in its present condition and the Directors are committed to the sale which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
The profits or losses and cash flows that relate to a major component of the Group that has been sold or is classified as held for sale
are presented separately from continuing operations as discontinued operations within the Group Income Statement and Group Cash
Flow Statement.
Pensions and other post-employment benefits
The Group operates a number of defined benefit and defined contribution pension schemes. The cost of providing benefits under the defined
benefit schemes is determined separately for each scheme using the projected unit credit actuarial valuation method. Actuarial gains and losses
are recognised in the period in which they occur in other comprehensive income.
The cost of providing retirement pensions and other benefits is charged to the Group Income Statement over the periods benefiting from
employees’ service. Past service cost is recognised immediately. Costs of administering the schemes are charged to the Group Income
Statement. Net interest, being the change in the net defined benefit liability or asset due to the passage of time, is recognised in the Group
Income Statement within net finance cost.
The net defined benefit liability or asset recognised in the Group Balance Sheet represents the present value of the defined benefit obligation
of the schemes and the fair value of the schemes’ assets. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits
are paid, and that have terms of maturity approximating to the terms of the related pension liability.
Payments to defined contribution retirement benefit schemes are recognised in the Group Income Statement as they fall due.
Centrica plc Annual Report and Accounts 2021
183
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S2. Summary of significant accounting policies
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, that can be measured
reliably, and it is probable that the Group will be required to settle that obligation. Provisions are discounted to present value where the effect
is material.
Where discounting is used, the increase in the provision due to the passage of time is recognised in the Group Income Statement within interest
expense. Onerous contract provisions are recognised where the unavoidable costs of meeting the obligations under a contract exceed the
economic benefits expected to be received under it. Contracts to purchase or sell energy are reviewed on a portfolio basis given the fungible
nature of energy, whereby it is assumed that the highest priced purchase contract supplies the highest priced sales contract and the lowest
priced sales contract is supplied by the lowest priced purchase contract. In 2021, the Group has recognised a material onerous supply contract
provision as the future costs to fulfil customer contracts on a current market price basis will exceed the charges recoverable from customers,
because the associated hedging gains have already been recognised in the Group Income Statement. Further detail relating to the key
assumptions and sources of estimation uncertainty are provided in notes 1 and 3.
Taxation
Current tax, including UK corporation tax, UK petroleum revenue tax and foreign 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. From time to time, the Group may
have open tax issues with a number of revenue authorities. Where an outflow of funds is believed to be probable and a reliable estimate of the
dispute can be made, management provides for its best estimate of the liability. These estimates take into account the specific circumstances of
each dispute and relevant external advice as well as the rules and regulations of the relevant tax authority in the jurisdiction of the dispute. Often
the Group is unable to predict whether an uncertain tax treatment will be accepted by the relevant authority. In such instances the effects of
uncertainty are reflected in management’s assessment of the most likely outcome of each issue, as reviewed and updated on a regular basis.
Each item is considered separately and on a basis that provides the better prediction of the outcome, unless the Group determines that it is
appropriate to group certain items for consideration. See note 9 for further details on uncertain tax provisions.
Deferred tax is recognised in respect of all temporary differences identified at the balance sheet date, except to the extent that the deferred tax
arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction which is not a business combination
and at the time of the transaction affects neither accounting profit nor taxable profit and loss. Temporary differences are differences between
the carrying amount of the Group’s assets and liabilities and their tax base.
Deferred tax liabilities may be offset against deferred tax assets within the same taxable entity or qualifying local tax group. Any remaining
deferred tax asset is recognised only when, on the basis of all available evidence, it can be regarded as probable that there will be suitable
taxable profits, within the same jurisdiction, in the foreseeable future, against which the deductible temporary difference can be utilised.
Deferred tax is provided on temporary differences arising on subsidiaries, joint ventures and associates, except where the timing of the reversal
of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the asset is realised or liability 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 or settled.
184
Centrica plc Annual Report and Accounts 2021
S2. Summary of significant accounting policies
Financial instruments
Financial assets and financial liabilities are recognised in the Group Balance Sheet when the Group becomes a party to the contractual
provisions of the instrument. Financial assets are derecognised when the Group no longer has the rights to cash flows, the risks and rewards of
ownership or control of the asset. Financial liabilities are derecognised when the obligation under the liability is discharged, cancelled or expires.
(a) Trade receivables
Trade receivables are initially recognised at fair value, which is usually the original invoice amount, and are subsequently held at amortised cost
using the effective interest method (taking into account the Group’s business model, which is to collect the contractual cash flows owing) less
an allowance for impairment losses. Balances are written off when recoverability is assessed as being remote. If collection is expected in one
year or less, receivables are classified as current assets. If not, they are presented as non-current assets.
(b) Trade payables
Trade payables are initially recognised at fair value, which is usually the original invoice amount and are subsequently held at amortised cost
using the effective interest method. If payment is due within one year or less, payables are classified as current liabilities. If not, they are
presented as non-current liabilities.
(c) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction
from the proceeds received. Own equity instruments that are reacquired (treasury or own shares) are deducted from equity. No gain or loss
is recognised in the Group Income Statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
(d) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions and money market deposits, which
are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value and have an original maturity of
three months or less. Cash and cash equivalents are presented net of outstanding bank overdrafts where there is a legal right of set off and, for
the Group’s cash pooling arrangements, to the extent the Group expects to settle its subsidiaries’ year-end account balances on a net basis.
For the purpose of the Group Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net
of outstanding bank overdrafts.
(e) Interest-bearing loans and other borrowings
All interest-bearing loans and other borrowings with banks and similar institutions are initially recognised at fair value net of directly attributable
transaction costs. After initial recognition, interest-bearing loans and other borrowings are subsequently measured at amortised cost using the
effective interest method, except when they are hedged items in an effective fair value hedge relationship where the carrying value is also
adjusted to reflect the fair value movements associated with the hedged risks. Such fair value movements are recognised in the Group Income
Statement. Amortised cost is calculated by taking into account any issue costs, discount or premium.
(f) Financial instruments at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income are equity instruments that the Group has elected to recognise the changes
in fair value of in other comprehensive income. They are recognised initially at fair value in the Group Balance Sheet and are re-measured
subsequently at fair value with gains and losses arising from changes in fair value recognised directly in equity and presented in other
comprehensive income. Accrued interest or dividends arising on these financial assets are recognised in the Group Income Statement.
If the Group assesses the need to recognise a loss allowance on a financial asset carried at fair value through other comprehensive income,
the loss allowance is recognised in other comprehensive income; however, the recognition of a loss allowance does not impact the carrying
value of the asset on the Group’s Balance Sheet.
Cumulative gains and losses on equity instruments at fair value through other comprehensive income are not recycled to the Group
Income Statement.
(g) Financial assets at fair value through profit or loss
The Group previously held investments in gilts which it designated at fair value through profit or loss in order to eliminate asymmetry arising from
the measurement of an index-linked derivative. These gilts matured during 2020. Other debt instruments and money market funds (which are
classified as cash equivalents) are required to be measured at fair value through profit or loss under IFRS 9, as the assets are not held solely for
the purpose of collecting contractual cash flows related to principal and interest. Both mandatory and designated instruments are measured at
fair value on initial recognition and are re-measured to fair value in each subsequent reporting period. Gains and losses arising from changes in
fair value are recognised in the Group Income Statement within investment income or financing costs.
Centrica plc Annual Report and Accounts 2021
185
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S2. Summary of significant accounting policies
(h) Derivative financial instruments
The Group routinely enters into sale and purchase transactions for physical delivery of gas, power and oil. A portion of these transactions
take the form of contracts that were entered into and continue to be held for the purpose of receipt or delivery of the physical commodity
in accordance with the Group’s expected sale, purchase or usage requirements (‘own use’), and are not within the scope of IFRS 9. The
assessment of whether a contract is deemed to be ‘own use’ is conducted on a Group basis without reference to underlying book structures,
business units or legal entities.
Certain purchase and sales contracts for the physical delivery of gas, power and oil are within the scope of IFRS 9 due to the fact that they net
settle or contain written options. Such contracts are accounted for as derivatives under IFRS 9 and are recognised in the Group Balance Sheet
at fair value. Gains and losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the
Group Income Statement for the year.
The Group uses a range of derivatives for both trading and to hedge exposures to financial risks, such as interest rates, foreign exchange and
energy price risks, arising in the normal course of business. Where considered appropriate, the Group may use weather derivatives to protect
against earnings volatility arising from unseasonal weather variations. The use of such derivatives did not have a material financial statement
impact in 2021 or 2020. The use of derivative financial instruments is governed by the Group’s policies which are approved by the Board of
Directors. Further detail on the Group’s risk management policies is included within the Strategic Report – Principal Risks and Uncertainties
on pages 38 to 43 and in note S3.
The accounting treatment of derivatives is dependent on whether they are entered into for trading or hedging purposes. A derivative instrument
is considered to be used for hedging purposes when it alters the risk profile of an underlying exposure of the Group in line with the Group’s risk
management policies and is in accordance with established guidelines. Certain derivative instruments used for hedging purposes are
designated in hedge accounting relationships as described by IAS 39 (the Group has not applied the hedge accounting requirements of IFRS 9).
In order to qualify for hedge accounting, the effectiveness of the hedge must be reliably measurable and documentation describing the formal
hedging relationship must be prepared at the point of designation. The hedge must be highly effective in achieving its objective. The Group also
holds derivatives that are used for hedging purposes which are not designated in hedge accounting relationships and are held for trading.
All derivatives are recognised at fair value on the date on which the derivative is entered into and are re-measured to fair value at each reporting
date. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Derivative assets and
derivative liabilities are offset and presented on a net basis only when there is a currently enforceable legal right of set-off, and the intention to net
settle the derivative contracts is present.
The Group enters into certain energy derivative contracts covering periods for which observable market data does not exist. The fair value of
such derivatives is estimated by reference in part to published price quotations from active markets, to the extent that such observable market
data exists, and in part by using valuation techniques, the inputs to which include data that is not based on or derived from observable markets.
Where the fair value at initial recognition for such contracts differs from the transaction price, a fair value gain or fair value loss will arise. This is
referred to as a day-one gain or day-one loss. Such gains and losses are deferred (not recognised) and amortised to the Group Income
Statement based on volumes purchased or delivered over the contractual period until such time as observable market data becomes
available. When observable market data becomes available, any remaining deferred day-one gains or losses are recognised within the Group
Income Statement.
Recognition of the gains or losses resulting from changes in fair value depends on the purpose for issuing or holding the derivative. For
derivatives that do not qualify for cash flow or net investment hedge accounting, any gains or losses arising from changes in fair value are taken
directly to the Group Income Statement and are included within gross profit or investment income and financing costs. Where derivatives qualify
for cash flow or net investment hedging, changes in fair value arising from the effective element of the hedge are recognised initially in the Group
Statement of Comprehensive Income and are recycled to the Group Income Statement when the hedged item impacts profit or loss. Further
details on the treatment of energy derivatives in the Group Income Statement is provided in note 2. Further detail on the treatment of derivatives
in hedging relationships is provided in note S5.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value, with gains or losses
reported in the Group Income Statement. The closely related nature of embedded derivatives is reassessed when there is a change in the
terms of the contract that significantly modifies the future cash flows under the contract. Where a contract contains one or more embedded
derivatives, and providing that the embedded derivative significantly modifies the cash flows under the contract, the option to fair value the entire
contract may be taken and the contract will be recognised at fair value with changes in fair value recognised in the Group Income Statement.
Gains and losses arising from changes in the fair value of energy derivative contracts are recognised within ‘Re-measurement and settlement
of energy contracts’ in the Group’s results for the period under IFRS.
186
Centrica plc Annual Report and Accounts 2021
S2. Summary of significant accounting policies
(i) Hedge accounting
The Group continues to apply the hedge accounting requirements of IAS 39 and has not adopted IFRS 9 hedge accounting.
For the purposes of hedge accounting, hedges are classified as either net investment hedges, fair value hedges or cash flow hedges. Note S5
details the Group’s accounting policies in relation to derivatives qualifying for hedge accounting under IAS 39.
(j) Impairment of financial assets
In accordance with IFRS 9, the Group has applied the expected credit loss model to financial assets measured at amortised cost and fair value
through other comprehensive income.
For trade receivables and contract assets the simplified approach is taken and the lifetime expected credit loss provided for.
For all other in-scope financial assets at the balance sheet date either the lifetime expected credit loss or a 12-month expected credit loss is provided
for, depending on the Group’s assessment of whether the credit risk associated with the specific asset has increased significantly since initial
recognition. As the Group’s financial assets are predominantly short term (less than 12 months), the impairment loss recognised is not materially
different using either approach. Further details of the assumptions and inputs used to calculate expected credit losses are shown in note 17.
Nuclear activity
The Group’s investment in Lake Acquisitions Limited (‘Nuclear’) is accounted for as an associate. The following accounting policies are specific
to this nuclear activity.
(a) Fuel costs – nuclear front end
Front-end fuel costs consist of the costs of procurement of uranium, conversion and enrichment services, and fuel element fabrication. All costs
are capitalised into inventory and charged to the Group Income Statement in proportion to the amount of fuel burnt.
(b) Fuel costs – nuclear back end
Advanced gas-cooled reactors (AGR)
Spent fuel extracted from the reactors is sent for reprocessing and/or long-term storage and eventual disposal of resulting waste products.
Back-end fuel costs comprise of a loading-related cost per tonne of uranium and a rebate/surcharge to this cost which is dependent on the
out-turn market electricity price and the amount of electricity generated from AGR stations in the year. These costs are capitalised into inventory
and charged to the Group Income Statement in proportion to the amount of fuel burnt.
Pressurised water reactor (PWR)
Back-end fuel costs are based on wet storage in station ponds followed by dry storage and subsequent direct disposal of fuel. Back-end fuel
costs are capitalised into inventory on loading and are charged to the Group Income Statement in proportion to the amount of fuel burnt.
(c) Nuclear PP&E – depreciation
The majority of the cost of the nuclear fleet is depreciated from the date of the Group acquiring its share of the fleet on a straight-line basis, with
remaining depreciable periods currently of up to 14 years.
Other expenditure including amounts spent on major inspections and overhauls of production plant is depreciated over the period until the next
outage which for AGR power stations is 2 to 3 years and for the PWR power station is 18 months.
(d) Nuclear Liabilities Fund (NLF) funding arrangements
Under the arrangements in place with the Secretary of State, the NLF will fund, subject to certain exceptions, qualifying uncontracted nuclear
liabilities and qualifying decommissioning costs.
In part consideration for the assumption of these liabilities by the Secretary of State and the NLF, the former British Energy Group agreed to pay
fixed decommissioning contributions each year and £150,000 (indexed to RPI) for every tonne of uranium in PWR fuel loaded into the Sizewell B
reactor after the date of these arrangements.
(e) NLF and nuclear liabilities receivables
The UK Government indemnity is provided to indemnify any future shortfall on NLF funding of qualifying uncontracted nuclear liabilities (including
PWR back-end fuel services) and qualifying nuclear decommissioning costs such that the receivable equals the present value of the associated
qualifying nuclear liabilities (apart from a small timing difference due to timing of receipts from NLF).
(f) Nuclear liabilities
Nuclear liabilities represent provision for liabilities in respect of the costs of waste management of spent fuel and nuclear decommissioning.
(g) Unburnt fuels at shutdown
Due to the nature of the nuclear fuel process there will be quantities of unburnt fuel in the reactors at station closure. The costs relating to this
unburnt fuel (final core) are fully provided for at the balance sheet date. The provision is based on a projected value per tonne of fuel remaining
at closure, discounted back to the balance sheet date and recorded as a long-term liability.
Centrica plc Annual Report and Accounts 2021
187
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S3. Financial risk management
The Group’s normal operating, investing and financing activities expose it to a variety of financial risks: market risk (including
commodity price risk, currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall financial risk
management processes are designed to identify, manage and mitigate these risks.
Further detail on the Group’s overall risk management processes is included within the Strategic Report – Principal Risks and Uncertainties
on pages 38 to 43.
Commodity price risk management is carried out in accordance with individual business unit policies and directives including appropriate
escalation routes.
Treasury risk management, including management of currency risk, interest rate risk and liquidity risk is carried out by a central Group Treasury
function in accordance with the Group’s financing and treasury policy, as approved by the Board.
The wholesale credit risks associated with commodity trading and treasury positions are managed in accordance with the Group’s credit risk
policy. Downstream customer credit risk management is carried out in accordance with appropriate group wide and individual business unit
credit policies.
Market risk management
Market risk is the risk of loss that results from changes in market prices (commodity prices, foreign exchange rates and interest rates). The level
of market risk to which the Group is exposed at a point in time varies depending on market conditions, expectations of future price or market
rate movements and the composition of the Group’s physical asset and contract portfolios.
(a) Commodity price risk management
The Group is exposed to commodity price risk in its energy procurement and supply activities, production, generation and trading operations
and uses specific limits to manage the exposure to commodity prices associated with the Group’s activities to an acceptable level. The Group
uses Profit at Risk (PaR) limits to control exposures to market prices. These are complemented by other limits including Value at Risk (VaR),
volumetric or stop-loss limits to control risk around trading activities.
(i) Energy price exposed business activities
The Group’s price exposed business activities consist of equity gas and liquids production, equity power generation, bilateral procurement and
sales contracts, market-traded purchase and sales contracts and derivative positions primarily transacted with the intent of securing gas and
power for the Group’s supply customers, from a variety of sources at an optimal cost. The Group actively manages commodity price risk by
optimising its asset and contract portfolios and making use of volume flexibility.
The Group’s commodity price risk exposure within its business activities is driven by the cost of procuring gas and electricity to serve its supply
customers and selling gas, oil and electricity from its upstream production and generation, which varies with wholesale commodity prices. The
primary risk is that market prices for commodities will fluctuate between the time that sales prices are fixed or tariffs are set and the time at
which the corresponding procurement cost is fixed, thereby potentially reducing expected margins or making sales unprofitable.
The Group’s supply activities are also exposed to volumetric risk in the form of an uncertain consumption profile arising from a range of factors,
including the weather, energy consumption changes, customer attrition and the economic climate. There is also risk associated with ensuring
that there is sufficient commodity available to secure supply to customers. The Group’s production and generation activities are also exposed
to volumetric risk in the form of uncertain production profiles.
In order to manage the exposure to market prices associated with the Group’s business operations the Group uses a specific set of risk limits
(including VaR and PaR) established by the Board, and sub-delegated downwards through the delegation lines to the commercial leaders.
PaR measures the estimated potential loss in a position or portfolio of positions associated with the movement of a commodity price for a given
confidence level, over the remaining term of the position or contract. VaR measures the estimated potential loss for a given confidence level over
a predetermined holding period. The standard confidence level used is 95%. In addition, regular stress and scenario tests are performed to
evaluate the impact on the portfolio of possible substantial movements in commodity prices.
The Group measures and manages the commodity price risk associated with the Group’s entire energy price exposed business portfolio.
Only certain of the Group’s energy contracts constitute financial instruments under IFRS 9 (see note S6).
As a result, while the Group manages the commodity price risk associated with both financial and non-financial energy procurement and sales
contracts, it is the notional value of energy contracts being carried at fair value that represents the exposure of the Group’s energy price
exposed business activities to commodity price risk according to IFRS 7: ‘Financial instruments: disclosures’. This is because energy contracts
that are financial instruments under IFRS 9 are accounted for on a fair value basis and changes in fair value immediately impact profit.
Conversely, energy contracts that are not financial instruments under IFRS 9 are accounted for as executory contracts and changes in fair value
do not immediately impact profit and, as such, are not exposed to commodity price risk as defined by IFRS 7. So, whilst the PaR or VaR
associated with energy procurement and supply contracts that are outside the scope of IFRS 9 are monitored for internal risk management
purposes, only those energy contracts within the scope of IFRS 9 are within the scope of the IFRS 7 disclosure requirements.
