INSIDE THIS REPORT
Strategic Report
Governance
1
2
4
6
9
Group Highlights
Centrica At A Glance
Chair’s Statement
Group Chief Executive’s Statement
Our Purpose, Culture and Values
10 Business Model and Strategic Framework
12 Market Trends
13 Macro Trends
57
59
64
72
79
82
Directors’ and Corporate
Governance Report
Board of Directors
Corporate Governance Statement
Income
– Audit and Risk Committee
– Nominations Committee
– Safety, Environment and Sustainability
Committee
14 Our Stakeholders and s172 statement
84
– Remuneration Report
18 Group Chief Financial Officer’s Report
110 Other Statutory Information
22 Our View on Taxation
23 Business Review
26 Key Performance Indicators
28 Our Principal Risks and Uncertainties
35 Assessment of Viability
38 Group Chief People Officer’s Report
41 People and Planet
46
47
– Non-Financial and Sustainability
Information Statement
– Task Force on Climate-Related Financial
Disclosures
READ MORE ABOUT
Financial Statements
114
Independent Auditor’s Report
127 Group Income Statement
128 Group Statement of Comprehensive
129 Group Statement of Changes in Equity
130 Group Balance Sheet
131 Group Cash Flow Statement
132 Notes to the Financial Statements
229 Company Financial Statements
241 Gas and Liquids Reserves (Unaudited)
242
Five Year Summary (Unaudited)
Other Information
243 Shareholder Information
244 Additional Information
– Explanatory Notes (Unaudited)
249 People and Planet
– Performance Measures
252 Glossary
OUR COMPANY
READ MORE ON
PAGES 4 to 5
OUR PROGRESS
IN 2023
READ MORE ON
PAGES 6 to 8
OUR FINANCIAL
PERFORMANCE
READ MORE ON
PAGES 18 to 21
OUR PEOPLE
OUR GOVERNANCE
READ MORE ON
PAGES 38 to 40
READ MORE ON
PAGES 57 to 58
Unless otherwise stated, all references to the Company shall mean Centrica plc (registered in England
and Wales No. 3033654); and references to the Group shall mean Centrica plc and all of its subsidiary
undertakings and equity-accounted associate/joint venture undertakings; 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 18 to 21. See also notes 2, 4 and 10 to the Financial Statements on pages 134 to 135, 143 to 149
and 160 for further details of these adjusted performance measures. In addition see pages 244 to 248
for an explanation and reconciliation of other adjusted performance measures used within the
document. This Annual Report and Accounts does not offer investment advice, and does contain
forward-looking statements. The Disclaimer relating to this Annual Report and Accounts is included on
page 253.
WWW.CENTRICA.COM
GROUP HIGHLIGHTS
We reported another strong financial result in 2023,
against a backdrop of continued elevated commodity
prices and volatility for much of the year. We’ve also
been focused on improving colleague engagement
and operational performance, resulting in improved
customer outcomes as we look to underpin customer
retention, growth and long-term profit sustainability.
GROUP OPERATIONAL METRICS
GROUP FINANCIAL METRICS (YEAR ENDED 31 DECEMBER 2023)
British Gas Services & Solutions – Services
Engineer Net Promoter Score (NPS)(1)
2023
2022
Total recordable injury frequency rate
(per 200,000 hours worked)
2023
2022
£6,512m
2022
£(240)m
£2,752m
2022
£3,308m(5)
Group statutory operating profit/(loss)
Group adjusted operating profit
70.6p
2022
(13.3)p
33.4p
Group statutory basic EPS
Group adjusted basic EPS
2022
34.9p(5)
Colleague engagement(2)
2023
2022
£2,752m
Group statutory net cash flow from
operating activities
2022
£1,314m
£2,207m
Group free cash flow from continuing
operations
2022
£2,487m
Total greenhouse gas emissions (tCO2e)(3)
2023
2022
†
(4)
£2,744m
2022
£1,199m
4.0p
Adjusted net cash
Full year dividend per share
2022
3.0p
† Included in DNV Business Assurance Services UK Limited (DNV)’s independent limited
assurance engagement. See page 249 or centrica.com/assurance for more.
(1) Measured independently, through individual questionnaires, the customer’s willingness
to recommend British Gas following a gas engineer visit.
(2) Colleague engagement methodology has changed from percentage favourable to an
average score out of 10, measuring how colleagues feel about the Company.
(3) Comprises scope 1 and 2 emissions as defined by the Greenhouse Gas Protocol.
(4) Restated due to availability of improved data.
(5) 2022 comparator as reported. Excluding disposed Spirit Energy Norway assets 2022,
adjusted operating profit was £2,823m and adjusted EPS was 34.2p.
Strategic report | Centrica plc Annual Report and Accounts 2023
1
+71+640.841.127.77.41,681,4752,009,885 CENTRICA AT A GLANCE
We are unique amongst energy companies in the
UK and Ireland, operating across the energy value
chain through our distinct, but complementary
businesses. Our Purpose is to energise a greener,
fairer future as we journey towards net zero for our
customers and Centrica.
OUR PURPOSE,
CULTURE AND
VALUES
Our Purpose is – ‘energising
a greener, fairer future’. Our
culture and values remain
firmly embedded in who we
are and guide everything
we do.
READ MORE ON PAGE 9
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Governance | Centrica plc Annual Report and Accounts 2023
OUR STRATEGY
AND BUSINESS
MODEL
RETAIL
Focused on providing
leading customer service
and experience, helping
customers to save money
and decarbonise through
innovative offerings.
OPTIMISATION
Supporting the responsible
buying and selling of
energy, managing risk
across our business and
accessing value from green
generation in our trading
business while continuing
to build out the flexibility
required for the future
energy system.
INFRASTRUCTURE
Investing to build a low
carbon, reliable energy
system including power
generating renewables,
flexible peaking generation
and energy storage
through batteries and
geological storage.
READ MORE ON PAGE 10
WHAT SETS CENTRICA APART AS AN
INVESTMENT OPPORTUNITY?
Centrica is a uniquely
integrated energy company
operating primarily in the UK
and Ireland. We aim to deliver
long-term value for investors
by driving and leading the
energy transition through our
distinct, but complementary
businesses.
21,000
7,000
Colleagues worldwide
Engineers
7,200
Volunteering days
Top 50
Ranked in The Times Top
50 Employers for Gender
Equality
13.0GW
Route to market for
renewables under our
management
RETAIL
(1)
British Gas has been supplying energy to British
homes and businesses for over 200 years.
In British Gas Energy, we are strengthening our
operations to drive innovation, retention and better
customer outcomes, to underpin long-term profit
sustainability.
Energy supply, services and solutions for residential
and business customers in the Republic of Ireland.
Bord Gáis Energy is creating value from its
integrated model, investing in the future energy
system to help underpin energy security and
decarbonisation in Ireland.
Our team of around 7,000 engineers provide
customers with repairs, home improvements,
maintenance and heating installations.
British Gas Services & Solutions has
significantly improved operations in service and
repair, whilst driving growth in on-demand and
heating installs.
OPTIMISATION
INFRASTRUCTURE
(1)
A global energy trading
company which helps move
energy from source to use,
and managing energy
procurement & risk.
Centrica Energy
strengthened its portfolio
in 2023, delivering a 3%
increase in renewable assets
under management to
13.0GW.
Energy supply and low
carbon solutions for
businesses, building and
operating a portfolio of
flexible assets.
Centrica Business
Solutions is focused on
customer service and
delivering improved margins
in energy supply while
building out its asset
portfolio.
Oil and gas production from
existing UK assets fuelling
homes and business across
the UK and Europe.
Spirit Energy was awarded
a carbon storage licence for
Morecambe Bay, which has
the potential to be one of the
UK’s largest carbon storage
hubs.
A 20% interest in the UK’s
portfolio of existing nuclear
power stations.
In Centrica Nuclear,
we extended the lives of
existing nuclear power
stations in 2022 and
are exploring further
investment in Nuclear
generation.
The owner and operator of
Rough, the UK's largest gas
storage facility, helping
manage seasonal demand
and energy security.
Centrica Energy Storage+
has increased the capacity
at Rough to 54bcf and
continues to explore its role
in the future of hydrogen.
(1) Included within Retail and Infrastructure. Read more on page 10.
SUPPORTING COMMUNITIES, OUR PLANET AND EACH OTHER
Our People & Planet Plan aims to create a more inclusive and sustainable future – from being a net zero
business by 2045 and helping our customers be net zero by 2050, to creating the diverse and inclusive
team we need to get there and contributing to the communities we’re all part of.
READ MORE ABOUT OUR PEOPLE & PLANET PLAN ON PAGE 41
READ MORE ABOUT OUR APPROACH AND OUR JOURNEY TO NET ZERO AT CENTRICA.COM/PEOPLEANDPLANET
Strategic report | Centrica plc Annual Report and Accounts 2023
3
CHAIR’S STATEMENT
shareholders. Our performance has allowed
us to resume and grow our dividend, whilst
remaining prudent, and we have also returned
capital to shareholders through our share
repurchases. These actions reflect the Board’s
confidence in the strength of Centrica and its
ability to deliver.
OUR SUPPORT FOR CUSTOMERS
Our performance matters to our shareholders
– including those thousands of private retail
shareholders of whom many were the original
‘Sids’ who bought shares during the
privatisation of British Gas in the 1980s. It also
matters to our customers. It is only because
we are in such a strong, resilient position
that we can go above and beyond for our
customers.
In 2023 we brought our total commitment to
helping customers since the start of 2022 to
£140 million, we hired 700 more UK-based
colleagues to support customers over winter
and into the future, and net promoter scores in
our Retail businesses have been improving.
The way the price cap is structured means
that if customers don’t pay their bills, costs are
added to the bills of all other customers. We
will continue to strive to find the right balance
between supporting those in difficulty whilst
keeping bills as low as possible for all our
customers.
This work shows leadership and it is
something we can be proud of. Leadership
also means responding responsibly when
something goes wrong.
Early in 2023 it was brought to our attention
that the supplier we worked with to install
prepayment meters under warrant had, in
some instances, not been showing our
customers empathy and respect. This is a
complex area, and the business took swift
action to investigate and report publicly on the
findings.
Our in-depth investigation highlighted some
issues in the installation of prepayment
meters. However, whilst these were not
systemic, we take the view that even one
failure, is one too many. Chris O’Shea and his
team showed leadership and humility in
investigating the issues and putting them right.
Centrica takes pride in the fact that we do
more to support customers that are in financial
difficulties than anyone else in the markets we
serve and we will always strive to do the right
thing by our customers.
Scott Wheway | Chair
Centrica occupies a unique place in the energy
market. It is a place I am very proud that we
occupy. We are a lynchpin of stability in a market
that for the last few years has been in turmoil.
This instability in energy markets has largely
been caused by global conflicts, and these
conflicts look set to continue. Whilst we
cannot control this, we are acutely aware of
the impact that price fluctuations have on all
our customers.
While other suppliers in the UK have collapsed
due to the volatility and uncertainty in the
market, we have not only stepped in to
support their customers but actually improved
our resilience and business model to ensure
we can be there for all of our customers, old
and new. You can read more about this in the
‘Business Model’ section on page 10.
It is this resilience that means we can add
value across the entire energy value chain. We
are integrated in a way that differentiates us
from our competitors. This is important in
itself; our business model is built on each part
of Centrica supporting the others, but it has
also been important for ensuring we can
support those who are struggling most during
the crisis. I am very pleased with what we
have achieved in 2023.
OUR PERFORMANCE
When I became Chair of the Board in 2020
the business was in a very different position.
Over the last few years, we have been going
through a turnaround process and can now
say the vast majority of that is complete. We
can see the impact of the turnaround in the
strong performance of the business.
I believe people have started to appreciate the
quality of the Company we have here. We
have a resilient balance sheet, good or
improving returns across business units, and
we have a clear plan for the future. We have
shown that the way our business fits together
really compounds the overall value of it.
A strong Centrica is vital for the customers
who rely on us every day and is good for our
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Strategic report | Centrica plc Annual Report and Accounts 2023
Towards the end of the year, we were also
very pleased to announce the appointments of
Jo Harlow and Sue Whalley as Non-Executive
Directors. They bring an exciting mix of
experience to our Board, and I know their
contribution to the Remuneration Committee
and Nominations Committee will be highly
valued.
Thank you to all colleagues across Centrica for
your contribution in 2023.
SUMMARY
This year Centrica has taken significant steps
forward on performance, on delivering the
things that people care about and on showing
where our future lies. We are never satisfied
and there is still work to do, but I hope our
stakeholders across society can see a
company that cares about what it does and
makes a significant contribution to the UK’s
energy system.
I am confident that our capabilities, our
resilience, and our determination will deliver
great things in 2024, and I look forward to
reporting on our progress next year.
Scott Wheway, Chair
14 February 2024
OUR CONTRIBUTION TO ENERGY
SECURITY
Security of supply has climbed in importance
over the last two years and is likely to remain
important as long as global conflicts continue.
Our performance has meant we could take a
leading role in this area. I know the team at
Centrica are hugely proud of the contribution
we’ve made to energy security in the UK
and Ireland.
Over 2023 we’ve expanded the capacity of
the Rough storage field, improving the UK’s
gas storage levels. However, the capacity of
the storage field at Rough is unlikely to be
expanded further without the certainty of a
regulatory model that would underpin a very
significant investment for the future. Our
colleagues in Centrica Energy have also
played a pivotal role in securing Liquified
Natural Gas (LNG) through multi-billion-dollar
deals, including a new deal with Delfin
Midstream in the US that will enhance energy
security for the customers we serve.
OUR FUTURE
Alongside our Interim Results in July 2023,
Chris and the Centrica Leadership Team
presented our new, Green Focused
Investment Strategy. We announced that
Centrica intends to invest between £600m
and £800m a year over the next five years
primarily in security of supply and flexibility,
renewable generation, and our customers. We
also gave guidance on our expected range of
annual operating profit in our Retail and
Optimisation businesses and provided clarity
on a new financial framework, including our
progressive dividend policy.
Centrica’s direction was already clear to our
investors and our wider stakeholders, but the
July update provided a clear overview of the
approach Centrica will take in the future. I’m
glad the update was received positively by the
market.
I am excited to see what Centrica can
accomplish in the coming years and I want to
take this opportunity to assure our
shareholders that your Board will be prudent
custodians of your money.
OUR SUPPORT FOR NET ZERO
Our Green Focused Investment Strategy will
also mean that Centrica is playing its part to
underpin the energy transition.
We are unequivocal in our support for net
zero. We believe it is an opportunity for the UK
and Ireland and we will continue to feed into
live discussions with our valuable experience
of energy markets. Gas is likely to continue to
be a transition fuel for some time, and your
Board is acutely aware that we have a
responsibility to ensure that energy is
affordable for everyone through the transition.
Last year I said that to meet net zero a
combination of technologies will be required,
and that these technologies would create
opportunities for companies with strong
balance sheets, flexible business models and
detailed knowledge of markets. This year, it is
my belief that we have cemented our position
as one of those companies.
We are one of the largest heat pump installers
in the UK’s emerging heat pump market, we
are leading on hydrogen innovation across the
UK and Ireland, and our strategy shows the
scale of our ambitions in renewables. Our
commitment is not merely words, it can be
seen in our actions.
OUR COLLEAGUES
None of this would be possible without the
fantastic work of our colleagues. It is a great
source of pride for me that Centrica continues
to grow and that we continue to show
leadership in the areas people care about,
such as our Carers Leave Policy.