188
Centrica plc Annual Report and Accounts 2021
S3. Financial risk management
(ii) Proprietary energy trading
The Group’s proprietary energy trading activities consist of physical and financial commodity purchases and sales contracts taken on with the
intent of benefiting from changes in market prices or differences between buying and selling prices. The Group conducts its trading activities in
the over-the-counter market and through exchanges in the UK and continental Europe. The Group is exposed to commodity price risk as a
result of its proprietary energy trading activities because the value of its trading assets and liabilities will fluctuate with changes in market prices
for commodities.
The Group sets volumetric and VaR limits to manage the commodity price risk exposure associated with the Group’s proprietary energy trading
activities. VaR measures the estimated potential loss at a 95% confidence level over a one-day holding period. The carrying value of energy
contracts used in proprietary energy trading activities at 31 December 2021 is disclosed in note 19.
As with any modelled risk measure, there are certain limitations that arise from the assumptions used in the VaR calculation. VaR assumes that
historical price behaviours will continue in the future and that the Group’s trading positions can be unwound or hedged within the predetermined
holding period. Furthermore, the use of a 95% confidence level, by definition, does not take into account changes in value that might occur
beyond this confidence level.
(b) Currency risk management
The Group is exposed to currency risk on foreign currency denominated forecast transactions, firm commitments, monetary assets and liabilities
(transactional exposure) and on its net investments in foreign operations (translational exposure). IFRS 7 only requires disclosure of currency risk
arising on financial instruments denominated in a currency other than the functional currency of the commercial operation transacting. As a
result, for the purposes of IFRS 7, currency risk excludes items that are not financial instruments, such as the Group’s net investments in
international operations as well as foreign currency denominated forecast transactions and firm commitments.
(i) Transactional currency risk
The Group is exposed to transactional currency risk on transactions denominated in currencies other than the underlying functional currency of
the commercial operation transacting. The primary functional currencies remain pounds sterling in the UK, Norwegian krone in Norway, Danish
krone in Denmark and euros in the Netherlands and the Republic of Ireland. The risk is that the functional currency value of cash flows will vary
as a result of movements in exchange rates. Transactional exposure arises from the Group’s energy procurement, production and generation
activities, where many transactions are denominated in foreign currencies. In addition, in order to optimise the cost of funding, the Group has, in
certain cases, issued foreign currency denominated debt or entered into foreign currency loans, primarily in US dollars, euros and Japanese yen.
It is the Group’s policy to hedge material transactional exposures using derivatives (either applying formal hedge accounting or economic hedge
relationships) to fix the functional currency value of non-functional currency cash flows, except where there is an economic hedge inherent in the
transaction. At 31 December 2021, there were no material unhedged non-functional currency monetary assets or liabilities, firm commitments or
probable forecast transactions (2020: £nil), other than transactions which have an inherent economic hedge and foreign currency borrowings
used to hedge translational exposures.
(ii) Translational currency risk
The Group is exposed to translational currency risk as a result of its net investments in Europe. The risk is that the pounds sterling value of the
net assets of foreign operations will decrease with changes in foreign exchange rates. The Group’s policy is to protect the pounds sterling book
value of its net investments in foreign operations where appropriate, subject to certain parameters, by holding foreign currency debt, entering
into foreign currency derivatives, or a mixture of both.
The Group manages translational currency risk taking into consideration the cash impact of any hedging activity as well as the risk to the net
asset carrying values in the Group’s Financial Statements. The translation hedging programme including the potential cash impact is managed
by the Group Treasury function and monitored by the Chief Financial Officer.
(c) Interest rate risk management
In the normal course of business the Group borrows to finance its operations. The Group is exposed to interest rate risk because the fair value
of fixed-rate borrowings and the cash flows associated with floating rate borrowings will fluctuate with changes in interest rates. The Group’s
policy is to manage the interest rate risk on long-term borrowings by ensuring the exposure to floating interest rates remains within a 30% to
70% range, including the impact of interest rate derivatives.
The return generated on the Group’s cash balance is also exposed to movements in short-term interest rates. The Group manages cash
balances to protect against adverse changes in rates whilst retaining liquidity.
(d) Sensitivity analysis
IFRS 7 requires disclosure of a sensitivity analysis that is intended to illustrate the sensitivity of the Group’s financial position and performance
to changes in market variables (commodity prices, foreign exchange rates and interest rates) as a result of changes in the fair value or cash
flows associated with the Group’s financial instruments. The sensitivity analysis provided discloses the effect on profit or loss and equity at
31 December 2021, assuming that a reasonably possible change in the relevant risk variable had occurred at 31 December 2021, and has
been applied to the risk exposures in existence at that date to show the effects of reasonably possible changes in price on profit or loss and
equity. Reasonably possible changes in market variables used in the sensitivity analysis are based on implied volatilities, where available, or
historical data for energy prices and foreign exchange rates. Reasonably possible changes in interest rates are based on management
judgement and historical experience.
Centrica plc Annual Report and Accounts 2021
189
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S3. Financial risk management
The sensitivity analysis has been prepared based on 31 December 2021 balances and on the basis that the balances, the ratio of fixed to
floating rates of debt and derivatives, the proportion of energy contracts that are financial instruments, the proportion of financial instruments in
foreign currencies and the hedge designations in place at 31 December 2021 are all constant. Excluded from this analysis are all non-financial
assets and liabilities and energy contracts that are not financial instruments under IFRS 9. The sensitivity to foreign exchange rates relates only
to monetary assets and liabilities denominated in a currency other than the functional currency of the commercial operation transacting, and
excludes the translation of the net assets of foreign operations to pounds sterling.
The sensitivity analysis provided is hypothetical only and should be used with caution as the impacts provided are not necessarily indicative of
the actual impacts that would be experienced. This is because the Group’s actual exposure to market rates is changing constantly as the
Group’s portfolio of commodity, debt and foreign currency contracts changes. Changes in fair values or cash flows based on a variation in a
market variable cannot be extrapolated because the relationship between the change in market variable and the change in fair value or cash
flows may not be linear. In addition, the effect of a change in a particular market variable on fair values or cash flows is calculated without
considering interrelationships between the various market rates or mitigating actions that would be taken by the Group.
(i) Transactional currency risk
The Group has performed an analysis of the sensitivity of the Group’s financial position and performance to changes in foreign exchange rates.
The Group deems 10% movements to US dollar and euro currency rates relative to pounds sterling to be reasonably possible.
The material impact of such movements on profit and equity, both before and after taxation, are as follows:
Incremental profit/(loss)
US dollar – increase/(decrease)
Euro – increase/(decrease)
All other currency sensitivities are not material.
2021
Impact on
profit
£m
2020
Impact on
profit
£m
86/(117)
76/(105)
111/(113)
32/(35)
(ii) Interest rate risk
The Group has performed an analysis of the sensitivity of the Group’s financial position and performance to changes in interest rates. The Group
deems a one percentage point move in UK, US and euro interest rates to be reasonably possible. The impact of such movements on profit and
equity, both after taxation, is immaterial.
(iii) Commodity price risk – non proprietary
The impacts of reasonably possible changes in commodity prices on profit and equity, both after taxation, based on the assumptions set out
above are as follows:
Energy prices
UK gas (p/therm)
European gas (p/therm)
UK power (£/MWh)
UK emissions (€/tonne)
UK oil (US$/bbl)
North American gas (US cents/therm)
North American power (US$/MWh)
Incremental profit/(loss)
UK gas price – increase/(decrease)
UK power price – increase/(decrease)
European gas price – (decrease)/increase
Other UK energy prices (oil and emissions) – (decrease)/increase
UK and European energy prices (combined) – increase/(decrease)
2021
2020
Reasonably
possible
change in
variable (ii)
Base price (i)
%
Base price (i)
105
103
115
82
71
34
–
+/-58
+/-58
+/-17
+/-7
+/-7
+/-13
–
44
44
53
33
50
26
25
2021
Impact on
profit (ii)
£m
1,076/(1,053)
201/(225)
(690)/691
(22)/22
565/(565)
Reasonably
possible
change in
variable (ii)
%
+/-22
+/-22
+/-17
+/-7
+/-15
+/-4
+/-6
2020
Impact on
profit (ii)
£m
45/(45)
59/(58)
(14)/14
(7)/5
83/(84)
North American energy prices (combined) – increase/(decrease)
34/(34)
304/(304)
(i) The base price represents the average forward market price over the duration of the active market curve used in the sensitivity analysis provided.
(ii) The reasonably possible change in variable and the impact on profit are calculated using both the active and inactive market curves for energy prices.
The impact on other comprehensive income of such price changes is immaterial.
190
Centrica plc Annual Report and Accounts 2021
S3. Financial risk management
(iv) Commodity price risk – proprietary trades
As at 31 December 2021 the VaR associated with proprietary trading was £13 million (2020: £5 million) This represents the statistical downside
risk associated with the proprietary trade and associated hedging positions. The changes in the year only relate to changes in commodity prices.
The impacts of the same reasonably possible changes in (iii) applied to level 3 proprietary trades are as follows:
Incremental profit/(loss)
Level 3 proprietary trades – increase/(decrease) (ii)
2021
Impact on
profit (i)
£m
2020
Impact on
profit (i)
£m
562/(503)
104/(101)
(i) The reasonably possible change in variable and the impact on profit are calculated using both the active and inactive market curves for energy prices.
(ii) The level 3 proprietary financial instruments’ sensitivity has been valued in Secure Environment and excludes associated hedges which would mitigate this impact.
Additional sensitivities have been performed on total proprietary trades and associated hedges assuming a +/- 10% and +/- 25% change in
prices in the VaR period. These have resulted in a profit impact of +/-£9 million and +/- £3 million respectively.
Credit risk management
Credit risk is the risk of loss associated with a counterparty’s inability or failure to discharge its obligations under a contract.
The Group continually reviews its rating thresholds for relevant counterparty credit limits and updates these as necessary, based on a consistent
set of principles. It continues to operate within its limits. In respect of trading activities for both the US and Europe there is an effort to maintain a
balance between exchange-based trading and bilateral transactions. This allows for a reasonable balance between counterparty credit risk and
potential liquidity requirements. In addition, the Group actively manages the trade-off between credit and liquidity risks by optimising the use of
contracts with collateral obligations and physically settled contracts without collateral obligations.
The Group is exposed to credit risk in its treasury, trading, energy procurement and downstream activities. The maximum exposure to credit risk
for financial instruments at fair value is equal to their carrying value. Gross amounts are shown by counterparty credit rating in the table below.
Further details of other collateral and credit security not offset against these amounts is shown in note S6.
2021
2020 (i)
Financial assets at
amortised cost
Financial assets at fair value
Financial assets at
amortised cost
Financial assets at fair value
Receivables
including
treasury,
trading and
energy
procurement
counterparties
(ii)
£m
444
615
1,249
1,051
17
3,081
6,457
Cash and cash
equivalents
£m
–
1,278
60
–
–
52
Cash and cash
equivalents
£m
3,670
–
–
–
–
–
Derivative
financial
instruments
with positive
fair values
£m
52
2,128
4,453
629
128
160
1,390
3,670
7,550
Receivables
including
treasury,
trading and
energy
procurement
counterparties
(ii)
£m
71
320
499
63
17
3,698
4,668
Derivative
financial
instruments
with positive
fair values
£m
13
827
543
273
38
55
Cash and cash
equivalents
£m
1,049
–
–
–
–
–
1,049
1,749
Cash and cash
equivalents
£m
–
844
8
–
–
26
878
31 December
AAA to AA
AA– to A–
BBB+ to BBB–
BB+ to BB–
B+ or lower
Unrated (iii)
Included above in 2020 was £1,546 million of receivables, £107 million of cash and cash equivalents and £159 million of derivative financial instruments included in assets held for sale.
(i)
(ii) The Group holds a provision of £633 million (2020: £673 million) against receivables, including amounts presented as part of disposal groups classified as held for sale. The significant
majority of this provision is held against amounts due from unrated counterparties. Further analysis of past due trade receivables may be found at note 17.
(iii) The unrated counterparty receivables primarily comprise amounts due from downstream customers, subsidiaries of rated entities, exchanges or clearing houses.
Centrica plc Annual Report and Accounts 2021
191
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S3. Financial risk management
Details of how credit risk is managed across the asset categories are provided below:
(a) Treasury, trading and energy procurement activities
Wholesale counterparty credit exposures are monitored by individual counterparty and by category of credit rating, and are subject to approved
limits. The Group uses master netting agreements to reduce credit risk and net settles payments with counterparties where net settlement
provisions exist (see note S6 for details of amounts offset). In addition, the Group employs a variety of other methods to mitigate credit risk:
margining, various forms of bank and parent company guarantees and letters of credit.
The vast majority of group credit risk associated with its treasury, trading and energy procurement activities is with counterparties in related
energy industries or financial institutions together with smaller exposures to commodity traders and small independent renewable producers.
The impairment considerations of IFRS 9 are applicable to financial assets arising from treasury, trading and energy procurement activities that
are carried at amortised cost and equity instruments that are carried at fair value through other comprehensive income (FVOCI). Equity
instruments measured at FVOCI are not material for further disclosure.
Included in the table above within receivables including treasury, trading and energy procurement counterparties is £3,643 million (2020:
£918 million) of treasury, trading and energy procurement assets. The Group’s risk assessment procedures and counterparty selection process
ensure that the credit risk on this type of financial asset is always low at initial recognition.
Included within the table above is information about the exposure to credit risk arising from only certain of the Group’s energy procurement
contracts – those in the scope of IFRS 9. Whilst the Group manages the credit risk associated with both financial and non-financial energy
procurement contracts, it is the carrying value of financial assets within the scope of IFRS 9 (note S6) that represents the maximum exposure
to credit risk in accordance with IFRS 7.
(b) Trade receivables and contract assets
The simplified approach of measuring lifetime expected credit losses has been applied to trade receivables and contract asset balances, which
are the focus of this disclosure. Therefore, consideration of the significance of any change in credit risk since initial recognition for the purpose
of applying this model is not required for any material component of the receivables balance.
In the case of business customers, credit risk is managed by checking a company’s creditworthiness and financial strength both before
commencing trade and during the business relationship. For residential customers, creditworthiness is ascertained normally before commencing
trade to determine the payment mechanism required to reduce credit risk to an acceptable level. Certain customers will only be accepted on a
prepayment basis or with a security deposit. In some cases, an ageing of receivables is monitored and used to manage the exposure to credit
risk associated with both business and residential customers. In other cases, credit risk is monitored and managed by grouping customers
according to method of payment or profile.
Liquidity risk management and going concern
Liquidity risk is the risk that the Group is unable to meet its financial obligations as they fall due. The Group experiences significant movements
in its liquidity position due primarily to the seasonal nature of its business and margin cash arrangements associated with certain wholesale
commodity contracts. To mitigate this risk the Group maintains significant committed facilities and holds cash on deposit to ensure that there
is sufficient liquidity headroom at all points in the seasonal trading cycle of the business. See note 24 for further information.
192
Centrica plc Annual Report and Accounts 2021
S3. Financial risk management
Maturity profiles
Maturities of derivative financial instruments, provisions, borrowings and leases are provided in the following tables (all amounts are remaining
contractual undiscounted cash flows):
Due for payment 2021
Energy and interest derivatives in a loss position that will be
settled on a net basis
Gross energy procurement contracts and other derivative buy
trades carried at fair value (ii)
Foreign exchange derivatives that will be settled on a gross basis:
Outflow
Inflow
Financial liabilities within provisions
Borrowings (bank loans, bonds, overdrafts and interest)
Leases: (iii)
Minimum lease payments
Capital elements of leases
Due for payment 2020
Energy and interest derivatives in a loss position that will be
settled on a net basis (i)
Gross energy procurement contracts and other derivative buy
trades carried at fair value (ii)
Foreign exchange derivatives that will be settled on a gross basis:
Outflow
Inflow
Financial liabilities within provisions
Borrowings (bank loans, bonds, overdrafts and interest)
Leases: (iii)
Minimum lease payments
Capital elements of leases
<1
year
£m
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
4 to 5
years
£m
>5
years
£m
(807)
(77)
(22)
(13)
(8)
(13)
(6,118)
(5,063)
(3,342)
(1,821)
(42)
(122)
(4,068)
4,500
(2,609)
(1,141)
(103)
(102)
<1
year
£m
(985)
990
(20)
(385)
(68)
(66)
1 to 2
years
£m
(130)
130
(13)
(154)
(59)
(56)
2 to 3
years
£m
(22)
22
(9)
(592)
(55)
(52)
3 to 4
years
£m
(3)
1
(8)
(54)
96
(27)
(182)
(3,673)
(47)
(46)
4 to 5
years
£m
(48)
(42)
>5
years
£m
(237)
(35)
(11)
(6)
(6)
(14)
(3,045)
(2,056)
(1,769)
(1,643)
(1,055)
(352)
(5,701)
5,857
(120)
(733)
(186)
(179)
(773)
771
(32)
(467)
(108)
(104)
(158)
156
(16)
(383)
(76)
(74)
(27)
24
(13)
(153)
(56)
(53)
(2)
–
(13)
(592)
(50)
(48)
(56)
102
(27)
(4,539)
(86)
(82)
(i)
In 2020, included within contractual cash flows for derivatives to be settled net, gross energy procurement contracts and other derivative buy trades, and financial liabilities within
provisions were £142 million, £1,854 million and £28 million respectively that relate to the Direct Energy disposal group. Of these amounts, £109 million, £956 million and £18 million were
contractually due within 12 months of the reporting date. The disposal of Direct Energy completed on 5 January 2021.
(ii) Proprietary energy trades are excluded from this maturity analysis as the Group does not take physical delivery of volumes traded under these contracts. The associated cash flows are
expected to be equal to the contract fair value at the balance sheet date. See note 19 for further details.
(iii) The difference between the total minimum lease payments and the total capital elements of leases is due to future finance charges. Lease liabilities of £35 million relating to the Direct
Energy business were included in liabilities held for sale in 2020.
Centrica plc Annual Report and Accounts 2021
193
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S4. Other equity
This section summarises the Group’s other equity reserve movements.
1 January 2020
Actuarial loss
Employee share schemes:
Exercise of awards
Value of services provided
Purchase of own shares
Impact of cash flow and net investment hedging
Taxation on above items
Share of other comprehensive income
of joint ventures and associates, net of taxation
Exchange differences on translation of foreign operations
Exchange differences reclassified to Group Income
Statement on disposal
Revaluation of FVOCI securities
31 December 2020
Actuarial gain
Employee share schemes:
Exercise of awards
Value of services provided
Impact of cash flow and net investment hedging
Taxation on above items
Share of other comprehensive income
of joint ventures and associates, net of taxation
Exchange differences on translation of foreign operations
Exchange differences reclassified to Group Income
Statement on disposal
Revaluation of FVOCI securities
31 December 2021
Cash
flow
hedging
reserve
£m
7
–
–
–
–
11
(2)
–
–
–
–
16
–
–
–
(7)
1
–
–
–
–
Foreign
currency
translation
reserve
£m
(196)
–
–
–
–
50
(10)
–
(50)
8
–
Actuarial
gains and
losses
reserve
£m
(987)
(501)
–
–
–
–
122
58
–
–
–
(198)
(1,308)
–
–
–
(49)
9
–
(46)
(20)
–
218
–
–
–
(74)
152
–
–
–
10
(304)
(1,012)
Financial
asset at
FVOCI
reserve
£m
Treasury
and own
shares
reserve
£m
Share-
based
payments
reserve
£m
Merger, capital
redemption
and other
reserves
£m
4
–
–
–
–
–
–
–
–
–
(4)
–
–
–
–
–
–
–
–
–
3
3
(37)
–
36
–
(30)
–
–
–
–
–
–
(31)
–
13
–
–
–
–
–
–
–
73
–
(46)
52
–
–
–
–
–
–
–
79
–
(49)
12
–
–
–
–
–
–
527
–
–
–
–
–
–
–
–
–
–
527
–
–
–
–
–
–
–
–
–
(18)
42
527
Total
£m
(609)
(501)
(10)
52
(30)
61
110
58
(50)
8
(4)
(915)
218
(36)
12
(56)
(64)
152
(46)
(20)
3
(752)
Merger, capital redemption and other reserves
During February 1997, BG plc (formerly British Gas plc) demerged certain businesses (grouped together under GB Gas Holdings Limited
(GBGH)) to form Centrica plc. Upon demerger, the share capital of GBGH was transferred to Centrica plc and was recorded at the nominal
value of shares issued to BG plc shareholders. In accordance with the Companies Act 1985, no premium was recorded on the shares issued.
On consolidation, the difference between the nominal value of the Company’s shares issued and the amount of share capital and share
premium of GBGH at the date of demerger was credited to a merger reserve.
On 8 December 2017, the Group’s existing exploration and production business was combined with that of Bayerngas Norge AS to form the
Spirit Energy business. The Group acquired 69% of the Spirit Energy business and Bayerngas Norge’s former shareholders acquired 31%.
The non-controlling interest established on acquisition has been based on its share of the carrying value of the combined business, with the
other reserve representing the difference between the fair value and this carrying value.
In accordance with the Companies Act, the Company has transferred to the capital redemption reserve an amount equal to the nominal value
of shares repurchased and subsequently cancelled. Up to 31 December 2021 the cumulative nominal value of shares repurchased and
subsequently cancelled was £28 million (2020: £28 million).
Own shares reserve
The own shares reserve reflects the cost of shares in the Company held in the Centrica employee share ownership trusts to meet the future
requirements of the Group’s share-based payment plans.
Treasury shares reserve
Treasury shares are acquired equity instruments of the Company.
194
Centrica plc Annual Report and Accounts 2021
S5. Hedge accounting
The Group primarily applies hedge accounting to address interest rate and foreign currency risk on borrowings.
For the purposes of hedge accounting, hedges are classified either as fair value hedges, cash flow hedges or hedges of net
investments in foreign operations.
The fair values of derivatives and primary financial instruments in hedge accounting relationships at 31 December were as follows:
31 December
Interest rate risk
Hedge
Fair value
Foreign exchange risk
Cash flow hedge
Foreign exchange risk
Net investment hedge
2021
Assets
£m
Liabilities
£m
67
33
–
–
(7)
–
Change in
fair value
£m
(95)
(44)
2
2020
Liabilities
£m
(1)
(9)
–
Assets
£m
182
180
24
Change in
fair value
£m
93
44
50
2021
Interest rate risk
Hedge
Fair value
Timing of
nominal amount
Average rate
Nominal value
Hedged item
2022-2032 Fixed to floating
at LIBOR/US
IBOR + 1%-5%
£50 million-
£550 million,
$250 million
Bonds (ii)
Foreign exchange risk
Cash flow hedge
2021-2032
GBP to Euro
at 1.356
€50 million,
€750 million
Euro bonds
Foreign exchange risk
Cash flow hedge
2036-2038
Net investment
hedge/Cash flow
hedge (iii)
2021
GBP to Yen
at 145.43
GBP to USD
at 1.34
¥20 billion
$2.3 billion
Yen bank
loans
Carrying
value of net
assets of
subsidiary/
disposal
proceeds
Timing of
nominal amount
Average rate
Nominal value
Hedged item
2020
Interest rate risk
Hedge
Fair value
Change in
fair value
of hedged item
in year
£m
Cumulative
amount of fair
value hedge
adjustments on
hedged item
£m
Accumulated
gains/(losses) in
equity (i)
£m
95
24
14
4
(70)
N/A
N/A
N/A
N/A
32
(21)
–
i
F
n
a
n
c
a
i
l
Change in
fair value
of hedged item
in year
£m
Cumulative
amount of fair
value hedge
adjustments on
hedged item
£m
Accumulated
gains/(losses) in
equity (i)
£m
S
t
a
t
e
m
e
n
t
s
2022-2032 Fixed to floating at
LIBOR/US IBOR
+ 1%-5%
£50 million-
£550 million,
$250 million
Bonds (ii)
(93)
(164)
N/A
Foreign exchange risk
Cash flow hedge
2021-2032
GBP to Euro
at 1.356
€50 million,
€750 million
Euro bonds
Foreign exchange risk
Cash flow hedge
2036-2038
Net investment
hedge/Cash flow
hedge (iii)
2021
GBP to Yen
at 151.49
GBP to USD
at 1.34
¥20 billion
$2.3 billion
Yen bank
loans
Carrying
value of net
assets of
subsidiary/
disposal
proceeds
(37)
(2)
(55)
N/A
N/A
N/A
22
(9)
55
In the years presented all amounts related to continuing cash flow hedge relationships.
(i)
(ii) The carrying amount of bonds designated as hedged items in hedging relationships is disclosed in note 24.
(iii) The Group recommenced net investment hedging in 2020 in respect of the US dollar subsidiaries of its Direct Energy business. During 2020 the Group also used cash flow hedging to
protect against exchange risk on the sterling value of the US dollar proceeds received on completion of the disposal of that business in 2021. Of the total notional US dollar value hedging
as at 31 December 2021, $nil related to this cash flow hedging strategy (2020: $305 million).
The Group’s accounting policies in relation to derivatives qualifying for hedge accounting under IAS 39 are described below.
Centrica plc Annual Report and Accounts 2021
195
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S5. Hedge accounting
Fair value hedges
A derivative is designated as a hedging instrument and its relationship to a recognised asset or liability is classified as a fair value hedge when it
hedges the exposure to changes in the fair value of that recognised asset or liability. The Group’s fair value hedges consist of interest rate swaps
used to protect against changes in the fair value of fixed-rate, long-term debt due to movements in market interest rates. Any gain or loss from
re-measuring the hedging instrument to fair value is recognised immediately in the Group Income Statement in net finance cost. Any gain or loss
on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognised in the Group
Income Statement within net finance cost. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold,
terminated or exercised, the hedge no longer qualifies for hedge accounting or the Group revokes the designation. Any adjustment to the
carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to the Group Income Statement.
Amortisation may begin as soon as an adjustment exists and begins no later than when the hedged item ceases to be adjusted for changes
in its fair value attributable to the risk being hedged.
Impact of interest rate benchmark reform
Phase 2 of the Interest Rate Benchmark Reform became effective on 1 January 2021. Under Phase 2, to the extent that modifications are made
to financial instruments that are necessary to implement Interest Rate Benchmark Reform, reliefs from the discontinuation of hedge accounting
or immediate recognition of any gains or losses in the income statement on the modification of financial instruments measured at amortised cost
are available on transition to alternative rates, provided that the modification is a direct consequence of the reform and the new basis for
calculating cash flows is economically equivalent to the previous basis.
The Group will apply the International Swaps and Derivatives Associates (ISDA) fallback protocol to the derivative financial instruments held by
the Group affected by the IBOR Reform where the interest rate benchmark is linked to GBP Libor. These instruments primarily comprise interest
rate swap agreements designated in fair value hedge relationships. At 31 December 2021, the carrying value of derivative assets exposed to
GBP Libor is £59 million, with a notional value of £2.1 billion. The ISDA fallback rates are derived from the Sterling Overnight Interbank Average
(SONIA) rate and are calculated and published by Bloomberg. The Group determines that Phase 1 reliefs no longer apply in respect of GBP
Libor – the uncertainty regarding the timing and the amount of interest rate benchmark-based cash flows ceased on 31 December 2021.
The Group has amended its hedge designation to reflect changes which are required by IBOR reform to designate movements in Bloomberg
Fallback Libor as the hedged risk and to amend the description of both the hedged item and the hedging instrument to reference the alternative
rate. The amendment to the hedge designation permits that the accumulated amount outstanding in the cash flow hedge reserve is deemed to
be based on the Bloomberg Fallback Libor rate. The Group is permitted to designate an alternative benchmark rate as a non-contractually
specified risk component, even if it is not separately identifiable at the date when it is designated, as the Group reasonably expects that it will
meet the requirements within 24 months.
The Group also has interest rate swap agreements designated in fair value hedge relationships which are linked to USD Libor which is expected
to remain in place until 2023 and uncertainty over its replacement still exists. The carrying value of derivative assets which are linked to USD
Libor and which have yet to transition to an alternative benchmark interest rate is £8 million, with a notional value of £228 million.
Cash flow hedges
A derivative is classified as a cash flow hedge when it hedges exposure to variability in cash flows that is attributable to a particular risk
associated with a recognised asset, liability or a highly probable forecast transaction. The Group’s cash flow hedges consist primarily of:
• forward foreign exchange contracts used to protect against the variability of functional currency denominated cash flows associated with non-
functional currency denominated highly probable forecast transactions; and
• cross-currency interest rate swaps and forward foreign exchange contracts used to protect against the variability in cash flows associated
with borrowings denominated in non-functional currencies.
The portion of the gain or loss on the hedging instrument which is effective is recognised directly in equity while any ineffectiveness is recognised
in the Group Income Statement. The gains or losses that are initially recognised in the cash flow hedging reserve through other comprehensive
income are transferred to the Group Income Statement in the period in which the hedged item affects profit or loss. Where the hedged item is
the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset
or liability on its recognition. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised without
replacement or rollover, no longer qualifies for hedge accounting or the Group revokes the designation. At that point in time, any cumulative
gain or loss on the hedging instrument recognised in equity remains in equity until the hedged transaction occurs. If the transaction is no longer
expected to occur, the cumulative gain or loss recognised in equity is recognised in the Group Income Statement. Note S4 details movements
in the cash flow hedging reserve. The ineffective portion of gains and losses on cash flow hedging is immaterial.
Net investment hedges
Hedges of net investments in foreign operations hedge the exposure of the sterling value of the assets of foreign currency subsidiaries in the
consolidated Financial Statements to changes in exchange rates. Such hedges are accounted for similarly to cash flow hedges. Any gain or
loss on the effective portion of the hedge is recognised in equity, any gain or loss on the ineffective portion of the hedge is recognised in the
Group Income Statement. On disposal of the foreign operation, the cumulative gains or losses recognised directly in equity are transferred to
the Group Income Statement. The Group initially ceased any net investment hedging activity in 2009. The Group recommenced this strategy
in respect of the US dollar subsidiaries in its Direct Energy business in 2020, up until the date of disposal in January 2021. The financial
instruments in this net investment hedging relationship are forward US dollar/ sterling foreign exchange contracts. No material ineffectiveness
was recognised in the Group Income Statement in respect of this relationship.
196
Centrica plc Annual Report and Accounts 2021
S6. Fair value of financial instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The Group has documented internal policies for determining
fair value, including methodologies used to establish valuation adjustments required for credit risk.
(a) Fair value hierarchy
Financial assets and financial liabilities measured and held at fair value are classified into one of three categories, known as hierarchy levels,
which are defined according to the inputs used to measure fair value as follows:
• Level 1: fair value is determined using observable inputs that reflect unadjusted quoted market prices for identical assets and liabilities;
• Level 2: fair value is determined using significant inputs that may be directly observable inputs or unobservable inputs that are corroborated
by market data; and
• Level 3: fair value is determined using significant unobservable inputs that are not corroborated by market data and may be used with
internally developed methodologies that result in management’s best estimate of fair value.
2021
2020 (i)
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
31 December
Financial assets
Derivative financial instruments:
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Debt instruments
Equity instruments
Cash and cash equivalents
–
–
–
82
29
–
6,906
480
7,386
71
93
–
3
3,670
–
–
1
20
–
71
93
83
52
3,670
21
–
–
84
25
–
1,199
91
1,311
185
253
–
–
1,049
2,686
–
–
–
29
–
120
185
253
84
54
1,049
2,936
Total financial assets at fair value
111
10,743
501
11,355
130
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial liabilities
Derivative financial instruments:
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Total financial liabilities at fair value
–
–
–
–
(5,662)
(290)
(5,952)
–
(57)
–
–
–
(57)
(5,719)
(290)
(6,009)
–
–
–
–
(983)
(1)
(55)
(129)
(1,112)
–
–
(1)
(55)
(1,039)
(129)
(1,168)
(i) The table above includes £159 million derivative assets, £240 million derivative liabilities and £4 million equity instruments which were classified as held for sale on the Group Balance
Sheet as at 2020.
The reconciliation of the Level 3 fair value measurements during the year is as follows:
Level 3 financial instruments
1 January
Disposal of Direct Energy
Total realised and unrealised gains/(losses):
Recognised in Group Income Statement
Purchases, sales, issuances and settlements (net)
Transfer to assets held for sale
Transfers between Level 2 and Level 3 (ii)
Foreign exchange movements
31 December
Total gains/(losses) for the year for Level 3 financial instruments
held at the end of the reporting year
2021
Financial
assets
£m
Financial
liabilities
£m
2020 (i)
Financial
assets
£m
Financial
liabilities
£m
120
(53)
453
2
(21)
–
–
501
453
(129)
20
(181)
–
–
–
–
256
–
(40)
(79)
–
(15)
(2)
(90)
–
(57)
16
–
1
1
(290)
120
(129)
(181)
(44)
(57)
(i) At 31 December 2020 includes £52 million of Level 3 financial assets, and £20 million of Level 3 financial liabilities that are classified as held for sale on the Group Balance Sheet.
(ii) Transfers between levels are deemed to occur at the beginning of the reporting year.
Centrica plc Annual Report and Accounts 2021
197
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S6. Fair value of financial instruments
(b) Valuation techniques used to derive Level 2 and Level 3 fair values and Group valuation process
Level 2 interest rate derivatives and foreign exchange derivatives comprise interest rate swaps and forward foreign exchange contracts. Interest
rate swaps are fair valued using forward interest rates extracted from observable yield curves. Forward foreign exchange contracts are fair
valued using forward exchange rates that are quoted in an active market, with the resulting market value discounted back to present value using
observable yield curves.
Level 2 energy derivatives are fair valued by comparing and discounting the difference between the expected contractual cash flows for the
relevant commodities and the quoted prices for those commodities in an active market. The average discount rate applied to value this type
of contract during the year was 1% (Europe) per annum (31 December 2020 average discount rate of 1% (Europe) and 3% (North America)
per annum).
For Level 3 energy derivatives, the main input used by the Group pertains to deriving expected future commodity prices in markets that are not
active as far into the future as some of our contractual terms. This applies to certain contracts within Europe and North America. Fair values are
then calculated by comparing and discounting the difference between the expected contractual cash flows and these derived future prices
using an average discount rate of 1% (Europe) per annum (31 December 2020 average discount rate of 1% (Europe) and 3% (North America)
per annum).
Active period of markets
UK (years)
North America (years)
Gas
4
N/A
Power
Coal
Emissions
4
N/A
3
N/A
3
N/A
Oil
3
N/A
Because the Level 3 energy derivative valuations involve the prediction of future commodity market prices, sometimes a long way into the future,
reasonably possible alternative assumptions for gas, power, coal, emissions or oil prices may result in a higher or lower fair value for Level 3
financial instruments. The impact of reasonably possible changes in commodity prices on profit and loss are included in note S3. Other than
commodity prices there are no other unobservable inputs which would have a material impact.
It should be noted that the fair values disclosed in the tables above only concern those contracts entered into that are within the scope of
IFRS 9. The Group has numerous other commodity contracts that are outside of the scope of IFRS 9 and are not fair valued. The Group’s
actual exposure to market rates is constantly changing as the Group’s portfolio of energy contracts changes.
The Group’s valuation process includes specific teams of individuals that perform valuations of the Group’s derivatives for financial reporting
purposes, including Level 3 valuations. The Group has an independent team that derives future commodity price curves based on available
external data and these prices feed into the energy derivative valuations, subject to adjustments to ensure they are compliant with IFRS 13: ‘Fair
value measurement’. The price curves are subject to review and approval by the Group’s Executive Committee and valuations of all derivatives,
together with other contracts that are not within the scope of IFRS 9, are also reviewed regularly as part of the overall risk management process.
Where the fair value at initial recognition for contracts which have significant unobservable inputs and the fair value differs from the transaction
price, a day one gain or loss will arise. These deferred gains are presented net against respective derivative assets and derivative liabilities. Such
gains and losses are deferred and amortised to the Group Income Statement based on volumes purchased or delivered over the contractual
period until such time as observable market data becomes available (see note S2 for further detail). The amount that has yet to be recognised in
the Group Income Statement relating to the differences between the transaction prices and the amounts that would have arisen had valuation
techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as follows:
Day-one gains deferred
1 January
Disposal of Direct Energy
Net gains deferred on transactions in the year
Net amounts recognised in Group Income Statement
Exchange differences
31 December
2021
£m
64
(45)
70
2
(1)
90
2020
£m
47
–
16
–
1
64
198
Centrica plc Annual Report and Accounts 2021
S6. Fair value of financial instruments
(c) Fair value of financial assets and liabilities held at amortised cost
The carrying value of the Group’s financial assets and liabilities measured at amortised cost are approximately equal to their fair value except
as listed below:
31 December
Bank loans
Bonds
Level 1
Level 2
2021
2020
Carrying value
£m
Fair value
£m
Fair value
hierarchy
Carrying value
£m
Fair value
£m
(137)
(3,218)
(106)
(173)
(3,947)
(136)
Level 2
Level 1
Level 2
(144)
(4,004)
(107)
(195)
(4,825)
(148)
Notes
24(d)
24(d)
24(d)
Fair value
hierarchy
Level 2
Level 1
Level 2
Bank loans and borrowings
The fair values of bonds classified as Level 1 within the fair value hierarchy are calculated using quoted market prices. The fair values of Level 2
bonds and bank loans have been determined by discounting cash flows with reference to relevant market rates of interest. The fair values of
overdrafts and short-term loans are assumed to equal their book values due to the short-term nature of these amounts.
Other financial instruments
Due to their nature and/or short-term maturity, the fair values of trade and other receivables, cash and cash equivalents, trade and other
payables, lease liabilities and provisions are estimated to approximate their carrying values.
(d) Financial assets and liabilities subject to offsetting, master netting arrangements and similar arrangements
31 December 2021
Derivative financial assets
Derivative financial liabilities
Balances arising from commodity contracts:
Accrued and unbilled downstream and energy income
Accruals for commodity costs
Cash and financing arrangements:
Cash and cash equivalents
Bank loans and overdrafts
Securities
31 December 2020
Derivative financial assets
Derivative financial liabilities
Balances arising from commodity contracts:
Accrued and unbilled downstream and energy income
Accruals for commodity costs
Cash and financing arrangements:
Cash and cash equivalents
Bank loans and overdrafts
Securities
Gross amounts
of recognised
financial
instruments
£m
33,212
(31,671)
8,890
(8,905)
5,060
(887)
135
Gross amounts of
recognised financial
instruments offset
in the Group
Balance Sheet
£m
Net amounts
presented
in the Group
Balance Sheet
£m
(25,662)
25,662
(5,443)
5,443
–
–
–
7,550
(6,009)
1,541
3,447
(3,462)
5,060
(887)
135
Related amounts not offset in the
Group Balance Sheet (i)
Financial
instruments
£m
Collateral
£m
Net amount
£m
(810)
810
(1,185)
888
(242)
242
(750)
750
–
–
–
–
–
–
5,555
(4,311)
1,244
3,205
(3,220)
4,310
(137)
135
Related amounts not offset in the
Group Balance Sheet (i)
Gross amounts
of recognised
financial
instruments
£m
Gross amounts of
recognised financial
instruments offset
in the Group
Balance Sheet
£m
Net amounts
presented
in the Group
Balance Sheet
£m
Financial
instruments
£m
Collateral
£m
Net amount
£m
5,609
(5,028)
4,837
(4,353)
1,942
(693)
138
(3,860)
3,860
(2,830)
2,830
(15)
15
–
1,749
(1,168)
581
2,007
(1,523)
1,927
(678)
138
(266)
266
(168)
168
(534)
534
–
(68)
56
–
–
–
–
–
1,415
(846)
569
1,839
(1,355)
1,393
(144)
138
(i) The Group has arrangements in place with various counterparties in respect of commodity trades which provide for a single net settlement of all financial instruments covered by the
arrangement in the event of default or termination, or other circumstances arising whereby either party is unable to meet its obligations. The above table shows the potential impact of
these arrangements being enforced by offsetting the relevant amounts within each Group Balance Sheet class of asset or liability, but does not show the impact of offsetting across
Group Balance Sheet classes where the offsetting Group Balance Sheet class is not included within the above table.