Over the course of 2023 we have seen the
engagement of our colleagues increase, no
doubt due to the supportive culture that Chris
and Centrica’s Leadership Team have
nurtured in the business. I was also very
happy to see the continuation of our Shadow
Board initiative. It is absolutely right that a
representative group of our colleagues should
have the opportunity to share their views on
the management decisions that impact them.
Of course, we have also welcomed new
employees to the business this year and I
welcome all of them, not least the 700
permanent employees that were hired in time
to support our customers over the winter. I am
also delighted to welcome Russell O’Brien to
Centrica on his appointment as Group Chief
Financial Officer and Executive Director in
March 2023, and Philippe Boisseau who was
appointed to the Board as a Non-Executive
Director in September 2023.
Strategic report | Centrica plc Annual Report and Accounts 2023
5
GROUP CHIEF EXECUTIVE’S
STATEMENT
when installing prepayment meters under
warrant. We immediately apologised, we
suspended the installation of prepayment
meters under warrant, and we launched an
investigation overseen by an independent third
party. Whilst our investigation found no wide-
ranging problems with our systems and
processes, it did highlight some isolated
instances that fell short of the high standards
of behaviour that we expect when engaging
with customers. As a result, we have brought
all such activity ‘in house’ (as opposed to
using contractors) and have spent the past
year ensuring our policies, procedures and
practices are updated and that our colleagues
are fully trained in these areas. We also
contributed to the development of new
industry rules to protect vulnerable customers.
At the time of writing, we have not yet
restarted the installation of prepayment meters
under warrant. However, we may choose to
do so in the future, as, done properly, they are
an effective tool both in helping customers
manage their costs and in helping energy
companies manage bad debts, which is even
more important as people struggle with the
cost of living. This is important because under
the price cap, those who pay for their energy
ultimately end up paying for those who
choose not to pay, and we don’t think
that’s right.
However, we are not sitting on our hands
waiting for others to solve the problem of
people who can’t pay for their energy. We
have taken decisive steps to support
consumers who are facing hardship and
we’ve done more than any other UK energy
company. Since 2022, we have committed
£140 million to support customers struggling
with their energy bills in the UK and Ireland,
which is on top of around £400 million of
contributions we are required to make each
year. It is a huge amount of money but our
customers are at the heart of everything we
do, and we must support them when they’re
in need. Unfortunately it cannot address all of
the issues our customers face today because
these are not limited to energy costs – people
are struggling to pay their mortgage or rent,
their council tax, their food costs, and so
much more. This is a societal issue which
requires a societal response.
We have been vocal in our calls for regulatory
reform, both in terms of how energy
companies are made more robust to avoid
failures in the future, and in terms of how we
can have a system which is fairer for
consumers.
Chris O’Shea | Group Chief Executive
I am increasingly coming to the conclusion that the
speed with which things seem to change is now
simply indicative of the world we live in. The news
cycle has shortened, the urgency with which things
need to happen has increased, and the pace at
which we are moving in our quest to make your
Company the best is as fast as I’ve seen it in my
five and a half years at Centrica.
Despite that pace of change, I stand by the
statement I made in last year’s report. I said:
“ My belief is that climate change is the
biggest single threat facing civilisation
today, and net zero is the biggest single
opportunity we have at Centrica.
Climate change is real, it’s here, and
it’s impacting lives across the planet.
Transforming how we generate, store
and use energy can make a huge
difference to reducing the warming of
our planet. Longer term, if the net zero
transition is thoughtful and targeted,
it can keep prices stable for customers
and drive economic growth, especially
for those companies and countries at
the forefront of the transition.”
As I write at the end of 2023, I am even more
convinced that this is the case. Your
Company is incredibly well placed to both
drive forward, and benefit from, the energy
transition. This will require a relentless focus on
performance and continuous improvement,
and disciplined but bold capital allocation to
ensure we have a portfolio of investments
across a mix of technologies. We have a lot to
play for.
I believe we get more right than we get wrong,
but the real test of character is how you
respond when things go wrong. It’s my view
that we need to put things right when this
happens, and we need to learn from our
experience.
Sadly, we saw an example of getting it wrong
early in 2023 when a report highlighted some
of our contractors were not treating our
customers with the respect they deserved
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Strategic report | Centrica plc Annual Report and Accounts 2023
For consumers, we believe that the standing
charge for gas and electricity where people
pay a fixed fee to cover things like network
costs (roughly £300 each year) should be
eliminated. Those costs should be recovered
through the unit rate for gas and electricity so
that those who consume less pay less and
those who consume more pay more. We also
believe a social tariff should be introduced
where those who are the most vulnerable pay
less for energy. We believe that this, along
with all policy costs, should be funded from
general taxation but that is not something
which has universal support.
For energy companies, we believe that they
should be made to hold sufficient capital to
ensure that if more companies go bust, their
shareholders pick up the costs rather than the
unacceptable situation in recent years where
the costs were picked up by consumers. We
have seen some progress on this, with Ofgem
requiring energy companies to hold £115 of
capital for each customer by March 2025.
This is welcome but it is our view that this
does not go far enough, nor fast enough. We
believe that all companies should be required
to hold in the region of three times this
amount and that they should not be able
to take on additional customers until they
can demonstrate they are financially sound.
As of now, a number of energy companies
effectively have a free bet, using customer
deposits to fund their businesses. If their bet
comes good, their owners get all of the
rewards; and if it doesn’t, consumers bear all
of the cost. This cannot be right, and we urge
Ofgem to be more focused on establishing a
fairer market for consumers and to ensure
energy companies who are not yet financially
resilient enough are forced to meet proper
capital adequacy requirements.
2023 PROGRESS AND PERFORMANCE
We can support customers and credibly make
the case for market reform only because we
are a very resilient company. That resilience
comes from our uniquely integrated business
model and strong balance sheet.
We have a well-balanced portfolio with
market-leading positions across the entire
energy value chain. In our Retail business we
are the largest supplier of energy to residential
customers in the UK through British Gas
Energy and the second largest in Ireland
through Bord Gáis Energy, and we have a
strong and growing B2B energy supply
position. Our Infrastructure business brings
electricity and gas to the market every single
day. Then at the heart of these energy flows
sits the Optimisation business, the glue that
binds our group together.
As I look at our portfolio, I see a number of high
performing businesses. But the real value-add
that makes us unique at Centrica comes at the
portfolio level as we integrate our businesses
with each other. I believe this model means we
are well-positioned to adapt to any future
changes in the energy landscape.
You can see just how this integration works in
practice in our performance and achievements
over the last year. At a Group level, our
performance in 2023 was very strong. Our
Group adjusted operating profit was £2.8bn
compared to £3.3bn at year end in 2022. Our
adjusted basic EPS was 33.4p in 2023
compared to 34.9p in 2022, 4.1p in 2021,
and 2.8p in 2020, and our free cash flow was
£2.2bn. We ended the year with £2.7bn of net
cash – just three years ago we had £2.8bn in
net debt. In short, your Company has been
transformed. There is still so much more that
we can go for, but as Russell points out in his
CFO report, there were some large one-off
benefits in the 2023 results which we don’t
expect to repeat in future years.
RETAIL
British Gas Energy performed well in the
year and benefitted in 2023 from the recovery
of costs incurred in previous years under
Ofgem’s price cap adjustments. By the end of
the year, we had migrated around two thirds
of our customers on to our new software
platform and we should complete the transfer
in the next 12 months or so. This allows us to
develop our new energy offering, which will
help give our customers insight into the best
time to use their energy, putting more power
in their hands. Our PeakSave Sundays
product already has half a million customers
and we are learning every day how our
customers vary their energy use depending on
costs changing during the day.
Bord Gáis was quite a mixed picture in 2023.
We continued to see pressure in the retail
market in Ireland and had another year of
making losses in that market, all of which were
offset by profits made in our infrastructure (the
Whitegate power station in Cork) and
optimisation activities. We believe that the
issues in the Irish retail market are temporary
and we hope to see a return to normality
in 2024.
It is very pleasing to see the continued
recovery in British Gas Services and
Solutions with the operational foundations of
the business as strong as they’ve been for
many years. Our customer service has
improved materially and we’re seeing the
benefits in improved customer satisfaction and
higher customer retention rates. This allows us
to focus on increasing customer numbers
whilst maintaining the improved operational
delivery and getting into a positive cycle of
growing the business. Our growth
opportunities in this business are not only in
our traditional contract market but in the ‘on
demand’ market. There are 20 million
households in the UK who pay tradespeople
to fix things as and when they break down, a
market we have not traditionally served. In
2023 we delivered 218,000 ‘on demand’ jobs
to 201,000 ‘on demand’ customers (2022:
122,000 jobs to 114,000 customers) and we
expect to continue to grow this area in 2024
and for many years to come.
OPTIMISATION
Centrica Energy had another strong
performance and continues to ensure we
make the most of all our business areas. This
year we saw a range of corporate power deals
with partners such as Deutsche Bahn and
Vodafone, among others, and were delighted
to improve energy security with our deal with
Delfin Midstream to buy LNG.
INFRASTRUCTURE
We made good progress across our entire
infrastructure business in 2023, building and
advancing our portfolio of investment
opportunities in clean electricity generation
and storage whilst focusing on maximising the
value of our existing assets. We were very
pleased to see Centrica Business Solutions
deliver a range of projects including Centrica’s
first major solar asset in the Codford solar farm
earlier this year, and committing to a range of
other projects for the future including a 65MW
battery storage plant in Perthshire.
In Spirit Energy we extended the life of our
Morecambe Bay gas field in the East Irish Sea
into the 2030s and we were awarded a
carbon storage licence allowing us to further
our plans to invest around £1bn in developing
one of the largest carbon storage facilities in
the world. In Centrica Energy Storage+ we
doubled the capacity of our Rough storage
facility, now providing half of the UK’s entire
gas storage capacity and we continued to
advance our plans to invest up to £2bn to
convert this to become the world’s largest
hydrogen storage facility which we believe is
necessary to unlock the UK’s
decarbonisation.
WE MAKE IT – we produce
gas at Spirit Energy, and we
generate electricity through our
green-focused investments and
our nuclear stake.
WE STORE IT – we can store
gas through Centrica Energy
Storage+, and electricity through
our battery projects in Centrica
Business Solutions.
WE MOVE IT – Centrica
Energy is one of Europe’s
largest wholesalers of gas and
electricity.
WE SELL IT – millions of
homes across the UK and
Ireland are supplied with gas
and electricity through British
Gas and Bord Gáis.
WE MEND IT – we install,
maintain, and fix, heating
systems in millions of homes.
Strategic report | Centrica plc Annual Report and Accounts 2023
7
In addition to this investment programme, we
will continue to progress our plans for
hydrogen storage at Rough, carbon storage at
Morecambe, and we will continue to evaluate
the potential to bring further low carbon
energy to our customers through investments
in new nuclear generation. We have a rich set
of investment opportunities, but we are also
disciplined in our deployment of capital, and
we will only invest where the returns are
acceptable, the risks are manageable, and the
balance sheet sustainable.
Notably, our business model and our
investment plans are robust regardless of
the pace at which net zero is delivered.
I would argue that Centrica is well placed to
provide stability, remain sustainable, and
deliver value across all our stakeholder
groups irrespective of changes to the pace
of net zero.
WHEN WE MAKE AN
INVESTMENT WE LOOK
FOR THREE RETURNS
ON THAT INVESTMENT
We deliver a return on
the Infrastructure
asset investment.
We deliver a return by
trading that asset on
markets through our
Optimisation business.
This gives us the
necessary capital base
to deliver a return from
our Retail business.
SUPPORTING OUR COLLEAGUES AND
ENHANCING OUR CAPABILITIES
We have supported our colleagues on their
own professional journeys in 2023 and I am
pleased to see that our colleague engagement
score improved to almost 7.7 by the end of
the year, which is approaching top quartile
performance for our sector. We will continue
to provide training for growth, space for our
employee-led networks to flourish, and
opportunities to nurture wellbeing into 2024.
The next phase of our journey is focused on
driving growth in all of our businesses. To this
end we have refreshed our Purpose.
Colleagues across Centrica will work to
energise a greener, fairer future as we
journey towards net zero for our customers
and Centrica.
In addition, we’re looking at how we can
improve our capabilities in a number of areas.
In Infrastructure, we have demonstrated that
we have a team who knows how to deliver
growth over a number of years. There is more
to do in both our Retail and Infrastructure
businesses and I am delighted that our new
Chief Customer Officer will join on 1 May 2024
with a remit to drive relentless improvements
in customer experience and help our retail
businesses access the growth that we all
know is there.
CONCLUSION
2023 has been a strong year for Centrica. We
have not got everything right, but where we
get things wrong, we put them right. Our
business is on an incredibly strong footing, our
future is laid out ahead of us and we are firmly
on the path to continue the growth we’ve
seen in recent years.
Going into 2024 I want to take this moment to
thank all our customers, colleagues and
shareholders for their support this year, and I
want to take this opportunity to assure you
that our progress will continue. We will
continue to support our customers, we will
continue to improve energy security, and we
will continue to provide the sensible, expert-
based input into the net zero discussion.
It is always invigorating and a privilege to be
your Chief Executive. I look forward to seeing
what we can achieve in the year ahead.
Chris O’Shea, Group Chief Executive
14 February 2024
CENTRICA’S CONTRIBUTION TO
SOCIETY IN 2023
It is because our business performs so
strongly that we can contribute more to
society than the jobs and essential services
we provide to our 21,000 colleagues and
our 10 million customers. Our profits have
a purpose. We have continued to encourage
colleagues to volunteer in their local
communities with over 7,200 days donated
to the communities we operate in throughout
2023.
We’ve also fundraised and donated £4m to
charitable causes we all care about in our local
communities; we’ve paid over £1bn in tax
across all of the countries we operate in; and
as I mentioned earlier, we’ve committed
£140m to supporting customers since the
start of the energy crisis.
This year we’ve signed major new
partnerships with Team GB, ParalympicsGB,
Scottish Rugby, and the Scottish Football
Association, all of which will have significant
and lasting impacts on grassroots sport
across the UK and demonstrate how net zero
can be an opportunity for clubhouses and
sports facilities across the country.
WHAT DOES THE FUTURE HOLD FOR
YOUR COMPANY?
I am particularly proud of my colleagues
because in 2023, not only did we achieve all
of the things we set out, but we also gave
direction on Centrica’s future. In July we
outlined our new Green Focused Investment
Strategy, which will see Centrica invest up to
£4bn over the next five years in security of
supply and flexibility, renewable generation,
and our customers. We expect to invest
across three pillars:
¢ Customer solutions. We will help
customers better understand their energy
usage and fully grasp their energy spending
through innovation in smart metering and
other flexibility tools and services that give
customers the information to make better
decisions about their energy costs.
¢ Security of supply and flexibility. You
can already see our experience in batteries
and other flexible assets – over the next five
years we will accelerate this. You can
expect to see more from Centrica on how
this investment will support the roll out of
more intermittent power generation such as
wind and solar by balancing the grid when
the wind doesn’t blow, and the sun doesn’t
shine.
¢ Green electricity generation. We will
look to increase our investment in clean
energy with a focus on the areas we are
strong in, looking at wind in Ireland,
green hydrogen production and a
continuation of our investment in solar,
having opened our first solar farm during
the year.