(ii) As at 31 December 2020 included in assets and liabilities held for sale are accrued energy income and accrued commodity costs of £684 million and £504 million respectively, cash and
cash equivalents of £107 million, securities of £4 million, and derivative financial assets and liabilities of £159 million and £240 million respectively.
Centrica plc Annual Report and Accounts 2021
199
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S7. Fixed-fee service and insurance contracts
This section includes fixed-fee service (FFS) and insurance contract disclosures for services related to British Gas and Direct
Energy. Direct Energy had been classified as a discontinued operation in 2020, with its assets and liabilities classified as held
for sale in 2020. The disclosures given below relate to the Centrica Group as a whole.
FFS contracts in the UK are entered into with home services customers by British Gas Services Limited (BGSL) and with business customers
by British Gas Services (Commercial) Limited. Insurance contracts in the UK are entered into with home services customers by British Gas
Insurance Limited (BGIL), authorised by the PRA and regulated by the FCA and the PRA.
During 2020, FFS contracts in North America were entered into with home and business services customers. Insurance contracts in North
America were entered into with home services customers.
Product offerings include central heating, boiler and controls, plumbing and drains and electrical appliance insurance cover.
FFS contracts continue until either party cancels; insurance contracts normally provide cover for twelve months with the option of renewal.
The contracts that protect policyholders against the risk of breakdowns result in risk transfer to the contract provider. Benefits provided to
customers vary in accordance with terms and conditions of the contracts entered into. However, they generally include maintenance, repair
and/or replacement of the items affected.
The levels of risk exposure and service provision to customers under the contract terms depend on the occurrence of uncertain future events,
particularly the nature and frequency of faults, and the cost of repair or replacement of the items affected. Accordingly, the timing and the amount
of future cash outflows associated with the contracts is uncertain. As the Group’s insurance contract portfolio is comprised of a large number of
contracts with small individual values, a high volume of claims with relatively low unit cost results. The characteristics of the business mean that
material concentrations or aggregations of risk are relatively remote. The key terms and conditions that affect future cash flows are as follows:
• provision of labour and parts for repairs, dependent on the agreement and associated level of service;
• a specified number of safety and maintenance inspections are carried out as set out in the agreement (usually once a year);
• no limit to the number of call-outs to carry out repair work; and
• limits on certain maintenance and repair costs.
The most significant insurance risk is an extreme weather event for an extended period, which has the propensity to increase claim frequencies.
The Group regularly assesses insurance risk sensitivities, the most significant relating to increases in breakdown frequency and increases in the
average cost of repair. A reasonably possible increase in either would not have a material impact on the results of the Group.
Revenue is recognised over the life of contracts (usually twelve months) regarding the incidence of risk, in particular the seasonal propensity
of claims that span the life of the contract as a result of emergency maintenance being available throughout the contract term. Costs incurred
to settle claims represent principally the engineer workforce employed by the Group within home services and the cost of parts utilised in
repair or maintenance. Revenue is accounted for over a 12-month period, with adjustments made to reflect the seasonality of workload over
a given year.
Weather conditions and the seasonality of repairs both affect the profile of the workload and associated costs incurred across the year.
The risk exposure of these uncertain events is actively managed by undertaking the following risk mitigation activities:
• an initial service visit is provided to customers taking up most central heating contracts and in some instances pre-existing faults may lead
to the contract being cancelled and no further cover being provided;
• an annual maintenance inspection is performed as part of most central heating contracts to help identify and prevent issues developing into
significant maintenance or breakdown claims; and
• contract limits are applied to certain types of maintenance and repair work considered to be higher risk in terms of frequency and cost.
The costs of FFS claims and insurance claims incurred during the year were £3 million (2020: £8 million) and £293 million (2020: £338 million)
respectively and are included in the table below in ‘Expenses relating to FFS and insurance contracts’. All claims are settled immediately and
in full. Due to the short average lead time between claims occurrence and settlement, no material provisions were outstanding at the balance
sheet date in 2021 or 2020.
31 December
Total revenue
Expenses relating to FFS and insurance contracts
Deferred income
Accrued income
2021
£m
913
(803)
(37)
31
2020
£m
1,063
(872)
(72)
32
The table above includes amounts related to disposal groups held for sale and discontinued operations.
The Group also considers whether estimated future cash flows under the contracts will be sufficient to meet expected future costs. Any
deficiency is charged immediately to the Group Income Statement. Claims frequency is sensitive to the reliability of appliances as well as the
impact of weather conditions. The contracts are not exposed to any interest rate risk or significant credit risk and do not contain any
embedded derivatives.
200
Centrica plc Annual Report and Accounts 2021
S8. Related party transactions
The Group’s principal related party is its investment in Lake Acquisitions Limited, which owns the existing EDF UK nuclear fleet.
The disclosures below, including comparatives, only refer to related parties that were related in the current reporting period.
During the year, the Group entered into the following arm’s length transactions with related parties who are not members of the Group, and had
the following associated balances:
31 December
Associates:
Nuclear
Joint Ventures
2021
Purchase
of goods
and services
£m
Amounts
owed to
£m
2020
Purchase
of goods
and services
£m
(300)
–
(300)
(40)
–
(40)
(501)
(7)
(508)
Amounts
owed to
£m
(49)
–
(49)
During the year, there were no material changes to commitments in relation to joint ventures and associates.
At the balance sheet date, the Group had committed facilities to the Lake Acquisition Group totalling £120 million (2020: £120 million), although
nothing has been drawn at 31 December 2021.
Key management personnel comprise members of the Board and Executive Committee, a total of 10 individuals at 31 December 2021 (2020: 11).
Remuneration of key management personnel
Year ended 31 December
Short-term benefits
Post-employment benefits
Share-based payments
Remuneration of the Directors of Centrica plc
Year ended 31 December
Total emoluments (i)
Contributions into pension schemes
(i) These emoluments were paid for services performed on behalf of the Group. No emoluments related specifically to services performed for the Company.
Directors’ interests in shares are given in the Remuneration Report on pages 71 to 81.
S9. Auditors’ remuneration
Year ended 31 December
Fees payable to the Company’s auditors for the audit of the Company’s individual and consolidated:
Financial Statements
Audit of the Company’s subsidiaries
Total fees related to the audit of the parent and subsidiary entities
Fees payable to the Company’s auditors and its associates for other services:
Audit-related assurance services (i)
All other services (ii)
Total fees
Fees in respect of pension scheme audits (iii)
2021
£m
4.1
0.4
0.5
5.0
2021
£m
2.6
0.1
2.7
2021
£m
5.0
1.7
6.7
0.8
0.9
8.4
0.1
2020
£m
4.3
0.4
2.6
7.3
2020
£m
2.7
0.2
2.9
2020
£m
5.5
1.7
7.2
3.0
1.3
11.5
0.1
(i) Current year predominantly relates to the review of the condensed interim Financial Statements and the audit of the Ofgem Consolidated Segmental Statement. The prior year includes
these costs but also significant assurance work linked to the Direct Energy disposal.
(ii) Relates to the Class 1 Circular reporting accountant work for the Spirit Energy Norway and Statfjord field proposed disposal (2020 – Class 1 Circular reporting accountant work for the
Direct Energy disposal).
(iii) The pension scheme audit continues to be performed by PricewaterhouseCoopers LLP.
During 2021, work on the divestment of Spirit Energy Norway and the Statfjord field required additional other services from Deloitte in respect of
the disposal Class 1 Circular. During 2020, work on the divestment of Direct Energy also required additional services in respect of that disposal
Class 1 Circular and the audit of the US GAAP carve-out accounts for Direct Energy, undertaken for the purchaser NRG's purposes, but under
the direction of the Group. Approval for both years’ expenditures was sought and received from the Audit and Risk Committee in advance of the
work commencing.
Centrica plc Annual Report and Accounts 2021
201
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S10. Related undertakings
The Group has a large number of related undertakings principally in the UK, US, Norway, Canada, Denmark, the Netherlands and
the Republic of Ireland. These are listed below.
(a) Subsidiary undertakings
Investments held directly by Centrica plc with 100% voting rights
31 December 2021
Centrica Beta Holdings Limited
Centrica Holdings Limited
Centrica Trading Limited
Rhodes Holdings HK Limited
Investments held indirectly by Centrica plc with 100% voting rights
Principal activity
Holding company
Holding company
Country of incorporation/
registered address key (i)
Class of shares held
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Dormant
United Kingdom / A
Ordinary shares
Holding Company
Hong Kong / B
Ordinary shares
31 December 2021
Accord Energy (Trading) Limited
Accord Energy Limited
Alertme.com GmbH
Astrum Solar, Inc.
Atform Limited
Bord Gáis Energy Limited
Bord Gáis Energy Trustees DAC
British Gas Energy Procurement Limited
British Gas Finance Limited
British Gas Insurance Limited
British Gas Limited
British Gas New Heating Limited
Principal activity
Dormant
Dormant
Non-trading
Country of incorporation/
registered address key (i)
Class of shares held
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Germany / C
Ordinary shares
Home and/or commercial services
United States / D
Ordinary shares
Dormant
United Kingdom / A
Ordinary shares
Energy supply and power generation
Republic of Ireland / E
Ordinary shares
Pension trustee company
Republic of Ireland / E
Ordinary shares
Energy supply
Vehicle leasing
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Insurance provision
United Kingdom / A
Ordinary shares
Dormant
United Kingdom / A
Ordinary shares
Electrical and gas installations
United Kingdom / A
Ordinary shares
British Gas Services (Commercial) Limited
Servicing and installation of heating systems
United Kingdom / A
Ordinary shares
British Gas Services Limited
Home services
United Kingdom / A
Ordinary shares
British Gas Social Housing Limited
Servicing and installation of heating systems
United Kingdom / A
Ordinary shares
British Gas Solar Limited
British Gas Trading Limited
British Gas X Limited
Business Gas Limited
Caythorpe Gas Storage Limited
CBS US Solar Fund 1, LLC
Centrica (IOM) Limited
Centrica (Lincs) Wind Farm Limited
Centrica Alpha Finance Limited
Centrica America Limited
Centrica Barry Limited
Centrica Brigg Limited
Centrica Business Holdings Inc.
Dormant
United Kingdom / A
Ordinary shares
Energy supply
United Kingdom / A
Ordinary shares
Dormant
Dormant
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Gas storage
United Kingdom / F
Ordinary shares
Distributed energy and power
United States / G Membership interest
Dormant
Dormant
Non-trading
Non-trading
Isle of Man / H
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Power generation
United Kingdom / A
Ordinary shares
Power generation
United Kingdom / A
Ordinary shares
Holding company
United States / I
Ordinary shares
Centrica Business Solutions (Generation) Limited
Power generation
United Kingdom / A
Ordinary shares
Centrica Business Solutions Asset Management, LLC
Energy management products and services
United States / G Membership interest
Centrica Business Solutions B.V.
Energy management products and services
Netherlands / J
Ordinary shares
Centrica Business Solutions Belgium NV
Demand response aggregation
Belgium / K
Ordinary shares
Centrica Business Solutions Canada Inc.
Energy management products and services
Canada / L
Ordinary shares
Centrica Business Solutions Deutschland GmbH
Demand response aggregation
Germany / M
Ordinary shares
Centrica Business Solutions France SASU
Demand response aggregation
France / N
Ordinary shares
Centrica Business Solutions International Limited
Holding company
United Kingdom / A
Ordinary shares
202
Centrica plc Annual Report and Accounts 2021
S10. Related undertakings
31 December 2021
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Centrica Business Solutions Ireland Limited
Energy management products and services
Republic of Ireland / E
Ordinary shares
Centrica Business Solutions Italia Srl
Energy management products and services
Italy / O
Ordinary shares
Centrica Business Solutions Management Limited
Holding company
United Kingdom / A
Ordinary shares
Centrica Business Solutions México S.A. de C.V.
Energy management products and services
Mexico / P
Ordinary shares
Centrica Business Solutions Optimize, LLC
Energy management products and services
United States / G Membership interest
Centrica Business Solutions Romania Srl
Energy management products and services
Romania / Q
Ordinary shares
Centrica Business Solutions Services, Inc.
Energy management products and services
United States / G
Ordinary shares
Centrica Business Solutions UK Limited
Energy management products and services
United Kingdom / A
Ordinary shares
Centrica Business Solutions UK Optimisation Limited
Demand response aggregation
United Kingdom / A
Ordinary shares
Centrica Business Solutions US, Inc.
Energy management products and services
United States / G
Ordinary shares
Centrica Business Solutions Zrt
Energy management products and services
Hungary / R
Ordinary shares
Centrica Combined Common Investment Fund Limited
Centrica Delta Limited
Centrica Directors Limited
Dormant
Dormant
Dormant
United Kingdom / A
Ordinary shares
Isle of Man / S
Ordinary shares
United Kingdom / A
Ordinary shares
Centrica Distributed Generation Limited
Power generation
United Kingdom / A
Ordinary shares
Centrica Energy (Trading) Limited
Centrica Energy Limited
Centrica Energy Marketing Limited
Centrica Energy Operations Limited
Centrica Energy Renewable Investments Limited
Centrica Energy Trading A/S
Centrica Energy Trading GmbH
Centrica Energy Trading Pte. Ltd.
Non-trading
United Kingdom / A
Ordinary shares
Wholesale energy trading
United Kingdom / A
Ordinary shares
Wholesale energy trading
United Kingdom / A
Ordinary shares
Dormant
Dormant
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Energy services and wholesale energy trading
Denmark / T
Ordinary shares
Energy services and wholesale energy trading
Germany / U
Ordinary shares
Energy services and wholesale energy trading
Singapore / V
Ordinary shares
Centrica Engineers Pension Trustees Limited
Dormant
United Kingdom / A
Ordinary shares
Centrica Finance (Canada) Limited
Centrica Finance (Scotland) Limited
Centrica Finance (US) Limited
Centrica Finance Investments Limited
Centrica Finance Norway Limited
Centrica Gamma Holdings Limited
Centrica Hive Limited
Centrica Hive Srl
Centrica Ignite GP Limited
Centrica Ignite LP Limited
Centrica India Offshore Private Limited
Centrica Infrastructure Limited
Centrica Innovations UK Limited
Centrica Innovations US, Inc.
Centrica Insurance Company Limited
Centrica KPS Limited
Centrica Lake Limited
Centrica Leasing (KL) Limited
Centrica LNG Company Limited
Centrica LNG UK Limited
Centrica Nederland B.V.
Centrica NewCo 123 Limited
Centrica Nigeria Limited
Holding company
United Kingdom / A
Ordinary shares
Holding company
United Kingdom / W
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Dormant
Jersey / X
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Energy management products and services
United Kingdom / A
Ordinary shares
Energy management products and services
Italy / Y
Ordinary shares
Investment company
United Kingdom / A
Ordinary shares
Investment company
United Kingdom / A
Ordinary shares
Business services
India / Z
Ordinary shares
Dormant
United Kingdom / W
Ordinary shares
Investment company
United Kingdom / A
Ordinary shares
Investment company
United States / G
Ordinary shares
Insurance provision
Isle of Man / H
Ordinary and
preference shares
Power generation
United Kingdom / A
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Dormant
United Kingdom / A
Ordinary shares
LNG trading
LNG trading
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Holding company
Netherlands / J
Ordinary shares
Dormant
United Kingdom / A
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Centrica plc Annual Report and Accounts 2021
203
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S10. Related undertakings
31 December 2021
Centrica No.12 Limited
Centrica Nominees No.1 Limited
Centrica Offshore UK Limited
Centrica Onshore Processing UK Limited
Centrica Overseas Holdings Limited
Centrica Pension Plan Trustees Limited
Centrica Pension Trustees Limited
Centrica Production Limited
Centrica Resources (Nigeria) Limited
Centrica Resources (UK) Limited
Centrica Resources Petroleum UK Limited
Centrica Secretaries Limited
Centrica Services Limited
Centrica Storage Holdings Limited
Centrica Storage Limited
Centrica Titan Limited (ii)
Centrica Trinidad and Tobago Limited
Centrica Trust (No.1) Limited
Centrica Upstream Investment Limited
CH4 Energy Limited
CID1 Limited
CIU1 Limited
DEML Investments Limited
DER Development No.10 Ltd.
Principal activity
Dormant
Dormant
Country of incorporation/
registered address key (i)
Class of shares held
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Gas and/or oil exploration and production
United Kingdom / F
Ordinary shares
Dormant
United Kingdom / F
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Dormant
Dormant
Dormant
Non-trading
Dormant
Dormant
Dormant
Business services
Holding company
United Kingdom / A Limited by guarantee
United Kingdom / A
Ordinary shares
United Kingdom / W
Ordinary shares
Nigeria / AA
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / F
Ordinary shares
Gas production and processing
United Kingdom / F
Ordinary shares
Non-trading
United Kingdom / A
Ordinary shares
Business services
Trinidad and Tobago / AB
Ordinary shares
Dormant
Dormant
Dormant
Dormant
Dormant
Holding company
Holding company
United Kingdom / A
Ordinary shares
United Kingdom / W
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Canada / L
Ordinary shares
Canada / L
Ordinary shares
Distributed Energy Asset Solutions Limited
Dormant
United Kingdom / A
Ordinary shares
Distributed Energy Customer Solutions Limited
Energy management products and services
United Kingdom / A
Ordinary shares
Drips Limited
Dyno Developments Limited
Dyno-Plumbing Limited
Dyno-Rod Limited
Dyno-Security Services Limited
Dyno-Services Limited
ECL Contracts Limited
ECL Investments Limited
Electricity Direct (UK) Limited
ENER-G Cogen International Limited
ENER-G Nagykanizsa Kft
ENER-G Power2 Limited
ENER-G Rudox, LLC
Energy For Tomorrow
FES Energy Solutions Limited
GB Gas Holdings Limited
Generation Green Solar Limited
GF One Limited (iii)
GF Two Limited (iii)
Goldbrand Development Limited
Hillserve Limited
Dormant
Dormant
Dormant
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Operation of a franchise network
United Kingdom / A
Ordinary shares
Dormant
Dormant
Dormant
Dormant
Dormant
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Energy management products and services
Hungary / R
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Energy management products and services
United States / G Membership interest
Not-for-profit energy services
United Kingdom / A Limited by guarantee
Energy management products and services
Republic of Ireland / E
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Dormant community benefit society
United Kingdom / A
Ordinary shares
In liquidation
In liquidation
Dormant
Dormant
United Kingdom / AC
Ordinary shares
United Kingdom / AC
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
204
Centrica plc Annual Report and Accounts 2021
S10. Related undertakings
31 December 2021
Home Assistance UK Limited
Neas Energy Limited
Neas Invest A/S
Newco One Limited
North Sea Infrastructure Partners Limited
NSIP (Holdings) Limited
P.H. Jones Facilities Management Ltd
P.H Jones Group Limited
Panoramic Power Ltd.
Pennings Power Limited (iv)
Pioneer Shipping Limited
Repair and Care Limited
Solar Technologies Group Limited
Solar Technologies Limited
Soren Limited
South Energy Investments LLC
Vista Solar, Inc.
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Dormant
United Kingdom / A
Ordinary shares
Energy services and wholesale energy trading
United Kingdom / A
Ordinary shares
Dormant
Dormant
Dormant
Dormant
Denmark / T
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / W
Ordinary shares
United Kingdom / W
Ordinary shares
Non-trading
United Kingdom / A
Ordinary shares
Holding company
United Kingdom / A
Ordinary shares
Energy management products and services
Israel / AD
Ordinary shares
Building solar farm & connecting to grid
United Kingdom / A
Ordinary shares
LNG vessel chartering
United Kingdom / A
Ordinary Shares
Dormant
Dormant
Dormant
Dormant
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
United Kingdom / A
Ordinary shares
Investment company
United States / AE Membership interest
Distributed energy and power
United States / AF
Ordinary shares
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
205
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S10. Related undertakings
Investments held indirectly by Centrica plc with 69% voting rights
31 December 2021
Spirit Norway Holdings AS (v)
Bowland Resources (No.2) Limited
Bowland Resources Limited
Elswick Energy Limited
NSGP (Ensign) Limited
Spirit Energy Hedging Holding Limited
Spirit Energy Hedging Limited
Spirit Energy Limited
Spirit Energy Nederland B.V.
Spirit Energy North Sea Limited
Spirit Energy North Sea Oil Limited
Spirit Energy Norway AS
Spirit Energy Production UK Limited
Spirit Energy Resources Limited
Spirit Energy Southern North Sea Limited
Spirit Energy Treasury Limited
Spirit Europe Limited
Spirit Infrastructure B.V.
Spirit North Sea Gas Limited
Spirit Norway Limited
Spirit Production (Services) Limited
Spirit Resources (Armada) Limited
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Holding company
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Dormant
Dormant
Holding company
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Finance company
Holding company
Construction, ownership and exploitation of infrastructure
Gas and/or oil exploration and production
Gas and/or oil exploration and production
Business services
Gas and/or oil exploration and production
Norway / AG
United Kingdom / AH
United Kingdom / AH
United Kingdom / AH
Jersey / AI
United Kingdom / AH
United Kingdom / AH
United Kingdom / AH
Netherlands / AJ
United Kingdom / AH
United Kingdom / AK
Norway / AL
United Kingdom / AH
United Kingdom / AH
United Kingdom / AH
United Kingdom / AH
United Kingdom / AH
Netherlands / AJ
United Kingdom / AK
United Kingdom / AH
United Kingdom / AK
United Kingdom / AH
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary and
deferred shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
(i) For list of registered addresses, refer to note S10(d).
(ii) Established in 2021.
(iii) GF One Limited and GF Two Limited are 75% indirectly owned by Centrica plc.
(iv) Acquired in 2021.
(v) Bayerngas Norge AS changed its name to Sprit Norway Holdings AS during the year.
206
Centrica plc Annual Report and Accounts 2021
S10. Related undertakings
(b) Subsidiary undertakings – partnerships held indirectly by Centrica plc with 100% voting rights
31 December 2021
CF 2016 LLP
CFCEPS LLP
CFCPP LLP
Direct Energy Resources Partnership
Finance Scotland 2016 Limited Partnership
Finance Scotland CEPS Limited Partnership
Finance Scotland CPP Limited Partnership
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Group financing
United Kingdom / A
Membership interest
Group financing
United Kingdom / A
Membership interest
Group financing
United Kingdom / A
Membership interest
Holding entity
Canada / AM
Membership interest
Group financing
United Kingdom / W
Membership interest
Group financing
United Kingdom / W
Membership interest
Group financing
United Kingdom / W
Membership interest
Ignite Social Enterprise LP
Social enterprise investment fund
United Kingdom / A
Membership interest
(i) For list of registered addresses, refer to note S10(d).
The following partnerships are fully consolidated into the Group Financial Statements and the Group has taken advantage of the exemption
(as confirmed by regulation 7 of the Partnerships (Accounts) Regulations 2008) not to prepare or file separate accounts for these entities:
• Finance Scotland 2016 Limited Partnership;
• Finance Scotland CEPS Limited Partnership;
• Finance Scotland CPP Limited Partnership; and
• Ignite Social Enterprise LP.
(c) Joint arrangements and associates
Indirect
interest and
voting rights
(%)
40.0%
50.0%
50.0%
50.0%
50.0%
40.0%
40.0%
40.0%
50.0%
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
31 December 2021
Joint ventures (ii)
Allegheny Solar 1, LLC
C2 Centrica MT, LLC
Celtic Array Limited
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Energy supply and/or services
United States / AN
Membership interest
Energy supply and/or services
United States / AO Membership interest
In liquidation
United Kingdom / A
Ordinary shares
Eurowind Polska VI Sp z.o.o.
Operation of an onshore windfarm
Poland / AP
Ordinary shares
Development of flexible power generation sites
Republic of Ireland / E
Ordinary shares
Energy supply and/or services
United States / AN
Membership interest
Energy supply and/or services
United States / AN
Membership interest
Energy supply and/or services
United States / AN
Membership interest
Operation of an onshore windfarm
Denmark / AQ
Ordinary shares
Greener Ideas Limited
Three Rivers Solar 1, LLC
Three Rivers Solar 2, LLC
Three Rivers Solar 3, LLC
Vindpark Keblowo ApS
Associates (ii)
Lake Acquisitions Limited
Holding company
United Kingdom / AR
Ordinary shares
20.0%
(i) For list of registered addresses, refer to note S10(d).
(ii) Further information on the principal joint ventures and associate investments held by the Group is disclosed in notes 6 and 14.
All Group companies principally operate within their country of incorporation unless noted otherwise.
Centrica plc Annual Report and Accounts 2021
207
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S10. Related undertakings
(d) List of registered addresses
Registered
address key
Address
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
AA
AB
AC
AD
AE
AF
AG
AH
AI
AJ
AK
AL
AM
AN
AO
AP
AQ
AR
Millstream, Maidenhead Road, Windsor, SL4 5GD, United Kingdom
Level 54, Hopewell Centre, 183 Queens Road East, Hong Kong
Thomas-Wimmer-Ring 1-3, 80539, Munich, Germany
2 Wisconsin Circle #700, Chevy Chase, MD 20815, United States
1 Warrington Place, Dublin 2, Republic of Ireland
Woodland House, Woodland Park, Hessle, HU13 0FA, United Kingdom
3411 Silverside Road, Suite 104, Tatnall Building, Wilmington, DE 19810, United States
3rd floor, St George’s Court, Upper Church Street, Douglas, IM1 1EE, Isle of Man
3411 Silverside Road, Rodney Building #104, Wilmington, DE 19810, United States
Wiegerbruinlaan 2A, 1422 CB Uithoorn, Netherlands
Roderveldlaan 2 bus 2, 2600 Antwerp, Belgium(i)
550 Burrard Street, Suite 2900, Vancouver BC V6C 0A3, Canada(ii) (iii)
Neuer Wall 10, 20354 Hamburg, Germany
60 Avenue Charles de Gaulle, Cs 60016, 92573, Neuilly sur Seine Cedex, France
Milan (MI), Via Emilio Cornalia 26, Italy
Presidente Masaryk no. 61, Piso 7, Mexico, D.f. CP 11570, Mexico
Strada Martir Colonel Ioan U nr.28 camera 1, Municipiul Timisoara judet Timis, Romania
H-1106 Budapest Jászberényi út 24-36, Hungary
33-37 Athol Street, Douglas, IM1 1LB, Isle of Man
Skelagervej 1, 9000 Aalborg, Denmark
Gustav-Mahler-Platz 1, 20354 Hamburg, Germany
220 Orchard Road, #05-01 Midpoint Orchard, Singapore 238852, Republic of Singapore
1 Waterfront Avenue, Edinburgh, Scotland EH5 1SG, United Kingdom
47 Esplanade, St Helier, JE1 0BD, Jersey, Channel Islands
Via Paleocapa Pietro 4, 20121, Milano, Italy
G-74, LGF, Kalkaji, New Delhi, South Delhi, Delhi, 110019, India
Sterling Towers, 20 Marina Street, Lagos, Nigeria
48-50 Sackville Street, Port of Spain, Trinidad and Tobago
1 More London Place, London, SE1 2AF, United Kingdom
15 Atir Yeda Street, Kfar Saba, 44643, Israel
6 Landmark Square, 4th Floor, Stamford CT 06901, United States
4640 Admiralty Way, 5th floor, Marina del Rey, California 90292, United States
Lilleakerveien 8, 0283 Oslo, Norway
1st floor, 20 Kingston Road, Staines-upon-Thames, TW18 4LG, United Kingdom
Sanne, IFC 5, St Helier, JE1 1ST, Jersey, Channel Islands
Transpolis Building, Polarisavenue 39, 2132 JH Hoofddorp, Netherlands
5th floor, IQ Building, 15 Justice Mill Lane, Aberdeen, AB11 6EQ, United Kingdom
Veritasvien 29, 4007 Stavanger, Norway
350 7th Avenue SW, Suite 3400, Calgary AB T2P 3N9, Canada
1209 Orange Street, Wilmington, New Castle County, DE 19801, United States
850 New Burton Road, Suite 201, Dover, DE 19904, United States
Ul. Wysogotowska 23, 62-081 Przezmierowo, Wielkpolskie, Poland
Mariagervej 58B, DK 9500 Hobro, Denmark
90 Whitfield Street, London, W1T 4EZ, United Kingdom
(i) Centrica Business Solutions Belgium NV changed its registered address during the year from Posthofbrug 12, 2600 Antwerp, Belgium to the address listed above.
(ii) Centrica Business Solutions Canada Inc. and DER Development No. 10 Ltd changed their registered addresses during the year from 350 7th Avenue SW, Suite 3400, Calgary
AB T2P 3N9, Canada to the address listed above.
(iii) DEML Investments Limited changed its registered address during the year from Bay Adelaide Centre, 333 Bay Street, Suite 2400, Toronto ON, MSH 2T6, Canada to the address
listed above.
208
Centrica plc Annual Report and Accounts 2021
Group
share
£m
550
57
24
58
82
Group
share
£m
4,440
751
(202)
(2,720)
2,269
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
S10. Related undertakings
(e) Summarised financial information
Material associates and joint arrangements
Management has determined that the investment in Lake Acquisitions Limited is sufficiently material to warrant further disclosure on an individual
basis. Accordingly, the Group presents summarised financial information, along with reconciliations to the amounts included in the consolidated
Group Financial Statements, for this investee.
Lake Acquisitions Limited
Summarised statement of total comprehensive income
Year ended 31 December
Revenue
Operating (loss)/profit before interest and tax
(Loss)/profit for the year
Other comprehensive income
Total comprehensive income
Summarised balance sheet
31 December
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Associate
information
reported to
Group
£m
1,661
(1,106)
(889)
760
(129)
Associate
information
reported to
Group
£m
21,054
3,527
(1,791)
2021
2020
Unadjusted
20% share
£m
Fair value
and other
adjustments
£m
332
(221)
(178)
152
(26)
–
97
75
–
75
2021
Fair value
and other
adjustments
(i)
£m
Unadjusted
20% share
£m
Associate
information
reported to
Group
£m
2,748
433
300
291
591
Group
share
£m
332
(124)
(103)
152
49
Unadjusted
20% share
£m
Fair value
and other
adjustments
£m
–
(30)
(36)
–
(36)
550
87
60
58
118
2020
Associate
information
reported to
Group
£m
Fair value
and other
adjustments
(i)
£m
Unadjusted
20% share
£m
Group
share
£m
4,211
705
(358)
(14,379)
(2,876)
8,411
1,682
898
5,109
19,328
3,866
574
–
–
(263)
635
705
(358)
3,756
(1,011)
(3,139)
(13,528)
2,317
8,545
751
(202)
(2,706)
1,709
–
–
(14)
560
(i) Before cumulative impairments of £692 million (2020: £1,439 million) of the Group’s associate investment.
During the year, dividends of £1 million (2020: £60 million) were paid by the associate to the Group.
Joint operations – fields/assets
31 December 2021
Cygnus
Location
Percentage holding
UK North Sea
61%
Centrica plc Annual Report and Accounts 2021
209
Financial Statements | Notes to the Financial Statements continued
Supplementary information continued
S11. Non-controlling interests
The Group has one subsidiary undertaking with a non-controlling interest: Spirit Energy Limited, through which the Group carries out the
majority of its exploration and production activities.
31 December
Non-
controlling
interests
%
Loss for
the year
£m
Total
comprehensive
loss
£m
Spirit Energy Limited
31
(37)
(40)
Distributions
to non-
controlling
interests
£m
Non-
controlling
interests
%
Loss for
the year
£m
Total
comprehensive
loss
£m
–
31
(158)
(158)
Total
equity
£m
385
Distributions
to non-
controlling
interests
£m
–
Total
equity
£m
425
2021
2020
Summarised financial information
The summarised financial information disclosed is shown on a 100% basis. It represents the consolidated position of Spirit Energy Limited and
its subsidiaries that would be shown in its consolidated financial statements prepared in accordance with IFRS under Group accounting policies
before intercompany eliminations.
Summarised statement of total comprehensive income
Year ended 31 December
Revenue
Loss for the year
Other comprehensive loss
Total comprehensive loss
Summarised balance sheet
31 December
Non-current assets
Current assets
Assets of disposal groups classified as held for sale
Current liabilities
Liabilities of disposal groups classified as held for sale
Non-current liabilities
Net assets
Summarised cash flow
Year ended 31 December
Net increase/(decrease) in cash and cash equivalents
2021
£m
1,795
(118)
(10)
(128)
2021
£m
2,169
1,649
1,651
(1,846)
(1,225)
(1,156)
1,242
2021
£m
66
2020
£m
1,278
(510)
–
(510)
2020
£m
3,128
791
–
(395)
–
(2,154)
1,370
2020
£m
(20)
210
Centrica plc Annual Report and Accounts 2021
Company Financial Statements
Company Statement of Changes in Equity
1 January 2020
Loss for the year
Other comprehensive loss
Total comprehensive loss
Employee share schemes and other share transactions
31 December 2020
Profit for the year
Other comprehensive income
Total comprehensive income
Employee share schemes and other share transactions
31 December 2021
Share
capital
£m
360
–
–
–
1
361
–
–
–
2
363
Share
premium
£m
2,330
–
–
–
17
2,347
–
–
–
30
2,377
Capital
redemption
reserve
£m
28
–
–
–
–
Retained
earnings
£m
2,691
(1,072)
–
(1,072)
(8)
28
1,611
–
–
–
–
976
–
976
3
28
2,590
Other
equity
(note II)
£m
16
–
(61)
(61)
12
(33)
–
10
10
(24)
(47)
Total
equity
£m
5,425
(1,072)
(61)
(1,133)
22
4,314
976
10
986
11
5,311
As permitted by section 408(3) of the Companies Act 2006 no Income Statement or Statement of Comprehensive Income is presented.
The Directors do not propose a final dividend for the year ended 31 December 2021.
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 213 to 222 form part of these Financial Statements, along with note 25 to the Group consolidated Financial Statements.
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Centrica plc Annual Report and Accounts 2021
211
Company Financial Statements
Company Balance Sheet
31 December
Non-current assets
Property, plant and equipment
Investments
Trade and other receivables
Derivative financial instruments
Retirement benefit assets
Securities
Current assets
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Current liabilities
Derivative financial instruments
Current tax liabilities
Trade and other payables
Provisions for other liabilities and charges
Bank overdrafts, loans and other borrowings
Non-current liabilities
Deferred tax liabilities
Derivative financial instruments
Trade and other payables
Provisions for other liabilities and charges
Retirement benefit liabilities
Bank loans and other borrowings
Total liabilities
Net assets
Share capital
Share premium
Capital redemption reserve
Retained earnings (i)
Other equity
Total shareholders’ equity
Notes
2021
£m
2020 (restated)
£m
IV
V
VI
VII
XII
VI
VII
VII
IX
XI
X
VII
IX
XII
XI
II
5
1,100
12,809
86
102
110
13
1,117
12,844
206
38
108
14,212
14,326
744
87
–
3,627
4,458
18,670
788
231
11
899
1,929
16,255
(73)
(1)
(45)
–
(9,056)
(6,843)
(1)
(810)
(1)
(579)
(9,941)
(7,468)
(14)
(6)
(154)
(1)
(66)
(3,177)
(3,418)
(2)
(12)
(132)
(1)
(66)
(4,260)
(4,473)
(13,359)
(11,941)
5,311
363
2,377
28
2,590
(47)
5,311
4,314
361
2,347
28
1,611
(33)
4,314
(i) Retained earnings includes a net profit after taxation of £976 million (2020: £1,072 million loss).
The prior year has been re-presented to reclassify £12,808 million of current receivables owed by Group undertakings to non-current receivables
owed by Group undertakings as they do not meet the IAS 1 ‘Presentation of Financial Statements’ classification criteria for current assets. The
non-current receivables owed by Group undertakings are unlikely to be repaid before 31 December 2022. See note I for further details.
The Financial Statements on pages 211 to 222, of which the notes on pages 213 to 222 form part, along with note 25 to the Group
consolidated Financial Statements, were approved and authorised for issue by the Board of Directors on 23 February 2022 and were signed
on its behalf by:
Chris O’Shea
Group Chief Executive
Kate Ringrose
Group Chief Financial Officer
Centrica plc Registered No: 03033654
212
Centrica plc Annual Report and Accounts 2021
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
is the functional currency of the Company.
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’.
From 1 January 2021, the following standards and amendments are effective in the Company's Financial Statements:
• Amendments to IFRS 17 and IFRS 4: 'Insurance Contracts' – deferral of IFRS 9; and
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2.
Phase 2 of the Interest Rate Benchmark Reform became effective on 1 January 2021. Under Phase 2, to the extent that modifications are made
to financial instruments that are necessary to implement Interest Rate Benchmark Reform, reliefs from the discontinuation of hedge accounting or
immediate recognition of any gains or losses in the income statement are available on transition to alternative rates, provided that the new basis for
calculating cash flows is economically equivalent to the previous basis. Reliefs permit hedge accounting relationships to continue unaffected.
The Company will apply the International Swaps and Derivatives Associates (ISDA) fallback protocol to the derivative financial instruments held
by the Company affected by the IBOR Reform. These instruments primarily comprise interest rate swap agreements, under which the
contractual cash flows are calculated with reference to LIBOR. The ISDA fallback rates are derived from the Sterling Overnight Interbank
Average (SONIA) rate and are calculated and published by Bloomberg. The Company determines that Phase 1 reliefs no longer apply – the
uncertainty regarding the timing and the amount of interest rate benchmark-based cash flows ceased on 31 December 2021, at the point
of transition to the ISDA fallback protocol.
The Company has determined that the reliefs available under Phase 2 of the Reform are available and has amended the formal designation
of hedge relationships; hedge accounting is expected to continue.
The amendments to IFRS 4 defer the date of application of IFRS 17 to 1 January 2023 and change the fixed date of the temporary exemption
in IFRS 4 from applying IFRS 9 until 1 January 2023.
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 IFRSs;
• the effects of new but not yet effective IFRSs;
• 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: ‘Fair value
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.
Re-presentation of amounts owned by Group Undertakings
During 2021, the Company's current receivable balances within Group undertakings were reassessed against the classification criteria of current
assets as set out in 'IAS 1 ‘Presentation of Financial Statements’. All outstanding current receivable balances owned by Group undertakings are
repayable on demand as per the contractual agreement and arise mainly from funding provided by the Company to its subsidiaries. However,
IAS 1 states that “an entity shall classify an asset as current when it expects to realise the asset within twelve months after the reporting period”.
The Company reassessed the current amounts owed by Group undertakings based on expected timing and subsidiaries’ intention to repay the
amounts due within twelve months after the reporting date and concluded that £12,798 million (2020: £12,808 million) of the current receivables
balances as at 31 December 2021 should be classified as non-current assets; comparatives have therefore been restated as detailed further in
note VI of the Company’s Financial Statements.
At the same time, the Company has also analysed the current payable balance with Group undertakings presentation to ‘IAS 1 ‘Presentation
of Financial Statements’ where these are not expected to be settled within twelve months after the reporting period. However, they are
contractually payable on demand from Company's perspective, therefore due within twelve months and continue to be presented as current
liabilities as detailed further in note IX of the Company’s Financial Statements.
Centrica plc Annual Report and Accounts 2021
213
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Company Financial Statements | Notes to the Company Financial Statements continued
I. General information and principal accounting policies of the Company
The change in presentation of the majority of the Company’s current receivable balances with Group undertakings to non-current receivables
results in the Company presenting net current liabilities of £5,483 million (2020: £5,539 million). This does not impact the Company’s ability to
meet its liabilities as they fall due, because of the Company’s ability to control timing of all group repayments.