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Strategic report | Centrica plc Annual Report and Accounts 2023
OUR PURPOSE, CULTURE AND VALUES
At Centrica our Purpose is – ‘energising a
greener, fairer future’ – because we believe in
energy that works for colleagues, customers and
communities, today and into the future. It’s why
we exist. Our strategy is driven by our Purpose,
and we live by our values. While we have evolved
our strategy to help meet today’s challenges and
prepare us for a net zero future, our values
remain firmly embedded in who we are and guide
everything we do.
We care deeply about
our impact on the
planet, our customers
and our colleagues.
We want to make a
difference to society
and the safety and
wellbeing of our team
and customers is
paramount
We are providing
crucial help through
the exceptional cost
of living crisis by
delivering material,
targeted support to
customers and
communities during
the energy crisis,
including via the
British Gas Energy
Trust.
Together we win,
we build winning
relationships
throughout our own
organisation and with
others to deliver on the
scale challenges the
industry faces
We step up and
take responsibility.
We recognise the
importance of
challenging the
industry to make
difficult decisions for
our future and we
stand by our beliefs
We are nimble,
curious and
innovative; we adapt
to our markets rapidly
and seek out
opportunities to
support the system
and succeed
We do things right and
deliver for all of our
stakeholders
We collaborate
closely across our
businesses to
understand how our
Group is exposed
and responding to
the climate challenge.
Our ability to draw
insights effectively
between our
businesses through
close collaboration is
demonstrated by our
strong performance
in climate disclosures.
We’ve stepped up to
support the UK's
security of supply,
reinstating the Rough
field as gas storage.
We recognise the
long-term needs for
the UK and will invest
in long-term security
and decarbonisation
through hydrogen
and carbon capture.
Our Optimisation
businesses have
rapidly responded to
volatile energy
markets, managing
risk across our Group
and proactively
supporting our
customers through
access to scale long-
term gas supply and
LNG deals.
We value delivering
great service and
customer outcomes.
We are rigorous, and
do things the right
way. We have been
recognised by Ofgem
as a well-run supplier,
been protecting
customer credit
balances and
invested an additional
£25m in customer
service through the
energy crisis.
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9
Centrica is a uniquely integrated energy company comprising a
balanced portfolio of market leading businesses that complement,
de-risk and add value to one another. Together, we are greater than
the sum of our parts.
BUSINESS MODEL
Our strategy is driven
by our Purpose of
energising a greener,
fairer future for
colleagues,
customers and
communities.
In July 2023, we introduced our
refreshed strategy, which is focused
on creating value through the energy
transition. Since 2020, Centrica has
been on a journey to simplify and
de-risk our business, strengthening
our balance sheet and delivering
material performance improvements
along the way. While we remain
focused on continuous improvement,
we are also underpinning our future
by delivering sustainable earnings
from our core businesses, investing
for longer-term value and growth,
and delivering attractive shareholder
returns.
Investing to build a low carbon,
reliable energy system including
power generating renewables,
flexible peaking generation and
energy storage through batteries
and geological storage.
Centrica Energy Storage+
(formerly Centrica Storage Limited)
Storing and withdrawing gas to
manage seasonal demand and
energy security
Centrica Business Solutions(1)
Low carbon solutions for
businesses, building and operating
a portfolio of flexible assets
Bord Gáis(1)
Power generation, asset
management and low carbon
solutions for businesses, building
and operating a portfolio of energy
assets focused on decarbonisation
Centrica Nuclear
Minority stake in the UK’s portfolio
of operating nuclear power stations
Spirit Energy
Oil and gas production in existing
UK assets
We remain relentlessly focused
on providing a leading customer
service and experience helping
customers to save money and
decarbonise through innovative
offerings.
British Gas Energy
Energy supply for residential and
small business customers in
England, Scotland and Wales
British Gas Services &
Solutions
Services & solutions for residential
customers in England, Scotland,
and Wales
Bord Gáis(1)
Energy supply, services and
solutions for business and
residential customers in the
Republic of Ireland
Centrica Business Solutions(1)
Energy supply for large business
customers in England, Scotland
and Wales
We are supporting the responsible
buying and selling of energy,
managing risk across our business
and accessing value from green
generation in our trading business
while continuing to build out the
flexibility required for the future
energy system.
Centrica Energy
(formerly Centrica Energy Marketing
& Trading) Trading and optimisation
of energy globally, managing energy
procurement and risk
(1) Note within the Group Chief Financial Officer’s Report, Centrica Business Solutions is included within Optimisation, and Bord Gáis is included within Retail.
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Strategic report | Centrica plc Annual Report and Accounts 2023
Our business model is well positioned to benefit from the energy
transition, regardless of how fast it materialises. Our balance sheet
strength, investment grade credit ratings and strong existing capabilities
give us the building blocks to begin a material green-focused
investment programme.
Achieving net zero will provide opportunities for us to grow and create
value for our shareholders. It’s good for the planet and for our
Company. In line with the targets published in our Climate Transition
Plan in 2021, more than 50% of our capital is expected to go into green
taxonomy eligible projects, such as solar and batteries between 2024
and 2028. That’s up from less than 5% in 2019.
We see a myriad of attractive investment
opportunities across our value chain, which are
aligned to our net zero ambitions. We expect to
deliver average post-tax unlevered returns of at
least 7-10% at the asset level with additional
upside expected from being part of Centrica’s
portfolio. Our investment programme will also
allow us to maintain balance in the portfolio as
existing infrastructure assets naturally decline,
helping underpin future sustainable profits that
will enable further investments, future growth
and a progressive dividend.
To give a flavour of the kinds of
investments we anticipate:
Renewable generation: This could be in our
own projects or ones where we invest with
partners. We can add value to these projects
through using our route-to-market capabilities
in Centrica Energy and selling the zero carbon
power to our Retail customer base.
Security of supply: We have existing
capability and are already invested in battery
storage and gas peaking generation, as well
as owning a range of sites with valuable grid
connections.
We know how to develop energy assets and
can also look to co-locate complementary
technologies.
Customers: We will invest in capabilities that
will reinforce our leading market positions and
unique workforce. We launched our
own Smart Meter Asset company in 2023
and will consider further opportunities
designed to unlock the adoption of ‘big
ticket’ household energy technologies,
such as financing or leasing heating systems
to households.
Any large-scale investments, such as
expanding gas storage capacity and
converting to hydrogen storage at Rough or
carbon capture utilisation and storage
(CCUS) at Morecambe, would be additional
to the options outlined above.
Our disciplined approach to capital allocation: In our Interim Results announcement in July 2023, we
laid out our disciplined capital allocation framework, which comprises five key elements:
Sustainable earnings:
We expect to deliver
around £800m of
operating profit from our
Retail and Optimisation
businesses by 2026,
with material cash
generation expected
from our Infrastructure
businesses over the
medium-term.
Maintaining a strong
balance sheet: We aim
to maintain a Net Debt/
EBITDA ratio of <1,
which provides enough
of a buffer to ride out any
energy market volatility
and provides flexibility to
invest in the future and
maintain and grow our
shareholder distributions.
Progressive dividends:
We maintain a
progressive dividend
policy and expect
dividend cover from
earnings to move to 2x
coverage over time.
Investing for value:
We aim to deploy
£600-800m per year to
2028, focusing on assets
that generate attractive
returns, complement our
existing capabilities,
provide balance to the
portfolio, and align to the
needs of the energy
transition.
Returning surplus
capital: In July 2023, we
increased our share
buyback programme to
£1bn since November
2022. Any future
distributions will be
reviewed against our
revised capital
framework and future
outlooks.
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11
MARKET TRENDS
After a tumultuous year in
UK energy markets, 2023
saw market volatility return
to pre-energy crisis levels,
although energy prices
remained relatively high.
Consumer energy bills were
somewhat shielded through
the Energy Price Guarantee
during the first half of 2023.
Macroeconomic conditions,
including elevated inflation
and interest rates, negatively
affected asset returns and
capital costs.
HOW WE’RE RESPONDING
¢ Our vertically integrated model has
allowed us to capture value across our
business, demonstrating the benefits
of having a balanced and diversified
portfolio
¢ The progress we have made in
strengthening our balance sheet will
allow us to continue to invest in a
diversified asset portfolio despite the
challenging investment environment
¢ Our strategy is designed to remain
robust under all market conditions,
and positions us for growth and
value creation
Like last year, our customers,
colleagues and businesses
continue to feel the squeeze
on their budgets from rising
costs and a challenging
macroeconomic environment.
HOW WE’RE RESPONDING
¢ Since 2022, Centrica has
committed £140m in energy
bill support delivered directly
and via key partners like the
British Gas Energy Trust and
Focus Ireland, to help them
through the energy crisis
¢ We introduced innovative energy
propositions including PeakSave
Sundays, Hive SmartCharge and the
Dimplex Quantum Storage Heater
tariff that help customers access
cheaper energy rates at particular
times of the day
¢ In addition to our colleague energy
allowance and broader benefits
package, we launched the Centrica
Colleague Support Foundation, an
independent charitable trust that
provides grant funding to colleagues
in extreme financial difficulty
High energy prices, increasing
climate consciousness and
supportive Government
incentives continued to drive
interest in green technologies
for homes and businesses.
HOW WE’RE RESPONDING
¢ From Hive thermostats to EV
chargers to heat pumps, we
install, maintain and optimise a
range of devices in customer
homes that place them on their
individual journeys to net zero
¢ We offer a Home Health Check for
residential customers, which helps them
better understand the energy fabric of
their home and potential pathways to
net zero
¢ Through Bord Gáis, we are working with
the Irish Farmers’ Association to install
solar power systems on Irish farms,
helping them to reduce their energy bills
and making their operations greener
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Strategic report | Centrica plc Annual Report and Accounts 2023
MACRO TRENDS
Climate change and the
imperative to decarbonise
remain central concerns for
our customers and key
stakeholders across society.
The last several years have
brought the impacts of climate
change to our doorstep, as
we’ve experienced hotter
summers, extended droughts,
unprecedented flooding
and extreme weather with
increasing frequency. As a
UK and Ireland energy
industry leader and a
responsible business, our
strategy remains focused on
the drive to net zero.
HOW WE’RE RESPONDING
¢ We committed to an ambitious
investment programme that aims for
>50% of total capex invested in green
taxonomy investments through 2028,
thereby underpinning our transition to
net zero
¢ We created a new business intended
to be a one-stop green home services
shop for residential customers
¢ We are working with partners to
explore decarbonisation opportunities
for our existing conventional power
generation and molecule storage
assets
Unlocking the full benefit of
renewables will require more fast-
acting generation and storage,
flexible energy consumption, and
intelligent systems working in the
background to seamlessly
manage the two. Centrica already
plays a key role in this area by
optimising energy flows to and
from grid-side assets, as well as
within the home. Through further
investment and continued
customer engagement, we will
continue unlocking opportunities
for flexible energy generation
and utilisation to reduce cost
and carbon.
HOW WE’RE RESPONDING
¢ We create additional value for renewable
asset operators and investors through
our advanced trading and optimisation
business
¢ We help customers to reduce the cost
and carbon footprint of their biggest
household energy devices, like electric
cars and home batteries, through British
Gas and Hive’s myriad of smart energy
propositions
¢ We are investing in batteries and gas
peakers to meet the near-term flexibility
needs of the grid, and looking into other
forms of energy storage that will meet
the needs of the future energy system
Customers rightfully expect a lot
from their home energy and
services providers, which drives
competition in the market and
requires us to constantly
innovate and improve. With
recent advances in artificial
intelligence and machine
learning, we see an opportunity
to further leverage the power of
technology and data to create a
step change in our service
delivery and customer value
proposition.
HOW WE’RE RESPONDING
¢ We appointed a Chief Data Analytics Officer,
who will work across the business to identify
and execute opportunities that harness the
power of data to personalise our
propositions and service delivery
¢ We are closely collaborating with leading
technology companies to implement AI
tools and systems across our business,
helping our colleagues to do more and
better for our customers
¢ We are in the midst of a digital
transformation that will fundamentally
change the way we work in the digital
environment, providing material cost
savings to the business and unlocking new
capabilities needed for future propositions
Strategic report | Centrica plc Annual Report and Accounts 2023
13
OUR STAKEHOLDERS
Engaging our key stakeholders
enables us to create stronger
outcomes for people, planet
and our business.
Energy is at the heart of how we all live, work
and move. That’s why we regularly engage
key stakeholders to understand their interests
and how they may be impacted by our
actions, so that we can carefully consider their
views and evolve our strategy accordingly.
In doing so, we can better harness
opportunities and reduce risk as we work to
fulfil our Purpose of energising a greener, fairer
future, whilst maximising the wider positive
contribution we make in society. Engagement
is often led by senior leaders who regularly
update the Board. This arms the Board with
the knowledge to make informed decisions
that take into account the long-term
consequences of its decisions from the
perspective of a diverse range of stakeholders.
SECTION 172(1) COMPANIES
ACT 2006 STATEMENT
The Directors consider that they’ve
performed their duty as required under
Section 172, by promoting the
success of the Company for the
benefit of our stakeholders through
their decision making.
These pages set out our key
stakeholders together with an
example of how engagement was
vital to navigating the energy crisis,
which was one of the most
significant issues faced by the
Company and our stakeholders in
2023. Further detail on how the
Board engaged and balanced the
needs of different stakeholders
during 2023, together with the
principal decisions made as a result,
are also disclosed.
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Strategic report | Centrica plc Annual Report and Accounts 2023
OUR KEY STAKEHOLDERS
Importance – Our 21,000-strong team are
the beating heart of our business. Through
engagement, we can help create a culture
where everyone can be themselves and
thrive. In doing so, we can attract, promote
and retain the diverse and talented team we
need to succeed.
Main focuses – Health, safety and wellbeing,
reward, development, inclusion, engagement
and communication.
Engagement – Dialogue occurs through a
range of channels including our colleague
networks, Shadow Board, townhalls and
structured engagement with trade unions.
We also track sentiment and gather
feedback through our engagement survey.
We use these interactions to co-create a
fairer, safer and more inclusive culture,
underpinned by a competitive package of
reward, training and policies, as well as our
Diversity, Equity and Inclusion Action Plans.
Importance – Our long-term success is
dependent on being able to attract and
retain customers. The Directors therefore
recognise the need to act on customer
feedback, so that we can deliver on their
expectations.
Main focuses – Customer service, energy
prices and bill support, alongside affordable
energy efficient and low carbon services and
solutions.
Engagement – We predominantly engage
through focus groups, surveys, proposition
and usability testing. To meet feedback,
we’re investing in our customer service
systems and customer-facing team, as well
as our ability to deliver services and solutions
that help customers save time, money and
energy. At the same time, we provide
dedicated channels to ensure support for
those who need extra help with their energy
bills.
Importance – Shareholders and debt holders
from across the world provide funds that help
us run and grow our business.
Main focuses – Financial and operational
performance, shareholder returns and
dividend, strategy and growth, alongside
Environmental, Social and Governance
(ESG) matters which includes our approach
to net zero.
Engagement – Investors are predominantly
engaged via post-financial result investor
roadshows, the Annual General Meeting
(AGM) and ad-hoc meetings. We additionally
respond to information requests and
assessments from ESG ratings agencies.
Engagement enables us to consider and
reflect the views of different investors when
updating on our strategy, to ensure a
sustainable return on investment.