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 and key sources of estimation uncertainty
The Company does not have any critical accounting judgements. It is subject to estimation uncertainty related to its share of the Group’s pension
scheme surplus/deficit, as detailed further in note 22 of the Group consolidated Financial Statements. The valuation of the Company’s
investments is also a key source of estimation uncertainty. The Company’s net assets were higher than its market capitalisation on 31 December
2021, and this was an indicator of impairment. However, the estimate of the recoverable amounts of these investments were in excess of their
carrying values and as a result, no further impairment has been reflected. The key assumptions used in determining the recoverable amount of the
Company’s investments in subsidiaries are consistent with those used to value the underlying businesses and assets in those subsidiaries. Further
details on these assumptions and related sensitivities are given in note 7 to the Group consolidated Financial Statements.
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 71 to 81 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
or construction 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
10 years.
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.
214
Centrica plc Annual Report and Accounts 2021
I. General information and principal accounting policies of the Company
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
of impairment. 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 costs of disposal.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset.
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. Were net receivers of funding unable to repay loan balances
in full 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, the expected credit loss is either
considered immaterial based on discounting the loan over the extended payment term, or has been calculated by applying a default loss rate
based on the actual or proxy credit rating of the counterparty. No change in credit risk is deemed to have occurred since initial recognition for
amounts not repayable on demand, and therefore a 12-month expected credit loss has been calculated based on the assessed probability
of default.
The Company has applied the impairment requirements of IFRS 9 to financial guarantees issued to its subsidiary undertakings. Expected credit
losses 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.
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
is calculated 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.
Centrica plc Annual Report and Accounts 2021
215
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Company Financial Statements | Notes to the Company Financial Statements continued
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,
it can 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 or settled.
The tax expense for the year comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent that it relates
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 38 to 43 and in note S3 to the Group consolidated Financial Statements.
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.
216
Centrica plc Annual Report and Accounts 2021
II. Other equity
1 January 2020
Losses on revaluation of equity investments measured at fair value
through other comprehensive income
Actuarial loss
Employee share schemes:
Increase in own shares
Exercise of awards
Value of services provided
Impact of cash flow hedging
Taxation on above items
31 December 2020
Gains on revaluation of equity investments measured at fair value
through other comprehensive income
Actuarial gains
Employee share schemes:
Exercise of awards
Value of services provided
Impact of cash flow hedging
Taxation on above items
31 December 2021
III. Directors and employees
Employee costs
Year ended 31 December
Wages and salaries
Other
Average number of employees during the year
Year ended 31 December
Administration
Power
Cash
flow
hedging
reserve
£m
Actuarial
gains and
losses
reserve
£m
Financial asset at
FVOCI reserve
£m
5
–
–
–
–
–
4
(1)
8
–
–
–
–
(1)
(2)
5
(33)
–
(79)
–
–
–
–
16
(96)
–
11
–
–
–
(2)
(87)
8
(1)
–
–
–
–
–
–
7
4
–
–
–
–
–
11
Treasury
and own
shares
reserve
£m
(37)
Share-
based
payments
reserve
£m
73
–
–
(30)
36
–
–
–
(31)
–
–
13
–
–
–
(18)
–
–
–
(46)
52
–
–
79
–
–
(49)
12
–
–
42
2021
£m
(7)
(8)
(15)
Total
£m
16
(1)
(79)
(30)
(10)
52
4
15
(33)
4
11
(36)
12
(1)
(4)
(47)
2020
£m
(13)
(14)
(27)
2021
Number
2020
Number
107
19
126
134
41
175
Centrica plc Annual Report and Accounts 2021
217
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Company Financial Statements | Notes to the Company Financial Statements continued
IV. Property, plant and equipment
Cost
1 January
31 December
Accumulated depreciation
1 January
Charge for year
31 December
NBV at 31 December (i)
(i)
Included within the above balance is £5 million of right-of-use assets (2020: £13 million).
V. Investments in subsidiaries
Cost
1 January
Additions
Employee share scheme net capital movement (ii)
31 December
Provision
1 January
Impairment provided in the year (iii)
31 December
NBV at 31 December
2021
£m
31
31
(18)
(8)
(26)
5
2021
(i)
£m
2020
(i)
£m
2,290
2,262
–
(17)
44
(16)
2,273
2,290
(1,173)
–
(1,173)
1,100
–
(1,173)
(1,173)
1,117
(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. 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 in the prior 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
31 December
Amounts owed by Group undertakings
Prepayments
2021
2020 (restated) (iii)
Current (i)
£m
541
203
744
Non-current (ii)
£m
12,804
5
12,809
Current (i)
£m
Non-current (ii)
£m
782
6
788
12,837
7
12,844
(i) The amounts receivable by the Company includes a gross balance of £80 million (2020 restated: £211 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 3% and 4.6% per annum during 2021 (2020: 3.5% and 5.9%). 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
provisions of £201 million (2020: restated £55 million).
(ii) The amounts receivable by the Company includes a gross balance of £13,335 million (2020 restated: £13,165 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 3% and 4.6% per annum during 2021 (2020 restated: 3.5% and 5.9%). During
the year, the Company expected the amount of £20 million (long term loan due from British Gas Finance Limited in 2020) to be receivable within one year and therefore, reclassified it to
current amounts owned by Group undertakings in (i) above. 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 twelve months from the reporting date. Amounts receivable by the Company are stated net of provisions of £640 million (2020
restated: £508 million).
(iii) The prior year has been restated to reclassify £12,808 million of current receivables owed by Group undertakings to non-current receivables owed by Group undertakings as they do
not meet IAS 1 ‘Presentation of Financial Statements’ classification criteria for current assets. The non-current receivables owed by Group undertakings are unlikely to be repaid before
31 December 2022. See note I for further details.
218
Centrica plc Annual Report and Accounts 2021
VII. Derivative financial instruments
31 December
Derivative financial assets
Derivative financial liabilities
2021
Current
£m
Non-current
£m
87
(73)
86
(6)
Total
£m
173
(79)
2020
Current
£m
Non-current
£m
231
(45)
206
(12)
Total
£m
437
(57)
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,
as detailed in note S6 to the Group consolidated Financial Statements.
(b) Financial instruments carried at fair value
31 December
Financial assets
Derivative financial assets held for trading:
Foreign exchange derivatives
Interest rate derivatives
Derivative financial assets in hedge accounting relationships:
Interest rate derivatives
Foreign exchange derivatives
Debt instruments
Equity instruments designated FVOCI
Cash and cash equivalents
Total financial assets at fair value
Financial liabilities
Derivative financial liabilities held for trading:
Foreign exchange derivatives
Derivative financial liabilities in hedge accounting relationships:
Interest rate derivatives
Foreign exchange derivatives
Total financial liabilities at fair value
Level 1
£m
Level 2
£m
Level 1
£m
Level 2
£m
2021
Total
£m
70
–
71
32
82
28
70
–
71
32
–
–
3,485
3,658
3,485
3,768
(74)
–
(5)
(79)
(74)
–
(5)
(79)
–
–
–
–
82
28
–
110
–
–
–
–
2020
Total
£m
80
3
182
172
84
24
80
3
182
172
–
–
796
1,233
796
1,341
(48)
(1)
(8)
(57)
(48)
(1)
(8)
(57)
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
–
–
–
–
84
24
–
108
–
–
–
–
Centrica plc Annual Report and Accounts 2021
219
Company Financial Statements | Notes to the Company Financial Statements continued
IX. Trade and other payables
31 December
Amounts owed to Group undertakings
Accruals and other creditors
2021
2020
Current (i)
£m
(9,044)
(12)
(9,056)
Non-current (ii)
£m
(154)
–
(154)
Current (i)
£m
Non-current (ii)
£m
(6,818)
(25)
(6,843)
(132)
–
(132)
(i) The amounts payable by the Company include £7,658 million (2020: £5,834 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 3% and 4.6% per annum during 2021 (2020: 3.5% and 5.9%). Other amounts payable by the Company are interest free, unsecured and
repayable on demand. Refer to note I for further details.
(ii) The amounts payable by the Company due after more than one year include £141 million (2020: £120 million) that bears interest at the prevailing SONIA rate less 0.05% (prior to May 2020
LIBOR rate less 0.05%). These amounts payable are due in over one year. Other amounts payable by the Company are interest free, unsecured and repayable on demand.
X. Deferred tax
1 January 2020
Charge to income
Credit/(charge) to equity
31 December 2020
Charge to income
Charge to equity
31 December 2021
Retirement benefit
obligation
£m
Other
£m
Total
£m
(4)
(5)
16
7
(7)
(2)
(2)
(7)
(1)
(1)
(9)
(1)
(2)
(12)
(11)
(6)
15
(2)
(8)
(4)
(14)
Other deferred tax liabilities primarily relate to other temporary differences. All deferred tax crystallises in over one year.
XI. Bank overdrafts, loans and other borrowings
31 December
Bank loans and overdrafts
Bonds
Interest accruals
Lease obligations
2021
Current
£m
(453)
(284)
(68)
(5)
(810)
Non-current
£m
(137)
(3,040)
–
–
2020
Current
£m
(489)
–
(82)
(8)
Non-current
£m
(144)
(4,111)
–
(5)
(3,177)
(579)
(4,260)
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.
220
Centrica plc Annual Report and Accounts 2021
XII. 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
1 January
Items included in the Company Income Statement:
Current service cost
Interest on scheme liabilities
Expected return on scheme assets
Termination benefit/(cost)
Items included in the Company Statement of Comprehensive Income:
Actuarial gain/(loss)
Other movements:
Employer contributions
Benefits paid from schemes
31 December
Presented in the Company Balance Sheet as:
31 December
Retirement benefit pension assets
Retirement benefit pension liabilities
The pension scheme liabilities relate to the Centrica Unfunded Pension Scheme.
(d) Analysis of the actuarial losses recognised in reserves
Year ended 31 December
Actuarial (loss)/gain (actual return less expected return on pension scheme assets)
Experience gain/(loss) arising on the scheme liabilities
Changes in assumptions underlying the present value of the schemes’ liabilities
Actuarial gain/(loss) recognised in reserves before adjustment for taxation
Cumulative actuarial losses recognised in reserves at 1 January, before adjustment for taxation
Cumulative actuarial losses recognised in reserves at 31 December, before adjustment for taxation
2021
2020
Pension liabilities
£m
(1,611)
Pension assets
£m
1,583
Pension liabilities
£m
Pension assets
£m
(1,446)
1,492
(7)
(23)
–
4
–
–
26
–
(8)
(31)
–
(10)
261
(250)
(165)
–
48
53
(48)
–
49
–
–
33
–
86
21
(49)
(1,328)
1,364
(1,611)
1,583
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
2021
£m
102
(66)
36
2021
£m
(250)
288
(27)
11
(119)
(108)
2020
£m
38
(66)
(28)
2020
£m
86
(7)
(158)
(79)
(40)
(119)
Centrica plc Annual Report and Accounts 2021
221
Company Financial Statements | Notes to the Company Financial Statements continued
XII. Pensions
(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 2018 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 IAS 19, the Company’s contribution and trustee interest in the Scottish Limited Partnerships are recognised as scheme assets.
The Company estimates that it will pay £3 million of employer contributions during 2022 at an average rate of 22% of pensionable pay together
with contributions via the salary sacrifice arrangement of £1 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
31 December
Equities
Corporate bonds
High-yield debt
Liability matching assets
Property
Cash pending investment
Asset-backed contribution assets
Group pension scheme assets (i)
Company share of the above
Quoted
£m
20
2,393
2,720
1,963
–
85
–
2021
Unquoted
£m
462
31
1,197
1,356
439
–
600
Total
£m
482
2,424
3,917
3,319
439
85
600
Quoted
£m
19
2,649
2,069
2,192
–
38
–
2020
Unquoted
£m
396
–
1,286
1,069
352
–
670
Total
£m
415
2,649
3,355
3,261
352
38
670
7,181
4,085
11,266
6,967
3,773
10,740
2021
£m
1,364
2020
£m
1,583
(i) Total pension scheme assets, including asset-backed contribution assets not recognised in the Group consolidated Financial Statements.
XIII. Commitments
At 31 December 2021, the Company had commitments of £71 million (2020: £58 million) relating to contracts for outsourced services,
£59 million (2020: £nil) relating to the contracts for information services centralised during the year and £5 million (2020: £3 million) relating
to contracts for property services.
The Company has provided guarantees and letters of credit relating to its subsidiaries' trading activities and decommissioning obligations.
At 31 December 2021, the Group has derivative liabilities of £6,009 million (2020: £1,168 million), and decommissioning liabilities of
£1,521 million (2020: £2,408 million). See notes 19 and 21 to the Group consolidated Financial Statements for further information on
these balances.
The Company has also provided guarantees in its role as sponsoring employer for the UK Registered Pension Schemes. These guarantees are
for all present and future obligations of the Group to make payments to those schemes, and are capped at an amount equal to the potential
section 75 (of Pensions Act 1995) debt that would be triggered in relation to the Centrica Engineers Pension Scheme, Centrica Pension Plan
and Centrica Pension Scheme, were a Group employer entity to become insolvent, leave the schemes or cease to have active members,
or on the winding up of the schemes. See note 22 of the Group consolidated Financial Statements for further details on these schemes.
These pension guarantees expired on 1 January 2022.
XIV. 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 £1,161 million (2020: £419 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.
222
Centrica plc Annual Report and Accounts 2021
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 Gaffney, Cline &
Associates 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 fields in the
Norwegian/Statfjord disposal group are Kvitebjørn, Statfjord, Ivar Aasen and Maria. 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)
1 January 2021
Revisions of previous estimates (ii)
Extensions, discoveries and other additions
Production (iii)
31 December 2021
Estimated net 2P reserves of liquids
(million barrels)
1 January 2021
Revisions of previous estimates (ii)
Production (iii)
31 December 2021
Estimated net 2P reserves
(million barrels of oil equivalent)
31 December 2021 (iv)
Spirit Energy –
Norway/Statfjord (i)
Spirit Energy –
retained fields (i)
Rough
220
2
–
(33)
189
353
6
1
(64)
296
45
(3)
–
(16)
26
Total
618
5
1
(113)
511
Spirit Energy –
Norway/Statfjord (i)
Spirit Energy –
retained fields (i)
Rough
Total
69
(6)
(8)
55
5
(2)
(2)
1
–
–
–
–
74
(8)
(10)
56
Spirit Energy –
Norway/Statfjord (i)
Spirit Energy –
retained fields (i)
88
50
Rough
4
Total
142
(i) The movements represent Centrica’s 69% interest in Spirit Energy.
(ii) Revision of previous estimates include those associated with North and South Morecambe, North Sea fields and Norwegian fields.
(iii) Represents total sales volumes of gas and oil produced from the Group’s reserves.
(iv) Includes the total of estimated gas and liquids reserves at 31 December 2021 in million barrels of oil equivalent.
Liquids reserves include oil, condensate and natural gas liquids.
Centrica plc Annual Report and Accounts 2021
223
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Five Year Summary (Unaudited)
Group revenue from continuing operations included in business performance (i)
17,126
16,465
15,958
14,949
18,300
Operating profit/(loss) from continuing operations before exceptional items and
certain re-measurements:
2017 (restated) (i)
(ii)
£m
2018 (restated) (i)
(ii)
£m
2019 (restated)
(ii)
£m
2020 (restated)
(ii)
£m
2021
£m
British Gas Services & Solutions (ii) (iii)
British Gas Energy (ii) (iii)
Centrica Business Solutions (ii) (iii)
Bord Gáis Energy (ii) (iii)
Energy Marketing & Trading (ii) (iii)
Upstream (ii) (iii)
Operating profit from discontinued operations before exceptional items and
certain re-measurements (ii) (iii)
Exceptional items and certain re-measurements after taxation
Profit/(loss) attributable to equity holders of the parent
Earnings per ordinary share
Adjusted earnings per ordinary share
Dividend per share in respect of the year
Assets and liabilities
31 December (restated) (v)
Goodwill and other intangible assets
Other non-current assets (iv)
Net current assets/(liabilities)
Non-current liabilities (iv)
Net assets of disposal groups held for sale
Net assets
Net debt (v) (note 24)
Cash flows
Year ended 31 December (restated) (v)
Cash flow from operating activities before exceptional payments
Payments relating to exceptional charges in operating costs
Net cash flow from investing activities
Cash flow before cash flow from financing activities
151
593
(45)
47
77
256
1,079
161
(407)
328
Pence
5.9
12.5
12.0
2017
£m
4,326
7,190
1,705
101
490
(40)
44
35
567
1,197
195
(416)
183
Pence
3.3
11.2
12.0
2018
£m
4,456
7,435
284
(9,789)
(8,227)
–
3,432
(2,932)
2017
£m
2,016
(176)
32
1,872
–
3,948
(2,946)
2018
£m
2,182
(248)
(1,007)
927
187
117
(20)
50
138
178
650
251
(1,531)
(1,023)
Pence
(17.8)
7.3
1.5
2019
£m
4,033
5,826
(696)
(7,474)
106
1,795
(3,507)
2019
£m
1,548
(298)
(503)
747
191
82
(132)
42
174
90
447
252
(520)
41
Pence
0.7
6.5
–
2020
£m
1,940
4,767
622
(8,072)
2,125
1,382
(2,998)
2020
£m
1,532
(132)
(285)
1,115
121
118
(52)
28
70
663
948
–
866
1,210
Pence
20.7
4.1
–
2021
£m
1,161
6,040
1,465
(6,360)
444
2,750
680
2021
£m
1,687
(76)
2,263
3,874
(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. Earlier periods have not been restated and therefore are not presented on a comparable basis.
(ii) Results have been restated to reflect the new operating structure of the Group. See note 1 for further details.
(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 years ended 2017 and 2018 figures have not been presented in line with IFRS 16: ‘Leases’.
(v) Results have been restated to reflect the change in definition of Net Debt in 2021. See note 24 for further details.
224
Centrica plc Annual Report and Accounts 2021
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 2021 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 232 to 234.
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 2021 in accordance with the terms of our engagement letter dated 7 December 2021. 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 Licenses and Standard Condition 16B of the Electricity Generation Licences (together, the ‘Licences’) and
the basis of preparation on pages 232 to 234.
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 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
in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Emphasis of matter – basis of accounting
We draw attention to pages 232 to 234 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
is not 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
is appropriate.
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
CSS 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
CSS. 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.
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 232 to 234
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
to cease 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 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 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.
Centrica plc Annual Report and Accounts 2021
225
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Ofgem Consolidated Segmental Statement continued
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 policies and
procedures relating to fraud and compliance with laws and regulations. We also enquired of management and internal audit about their own
identification and assessment of the risks of irregularities.
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
material penalty.
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
to address 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.
• Unbilled revenue recognition within the Group’s energy supply businesses. Our audit approach for unbilled revenue involved testing internal
controls and data analytics including recalculating unbilled revenue recorded by the Group’s billing systems.
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
to fraud;
• enquiring of management, internal audit and in-house legal counsel concerning actual and potential litigation and claims, and instances
of non-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 7 December 2021 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 www.centrica.com and within the December 2021 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 £20 million.
The engagement partner on the audit resulting in this independent auditor’s report is Daryl Winstone.
Deloitte LLP
23 February 2022
London
(i) British Gas Trading Limited, British Gas X Limited, Neas Energy Limited, Centrica Brigg Limited, Centrica Distributed Generation Limited, Centrica KPS Limited, Centrica PB 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.
226
Centrica plc Annual Report and Accounts 2021
Introduction
The Ofgem Consolidated Segmental Statement (CSS) and required regulatory information on pages 227 to 236 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 2021, 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 2021 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.
The Centrica plc Annual Report and Accounts 2021 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.