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and 70
READ MORE ON PAGES 6 to 7, 16 to 17
and 43-45
READ MORE ON PAGES 17, 47 and 70
Importance – Policies set by governments
and regulators can have a material impact on
how we do business. Consequently, we
work closely to help create a stable
regulatory environment where policy is
developed in the interests of consumers,
whilst ensuring a sustainable and investable
market.
Main focuses – Market design, customer
service, skills, inclusion, net zero, energy
security and energy prices.
Engagement – To exchange expertise, we
participate in consultation processes, attend
meetings and host technology teach-ins and
site visits. This enables us to effectively inform
policy development and reforms that deliver
on key issues, such as ensuring the UK has a
secure and affordable supply of energy and
that progress is being made on the energy
transition.
Importance – Our suppliers are vital to
securing a reliable supply of services and
solutions for customers. To reduce risk
across our supply chain, the Directors fully
support collaboration to ensure they uphold
the same high standards of business
conduct as us.
Importance – Local communities expect
companies to champion issues that are
important to them. By working in partnership
with charities, non-governmental
organisations (NGOs) and community
groups, we create more inclusive and
sustainable communities.
Main focuses – Payment practices together
with social and environmental compliance
on important issues like human rights.
Main focuses – Tackling urgent social and
environmental issues like fuel poverty and
climate change.
Engagement – Suppliers are engaged
through multiple methods such as
tendering, onboarding surveys, site audits
and remote worker surveys. These
interactions help us uphold fair payment and
enforcement of our Responsible Sourcing
Policy, which sets out the standards we
expect so that everyone operates in a way
that benefits people and planet, including
fulfilling obligations under anti-modern
slavery laws.
Engagement – Through meetings and
research, the Directors understand
community issues and how the Company
can make the greatest difference – from
donating to the British Gas Energy Trust to
provide expert advice and grants alongside
energy efficiency measures that help reduce
energy bills and emissions, to volunteering,
fundraising and sponsoring local charities,
schools, clubs and more.
READ MORE ON PAGES 16, 29 and 47
READ MORE ON PAGES 45 and 50
READ MORE ON PAGES 16, 43 and 45
Strategic report | Centrica plc Annual Report and Accounts 2023
15
HELPING PEOPLE WITH THEIR
ENERGY BILLS IN THE UK
Although 2023 saw lower wholesale energy prices
than in 2022, the cost of energy remained high for
consumers. Energy bills therefore remained a key
concern for many.
In 2023, global supplies continued to
be constricted and government
support schemes introduced to help
consumers at the start of the crisis,
had concluded. We see it as our duty
to help customers and communities
through difficult times, so we
maintained close relationships with
stakeholders to explore what more
we could do. This enabled the Board
to take meaningful action.
We more than doubled our energy
support fund to £140 million, making
it the biggest voluntary support
package provided by an energy
company in the UK and Ireland. Of
this, we have committed £134 million
in the UK since 2022. This results in
total donations of around £60 million
to the British Gas Energy Trust, to
predominantly create a dedicated
cash support fund for customers and
help communities. To further
strengthen support at the heart of
communities, £2 million was
additionally provided to front-line
charities like StepChange. The
remaining funding, managed directly
by British Gas, is helping residential
and business customers with a
particular focus on prepayment
customers. To ensure support gets to
those who need it most, we proactively
reached out to customers and ran
campaigns encouraging people to come
forward. This included targeting older
people who we found were reluctant to
seek support and volunteering to provide
energy advice at over 150 Post Office
Pop-Ups at 100 locations.
Having worked so hard to help
customers through the crisis, we were
deeply saddened about the lack of
empathy and respect shown by some
contractors employed to install
prepayment meters under warrant. We
immediately paused installations and
whilst our investigation resulted in
no systemic issues being identified, we
introduced improvements including
bringing the installation of prepayment
meters in-house. Like other energy
suppliers, we will not restart installations
until Ofgem have permitted it. The
Directors alongside specialists in the
Company, have worked constructively
with the regulator to ensure customers
are protected during this time, and
provided related evidence at two
Parliamentary Committees.
We also worked with parliamentarians
to ensure they were up to date with
the wider consumer support available
during the energy crisis via
information leaflets, meetings and
drop-in sessions.
Additionally, we worked together on
short and longer-term improvements
for a more secure and sustainable
energy market. We increased
investment in renewable and low
carbon energy, worked with US and
Norwegian partners to secure gas
supplies, and expanded gas storage
capacity at our Rough facility whilst
progressing our thinking on net zero
optionality at the site. Although this
will likely see our greenhouse gas
emissions rise in the short-term, our
action has been vital to future-proof
the UK’s energy security and reduce
costs for consumers. Throughout,
we’ve needed to balance the needs
of different stakeholders and the
transition to net zero, to ensure we
help people today and avoid
another energy crisis in the future.
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Strategic report | Centrica plc Annual Report and Accounts 2023
SECTION 172(1) STATEMENT
PRINCIPAL DECISION BY THE BOARD
PRINCIPAL DECISION BY THE BOARD
A refreshed strategy focused on creating value for
all our stakeholders through the energy transition.
investor presentation, Centrica’s strategy was
better understood, they had more clarity on
Centrica’s view of sustainable earnings, and
on investment plans and returns.
OUTCOMES
After carefully evaluating the relevant
stakeholder perspectives, the Board
concluded that the refreshed strategy will
successfully deliver for all our stakeholder
groups while helping improve the UK’s energy
security in our core markets and supporting
the transition to net zero.
The green-focused growth and investment
strategy ensures our customers, colleagues
and our communities are at the forefront of
the energy transition. It has the potential to
bring customers greener energy and at an
affordable price, while helping insulate the
UK from energy shocks in the future. We are
also investing to build a better customer
experience, with our strong operational
foundations already beginning to drive better
levels of customer satisfaction. Additionally,
we remain well positioned to help our
customers with the changing retail energy
trends, rewarding customers for flexing their
energy use through PeakSave, helping
customers understand and control their
energy use through energy insights and
optimising customers’ energy consumption
through Smart Charge.
Our strategy will support Centrica’s aim of
connecting more closely with customers and
provide a number of opportunities for
colleagues. In 2023, we hired an additional
700 UK based front line colleagues to support
customers, and the skills required for the
net zero transition will create opportunities for
colleagues far into the future.
Having simplified our portfolio and improved
operational performance, our refreshed
strategy is aligned to delivering sustainable
profitability from our portfolio, and we expect
to deliver around £800 million of adjusted
operating profit on average each year over the
medium term from our Retail and Optimisation
activities. Additionally, our Infrastructure assets
BOARD CONSIDERATIONS
With the turnaround of Centrica now
materially complete and the balance sheet
strengthened, the Board carefully considered
the refreshed strategy developed by
management and how that would impact
our stakeholders.
The Board anchored its consideration of the
strategy on the expected macro-economic
environment over the next decade, noting the
widespread view of market experts that a
period of material acceleration in the energy
transition is anticipated. In that context, the
Board considered the future of retail energy
and services, the future of optimisation and
trading as well as Centrica’s People & Planet
Plan targets, including the Climate Transition
Plan. This was overlaid against a detailed
review of Centrica’s long-term financial
forecasts and the expected financial
framework through to 2028. In particular, the
Board noted both how some of Centrica’s
existing assets were approaching end of life
but also how, with investment, many of them
could play important roles in supporting
energy security and the energy transition.
From that foundation, the Board assessed
that the green-focused investment strategy
was aligned to those key market trends, and
therefore carefully reviewed the strategy from
the perspectives of stakeholders.
Customers: the Board considered customer
perspectives around the cost of the energy
transition and the impact on pricing when the
cost of living remains high. The Board noted
how investment could benefit the customer
experience, and the strategy could support
customers in the transition to net zero.
Colleagues: The Board considered employee
perspectives around developing the skills
needed to deliver our net zero plans. Our
colleagues are essential in implementing our
strategy, and the Board recognises the
importance of investing in their skills and in our
organisational culture. The capabilities and
passion of our colleagues is central to
achieving our strategy.
Investors: The Board considered investor
perspectives on Centrica’s financial
sustainability and how the refreshed strategy
seeks to underpin Centrica’s financial health
and earnings potential. Following the
announcement of the strategy, investor
feedback was presented to the Board.
Investors commented that following the
in Spirit Energy, Nuclear and Centrica Energy
Storage+ will continue to play a vital role in the
UK’s energy security. Recent life extensions in
Spirit Energy and Nuclear and a capacity
increase to our Rough gas storage facility
mean we expect our existing Infrastructure
businesses to continue to contribute material
medium-term cash flows.
We will also pursue new opportunities to
create value from wider market trends,
with investment expected to build to
£600-£800 million per year until at least 2028.
As part of this, we will invest in flexible and
renewable power assets, replacing our
existing declining infrastructure, as well as
investing in an in-house smart meter asset
provider business, supporting the roll-out of
innovative tariffs and allowing a more direct
relationship with customers. Over time, the
residential heating technology mix is expected
to transition away from gas boilers towards
newer technology such as heat pumps. We
are uniquely placed to support this transition
with the UK's largest energy services
workforce. Overall, across 2023 to 2028,
at least 50% of our capital expenditure is
expected to go into green taxonomy eligible
projects, compared to only 5% in 2019.
This will help us meet our targets to achieve
net zero by 2045, and help our customers
reach net zero by 2050.
Longer term, and subject to the appropriate
regulatory frameworks being in place, we also
retain net-zero aligned optionality for potential
hydrogen and carbon capture investments,
through our Rough and Spirit Energy assets,
and continue to consider potential investment
in nuclear new-build projects.
We will do this while maintaining strong
liquidity, balance sheet strength and capital
discipline, with the appropriate medium-term
leverage for the Group assessed as being up
to 1x Net Debt to EBITDA. This provides us
with enough headroom to manage volatility in
the energy system and to continue to invest
for the future. In addition, we remain focused
on delivering compelling shareholder returns,
including for over 440,000 retail shareholders,
with a progressive dividend policy, and an
expectation that dividend cover will move to
around 2x over the coming years supported
by the sustainable earnings of the Retail and
Optimisation businesses, whilst returning
surplus capital to shareholders where
appropriate.
READ MORE ON PAGE 68
Strategic report | Centrica plc Annual Report and Accounts 2023
17
GROUP CHIEF FINANCIAL
OFFICER’S REPORT
Russell O’Brien | Group Chief Financial Officer
Our 2023 financial performance was strong as
we start to deliver against our refreshed
strategy. The benefits of our balanced portfolio
were demonstrated with robust earnings, free
cash flow and a very healthy closing balance
sheet position.
READ MORE ON PAGE 11
18
Strategic report | Centrica plc Annual Report and Accounts 2023
FINANCIAL OVERVIEW
The Group’s adjusted operating profit was
£2.8bn (2022: £3.3bn), with lower
Infrastructure and Optimisation results partially
offset by a higher Retail contribution.
Reflecting this, along with both a lower net
finance charge and taxation on business
performance, Group adjusted earnings
attributable to shareholders were £1.9bn
(2022: £2.1bn) and Group adjusted EPS was
33.4p (2022: 34.9p).
From a statutory perspective, operating profit
was £6.5bn (2022: £0.2bn loss). This includes
a large certain re-measurement gain during
the year of £4.4bn (2022: £3.4bn loss)
predominantly due to unwinds of 2022 out-of-
the-money positions and release of the
onerous energy supply contract provision. In
addition an exceptional loss of £0.6bn (2022:
£0.2bn) was recognised driven predominantly
by impairments to both our Nuclear
investment and Rough gas storage asset
reflecting changes in commodity prices and
spreads. Statutory profit attributable to
shareholders was £3.9bn (2022: £0.8bn loss)
and statutory EPS was 70.6p (2022: 13.3p
loss).
None of the items reported in the middle
column of the Income Statement are
considered to reflect the underlying
performance of the business.
The Group’s total Free Cash Flow (FCF)
reduced to £2.2bn (2022: £2.5bn), with the
impact of lower operating profit and the timing
of tax payments partially offset by a net
working capital inflow of £0.2bn (2022: £0.7bn
outflow).
From a statutory perspective, net cash flow
from operating and investing activities was
£2.9bn (2022: £0.7bn). This was higher than
the FCF noted above largely because of the
exclusions from that measure of movements
in variation margin and collateral, which
support our commodity hedging activity and
Centrica Energy optimisation activity and
generated an inflow of £0.6bn (2022: £1.2bn
outflow).
The Group’s net assets increased to £4.2bn
(2022: £1.3bn) with the impact of the increase
in statutory profit partially offset by the impact
of £1.1bn from items reported in other
comprehensive income or directly in equity,
including impacts of the share buyback
programme, net actuarial losses on defined
benefit pension schemes and dividends paid
to both shareholders and non-controlling
interests.
REVENUE
Total Group statutory revenue increased by 11% to £26.5bn (2022: £23.7bn). Total Group revenue included in business performance, which
includes revenue arising on contracts in scope of IFRS9, decreased by 1% to £33.4bn (2022: £33.6bn).
Gross segment revenue, which includes revenue generated from the sale of products and services between segments, decreased by 5% to
£35.3bn (2022: £37.2bn). This was driven largely by the impact of lower commodity prices and volatility on revenue in Centrica Energy, partially
offset by the impact of commodity prices on retail tariffs in British Gas Energy, Bord Gáis Energy and Centrica Business Solutions.
A table reconciling the different revenue measures is included in note 4(b) of the accounts.
OPERATING PROFIT/(LOSS)
YEAR ENDED 31 DECEMBER (£M)
Retail
British Gas Services & Solutions
British Gas Energy
Residential energy supply
Business energy supply
Bord Gáis Energy
Optimisation
Centrica Business Solutions
Centrica Energy (formerly Energy Marketing & Trading)
Infrastructure (excl. disposed Spirit Energy assets)
Spirit Energy (retained)
Centrica Energy Storage+
Nuclear
Colleague profit share
Operating profit from business performance excl. disposed Spirit Energy assets
Spirit Energy disposed assets
Operating profit from business performance (Adjusted operating profit)
Exceptional items and certain re-measurements
Group operating profit/(loss) (Statutory operating profit)
2023
799
47
751
726
25
1
878
104
774
1,083
235
312
536
(8)
2,752
-
2,752
3,760
6,512
2022
94
(9)
72
23
49
31
1,444
44
1,400
1,308
245
339
724
(23)
2,823
485
3,308
(3,548)
(240)
Adjusted operating profit decreased by £556m, or by £71m when
excluding the impact of the disposal of Spirit Energy’s Norwegian
assets in 2022, to £2,752m (2022: £3,308m or £2,823m excluding the
disposed Spirit Energy assets).
More detail on specific business unit adjusted operating profit
performance is provided in the Business Review on pages 23 to 25.
Statutory operating profit was £6,512m (2022: £240m loss), with the
difference between the two measures of profit relating to a net gain on
exceptional items and certain re-measurements of £3,760m (2022:
£3,548m loss).
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 shows the fair value movements 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 infrastructure assets, capacity/off-take
contracts or downstream demand, which are typically not fair valued.
The operating profit in the statutory results includes a net pre-tax profit
of £4,405m (2022: £3,393m loss) relating to re-measurements. This
was largely made up of the components outlined below:
¢ A net gain of £3,573m on the re-measurement of derivative energy
contracts. This predominantly reflects the unwind of 2022 out-of-the-
money energy supply contract hedge purchases, while there was
also an unwind of our infrastructure businesses and Centrica Energy
out-of-the-money positions from December 2022. The net positive
impact of these two factors was £3,529m. In addition, we saw a net
unrealised mark-to-market gain of £44m from our wider portfolio as
we were in a net sell position at certain points in the year as
commodity prices fell.ell.]