Reporting segments
Activities Included in CSS
Activities Excluded from CSS
Centrica plc
British Gas Energy
UK Domestic Supply
UK Non-domestic supply
(small businesses)
British Gas Services
and Solutions
• British Gas Services
and Solutions
Centrica Business
Solutions
UK Non-Domestic Supply
• Centrica Business
Turbines, engines
and batteries (generation)
Upstream
Nuclear (generation)
Solutions non-generation
• North America
Distributed Energy
• Exploration
& Production
Energy Marketing
& Trading
Thermal (generation)
• Energy Marketing
& Trading non-generation
Bord Gáis
• Irish Energy Supply
and related activities
Centrica plc Annual Report and Accounts 2021
227
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Ofgem Consolidated Segmental Statement continued
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 2021 within the operating segments
shown above. The individual supply and generation licences held in subsidiaries, joint ventures or associates of Centrica plc during 2021
are detailed below:
Licensee
British Gas Trading Limited
British Gas X Limited (i)
Neas Energy Limited (i)
Centrica Brigg Limited
Centrica KPS Limited
Centrica Distributed Generation Limited
Centrica PB Limited (ii)
EDF Energy Nuclear Generation Limited (iii)
Licence
Supply
Supply
Supply
Exempt
Generation
Exempt
Generation
Generation
Ownership
100%
100%
100%
100%
100%
100%
100%
20% Associate
(i) British Gas X Limited and Neas Energy Limited hold supply licences but currently do not supply any UK customers.
(ii) Centrica PB Limited was disposed of by the Group on 31 July 2021.
(iii) The Group holds a 20% investment in Lake Acquisitions Limited which indirectly owns 100% of EDF Energy Nuclear Generation Limited.
228
Centrica plc Annual Report and Accounts 2021
Ofgem consolidated segmental statement
Year ended 31 December 2021
Electricity Generation
Unit
Nuclear
Thermal
Total revenue
Sales of electricity & gas
Other revenue
Total operating costs
Direct fuel costs
Direct costs
Transportation costs
Environmental and social
obligation costs
Other direct costs
Indirect costs
WACOF/E/G
EBITDA
DA
EBIT
Volume
Average customer
numbers/sites
2020 Summarised CSS
Year ended 31 December 2020
Total revenue
EBIT
Aggregate
Generation
Business
602.8
548.7
54.1
Electricity Supply
Gas Supply
Domestic Non-Domestic
Domestic Non-Domestic
3,410.3
3,403.9
6.4
1,872.1
1,872.1
–
3,253.7
3,247.9
5.8
621.9
621.9
–
Aggregate
Supply
Business
9,158.0
9,145.8
12.2
415.5
383.4
32.1
187.3
165.3
22.0
(355.9)
(158.1)
(514.0)
(3,474.2)
(1,902.2)
(2,980.0)
(570.4)
(8,926.8)
(82.7)
(222.7)
(62.4)
–
(160.3)
(50.5)
(10.0)
59.6
(119.1)
(59.5)
8.3
(83.1)
(71.2)
(1.3)
(47.4)
(22.5)
(3.8)
(46.6)
29.2
(11.0)
18.2
2.8
(165.8)
(293.9)
(63.7)
(47.4)
(182.8)
(54.3)
N/A
88.8
(130.1)
(41.3)
N/A
(1,278.1)
(1,784.2)
(812.6)
(1,344.6)
(954.5)
(1,109.5)
(400.6)
(116.3)
(3,835.9)
(3,964.5)
(844.7)
(437.6)
(887.2)
(88.7)
(2,258.2)
(848.0)
(91.5)
(411.9)
(73.9)
(63.9)
(43.0)
(106.9)
17.3
(471.5)
(45.4)
(135.1)
(70.1)
(30.1)
(13.3)
(43.4)
11.6
(134.5)
(87.8)
(525.9)
(47.7)
273.7
(51.5)
222.2
–
(1,454.0)
(27.6)
(53.5)
(66.8)
51.5
(5.4)
46.1
(252.3)
(1,126.4)
N/A
231.2
(113.2)
118.0
N/A
2,818.1
599.6
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£/MWh, P/th
£m
£m
£m
TWh, MThms
‘000s
N/A
N/A
N/A
5,289.5
441.0
6,332.5
178.2
N/A
Supply EBIT
Supply PAT
Supply PAT
margin
£m
margin
(3.1)%
(85.8)
(2.5)%
(2.3)%
(35.1)
(1.9)%
6.8%
178.4
5.5%
7.4%
37.1
6.0%
1.3%
94.6
1.0%
i
F
n
a
n
c
a
i
l
Electricity Generation
Unit
£m
£m
Nuclear
Thermal
511.4
16.0
199.2
10.7
Aggregate
Generation
Business
710.6
26.7
Electricity Supply
Gas Supply
Domestic Non-Domestic
Domestic Non-Domestic
Aggregate
Supply
Business
3,181.9
1,528.7
3,193.3
428.0
8,331.9
15.6
(69.8)
96.2
4.8
46.8
S
t
a
t
e
m
e
n
t
s
Supply EBIT
Supply PAT
Supply PAT
margin
£m
margin
0.5%
12.6
0.4%
(4.6)%
(56.5)
(3.7)%
3.0%
77.9
2.4%
1.1%
3.8
0.9%
0.6%
38.0
0.5%
Centrica plc Annual Report and Accounts 2021
229
Ofgem Consolidated Segmental Statement continued
Glossary of terms
• ‘WACOF/E/G’ is weighted average cost of fuel (nuclear), electricity (supply) and gas (thermal and supply) calculated by dividing direct
fuel costs 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
total revenue.
• ‘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
or supply 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.
230
Centrica plc Annual Report and Accounts 2021
Business functions table
Year ended 31 December 2021 – analysis of business functions (i)
The table below illustrates where the business functions reside.
Operates and maintains generation assets
Responsible for scheduling decisions
Responsible for interactions with the Balancing Market
Responsible for determining hedging policy
Responsible for implementing hedging policy/makes decision to buy and sell energy
Interacts with wider market participants to buy/sell energy
Holds unhedged positions (either short or long)
Procures fuel for generation
Procures allowances for generation
Holds volume risk on positions sold (either internal or external)
Matches own generation with own supply
Forecasts total system demand
Forecasts wholesale price
Forecasts customer demand
Determines retail pricing and marketing strategies
Bears shape risk after initial hedge until market allows full hedge
Bears short-term risk for variance between demand and forecast
Generation
Supply
Another part
of business
–
–
(output)
(demand)
(output)
(demand)
–
–
–
–
–
(bilateral)
(market and
bilateral)
(market and
bilateral) (ii)
–
–
(iv)
–
–
–
–
–
–
(iv)
(ii)
–
–
–
(ii) (iii)
–
(iv)
–
–
–
–
(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:
Function resides and profit/loss recorded in segment.
– Neither function nor profit/loss reside in segment.
Centrica plc Annual Report and Accounts 2021
231
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Ofgem Consolidated Segmental Statement continued
Basis of preparation
The following notes provide a summary of the basis of preparation of the 2021 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 2021,
included in the Centrica plc Annual Report and Accounts 2021 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 note 24 in the Centrica plc Annual Report and
Accounts 2021.
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 seven nuclear power stations (through its indirect investment
in EDF Energy Nuclear Generation Limited). 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;
• the Group had a long-term tolling contract in respect of the Spalding power station, that ended in Q4 2021 but did not specifically hold the
generation licence. This arrangement provided the Group with the right to nominate 100% of the plant capacity in return for a mix of capacity
payments and operating payments. We did not own the power station and the Group did not control the physical dispatch of the asset. This
contractual arrangement has been accounted for as a lease (under IFRS) up until its end date and therefore the financial result and volume for
the year has been included in the Thermal sub-segment, 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, 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
to these 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 2020 CSS with margins has been included within the report. The 2020 CSS
included the revenues and profits associated with the smart meter installation business within Domestic Supply. This amounted to Other
Revenue of £42.0 million and EBIT of £3.5 million for Domestic Electricity Supply and Other Revenue of £34.6 million and EBIT of £7.8 million for
Domestic Gas Supply. The 2021 CSS does not include these revenues and profits because smart meter installation is not deemed to relate to a
licensed supply activity. (Note that this is distinct from smart meter rental or usage costs which are included in Supply in both the 2020 and
2021 CSS.)
Revenues
Revenues, costs and profits of the Licensees have been defined below and prepared in compliance with the Group’s accounting policies
as detailed in notes 2, 3 and S2 of the Centrica plc Annual Report and Accounts 2021, 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 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 within revenue.
232
Centrica plc Annual Report and Accounts 2021
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:
− £6.4 million (2020: £51.1 million) in Domestic Electricity Supply and £5.8 million (2020: £41.7 million) in Domestic Gas Supply primarily
relating to New Housing Connections and, for 2020, smart meter installations;
− £22.0 million (2020: £22.8 million) in Thermal principally relating to Supplementary Balancing Reserve (SBR), Short Term Operating Reserve
(STOR), Triad revenue and Capacity Market income; and
− £32.1 million (2020: £48.6 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
Exchange
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.
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
shown as p/th.
Centrica plc Annual Report and Accounts 2021
233
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Ofgem Consolidated Segmental Statement continued
Basis of preparation
Direct costs
Direct costs for Supply and Generation are broken down into network costs, environmental and social obligation costs and other direct costs.
• Network costs for Supply and Generation include transportation costs, BSUOS and the transport element of RBD costs. Supply
transportation costs include transportation and LNG costs, including £37.5 million (2020: £38.5 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.
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 2021 principally arises from the Group’s interests in the
entities listed on page 228.
Under paragraph 5 of the Conditions, the information provided in the CSS includes our gross share of revenues, costs, profits and volumes
of joint 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
Restructuring costs and impairment charges 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 2021, are excluded from the CSS. For further details
of excluded exceptional items and certain re-measurements see note 7 in the Centrica plc Annual Report and Accounts 2021.
A reconciliation of the Segmental Statement revenue, EBIT and depreciation to the 2021 audited Centrica plc Annual Report and Accounts
has been included in accordance with paragraphs 4(b) & (c)/19A.4 (b) & (c) and 6/19A.6.
234
Centrica plc Annual Report and Accounts 2021
Reconciliation to Centrica plc Annual Report and Accounts
The reconciliation refers to the segmental analysis of the 2021 Centrica plc Annual Report and Accounts in note 4.
Supply segment
Domestic
Non-Domestic
Generation
segment
Electricity
Notes
2021
2021
Gas
2021
Electricity
2021
Gas
2021
Centrica plc Annual Report and Accounts
Segmental Analysis (i)
Segment revenue
Less non-UK and non-Generation/Supply
Segment revenue after non-UK and non-Generation/Supply
Reallocate British Gas Non-Domestic Supply element
Reallocate Centrica Business Solutions Generation element
Add Generation reported in Energy, Marketing & Trading
Segment revenue after non-UK and non-Generation/Supply and reallocation
of Generation element from Centrica Business Solutions and Energy
Marketing & Trading to Upstream
)
m
£
(
e
u
n
e
v
e
R
Electricity and Gas allocation
Include share of JVs and associates
Exclude intra-segment revenues
Ofgem Consolidated Segmental Statement
Centrica plc Annual Report and Accounts
Segmental Analysis (i)
Segment EBIT
Less non-UK and non-Generation/Supply
Segment EBIT after non-UK and non-Generation/Supply
Reallocate British Gas Non-Domestic Supply element
Reallocate Centrica Business Solutions Generation element
)
m
£
(
I
T
B
E
Add Generation reported in Energy, Marketing & Trading
Segment EBIT after non-UK and non-Generation/Supply and reallocation
of Generation element from Centrica Business Solutions and Energy,
Marketing & Trading to Upstream
Electricity and Gas allocation
Exclude share of JVs’ and associates’ interest and tax
Ofgem Consolidated Segmental Statement
Upstream
British Gas Energy
Centrica Business
Solutions
2,282.0
(1,898.7)
383.3
–
33.9
153.4
7,512.6
–
7,512.6
(848.6)
–
–
1,980.8
(301.5)
1,679.3
848.6
(33.9)
–
570.6
6,664.0
2,494.0
–
3,410.3
3,253.7
1,872.1
621.9
332.2
(300.0)
–
–
–
–
–
–
–
–
602.8
3,410.3
3,253.7
1,872.1
621.9
663.5
(701.7)
(38.2)
–
9.4
8.8
118.3
–
118.3
(3.0)
–
–
(51.7)
60.8
9.1
3.0
(9.4)
–
(20.0)
115.3
2.7
–
(106.9)
222.2
(43.4)
46.1
(21.3)
(41.3)
–
–
–
–
(106.9)
222.2
(43.4)
46.1
1
2
2
3
4
5
6
1
2
2
3
4
5
Centrica plc Annual Report and Accounts 2021
235
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Ofgem Consolidated Segmental Statement continued
Reconciliation to Centrica plc Annual Report and Accounts
Generation
segment
Supply segment
Domestic
Non-Domestic
Notes
2021
2021
Electricity
Gas
2021
Electricity
2021
Gas
2021
Centrica plc Annual Report and Accounts
Segmental Analysis (i)
Segment depreciation and amortisation
Less non-UK and non-Generation/Supply
)
m
£
(
n
o
i
t
a
s
i
t
r
o
m
a
d
n
a
i
n
o
i
t
a
c
e
r
p
e
D
Segment depreciation and amortisation after non-UK and non-
Generation/Supply
Reallocate British Gas Non-Domestic Supply element
Reallocate Centrica Business Solutions Generation element
Add Generation reported in Energy, Marketing & Trading
Segment depreciation and amortisation after non-UK and non-
Generation/Supply and reallocation of Generation element from Centrica
Business Solutions and Energy, Marketing & Trading to Upstream
Electricity and Gas allocation
Include share of JVs and associates
Ofgem Consolidated Segmental Statement
Upstream
British Gas Energy
Centrica Business
Solutions
(486.0)
486.0
–
–
(2.5)
(8.5)
(95.5)
–
(95.5)
1.0
–
–
(11.0)
(94.5)
(47.6)
27.4
(20.2)
(1.0)
2.5
–
(18.7)
–
(43.0)
(51.5)
(13.3)
(5.4)
(119.1)
(130.1)
–
–
–
–
(43.0)
(51.5)
(13.3)
(5.4)
1
2
2
3
4
5
(i) The tables reconcile the Generation segment to Upstream, the Domestic Supply segment to British Gas Energy and the Non-Domestic Supply segment to Centrica Business Solutions
from note 4 to the 2021 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. Energy, Marketing & Trading includes Generation activity associated with the Spalding power station.
4. 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 2021, has been split between Electricity and Gas.
5. £332.2 million of revenues relating to the Group’s share of joint ventures and associates in Generation are included in the CSS for Nuclear
revenues. £(124.4) 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: £82.7 million direct fuel costs, £222.7 million direct costs, £32.1 million indirect costs and
£119.1 million depreciation and amortisation are included. Also, note that financing costs and tax of £(21.3) 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 2021 in notes 6 and 14.
6. £300.0 million of intra-segment revenues between the joint ventures and associates and the Generation segment (included in the
£332.2 million of joint venture and associate revenues) are excluded from the CSS.
236
Centrica plc Annual Report and Accounts 2021
Shareholder Information
General enquiries
Centrica’s share register is administered and maintained by Equiniti,
our Registrar, whom you can contact directly if you have any
questions about your shareholding which are not answered here or
on our website. You can contact Equiniti using the following details:
Address: Equiniti, Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA, UK
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
on centrica.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/ar21.
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 provide 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
Telephone: 0371 384 2985*
Outside the UK: +44 (0)121 415 7061
Textphone: 0371 384 2255*
Outside the UK: +44 (0)121 415 7028
Contact: help.shareview.co.uk
Website: equiniti.com
* Calls to an 03 number cost no more than a national rate call to an 01 or 02 number.
Lines open 8.30 am to 5.30 pm, Monday to Friday (UK time), excluding public
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.
If you hold less than 2,500 shares you will be able to change your
registered address or set up a dividend mandate instruction over the
phone; however, for security reasons, if you hold more than 2,500
shares, you will need to put this in writing to Equiniti.
Together with Equiniti, we have introduced an electronic queries
service to enable our shareholders to manage their investment
at a convenient time. Details of this service can be found at
shareview.co.uk
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 please contact:
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.
237
Centrica plc Annual Report and Accounts 2021Other Information Additional Information –
Explanatory Notes (Unaudited)
Definitions and reconciliation of adjusted performance measures
Centrica’s 2021 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. Additional performance
measures are used within this announcement to help explain the performance of the Group and these are defined and reconciled below.
EBITDA
EBITDA is a business performance measure of operating profit, after adjusting for depreciation and amortisation. It provides a performance
measure in its own right, and provides a bridge between the Income Statement and the Group’s key cash metrics.
Year ended 31 December
Continuing group operating profit/(loss)
Exceptional items
Certain re-measurements before taxation
Share of losses/(profits) of joint ventures and associates, net of interest and taxation(i)
Depreciation and impairments of PP&E(i)
Amortisation, write-downs and impairments of intangibles(i)
Continuing EBITDA
Discontinued operations EBITDA
Group total EBITDA
(i) These line items relate to business performance only.
The below table shows how continuing EBITDA reconciles to free cash flow:
Note
I/S
7
7
I/S
4
4
Year ended 31 December
Continuing EBITDA
Group operating profit/(loss) including share of joint ventures and associates,
from exceptional items and certain re-measurements
Share of losses of joint ventures and associates, net of interest and taxation,
from exceptional items and certain re-measurements
Depreciation, amortisation, write downs, impairments and write-backs,
from exceptional items and certain re-measurements
Loss on disposals
Increase in provisions
Cash contributions to defined benefit schemes in excess of than service
cost income statement charge
Employee share scheme costs
Unrealised gains arising from re-measurement of energy contracts
Exceptional charges reflected directly in operating profit
Net movement in working capital
Taxes paid
Payments relating to exceptional charges in operating profit
Net cash flow from continuing operating activities
Purchase of businesses, net of cash acquired
Sale of businesses
Purchase of property, plant and equipment and intangible assets
Sale of property, plant and equipment and intangible assets
Disposal of/(investment in) joint ventures and associates
Dividends received from joint ventures and associates
Receipt of sub-lease capital payments
UK Pension deficit payments
Movements in variation margin and collateral
Free cash flow from continuing operations
238
2021
£m
954
(1,247)
1,241
103
583
216
1,850
–
1,850
Notes
I/S
I/S
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
C/F
4
4
4
2019
£m
(362)
1,593
(784)
(23)
659
253
1,336
299
1,635
2021
£m
1,850
6
–
Change
(38%)
(13%)
2020
£m
1,336
(809)
2
(1,214)
1,305
28
2,434
(388)
12
(1,159)
12
246
(140)
(76)
1,611
(14)
70
(420)
36
2
2
–
368
(481)
1,174
28
46
(42)
34
(666)
49
(204)
(2)
(120)
957
–
43
(489)
–
(10)
62
3
175
(56)
685
Centrica plc Annual Report and Accounts 2021Other Information Definitions and reconciliation of adjusted performance measures
Profit/(loss) on disposals
Year ended 31 December
Loss on disposal
Less: Exceptional loss on disposal
(Profit) on disposals relating to business performance
Notes
C/F
7
2021
£m
28
(31)
(3)
2020
£m
28
(32)
(4)
Group net investment
With an increased focus on cash generation, capital discipline and reducing net debt, 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
Capital expenditure (including small acquisitions)(i)
Net disposals(ii)
Group net investment
Dividends received from joint ventures and associates
Receipt of sub-lease capital payments
Interest received
Sale and settlement of securities
Net cash flow used in continuing investing activities
Notes
C/F
C/F
C/F
C/F
C/F
2021
£m
434
(108)
326
(2)
–
(2)
3
325
2020
£m
489
(33)
456
(62)
(3)
(7)
(121)
263
Change
(29%)
24%
(i) Capital expenditure is the net cash flow on capital expenditure and purchases of businesses (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, net of (disposal 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
Purchase of property, plant and equipment and intangible assets
Purchase of businesses, net of cash acquired
Less: material acquisitions (>£100 million)
Capital expenditure (including small acquisitions)
(b) Net disposals
Year ended 31 December
Sale of businesses
Sale of property, plant and equipment and intangible assets
(Disposal of)/investments in joint ventures and associates
Net disposals
Notes
C/F
C/F
Notes
C/F
C/F
C/F
2021
£m
420
14
–
434
2021
£m
(70)
(36)
(2)
(108)
2020
£m
489
–
–
489
2020
£m
(43)
–
10
(33)
Change
(11%)
Change
227%
239
Centrica plc Annual Report and Accounts 2021Other Information 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 net debt
Year ended 31 December
Free cash flow from continuing operations
Free cash flow from discontinued operations
Group total free cash flow
Financing interest paid(i)
Interest received
UK Pension deficit payments
Proceeds from sale of forfeited share capital/(payments for own shares)
Movements in variation margin and collateral(i)
Cash flows affecting net debt
Discontinued operations non-cash movements in net debt
Continuing Operations non-cash movements in net debt
Change in net debt
Opening net debt
Closing net debt
Notes
4
4
4
C/F
4
C/F
24
24
2021
£m
1,174
2,588
3,762
(233)
2
(368)
1
481
3,645
32
1
3,678
2,998
(680)
(i) Financing interest paid includes £(8) million, and movements in variation margin and collateral includes £45 million, that relates to discontinued operations.