¢ A net gain of £833m from the onerous energy supply contract
provision utilisation and reversal. At the 2022 year-end, an onerous
provision was held on the balance sheet relating to our non-domestic
customers on longer-term fixed contracts agreed at levels below the
forward commodity prices in December 2022. This was because,
although the Group is predominantly hedged and so does not
expect to make a true economic loss on these contracts, the hedges
are generally market trades which are reflected as derivatives and are
marked-to-market through the middle column as certain re-
measurements. At 2022 year-end, the unrealised hedges were still
in-the-money and this led to retaining an onerous contract provision.
However, following the fall in commodity prices seen in 2023, the
supply hedges were out-of-the-money at the end of the year and as
a result, the remaining energy supply onerous provision has been
fully unwound.
Further details can be found in note 7(a).
Strategic report | Centrica plc Annual Report and Accounts 2023
19
Exceptional items
An exceptional pre-tax charge of £645m was recognised within the statutory Group operating profit (2022: £155m), made up of:
¢ A £549m impairment of the nuclear investment, as a result of lower forecast commodity prices, partially offset by the positive effect of life
extensions at Heysham 1 and Hartlepool.
¢ An £82m impairment of the Rough gas storage asset as a result of a reduction in both forecast gas prices and forecast summer/winter gas
price spreads.
¢ A £14m impairment in Centrica Business Solutions predominantly related to a battery storage asset and a gas engine, also as a result of
the lower forecast commodity prices.
Further details on exceptional items, including on impairment accounting policy, process and sensitivities, can be found in notes 7(b) and 7(c).
GROUP EARNINGS AND DIVIDEND
YEAR ENDED 31 DECEMBER (£M)
Group operating profit/(loss)
Net finance cost
Taxation
Profit/(loss) from operations
Less: Profit attributable to non-
controlling interests
Adjusted earnings/(loss) attributable to
shareholders
Adjusted earnings attributable to
shareholders excluding disposed Spirit
Energy assets
Notes
4(c)
8
9
Business
performance
Exceptional items
and certain re-
measurements
2023
Results for the
year
Business
performance
Exceptional items
and certain re-
measurements
2022
Results for the
year
2,752
(39)
(838)
1,875
(16)
3,760
—
(1,595)
2,165
(95)
6,512
(39)
(2,433)
4,040
(111)
3,308
(143)
(1,046)
2,119
(69)
(3,548)
—
793
(2,755)
(77)
(240)
(143)
(253)
(636)
(146)
1,859
2,070
3,929
2,050
(2,832)
(782)
1,859
2,005
Group earnings
Reflecting the adjusted operating profit, net finance cost and adjusted
taxation as described above, profit for the year from business
performance after taxation was £1,875m (2022: £2,119m). After
adjusting for non-controlling interests relating to Spirit Energy, adjusted
earnings were £1,859m (2022: £2,050m, or £2,005m after excluding
the disposed Spirit Energy assets).
Adjusted basic EPS was 33.4p (2022: 34.9p, or 34.2p after excluding
the disposed Spirit Energy assets), which also includes the impact of a
lower weighted average number of shares than in 2022 reflecting the
ongoing share repurchase programme.
After including exceptional items and certain re-measurements,
including those attributable to non-controlling interests, the statutory
profit attributable to shareholders for the period was £3,929m (2022:
£782m loss).
The Group reported a statutory basic EPS of 70.6p (2022: 13.3p loss).
Dividend
In addition to the interim dividend of 1.33p per share, the proposed final
dividend is 2.67p per share, giving a total full year dividend of 4.0p per
share (2022: 3.0p per share).
GROUP CASH FLOW, NET CASH AND BALANCE SHEET
Group cash flow
Free cash flow (FCF) 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. FCF is reconciled to statutory net cash flow from
operating and investing activities in the table below.
See explanatory note 4(f) for more details.
Finance costs
Net finance costs decreased to £39m (2022: £143m), largely due to
increased interest income on cash balances reflecting higher UK
interest rates, partially offset by increased interest costs on floating
debt.
Taxation
Business performance taxation on profit decreased to £838m (2022:
£1,046m). After taking account of tax on joint ventures and associates,
the adjusted tax charge was £912m (2022: £1,077m).
The resultant adjusted effective tax rate for the Group was 33% (2022:
34%), with the profit mix moving slightly away from highly taxed E&P
activities. The adjusted effective tax rate calculation is shown below:
YEAR ENDED 31 DECEMBER (£M)
Adjusted operating profit before impacts of
taxation
Add: JV/associate taxation included in
adjusted operating profit
Net finance cost
Adjusted profit before taxation
Taxation on adjusted operating profit
Share of JV/associate taxation
Adjusted tax charge
Adjusted effective tax rate
2023
2,752
2022
3,308
74
31
(39)
2,787
(838)
(74)
(912)
33%
(143)
3,196
(1,046)
(31)
(1,077)
34%
A charge totalling £326m related to the Electricity Generator Levy is
included in the Group’s cost of sales and in our share of the results of
joint venture and associates operating profits. The Levy is not an
income tax and is not deductible for corporation tax purposes. If this
had been treated as a tax, the Group’s adjusted effective tax rate
would have been 40%.
Re-measurements and exceptional items generated a taxation charge
of £1,595m (2022: £793m credit).
See note 1(b), 3(b), 7(a), 7(b) and 9 for more details.
20
Strategic report | Centrica plc Annual Report and Accounts 2023
YEAR ENDED 31 DECEMBER (£M)
Statutory cash flow from operating
activities
Statutory cash flow from investing activities
Statutory cash flow from operating and
investing activities
Add back/(deduct):
Sale and purchase of securities
Interest received
Movements in collateral and margin cash
Defined benefit pension deficit payments
Free cash flow
2023
2,752
115
2,867
12
(267)
(585)
180
2,207
2022
1,314
(566)
748
398
(46)
1,173
214
2,487
FCF was £2,207m (2022: £2,487m), as reconciled to statutory cash
flow measures in the table above.
Net cash flow from operating activities increased to £2,752m (2022:
£1,314m), with the impact of lower adjusted EBITDA more than offset
by collateral and margin cash inflows and positive working capital
movements.
Adjusted EBITDA decreased to £3,085m (2022: £3,993m), reflecting
the movements in adjusted operating profit as described on page 19.
The collateral and margin cash inflow was £585m (2022: £1,173m
outflow), as wholesale commodity prices reduced from their elevated
levels last year.
The net inflow of working capital was £244m (2022: £656m outflow).
This included an inflow of £579m in Centrica Energy, as profit on 2022
derivative positions cash settled in 2023, which was partially offset by
an outflow of £505m in British Gas Energy reflecting the settlement of
high December 2022 commodity costs in January 2023 and the timing
of customer and Government support and regulatory scheme cash
flows.
Net cash inflow from investing activities was £115m (2022: £566m
outflow). Within this, interest received increased to £267m (2022:
£46m) reflecting the higher interest rate environment, while dividends
from our Nuclear associate increased to £220m (2022: £60m). Capital
expenditure (including small acquisitions) increased to £415m (2022:
£377m or £258m excluding Spirit Norway) as we build momentum in
our green-focused growth and investment strategy. Of the 2022
investing activities outflow, £400m related to a loan to the pension
schemes in October 2022 to help them manage through volatile
market conditions.
Net cash outflow from financing activities increased to £1,414m (2022:
£917m). This includes a reduced distribution of £17m (2022: £273m) to
Spirit Energy’s minority partner, with the outflows in both years related
to the disposal of Spirit Energy’s Norway assets. It also includes
materially increased cash distributions to shareholders, with £613m
(2022: £43m) relating to the Group’s share buyback programme and
£186m (2022: £59m) related to ordinary dividend payments.
Group adjusted net cash
The above resulted in a £1,453m increase in cash and cash equivalents
over the year. Gross debt reduced by £162m, reflecting the repayment
of a bond upon its maturity in October 2023 which was partially offset
by new lease arrangements during the year. When also including the
impact of foreign exchange adjustments on cash, the Group’s adjusted
net cash position at the end of December 2023 was £2,744m,
compared to £1,199m on 31 December 2022.
Further details on the Group’s sources of finance and net debt are
included in note 24.
Balance sheet
Net assets increased to £4,233m (2022: £1,280m), predominantly
driven by the statutory profit. This was partially offset by the impact of
items reported in other comprehensive income or directly in equity,
including a £500m reduction from the share buyback programme,
£288m net actuarial losses on defined benefit pension schemes and
£203m of dividends paid to both shareholders and non-controlling
interests.
Pension deficit
The Group’s IAS 19 net pension deficit was £117m at the year-end,
compared with a £40m surplus at 31 December 2022, with the impact
of pension deficit contributions during the year being more than offset
by a decrease in high quality corporate bond yields used to discount
the pension liabilities, a lower than expected return on scheme assets
and an actuarial adjustment due to inflation experience. The technical
provisions deficit is based on more conservative assumptions and is
used to determine the agreed level of cash contributions into the
schemes. In September 2022, we reached agreement with the pension
trustees on a March 2021 technical provisions deficit of £944m, with
annual deficit contributions remaining unchanged at £175m until 2026.
On a roll-forward basis using the same methodology, consequent
assumptions and contributions paid, the technical provision deficit
would be around £900m at 31 December 2023.
Further details on post-retirement benefits are included in note 22.
Acquisitions, disposals and disposal groups classified as held
for sale
During the period deferred consideration of £55m was received in
respect of the Spirit Norway disposal in 2022 and £17m was
distributed to SWM Bayerische E&P Beteiligungsgesellschaft mbH.
Further details on assets purchased, acquisitions and disposals are
included in notes 4(e) and 12.
EVENTS AFTER THE BALANCE SHEET DATE
Details of events after the balance sheet date are described in note 26.
RISKS AND CAPITAL MANAGEMENT
The nature of the Group’s principal risks and uncertainties are broadly
unchanged from those set out in its 2022 Annual Report, although the
Group’s top three Principal Risks are now credit and liquidity risk,
market risk (including the outage risk of financial loss due to impact of
lost asset production) and weather risk. In our assessment, overall
credit and liquidity risk has increased due to a notable increase in
customer debt driven by cost of living challenges, high levels of fuel
poverty and relatively high inflation impacting our customers' ability to
pay for their energy supply. Market and weather risks have reduced
given lower volatility in commodity markets and a fall in global wholesale
energy prices from their 2022 peaks. In addition, political, legal and
regulatory risks have heightened due to continued financial pressures
facing many consumers and an impending UK general election.
The Group has actively responded to these risks. Further support
measures and processes have been developed to help customers
repay their debt, a Risk Capital Steering methodology has been
developed to bolster our current robust monitoring and to improve our
ability to react to changes in our financial risks, while we have
successfully refinanced multi-year credit facilities to fortify our liquidity
capacity. We also remain engaged with regulators and political parties
and will continue to monitor and assess the impact of any changes in
government policy in our markets.
Details of how the Group has managed financial risks such as liquidity
and credit risk are set out in note S3. Details of the Group’s capital
management processes are provided under sources of finance in
note 24.
ACCOUNTING POLICIES
The Group’s accounting policies and specific accounting measures,
including changes of accounting presentation and selected key
sources of estimation uncertainty, are explained in notes 1, 2 and 3.
Russell O’Brien, Group Chief Financial Officer
14 February 2024
Strategic report | Centrica plc Annual Report and Accounts 2023
21
OUR VIEW ON TAXATION
STATUTORY TAX RATES ON PROFITS
Group activities
The Group takes its obligations to pay and collect the correct amount
of tax very seriously.
(1)(2)
Responsibility for tax governance and strategy lies with the Group Chief
Financial Officer, overseen by the Board and the Audit and Risk
Committee.
OUR APPROACH
Wherever we do business in the world, we take great care to ensure
we fully comply with all our obligations to pay or collect taxes and to
meet local reporting requirements.
We are committed to providing disclosures and information necessary
to assist understanding beyond that required by law and regulation.
We do not tolerate tax evasion or fraud by our employees or other
parties associated with Centrica. If we become aware of any such
wrongdoing, we take appropriate action.
Our cross-border pricing reflects the underlying commercial reality
of our business.
We ensure that income and costs, including costs of financing
operations, are appropriately recognised on a fair and sustainable
basis across all countries where the Group has a business presence.
We understand that this is not an exact science and we engage openly
with tax authorities to explain our approach.
In the UK we maintain a transparent and constructive relationship with
His Majesty’s Revenue & Customs (HMRC). This includes regular,
open dialogue on issues of significance to HMRC and Centrica.
Our relationship with fiscal authorities in other countries where we
do business is conducted on the same principles.
We carefully manage the tax risks and costs inherent in every
commercial transaction, in the same way as any other cost.
We do not enter into artificial arrangements in order to avoid taxation
nor to defeat the stated purpose of tax legislation.
We seek to actively engage in consultation with governments on tax
policy where we believe we are in a position as a Group to provide
valuable commercial insight.
THE GROUP’S TAX CHARGE, TAXES PAID AND THE UK
TAX CHARGE
The Group’s businesses are subject to corporate income tax rates
as set out in the statutory tax rates on profits table.
The overall tax charge is dependent on the mix of profits and the tax
rate to which those profits are subject.
(1) From 1 January 2023, revenues from our Nuclear and solar business (included
in energy supply and services) are subject to Electricity Generator Levy (EGL)
at 45% on wholesale revenues sold at an average price in excess of £75/MwH,
exceeding an annual threshold of £10 million. The EGL is accounted for as an
expense and is included in cost of sales.
(2) With effect from 1 April 2023 the statutory rate applicable to UK supply of energy
and services increased from 19% to 25%. The average corporation tax rate for
the year is 23.5%.
TAX CHARGE COMPARED TO CASH TAX PAID
UK (including Petroleum Revenue Tax)
Denmark
Singapore
Republic of Ireland
Rest of world
Electricity generator levy
Total tax paid
2023
2023
Current tax
charge/(credit)
Cash tax paid/
(received)
572
96
—
2
—
670
285
687
121
25
(29)
(1)
803
285
1,088
Corporation tax is paid in instalments, generally based on estimates; one-off items
and fluctuations in mark to market positions may cause divergence between the
charge for the year and the tax paid.
FURTHER INFORMATION ON THE TAX CHARGE IS SET OUT IN
NOTE 9 OF THE ANNUAL REPORT AND ACCOUNTS.
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
Strategic report | Centrica plc Annual Report and Accounts 2023
23.5%75%22%12.5%UK supply of energy and services (1) (2)UK gas productionDenmark energy servicesRepublic of Ireland supply of energy and services
BUSINESS REVIEW
BUSINESS UNIT OPERATIONAL, COMMERCIAL AND
FINANCIAL PERFORMANCE
We expect to deliver around £800m of sustainable adjusted operating
profit on average each year from Retail and Optimisation by 2026, with
additional growth potential. We also expect to deliver material medium-
term cash flows from Infrastructure.
Of the £800m per year, we expect UK residential energy supply to
make £150m-£250m, British Gas Services & Solutions to continue to
recover to £100m-£200m, Centrica Energy to make £250m-£350m,
and UK business energy supply and Bord Gáis Energy to deliver
combined adjusted operating profit of £100m-£200m.
In any given year the actual results by business are likely to fluctuate, so
these ranges should be seen as an average over time. However, one of
the key benefits of our balanced portfolio is that our businesses de-risk
each other and this reinforces our confidence in the delivery of these
overall profit projections.
RETAIL
In Retail, we have ramped up investment in our operations and
customer service. This has resulted in improved performance metrics,
with lower complaints and improving NPS scores across our
businesses. Total Retail adjusted operating profit increased to £799m
(2022: £94m), largely due to the material recovery of costs incurred in
prior periods through the regulatory price cap mechanism in British Gas
Energy.
British Gas Services & Solutions
YEAR ENDED 31 DECEMBER
2023
2022
Change
Services & Solutions customers (‘000)
(closing)(1)
On-demand jobs (‘000)(2)
Boiler installs (‘000)
Services complaints per customer (%)(3)
Services Engineer NPS(4)
Adjusted operating profit/(loss) (£m)
2,950
3,193
(8%)
218
95
122
99
79%
(4%)
6.0%
7.0%
(14%)
71
47
64
(9)
7pt
nm
All 2023 metrics and 2022 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Services & Solutions customers are defined as single households having a
contract or an on-demand job with British Gas Services & Solutions.
(2) On-demand jobs are defined as Services & Repair one-off on-demand repairs,
home improvements and maintenance.
(3) Total complaints, measured as any expression of dissatisfaction where we
identify material distress, inconvenience or financial loss, as a percentage of
average customers over the year.
(4) Measured independently, through individual questionnaires, the customer’s
willingness to recommend British Gas following a gas engineer visit.
In British Gas Services & Solutions we have significantly improved our
operations, as we look to stabilise our core activity of contract service
and repair, whilst driving growth in on-demand and heating installs.
Operational metrics continued to improve over the year, including a
halving of job reschedule rates, to 3%. This improved operational
performance underpinned improved customer satisfaction, which was
reflected in lower complaints and higher engineer NPS. Customer
numbers were broadly stable in the second half of 2023, having fallen
by 6% in the first half, which had reflected a high inflation backdrop and
cost of living pressures, and the final roll-off of ‘free product’ customers
from the portfolio. Reflecting this, revenue per customer increased from
£286 to £310.
Our improved operational performance and increased engineer
capacity means we can now better target the significant opportunity
that exists in the on-demand and heating installation markets.
Reflecting this, on-demand customers increased to 201,000 and on-
demand jobs increased to 218,000, up 75% and 79% on 2022
respectively. We also grew our market share and margins in boiler
installations in a declining market, underpinned by more innovative
commercial offerings.
Adjusted operating profit was £47m (2022: £9m loss), with improved
productivity allowing better margin capture in the core contract service
and repair and installation businesses, and lower pension costs. These
positive impacts were partially offset by the impacts of lower average
customer numbers and ongoing inflationary cost pressures.
British Gas Energy
YEAR ENDED 31 DECEMBER
2023
2022
Change
Residential energy customers (‘000)
(closing)(1)
Small business customer sites (‘000)
(closing)
Energy complaints per customer (%)(2)
Energy Touchpoint NPS(3)
Cost per residential energy customer
(excl. bad debt) (£)
Adjusted operating profit (£m)
7,529
7,516
0%
552
480
15%
13.3%
14.4%
17
91
751
13
83
72
(8%)
4pt
10%
943%
All 2023 metrics and 2022 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Residential energy customers are defined as single households buying energy
from British Gas.
(2) Total complaints, measured as an expression of dissatisfaction in line with
submissions made to Ofgem, as a percentage of average customers over the
year.
(3) Measured independently, through individual questionnaires, the customer’s
willingness to recommend British Gas Energy following contact.
In British Gas Energy, we continue to invest in strengthening our
operational foundations to drive innovation, retention and better
customer outcomes in order to underpin long-term profit sustainability.
The number of residential customers remained broadly flat over the
year, as price competition remained low in the market and suppliers
competed more on service and brand. The number of small business
customers increased by 15% in the year.
In line with our strategy we have invested further in customer service,
including the hiring of 700 additional contact centre colleagues.
Reflecting this, we saw lower complaints and a higher NPS, and
improving these metrics further will remain a focus. The NPS is higher
for customers who are on our new platform, and we continue to make
good progress on customer migration. A further 2m customers were
migrated in the second half of 2023, taking the total to over 5m and we
aim for our customers migration to the new platform to be substantially
complete by 2025.
Reflecting our investment in customer service and migration, our
annualised cost per residential energy customer (excluding bad debt)
increased by £8, including a £4 increase from dual running IT costs.
When combined, the impact from incremental investment in service
and from total dual running IT costs was around £100m in 2023.
Adjusted operating profit increased to £751m (2022: £72m) following a
strong first half result which included an industry-wide one-off recovery
of around £500m of prior period costs. These were largely related to
unexpected standard variable tariff demand and the phasing of
commodity costs and associated revenues; a supplier's costs may not
perfectly match the revenues received under the price cap in a given
period. We also delivered effective risk management and optimisation
during the year, while higher commodity costs naturally drove higher
unit margins.
Strategic report | Centrica plc Annual Report and Accounts 2023
23
In Centrica Energy (previously Energy Marketing & Trading), our world
class asset-backed trading and logistics business, we are looking to
build on our diverse portfolio of physical contracted positions, while
continuing to leverage our differentiated risk management and
optimisation capabilities to add further value across the Group.
Centrica Energy had another strong year in 2023, against the backdrop
of much lower market volatility than experienced in 2022. We continue
to build out our portfolio of physical contractual positions, delivering a
3% increase in renewable assets under management in Renewable
Energy Trading and Optimisation (RETO) to 13.0GW. Total renewable
and flexible assets increased to 16.3GW (2022: 15.8GW).
We also added to our global LNG portfolio. In July 2023 we signed a
15-year Sale and Purchase agreement with Delfin to take 1 million
tonnes of LNG, free on board, from their floating facility in the Gulf of
Mexico. Volumes are expected to commence towards the end of this
decade.
Adjusted operating profit remained elevated at £774m (2022:
£1,400m). Lower levels of market volatility impacted our gas and power
trading business. However, we saw the benefit of our diverse portfolio,
with increased profit in both the LNG and RETO businesses reflecting
our ability to capture some longer-term value from the volatile
environment seen in 2022. Included within the total operating profit was
a £35m loss from the Sole Pit legacy gas contract (2022: £19m profit),
with further losses from the contract at current forward prices expected
to be around £30m in total until 2025, when the contract ends.
Centrica Business Solutions (CBS)
YEAR ENDED 31 DECEMBER
2023
2022
Change
Energy supply total gas and electricity
volume (TWh)
Energy supply complaints per customer
(%)(1)
Energy supply Touchpoint NPS(2)
Services order intake (£m)
Net investment (£m)
Adjusted operating profit (£m)
20.7
22.3
(7%)
12.2%
9.1%
34%
32
225
114
104
31
212
19
44
1pt
6%
500%
136%
All 2023 metrics and 2022 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Total complaints, measured as any oral or written expression of dissatisfaction,
as a percentage of average customers over the year.
(2) Measured independently, through individual questionnaires and the customer’s
willingness to recommend.
In Centrica Business Solutions we continue to focus on strengthening
our customer service foundations and delivering improved margins and
sales performance in energy supply to larger businesses, while building
a portfolio of flexible, green-focused assets.
We continued with our planned shift in focus away from supplying
energy to the lower margin large-scale Commercial and Industrial
sector, and total volumes fell by 7% as a result. However, within this,
volumes supplied to medium sized enterprises grew 14% to 11.6TWh
(2022: 10.2TWh), with consistent organic growth alongside the
customer book acquisition of Avantigas ON Limited in H2 2022.
We continue to focus on delivering high levels of customer service,
although complaints per customer increased against a backdrop of
customer concern from high energy bills and complexity relating to
government support schemes. Despite this, customer service delivery
remained strong, with Touchpoint NPS increasing by 1pt year-on-year.
These positive impacts were partially offset by a number of other
factors predominantly related to a weak economy and the cost of living
crisis. The bad debt charge increased to £541m (2022: £297m),
including impacts from pausing field debt collection activity, with an
increase in both residential (up £158m) and small business (up £86m).
We also saw an underlying reduction in consumption per customer,
with customer bills remaining elevated compared to historic levels
alongside the reduction of wider government support for both
residential and small business customers. In addition, 2023 profit was
impacted by the increase in cost per customer reflecting our investment
in customer service and system migration, and our voluntary
commitment of a further £84m to support customers struggling to pay
their bills.
Bord Gáis Energy
YEAR ENDED 31 DECEMBER
Customers (‘000) (closing)
Complaints per customer (%)(1)
Journey NPS (2)
Adjusted operating profit (£m)
2023
503
2022
526
1.7%
2.2%
18
1
19
31
Change
(4%)
(23%)
(1pt)
(97%)
All 2023 metrics and 2022 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Total complaints, measured as any oral or written expression of dissatisfaction,
as a percentage of average customers over the year.
(2) Weighted NPS for the main customer interaction channels.
In Bord Gáis Energy we are focused on creating value from our
integrated energy model, while investing in the future energy system to
help underpin energy security and decarbonisation in Ireland.
Against a backdrop of challenging conditions in the retail energy supply
business, customer numbers declined by 4% as the business reduced
its focus on customer acquisition. We continued to invest in customer
service, resulting in lower complaints per customer compared with
2022 and a 5pt improvement in NPS over the second half of the year,
following a reduction in the first half. In line with our commitment to
support our customers, we donated an incremental £3m to our energy
support fund to help vulnerable customers struggling with bills,
doubling the total to £6m over the past two years.
We continued with the construction of our two, hydrogen ready,
100MW flexible natural gas peaking plants in Athlone and Dublin, with
our investment expected to total around €300m. We expect these
plants to be commissioned by around the middle of 2025.
Adjusted operating profit reduced to £1m (2022: £31m), reflecting
pricing pressure in energy supply as we absorbed higher energy costs,
particularly in the first half of 2023. This was partially offset by continued
strong performance from our Whitegate power station and wholesale
optimisation activities. The second half of the year saw the beginnings
of more sustainable energy supply performance, with continued easing
in commodity prices affording us the opportunity to pass on price
reductions to customers.
OPTIMISATION
In Optimisation, we continue to develop and leverage our physical
positions and world class capabilities. Total Optimisation adjusted
operating profit remained elevated at £878m (2022: £1,444m),
although was lower compared to 2022 against a backdrop of lower
absolute prices and volatility in commodity markets.
Centrica Energy
YEAR ENDED 31 DECEMBER
Renewable capacity under management (GW)(1)
2023
13.0
2022 Change
12.6
3%
Adjusted operating profit (£m)
774
1,400
(45%)
All 2023 metrics and 2022 comparators are for the 12 months ended 31 December
unless otherwise stated.
(1) Including assets that have signed contracts but are not yet operational.
24
Strategic report | Centrica plc Annual Report and Accounts 2023
Centrica's share of Nuclear generation volumes was 14% lower than
2022, reflecting the Hinkley Point B closure in August 2022 and higher
scheduled outages. During 2023, the expected closure dates for
Heysham 1 and Hartlepool were extended by two years to March
2026, with a plus or minus one year window either side of this date.
Additionally, in January 2024, an ambition was announced to further
extend the lives of Heysham 1, Hartlepool, Heysham 2 and Torness,
subject to inspections and regulatory approvals.
Adjusted operating profit from the retained Spirit Energy business was
£235m (2022: £245m), with the impact of lower production volumes
largely offset by a higher average achieved gas price, underpinned by
our rateable hedging strategy. Centrica Energy Storage+ adjusted
operating profit was £312m (2022: £339m), with strong performance in
the first half of 2023 driven by high seasonal gas price spreads in winter
2022/23 and further optimisation from market price volatility, followed
by a second half which saw lower seasonal spreads for winter 2023/24
and reduced optimisation opportunities due to lower levels of volatility.
Nuclear adjusted operating profit was £536m (2022: £724m), with
higher achieved prices and lower balancing charges more than offset
by the combined impacts of lower generation volumes and a £326m
impact of the Electricity Generator Levy, of which £285m is recorded in
cost of sales and £41m within the share of profit after tax from
associates.
Details of our forward hedging positions for 2024 and 2025 are outlined
below:
Volume
hedged
2024
Average
hedged
price
Volume
hedged
2025
Average
hedged
price
Spirit Energy
443mmth
174p/th
197mmth
139p/th
Nuclear
5.4TWh
£153/MWh
1.7TWh
£110/MWh
Having announced our green-focused investment strategy in July
2023, we have made incremental early stage progress in developing
our asset pipeline. Net investment in CBS was £114m in 2023 (2022:
£19m) as we continued with a range of solar, battery and gas-peaking
investments, and we now have around 550MW of assets in detailed
planning or delivery in the UK and Continental Europe. We also
commenced commercial operations on the 18MW Codford solar farm
in the first half of 2023 and acquired the operational 13MW
Roundponds solar farm in the second half, taking total operational
capacity in CBS to 132MW.
Adjusted operating profit increased to £104m (2022: £44m). Energy
supply profit increased driven by strong risk management and
commodity procurement performance, supported by the increase in
volumes supplied to medium-sized enterprise customers. This was
partially offset by an increased loss in Services and Assets, reflecting
the impact of lower market price volatility on our flexible assets, and
restructuring actions taken in our services business to improve
profitability in the coming years.
INFRASTRUCTURE
Our Infrastructure businesses consist of our ownership in the Spirit
Energy gas production business, the UK’s nuclear fleet, and Centrica
Energy Storage+, the operator of the UK's largest gas storage facility,
Rough. These businesses all saw asset lives extended in 2023 and will
continue to play an important role for UK energy security. Total
Upstream adjusted operating profit fell to £1,083m (2022: £1,793m or
£1,308m excluding disposed Spirit assets).
Upstream
YEAR ENDED 31 DECEMBER
2023
2022
Change
Spirit Energy retained total production
volumes (mmboe)
Nuclear power generated (GWh)
Adjusted operating profit (£m)
14.8
17.5
(15%)
7,456
1,083
8,719
1,793
(14%)
(40%)
All 2023 metrics and 2022 comparators are for the 12 months ended 31 December.
Total volumes from the retained Spirit Energy assets were down 15%,
with lower production across the portfolio in line with expected natural
decline rates. In May 2023, Spirit Energy was awarded a carbon
storage licence for the Morecambe Hub, and its potential to be one of
the UK’s largest carbon storage hubs provides us with long-term net
zero optionality.
Centrica Energy Storage+ (CES+) delivered good operational reliability
from the Rough asset following its return to gas storage operations in
the second half of 2022, and from the Easington gas processing plant
which CES+ also owns. An increase in capacity at Rough to 54bcf was
announced in June 2023, with third party exemption granted until at
least 2030. We continue to develop plans to enable us to increase
capacity at the asset, and ultimately convert to a hydrogen storage
facility, with any material investment subject to an appropriate
regulatory support mechanism.
Strategic report | Centrica plc Annual Report and Accounts 2023
25
KEY PERFORMANCE INDICATORS
Our Key Performance Indicators (KPIs)
help the Board and executive
management team assess performance
against our refreshed strategy laid out
in July 2023.
(i) See notes 2, 4 and 10 to the Financial
Statements for definition and
reconciliation of these measures.
(ii) Net zero goal measures scope 1 (direct)
and 2 (indirect) GHG emissions based on
operator boundary. Comprises emissions
from all operated assets and activities
including the shipping of Liquified Natural
Gas alongside the retained Spirit Energy
assets in the UK and the Netherlands.