Payments relating to exceptional charges in operating costs
Year ended 31 December
Restructuring costs incurred during the year and utilisation of prior year liabilities
Payments relating to exceptional charges in continuing operating costs
Depreciation, amortisation, write-downs, impairments and write-backs
Year ended 31 December
Movement from depreciation, amortisation, write-downs, impairments and write-backs,
from exceptional items (continuing) included in the Group Cash Flow Statement
Made up of:
(Write-back)/impairment of E&P assets
(Write-back)/impairment of power assets
Impairment of Centrica Business Solutions
Impairment of Centrica Home Solutions
Impairment of property
Movement from depreciation, amortisation, write-downs, impairments and write-backs, from
business performance (continuing) included in the Group Cash Flow Statement
Made up of:
Business Performance PP&E depreciation
Business Performance PP&E impairments
Business Performance intangibles amortisation
Business Performance intangibles impairments and write-downs
Business Performance E&E write-downs
Notes
C/F
Notes
7
7
7
7
7
7
4
4
4
4
4
2021
£m
76
76
2021
£m
(1,214)
(598)
(747)
123
–
8
799
580
3
188
3
25
2020
£m
685
376
1,061
(210)
7
(175)
(30)
101
754
–
(245)
509
3,507
2,998
2020
£m
120
120
2020
£m
1,305
634
506
78
72
15
912
657
2
226
3
24
Movement from depreciation, amortisation, write-downs, impairments and write-backs
(continuing) included in the Group Cash Flow Statement
(415)
2,217
240
Centrica plc Annual Report and Accounts 2021Other Information | Other Information continued Definitions and reconciliation of adjusted performance measures
Reconciliation in receivables and payables to Group Cash flow Statement
Year ended 31 December
Receivables opening balance
Less receivables closing balance
Payables opening balance
Less payables closing balance
Net reduction in receivables and payables
Non-cash changes, and other reconciling items:
Transferred to held for sale and business disposals
Movement related to discontinued operations prior to transfer to held for sale
Movement in capital creditors
Movement in ROCS and emission certificate intangible assets
Other movements (including foreign exchange movements)
Non-cash charges, and other reconciling items
Movement in trade and other receivables, trade and other payables and contract related assets
relating to business performance
Pensions
Year ended 31 December
Cash contributions to defined benefit schemes in excess of service cost income statement charge
Employer contributions
Contributions by employer in respect of employee salary sacrifice arrangements
Total current service cost
Past service credit
Termination benefit/(cost)
Discontinued operations free cash flow
Year ended 31 December
Discontinued operations free cash flow
Movement in variation margin and collateral
Net cash flow from discontinued operating activities
Net cash flow from discontinued investing activities
Notes
B/S
B/S
B/S
B/S
C/F
Notes
C/F
22
22
22
22
22
Notes
4
C/F
C/F
2021
£m
2,946
(6,114)
(3,836)
7,633
629
(29)
–
10
(8)
5
(22)
607
2021
£m
(388)
420
20
(105)
1
52
2021
£m
2,588
–
2,588
–
2,588
2,588
2020
£m
4,993
(2,946)
(5,685)
3,836
198
(281)
(48)
61
(92)
(46)
(406)
(208)
2020
£m
(42)
241
28
(107)
–
(120)
2020
£m
376
45
421
443
(22)
421
241
Centrica plc Annual Report and Accounts 2021Other Information People and Planet –
Performance Measures
In 2021, 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 32, 35, 242 and 244. It is important to read the responsible business information in the Annual Report
and Accounts 2021 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 28 to 37
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(i)
Key: Progress against goals
On track
Behind
Goal
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:
• 47% women
• 14% ethnically diverse
• 15% disability
• 3% LGBTQ+
• 3% ex-service
Milestone
By the end of 2022:
• 30% women
• 13% ethnically diverse
• 4% disability
• 3% LGBTQ+
• 3% ex-service
2021 Progress
All company:(ii)
• 28% women
• 12% ethnically
diverse
• 1% disability
• 2% LGBTQ+
• 2% ex-service
2020 Progress
All company:(ii)
• 28% women
• 13% ethnically
diverse
• 1% disability
• 1% LGBTQ+
• 1% ex-service
Senior leaders:(ii)
Senior leaders:(ii)
• 28% women
• 9% ethnically
diverse
• 1% disability
• 1% LGBTQ+
• 2% ex-service
• 28% women
• 13% ethnically
diverse
• 1% disability
• 1% LGBTQ+
• 1% ex-service
Recruit 3,500 apprentices and provide
career development opportunities for
under-represented groups by 2030
(baseline: 2021)
Inspire colleagues to give 100,000 days
to build inclusive communities by 2030
(baseline: 2019)
Help our customers be net zero by 2050(v)
(baseline: 2019)
Be a net zero business by 2045(vi)
(baseline: 2019)
1,000 apprentices by the end of 2022
600 apprentices
– (iii)
20,000 days by the end of 2022
10,889 days
10,592 days(iv)
28% carbon intensity reduction by the end
of 2030
40% carbon reduction by the end of 2034
18%† reduction
18% reduction
82% reduction
18% reduction
Included in DNV’s independent limited assurance report referenced at the top of this page.
†
(i) Our People & Planet Plan was introduced in 2021 to accelerate action in areas where we can make the greatest difference.
(ii) Ethnicity based on 65% of colleagues in 2020 and 2021, who voluntarily disclosed that they were from a Black, Asian, Mixed/Multiple or other ethnic group across the UK
and North America. Senior leaders include colleagues above general management and spans senior managers, the Centrica Leadership Team and the Board.
(iii) Our apprenticeship goal was introduced in 2021 which means there is no performance for 2020.
(iv) Restated due to availability of improved data.
(v) Net zero goal measures the carbon intensity of our customers’ energy use including electricity and gas with a baseline of 183gCO2e/kWh, normalised to reflect acquisitions and
divestments in line with changes in Group structure and therefore excludes Direct Energy. Target aligned to the Paris Accord and based on science, corresponding to a well
below 2°C pathway initially and 1.5°C by mid-century.
(vi) Net zero goal measures scope 1 (direct) and 2 (indirect) greenhouse gas emissions based on operator boundary which excludes Spirit Energy and Nuclear emissions, and is
normalised to reflect acquisitions and divestments in line with changes in Group structure and therefore excludes Direct Energy, against a baseline of 1,146,601mtCO2e.
Target aligned to the Paris Accord and based on science.
242
Centrica plc Annual Report and Accounts 2021Other Information
Progress against our Foundations
People
Metric
2021
2020
What’s next
Customers
Brand net promoter
score (NPS)(i)
Complaints per 100,000
customers(i)
Vulnerable customers helped
through the UK Warm Home
Discount scheme
Customer safety incident
frequency rate per 1,000,000
jobs completed
+13.0(ii)
4,929(iv)
+8.7(iii)
3,040(v)
535,866
561,065(vi)
Continue to deliver new services and solutions that help our customers
live sustainably, simply and affordably
Maintain focus on driving down complaints by improving customer
experience
Ensure customers in vulnerable circumstances receive the help they need
to stay warm, safe and debt-free
3.03
3.85
Consistently follow existing controls as well as encourage customers
to maintain distance from work areas
(i) Measure linked to Executive Director remuneration arrangements. See pages 76 and 78 for more information. Direct Energy is now classified as a discontinued operation and
has been excluded from 2020 performance.
(ii) Aggregated scores across British Gas +11.6, Hive +39.0, Bord Gáis Energy +23.0, and weighted by customer numbers.
(iii) Aggregated scores across British Gas +7.7, Hive +40.0, Bord Gáis Energy -5.0, and weighted by customer numbers.
(iv) Aggregated scores across British Gas Energy 7,260 as reported to Ofgem, British Gas Services and Solutions 3,428 as reported to the FCA, Bord Gáis Energy 509 as reported
to the Commission for Regulation of Utilities, Water and Energy (CRU), and Centrica Business Solutions 102, and weighted by customer accounts.
(v) Aggregated scores across British Gas Energy 6,916 as reported to Ofgem, British Gas Services and Solutions 3,563 as reported to the FCA, Bord Gáis Energy 513 as reported
to the Commission for Regulation of Utilities, Water and Energy (CRU) and Centrica Business Solutions 90, and weighted by customer accounts.
(vi) Restated due to availability of improved data.
Metric
2021
2020
What’s next
Colleagues
Colleague engagement(i) (ii)
55% favourable
41% favourable
Gender pay gap(iii)
30% median
35% median
Gender bonus gap(iv)
Ethnicity pay gap(iii) (v)
Ethnicity bonus gap(iv) (v)
Retention
20% mean
10% median
31% mean
13% median
0% mean
12% median
4% mean
72%
21% mean
5% median
26% mean
14% median
8% mean
16% median
14% mean
85%
Total recordable injury
frequency rate (TRIFR) per
200,000 hours worked(i)
Lost time incident frequency
rate (LTIFR) per 200,000 hours
worked
Process safety incident
frequency rate (Tier 1 and 2)
per 200,000 hours worked(i)
Significant process safety
events (Tier 1)
Fatalities
1.07
0.72
0.20
0
0
1.04
0.72
0.00
0
0
Strive to achieve 70% by the end of 2023 by improving colleague
experience, including connecting colleagues with our purpose and
supporting them to perform at their best
Drive action through our People & Planet Plan to create an engaged team
that reflects the full diversity of the communities we serve
Improve retention through our focus on talent development whilst
providing a supportive and inclusive culture
Drive down TRIFR and LTIFR by keeping safety front-of-mind and
reinforcing a strong safety culture whilst advancing controls and
monitoring
Continue to ensure robust operational controls and operator
competencies, timely safety-critical maintenance programmes and
effective performance management
Maintain zero fatalities
(i) Measure linked to Executive Director remuneration arrangements. See pages 76 and 78 for more information. Direct Energy is now classified as a discontinued operation
and has been excluded from 2020 performance.
(ii) Measured through responses to annual survey asking colleagues to rate their level of advocacy, pride, loyalty and satisfaction.
(iii) Based on hourly rates of pay for all employees at full pay (including bonus and allowances) at the snapshot dates of 5 April 2020 and 2021. Read our Gender and Ethnicity
Pay Statement to find out more at centrica.com/paygap.
(iv) 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.
(v) Based on 65% of colleagues who confirmed whether they are from a Black, Asian, Mixed/Multiple or other ethnic group.
243
Centrica plc Annual Report and Accounts 2021Other Information Other Information | People and Planet – Performance Measures continued
Metric
Communities
Total community
contributions
Average sustainability risk
score (score out of 100)(iii)
Ethnical site inspections
undertaken for higher risk
suppliers
Colleagues committed
to Our Code
2021
2020
What’s next
£305.82 million(i)
£217.02 million(ii)
68 (low risk)
54 (low risk)
7
98%
5
96%
Help create more inclusive communities and grow colleague
engagement via local charity activity and partnerships including
the Trussell Trust, British Gas Energy Trust and Focus Ireland
Continue to monitor and raise standards across our supply chain
to reduce risk, focusing on enhanced engagement and controls
Ensure all colleagues uphold Our Code as part of our commitment
to doing the right thing and acting with integrity
(i) Comprises £304.82 million in mandatory and £0.04 million in voluntary contributions to support vulnerable customers, alongside £0.96 million in charitable donations which
includes £0.21 million in contributions from third parties such as colleague fundraising.
(ii) Comprises £213.61 million in mandatory and £0.49 million in voluntary contributions to support vulnerable customers, alongside £2.93 million in charitable donations which
includes £0.29 million in contributions from third parties such as colleague fundraising. Sum of constituent parts exceed total due to rounding. Restated due to availability
of improved data.
(iii) A score near 100 is low risk. High-risk companies have limited or no tangible actions on sustainability, medium-risk companies take partial tangible action on selected
sustainability issues, low-risk companies have a structured sustainability approach with policies and action to manage major sustainability issues while lowest-risk
companies have strong sustainability credentials and reporting embedded across their business.
Planet
Metric
Carbon
Total carbon emissions
(scope 1 and 2)(i)
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions(viii)
Total carbon intensity
by revenue(ix)
2021
2020
What’s next
226,904tCO2e†(ii)
989,546tCO2e(iii)(iv)(v)
222,064tCO2e†
4,840tCO2e†(vi)
23,097,452tCO2e
15tCO2e/£m(x)
982,469tCO2e(iv)(v)
7,077tCO2e(iv)(v)(vii)
116,947,439tCO2e(iv)
41tCO2e/£m(iv)(xi)
Measure and reduce our emissions and those of our customers
through our People & Planet Plan, whereby we aim to be a net zero
business by 2045 and help our customers be net zero by 2050
Continue to analyse the impact of our strategy on decoupling
carbon from value creation
Total energy use
1,142,249,379kWh†(xii)
5,165,166,409kWh†(iv)(v)(xiii) Remain focused on energy efficiency as we strive to be a net zero
business by 2045
Water, waste and
non-compliance
Total water use
Total waste generated
Environmental
non-compliance(xiv)
66,762m3
12,756 tonnes
6
174,979m3(iv)
14,557 tonnes(iv)
6(iv)
Effectively monitor, manage and reduce our water use and
waste production, as well as our incidence of environmental
non-compliance
Included in DNV’s independent limited assurance report. See page 242 or centrica.com/assurance for more.
†
(i) Comprises scope 1 and scope 2 emissions as defined by the Greenhouse Gas Protocol.
(ii) Comprises UK 162,460tCO2e and non-UK 64,444tCO2e.
(iii) Comprises UK 203,955tCO2e and non-UK 785,590tCO2e.
(iv) Restated due to changes in methodology following a move from equity to operational control to align with the more commonly used organisational boundary approach set out by
the WRI/WBCSD Greenhouse Gas Protocol and means that Spirit Energy and Nuclear are not included, whilst scope 2 has moved to a market-based approach to better reflect
our decisions on where we source imported power.
(v) Previous figures included in DNV’s limited assurance scope for the Annual Report 2020 was 1,925,747tCO2e for total carbon emissions, 1,885,449tCO2e for scope 1,
40,299tCO2e for scope 2 and 8,331,421,261kWh for total energy use.
(vi) Location-based 10,352tCO2e.
(vii) Location-based 13,687tCO2e.
(viii) 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.
(ix) 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. Metric based on statutory revenue.
(x) Comprises UK 15tCO2e/£m and non-UK 17tCO2e/£m.
(xi) Comprises UK 21tCO2e/£m and non-UK 54tCO2e/£m.
(xii) Comprises UK & Offshore 739,687,327kWh and non-UK energy use 402,562,052kWh.
(xiii) Comprises UK & Offshore 866,199,955kWh and non-UK energy use 4,298,966,454kWh.
(xiv) Includes breaches of environmental authorisation including permit, licence and consent coupled with wider environmental legislation where we are either required to notify the
regulator or where an authority or regulator is involved. The majority of incidents relate to offshore activities.
244
Centrica plc Annual Report and Accounts 2021Other Information Glossary
$
Refers to US dollars unless specified otherwise
2P reserves
Proven and probable reserves
Acas
AGM
AIP
bcf
CHP
CO2e
CPI
CSS
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
Annual General Meeting
Annual Incentive Plan
Billion cubic feet
Combined heat and power
Universal unit of measurement of the global warming potential
(GWP) of greenhouse gases (GHG) expressed in terms of the
GWP of one unit of CO2e (carbon dioxide equivalent)
Consumer Price Index
Consolidated Segmental Statement
CUPS DB
CUPS DC
Data analytics
Centrica Unfunded Pension Scheme defined benefit
Centrica Unfunded Pension Scheme defined contribution
The process of examining data sets to draw conclusions
and insights about the information they contain
DEEPAC
EBITDA
Direct Energy Employee Political Action Committee
Earnings before interest, tax, depreciation and amortisation
EBT
EP
EPS
ESG
EU
FCA
FCF
FRS
GDPR
GMB
GPS
Employee Benefit Trust
Economic profit
Earnings per share
Environmental, Social & Governance
European Union
Financial Conduct Authority
Free cash flow
Financial Reporting Standards
General Data Protection Regulation
Trade union
Global Positioning System
LNG
LTIFR
mmboe
MThms
MSA
Net zero
NGO
NPS
Ofgem
Liquefied natural gas
Lost time injury frequency rate
Million barrels of oil equivalent
Million therms
Modern Slavery Act 2015
The point at which there is a balance between human-related carbon
dioxide (CO2) being emitted into the atmosphere and those taken out
Non-governmental organisation
Net promoter score
The government regulator for gas and electricity markets in
Great Britain
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
ppt
Property, Plant and Equipment
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
PRT
PWR
RBD
ROC
RPI
SASB
SAYE
SESC
SIP
tCO2e
T&Cs
TCFD
Prudential Regulatory Authority
Petroleum Revenue Tax
Pressurised water reactor
Reconciliation by difference
Renewable Obligation Certificate
Retail Price Index
Sustainability Accounting Standards Board
Save As You Earn
Safety, Environment and Sustainability Committee
Share Incentive Plan
Tonnes of carbon dioxide equivalent
Terms and Conditions
Task Force on Climate-related Financial Disclosures
The Company Centrica plc
Green jobs
Jobs that have a direct positive impact on the planet
The Group
Centrica plc and all of its subsidiary entities
GW
GWh
HSES
IAS
IFRS
KPI
kWh
Gigawatt
Gigawatt hours
Health, Safety, and Environmental Services
International Accounting Standards
International Financial Reporting Standards
Key performance indicators
Kilowatt hour
LGBTQ+
Lesbian, Gay, Bisexual, and Trans plus. The ‘plus’ is inclusive of other
groups such as asexual, intersex and questioning
TRIFR
TSR
TWh
UAOCF
VIU
WBCSD
WRI
Total recordable injury frequency rate
Total shareholder return
Terawatt hour
Underlying adjusted operating cash flow
Value in use
World Business Council for Sustainable Development
World Resources Institute
Designed and produced by
www.salterbaxter.com
This report is printed on recycled silk papers made from 100%
pre and post-consumer waste. The paper mills are based in
the European Union and manufacture papers independently
audited and certified by the Forest Stewardship Council® (FSC®)
and accredited to the Environmental Management System 14001.
The paper is carbon balanced. Balancing is delivered by World
Land Trust, an international conservation charity, who offset carbon
emissions through the purchase and preservation of high
conservation value land.
Through protecting standing forests, under threat of clearance,
carbon is locked in that would otherwise be released. These
protected forests are then able to continue absorbing carbon from
the atmosphere, referred to as REDD (Reduced Emissions from
Deforestation and forest Degradation). This is now recognised as
one of the most cost-effective and swiftest ways to arrest the rise in
atmospheric CO2 and global warming effects. Additional to the
carbon benefits is the flora and fauna this land preserves, including
a number of species identified at risk of extinction on the IUCN Red
List of Threatened Species.
Printed by Pureprint Group ISO14001, FSC® certified
and CarbonNeutral®.
CBP00019082504183028
Disclaimer
This Annual Report does not constitute an invitation to underwrite, subscribe for,
or otherwise 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’, ‘project’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’, ‘expect’, ‘forecasts’, ‘may’, ‘could’,
‘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.
Centrica plc
Registered office:
Millstream
Maidenhead Road
Windsor
Berkshire
SL4 5GD
Company registered
in England and Wales
No. 3033654
centrica.com
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
2
1
C
e
n
t
r
i
c
a
p
l
c