Non-operated nuclear emissions are
excluded. Target is normalised to reflect
acquisitions and divestments in line with
changes in Group structure against a 2019
base year of 2,132,680mtCO2e. It’s also
aligned to the Paris Agreement and based
on science to limit global warming,
corresponding to a well below 2°C
pathway initially and 1.5°C by mid-
century. 2022 restated due to availability
of improved data.
READ MORE ABOUT OUR
STRATEGY REFRESH ON PAGES
10 TO 11
READ MORE ABOUT OUR
FINANCIAL PERFORMANCE
ON PAGES 18 TO 21
Group free cash flow from continuing
operations (£m)(i)
Group adjusted operating profit from
continuing operations (£m)(i)
2023
2022
2021
2023
2022
2021
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 decreased by 11% reflecting
the reduction in Group adjusted operating
profit and an increase in taxes paid, largely
related to 2022 profits. These impacts were
partially offset by working capital inflows
compared with outflows in 2022, with inflows
in Centrica Energy as 2022 profits converted
to cash more than offsetting outflows in
British Gas Energy, largely related to the
impact of falling commodity prices.
Group adjusted operating profit from
continuing operations is one of our
fundamental financial measures,
Group adjusted operating profit fell 17%
predominantly reflecting decreased profit
in Upstream (part of our Infrastructure
business), reflecting the sale of the Spirit
Energy Norway assets and the introduction
of the Electricity Generator Levy and
in Centrica Energy reflecting lower energy
price volatility. This was partially offset by
increased profit in British Gas Energy,
including the recovery of costs incurred in
prior periods through the default tariff cap.
Group adjusted basic earnings per share
from continuing operations (EPS)(i)
Total greenhouse gas (GHG) emissions –
40% reduction by 2034 and net zero by
2045 (base year 2019)(ii)
2023
2022
2021
4.1p
p
p
-21%
-5%
2023
2022
2021
-53%
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 down 4%,
reflecting the decreased operating profit,
partially offset by reduced finance costs with
higher interest rates resulting in increased
interest income on cash held and a lower
effective tax rate due to the profit mix moving
away from highly taxed gas production
activities, as well as a reduction in the
number of shares as a result of the share
buyback programme.
Getting to net zero is vital for our planet,
which is why we have a green-focused
investment strategy. Towards this, we cut
our emissions by 21% from our 2019 base
year, building on the 5% reduction achieved
the previous year. Further gains were mainly
driven by emission reductions from our
Whitegate power station as well as our gas
production operations. Overall, we’ve made
positive progress against our long-term goal
to be a net zero business by 2045 (see
page 44).
26
Strategic report | Centrica plc Annual Report and Accounts 2023
33.434.96.12,2072,4871,1742,7523,308948 British Gas Services & Solutions – Services
Engineer Net Promoter Score (NPS)(i)
Total customers (m)(ii)
2023
2022
2022
2021
2021
2023
2022
2021
Providing a great service is fundamental to
our ability to attract and retain customers.
With our focus on productivity and improved
operational performance, we were able to
provide a better service for customers. This
led to our NPS rising by seven points.
Our business exists to serve customers, who
drive our growth. Following year-on-year
gains, overall customer numbers remained
stable with 0% change. This broadly reflects
the challenging inflationary backdrop and
cost of living pressures.
(i) Measured independently, through
(ii)
individual questionnaires, the customer’s
willingness to recommend British Gas
following a gas engineer visit. For wider
business unit NPS, see pages 23 to 25.
Includes British Gas Energy, British Gas
Services & Solutions and Bord Gáis
Energy households, as well as business
customer sites in British Gas Energy and
Centrica Business Solutions. 2022
restated due to availability of improved
data. For business unit customer
numbers, see pages 23 to 25.
(iii) Colleague engagement methodology has
changed from percentage favourable to
an average score out of 10, measuring
how colleagues feel about the Company.
We are unable to provide a 2021
comparison due to the change in
methodology.
READ MORE ABOUT
OUR NON-FINANCIAL
PERFORMANCE ON PAGES
41 TO 55 AND 249 TO 251
Total recordable injury frequency rate
(TRIFR)
Colleague engagement(iii)
2023
2022
2021
2023
2022
Keeping colleagues and customers safe is
essential to running our business
responsibly. We therefore maintain a strong
safety culture through preventative initiatives
including manual handling, safe driving and
winter readiness training. As a result, our
TRIFR per 200,000 hours reduced by 25%.
Incidents mainly related to slips, trips and
musculoskeletal injuries.
Having an engaged and motivated team is
key to our success because colleagues are
the beating heart of our business. Through
our continued focus on creating a more
inclusive and supportive place to work whilst
connecting colleagues with our purpose and
strategy, colleague engagement improved by
0.3 points to 7.7, which is approaching top
quartile performance for our sector.
Strategic report | Centrica plc Annual Report and Accounts 2023
27
7.77.4010,26610,29610,0670.841.121.07+71+64+60 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 and the Group’s risk
appetite is expressed in relation to our four
categories of risk: Strategic, Operational,
Financial and Compliance.
RISK MANAGEMENT AND INTERNAL
CONTROL
Centrica’s Group Enterprise Risk and Internal
Controls Framework remains a core element
of the Group’s Governance Model which is set
out below. The most significant Principal Risks
to the Group are set out on pages 30 to 34,
in order of magnitude to the Group.
RISK APPETITE
The Board is ultimately responsible for aligning
the risk appetite of the Group with our long-
term strategic objectives, taking into account
the emerging and Principal Risks. Risk
appetites for the categories of Strategic,
Operational, Financial and Compliance risks
are in place 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 risk and we continue to strive for an
incident-free workplace. For financial risks we
adopt a conservative approach to manage our
liquidity position and balance sheet strength.
However, due to the higher risks inherent in
managing the commodity and weather
variables within our energy supply businesses,
we accept a higher appetite for those
elements of financial market risk. We are
committed to operating our businesses in
compliance with relevant laws and regulations.
Risks are identified and assessed at a
Business Unit (BU) level to determine impact
and likelihood, with an appropriate risk
response subsequently evaluated and
implemented. The different risk responses are:
¢ Terminate: cease the activity that creates
the risk;
¢ Transfer: pass the risk to another party;
¢ Tolerate: accept a level of risk;
¢ Treat: act to reduce the likelihood or
impact of risk.
During BU and Group risk reviews, the net
residual risk scores are compared to the
Group risk appetite to review the adequacy of
existing mitigating actions/controls, with
further action taken to control and monitor
risks as required.
RISK FRAMEWORK
Day-to-day ownership of risk sits with
business management under the regular
scrutiny of the Centrica Leadership Team
(CLT) to whom the Board has delegated
principal responsibility for risk oversight. The
Group Principal Risks are those which could
potentially impact delivery of our strategic
objectives over the medium to long term,
where medium term is up to three years,
as determined through our strategic planning
process. The annual risk management
process is summarised in the diagram below.
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
reviewed quarterly by the BU leadership
teams;
¢ The finalised risk reporting and assessment
of each BU’s control environment is then
discussed at a Group Risk and Controls
Review for each BU. The meetings are
chaired by the Group Chief Financial Officer;
¢ At these quarterly reviews, recent
assurance reports and findings from internal
audits and other assurance reviews are
discussed. Actions from previous audits
and assurance reviews are tracked to
ensure close out in line with agreed
timescales.
EXECUTIVE AND BOARD COMMITTEE
REVIEWS
¢ Bi-annually the Group Principal Risks are
presented to the CLT for review and
challenge.
¢ These include the aggregate risk
assessments from the BU ‘bottom-up’
process and any Group-level risk
assessments.
* Audit and Risk Committee (ARC).
** Safety, Environment and Sustainability Committee (SESC).
28
Strategic report | Centrica plc Annual Report and Accounts 2023
¢ The Group Principal Risk profile, as
reviewed by the CLT, is presented to the
Audit and Risk Committee (ARC) for review;
¢ Internal Audit presents four times a year to
the ARC on any material findings as a result
of independent assurance work;
¢ Risk deep dives are undertaken by the
ARC and Safety, Environment and
Sustainability Committee (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 35 to 37. The annual
viability assessment has been presented to
and approved by the ARC.
BOARD
¢ The Board receives adequate information to
review risk as part of its strategy review
process and during the year conducted a
robust assessment of the Company’s
emerging and Principal Risks;
¢ At the year-end the Board reviewed and
approved the Principal Risk and
Uncertainties disclosure;
¢ We evaluate our System of Risk
Management and Control annually, which is
supported by a certification of controls and
adherence to Group policies by senior
management.
CHANGES IN RISK CLIMATE
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 2023 no new material risks were
identified but a number of Group-level areas of
risk were closely monitored, and actions taken
to mitigate their impact on the Group.
Inflation and cost of living
The cost of living crisis continued in 2023, with
food, fuel and energy prices remaining high. In
October 2023 the fall in the energy price cap
enabled by falls in wholesale energy prices
helped to reduce the Consumer Price Inflation
rate to 4.7%, compared to a high of 11.1% in
October 2022. In November 2023, Ofgem
announced that from 1 January 2024 the
energy price cap will be set at an annual level
of £1,928 (previously £1,834, a 5% rise) for a
dual fuel household paying by direct debit
based on typical consumption. This may result
in further pressure on household bills.
The Energy Bills Support Scheme and the
Energy Bills Relief Scheme, both of which
were introduced by the Government in 2022
have concluded. The Government has
committed to the Energy Price Guarantee
(EPG) remaining in place until the end of
March 2024 should energy prices increase
above £3,000 per year. The Ofgem price cap
is lower than the EPG. Government support is
focused on aligning costs for comparable
prepayment meter (PPM) and direct debit
customers, ensuring that PPM users no longer
pay a premium for their energy. For eligible
non-domestic customers, the Energy Bills
Discount scheme is in place until March 2024.
The impact of the Government support
schemes is considered in the bad debt
provision (see note 17), which is also factored
into the Going Concern review.
Energy market
Global wholesale energy prices have reduced
since their peaks in 2022, however European
gas and power prices remain above historical
averages. While the war in Ukraine continues,
alternative sources of gas to replace the Nord
Stream 1 pipeline have been secured across
Europe, largely through Liquified Natural Gas
(LNG) shipped from outside the European
continent. The Gaza conflict has the potential
to increase market volatility if wider Middle
Eastern states are caught up in the conflict.
The gas storage capacity for Rough has been
increased from 30 to 54 bn cubic feet of gas,
and Ofgem (the UK regulator) has agreed to
extend the exemption to negotiated third-party
access until April 2030. The strategic goal for
Rough is to act as one of the world’s largest
natural gas and hydrogen storage facilities and
to play a key part of energy security
infrastructure within Great Britain and the
wider European market.
Centrica has concluded a 15-year LNG off-
take agreement with Delfin Midstream. The
additional 1m tonnes per annum of LNG will
provide another key foundation to ensuring
energy security whilst providing Centrica with
increased optimisation capacity from 2029.
A Risk Capital Steering methodology has been
developed to bolster our existing robust
monitoring and to improve our ability to react
to changes in our Financial risks.
Government and regulatory intervention
In the November 2023 Autumn Statement, the
Government announced it will legislate for a
new investment exemption for the Electricity
Generator Levy (EGL). The EGL is a temporary
45% levy on receipts from the production of
nuclear and renewable electricity sold at an
average price in excess of £75/MWh
applicable from 1 January 2023 to 31 March
2028. We are reviewing the Government’s
technical note on the new investment
exemption and developing our approach on
how to implement.
Other announcements impacting the Energy
sector include £1,000 off electricity bills for a
decade for those living near energy
infrastructure such as pylons or onshore
turbines; committing the Electricity System
Operator to work with Government to
produce a new Strategic Spatial Energy Plan;
introducing competition into onshore electricity
networks in 2024 to benefit consumers and
confirmation from the Chancellor that full
expensing for certain capital expenditure will
be made permanent for businesses, and will
not expire in 2026.
The Government will commit £4.5bn to
strategic investment in UK manufacturing over
the next five years and this includes a £2bn
investment in the zero-emissions vehicle
sector. A further £960m will be made available
for new green industry growth, focusing
on Carbon Capture Utilisation, Electricity
Networks, Hydrogen, Nuclear and Offshore
Wind.
Additionally in November 2023, the
Government and Ofgem jointly published a
Connections Action Plan, setting out a series
of reforms to the process for connecting
generation projects to the transmission
network, with substantial progress expected
in 2025 at the latest.
We will review the measures announced in the
Autumn Statement and the Connections
Action plan and the potential risks and
opportunities they present to the Group.
Environmental, Social and Governance (ESG)
management and reporting requirements are
being developed at the UK, EU and
international level. We continue to sustain our
focus on ESG matters and on meeting our
corresponding reporting obligations.
We await the outcome of a General Election in
2024 and are in close contact with the main
political parties to understand their policies on
overall governance of the energy industry,
taxation, storage and net zero (including
transport infrastructure for hydrogen) and will
monitor to assess the impact of any change in
Government.
The Financial Reporting Council published an
updated UK Corporate Governance Code in
January 2024. We are already working to
improve our Governance, control frameworks
and assurance policies and will ensure this
work aligns with the latest requirements.
Technology
We continue to invest in our Finance systems
to improve our controls, reduce duplication and
manual intervention, and the risk of errors or
omissions. We are strategically replacing or
integrating our Trading and SAP ERP systems.
In British Gas Energy, 5m customers have
been migrated to our new energy platform.
This is strategically critical to reduce our cost
to serve and deliver a quality service to energy
customers at a competitive price.
Deployment of the Simplified Integrated
Planning and Dispatch system (SIPD) and
Supply Chain Transformation in our Services
business is also key to transforming our
service to customers, allowing us to better
meet customer demand through streamlined
processes, increased efficiency and improved
responsiveness to customer needs.
This has not led to any changes in Principal
Risks, but transformation risk will be
monitored within the BUs and functions as
these technology changes are delivered and
embedded.
Strategic report | Centrica plc Annual Report and Accounts 2023
29
PRINCIPAL RISKS
The following Principal Risks were adopted by the Board in 2023 and reflect the position of the Group at the point of signing the
accounts. The risks are presented in order of highest to lowest 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 year’s risk review, based on the environment and
controls in place.
CREDIT AND LIQUIDITY RISK
Overview
Risk Category — Financial
Risk of financial loss due to counterparty/customer/third party default or a credit event limiting the availability of financial facilities or unsecured credit lines
¢ Hedging commodity price risk in the markets exposes Centrica to (i) credit risk, which is the risk of a loss if a counterparty fails to perform on its obligations or (ii) liquidity risk
when trades on exchange or with margining agreements result in collateral postings
¢ Trending directional price moves can lead to a build-up of mark to market positions which is a key component of credit and liquidity risk
¢ Volatile commodity markets can also increase cash and working capital requirements for both ourselves and our counterparties (with the latter increasing the risk that one of our
counterparties fails to perform and consequently increases the risk of contagion)
¢ Further information is included in the S3: Financial risk management section within the Supplementary Information to the Financial Statements
¢ Cost of living, higher levels of fuel poverty, and relatively high inflation are impacting customers’ ability to pay for their energy supply, which means overall customer bad debt has
notably increased. This has been further impacted by Ofgem’s moratorium on the installation of prepayment meters (PPMs) under warrant (in place from February 2023 to
January 2024). BG Energy are considering the timescales and permissions required in order to restart this activity
Mitigations
¢ Financial risks reviewed regularly in dedicated Risk Committee forums
¢ Credit risk teams actively manage and reduce credit exposures, taking account of liquidity considerations
¢ Credit mitigation instruments negotiated, as needed, including guarantees, and letters of credit and/or tenor and volume restrictions imposed to avoid exposures building
¢ Centrica Energy and Group Treasury work closely to monitor liquidity requirements under normal and stressed market conditions
¢ Capital Reporting is distributed to CLT members monthly and bi-annually to the Board, who agree a risk capital buffer to underpin Centrica’s strategy
¢ Access to diversified sources of committed and uncommitted liquidity
¢ Monitoring of forecast versus actual customer debt position, and review of the bad debt provision
¢ Increased bad debt risk from the restrictions on fitting prepayment meters under warrant is partly mitigated through additional support processes to help customers to repay
their debt
Developments
¢ Market prices persist at levels higher than historical averages, albeit lower than 2022 record highs
¢ Credit exposures have significantly reduced from 2022 levels and stand within the Group Credit Risk limits
¢ The higher interest rate environment has adversely affected some smaller sized, highly leveraged counterparties. These exposures are being actively monitored through the
various credit review forums
¢ In 2023, the multi-year committed credit facilities which are provided by Centrica's relationship banks were successfully refinanced
¢ Sources of liquidity have been increased and diversified over the year in response to the volatile energy markets witnessed in 2022
¢ In British Gas Energy the planned implementation of an end-to-end debt management system in H1 2024 will help to manage and respond to energy customer debt
RISK CLIMATE
MARKET RISK
Overview
Risk Category — Financial
DETERIORATED
Risk of financial loss due to trends and volatilities in commodity prices
¢ Commodity exposure arises within the trading businesses, which provide a route to market for Centrica’s upstream/infrastructure and power generation operations, sourcing of
electricity and gas for the Group’s energy supply businesses and proprietary trading activities. We also have commodity exposures driven by our LNG portfolio, and in particular
the Cheniere contract
¢ Material movements in commodity prices can impact in-year P&L through revenue on sale of asset production, and impact on the long-term valuation of asset portfolios
¢ Hedging commodity price risk in the markets exposes Centrica to supply shock, an unexpected event that changes the supply of a commodity, resulting in a sudden change in
price
¢ Changes in our customer demand requirements can result in a commodity exposure as we balance our established hedges at market prices
Mitigations
¢ Review of hedging policies in bi-annual Group Risk Hedging Policy Committee
¢ The monthly Downstream Energy Margin Meeting is a forum for all relevant parties to review demand forecasting performance, hedge positions, risk and P&L, with actions
recorded and tracked to completion
¢ Hedging decisions and risk are agenda items at the monthly Finance Performance Reviews across the Group
¢ Financial risks reviewed regularly in dedicated Risk Committee forums, financial risk reporting is monitored against limits on a daily basis in Centrica Energy
Developments
¢ Prices and volatilities have reduced but remain elevated versus historical averages
¢ Optimisations to the Route to Market process ensure that hedging decisions are made and executed efficiently
¢ The financial impact of outage risk associated with the output of upstream/infrastructure assets remains high due to the higher price environment and the ageing asset
infrastructure
RISK CLIMATE
IMPROVED
30
Strategic report | Centrica plc Annual Report and Accounts 2023
WEATHER RISK
Overview
Risk Category — Financial
The impact on present or future profitability resulting from volume impacts as a result of deviation to normal weather
¢ 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 energy price cap allowance and the risk exposure is primarily to cold weather, additional volumes may be required for downstream
customers at a cost higher than can be recharged
Mitigations
¢ Dynamic hedging strategy approved by the Group Chief Executive, to reduce the exposure to high price and cold weather risk
¢ Options to mitigate weather risk in British Gas Energy, to narrow the range of gross margin outcomes, are reviewed ahead of winter seasons with decision rights held by the
Group Chief Executive
¢ The monthly Downstream Energy Margin Meeting is a forum for all relevant parties to review weather impact and hedging proposals and performance, with actions recorded
and tracked to completion
¢ Regular reviews ensure there is adequate access to liquidity in stressed cold weather scenarios
Developments
¢ Higher European gas storage levels have helped to mitigate the risk of winter supply shocks
¢ The risk is skewed to warm weather affecting revenue generation by the downstream business together with potential losses from selling back hedges
RISK CLIMATE
STABLE
POLITICAL, LEGAL, REGULATORY OR ETHICAL INTERVENTION/COMPLIANCE
Overview
Risk Category — Compliance/Strategic
The risk of political or regulatory intervention and changes, failure to comply with laws and regulations, or greater regulatory scrutiny detecting unknown areas of non-
compliance
¢ The level of regulatory scrutiny particularly in relation to the retail energy supply and insurance businesses in the UK remains significant; driven by a heightened political focus on
the cost of living challenges for many consumers against the backdrop of an impending election
¢ Increased focus on ESG interventions and the impact on investor confidence in our responses
¢ Material or sustained non-compliance with legal or regulatory obligations could lead to financial penalties, reputational damage, customer churn and/or legal and/or regulatory
action
¢ Any material real or perceived failure to follow Our Code would undermine trust in our business
Mitigations
¢ Continuous engagement with policy makers and consumer groups to help form future regulatory requirements
¢ Dedicated Corporate Affairs and Regulatory teams which examine upcoming political and regulatory changes and their impact, with reporting to the Centrica Leadership Team
on an ongoing basis
¢ Understanding the expectations of stakeholders through reputational surveys and the review of media sentiment
¢ Continuous dialogue with Ofgem and the FCA to influence the regulatory environment
¢ 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
¢ The Energy Compliance team has built capability in Energy Assurance to support the business with meeting complex regulatory requirements
¢ 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
¢ Our Code employee annual training represents our commitment to doing the right thing and acting with integrity. The training includes new mandatory topics such as
Consumer Duty and a refresher on all topic areas covered by our code of conduct
¢ A global ‘Speak Up’ helpline exists to provide a consistent Group-wide approach to reporting unethical behaviour
Developments
¢ Keeping pace with the volume, speed of implementation and complexity of political and regulatory change impacting the Group has proved challenging
¢ Ofgem will run a broad Compliance programme in 2024, including customer service complaints, direct debits and prepayment meter installation obligations
¢ New licence obligations introduced regarding installation of prepayment meters for reasons of debt. Ofgem is overseeing the process for a controlled ‘restart’
¢ Power granted to the Electricity System Operator to remove unviable projects from the grid connections queues
¢ We continue to advocate for a revised policy framework for Smart meters with Ofgem and Government
¢ Ofgem’s non-domestic market review is concluding, focused on improving transparency. Broker conduct remains a concern, with Ofgem seeking powers to regulate this
sector directly
¢ Centrica Energy is impacted by a number of regulatory changes to MiFID (Markets in Financial Instruments Directive), Remit (EU Regulation on Wholesale Energy Market
Integrity and Transparency) and EMIR (European Market Infrastructure Regulation)
¢ Centrica Energy investing in a Compliance Transformation Programme to respond to regulatory risks and improve Governance and controls frameworks
RISK CLIMATE
DETERIORATED
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31
CLIMATE CHANGE
Overview
Risk Category — Strategic
Risk of market, regulatory and policy changes driven by climate change affecting the ability of the Group to execute its strategy
¢ Increased pressure from Government, investors and customers to commit to meaningful carbon reduction targets
¢ Execution of the Group’s strategy to realise opportunities from the energy transition
¢ Timing and execution of British Gas pivot to decarbonised heating, power and transport products and services
¢ ESG management and reporting requirements are being developed at the UK, EU and international level and many have defined timelines in which Centrica, or its subsidiary
businesses, will be legally obligated
¢ Increased focus on ‘greenwashing’ and greater rigour on how organisations market low carbon products and propositions
Mitigations
¢ Monitoring of progress against People and Planet targets including net zero targets for our business and our customers
¢ Centrica’s Climate Transition Plan which outlines our approach to move to a low carbon future, published in 2021, will be updated in 2024 and subject to a non-binding vote at
the 2025 AGM
¢ Progress against our Climate Transition Plan has been incorporated into executive remuneration
¢ The SESC, which is chaired by an independent Non-Executive Director, typically reviews climate change information and the Climate Transition Dashboard three times a year.
The SESC additionally maintains oversight over material climate-related matters
¢ We have achieved full compliance in our 2023 Task Force on Climate-related Financial Disclosures (TCFD) reporting, reflected in pages 47 to 55
¢ New Business and Net Zero lines of business and Centrica Business Solutions develop innovative and competitive products and propositions to gain a significant footprint in
the growing low carbon market
¢ Green Claims Principles have been developed and implemented to manage ‘greenwashing’ risk across the Group
Developments
¢ Continued geopolitical focus on COP28 and on how corporations respond to climate change
¢ The Government has extended the deadlines for both the phase-out of gas boilers and the ban on petrol/diesel vehicles to 2035 and increased the grant for Heat Pump
installations by £2.5k to £7.5k
¢ The European Corporate Social Responsibility Directive (CSRD) aims to create a sustainable economy for the EU. The CSRD requirements are broader in scope, complexity
and granularity of reporting on ESG matters and require assurance activity
In July 2023 the Group announced a new Investment Plan, to invest between £600m–£800m a year until 2028 in renewable generation, security and flexibility of supply, and
our customers. Our investment strategy will channel capital investment to realise investment opportunities from moving to a low carbon future. Examples of low carbon
energy projects include:
¢ Solar farm at Codford and battery storage development at Brigg
¢ Hydrogen initiatives include a partnership with HiiROC, testing injection at Brigg
¢ Centrica Energy Storage+ is investing to support potential repurposing of the Rough asset for production and hydrogen storage
¢ Spirit Energy is exploring the feasibility of converting the Morecambe gas terminal to a Carbon Capture Storage asset and has been awarded a carbon storage licence in 2023
¢ British Gas has published a second net zero homes index to understand public sentiment and to develop relevant products and solutions
RISK CLIMATE
CUSTOMER
Overview
Risk Category — Operational/Strategic
STABLE
Failure to deliver satisfactory customer service leading to complaints or loss of customers
¢ Cost of living, higher levels of fuel poverty and relatively high inflation are impacting customers’ ability to pay for their energy supply, overall customer bad debt has notably
increased. This has been further impacted by Ofgem’s moratorium on the installation of PPMs under warrant (in place from February 2023 to January 2024). British Gas Energy
are considering the timescales and permissions to restart this activity
¢ Increased call volumes driven by Ofgem Price Cap changes and the Government’s EBRS and EBSS schemes concluding
¢ British Gas Services & Solutions peak services demand exceeding engineer capacity
¢ Bord Gáis Energy continue to operate in a highly competitive landscape with expected political and customer pressure to reduce prices further in Q1 2024
Mitigations
¢ Customer facing business units focusing on complaints reduction, root cause analysis and understanding customer pain points
¢ Customer Conduct Boards provide oversight to minimise customer detriment, complaints and regulatory action
¢ British Gas Services & Solutions continues to build delivery capacity measures through optimised planning and forecasting methodologies, and winter resilience activity
incorporating lessons learnt from 2022
¢ Continued deployment of SIPD
¢ British Gas Energy’s ongoing recruitment of frontline colleagues to maintain adequate attrition and recruitment levels with the aim of increasing the level of onshore Customer
Service teams; and the introduction of ‘blended’ working patterns and multi-skilling
Developments
¢ The energy crisis and customer affordability challenges, continue to drive unprecedented levels of customer contact
¢ British Gas Energy and Bord Gáis Energy has more than doubled its energy support package in 2023 compared to 2022, which now totals £140m since the start of the
energy crisis, and includes dedicated support for customers with PPMs in the UK (see page 6 and 16 for more)
British Gas Energy:
¢ PeakSave, the National Grid’s discount scheme to manage peak demand has been extended to Winter 2023/2024. The scheme rewards customers for using less electricity at
peak times
British Gas Services & Solutions:
¢ Consumer Duty Embedding Program established to ensure ongoing product value for our customers
¢ Improvement activities focused on enhancing customer service include data analytics to enable us to respond to our customers more effectively
Bord Gáis:
¢ Domestic energy customers will receive further assistance from the Government, a new €450 electricity credit payment to be paid in three instalments from December 2023.
The 9% VAT rate on electricity and gas will be extended for 12 months
RISK CLIMATE
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Strategic report | Centrica plc Annual Report and Accounts 2023
STABLE
PEOPLE
Overview
Risk Category — Operational
Risk of failure to attract, develop, engage and retain key talent
Risk of deterioration to the health and wellbeing of colleagues
¢ Failure to attract and retain key capabilities and safeguard the health and wellbeing of the workforce across the business could have a detrimental impact on our ability to meet
our strategic objectives
¢ The cost of living crisis and inflation impact on colleague mental health and wellbeing
¢ Labour market shortages for key skills impacting retention in some BUs and locations
Mitigations
¢ Quarterly Performance Conversations in place as part of the Terms and Conditions governance framework
¢ Monitoring of key metrics including the Quarterly Employee Engagement index, absence and attrition rates. Proactive implementation of actions to support colleagues
¢ Tailored strategies in place to address localised retention and recruitment issues
¢ Succession planning continues locally with assessments of critical roles and people, rolling up to a conversation with the CLT and with the Board
¢ Diversity, Equity and Inclusion Action Plans by BU and Function to increase diversity of representation at senior levels, improve equity of opportunity and promote continuous
behaviours
¢ Continuous focus on our values and culture aligned to our Purpose
¢ The Shadow Board provides a forum to engage with the CLT to influence decisions, positively disrupt assumptions, and challenge executives’ thinking to support colleague-
centred decision-making
¢ Open access to colleague-led employee networks, including working parents, fertility and carers networks, to build communities within Centrica
Developments
¢ Organisational change taking place to ensure our continued success and to help achieve growth through our net zero strategy. We will continue to monitor the impact on our
colleagues via wellbeing and engagement data sources
¢ Externally, the Trade Union environment remains active across all sectors. There are numerous high-profile disputes relating to pay and the increased cost of living
¢ Internally, we are in negotiation for a full pay review to be implemented in March 2024. Discussions are ongoing; the outcome of this negotiation is currently unknown
¢ Following the introduction of FlexFirst during lockdown, we have committed to adopting a hybrid working approach
¢ A Centrica-wide working group continues to support colleagues with the cost of living crisis including the introduction of lifestyle savings
¢ Colleague Support Foundation successfully launched with charity status and is supporting colleagues that need financial help and have exhausted other means
¢ As part of our ongoing commitment to Diversity, Equity and Inclusion, we have launched Courageous Conversations about Race training to provide colleagues with the
foundation to start their journey in helping us become an anti-racist organisation
RISK CLIMATE
SAFETY
Overview
STABLE
Risk Category — Operational
Risk of occupational, transportation, customer/third-party fatality or injury due to safety hazards
¢ Our operations have the potential to result in personal harm
¢ Significant Health, Safety and Environment (HSE) events could have regulatory, financial and reputational repercussions that would adversely affect some or all our brands and
businesses
Mitigations
¢ Regular review of HSE risks to ensure they are reduced to as low as reasonably practicable
¢ Continued investment in training and competency to ensure maintenance of safe operating practices
¢ HSE Management Systems are established to include policies, standards and procedures to protect employees, third parties and our environment
¢ Assurance over our HSE processes and controls provided by our in-house HSE teams supported by external subject matter experts, where needed
¢ Leadership to drive improvements in HSE maturity and continuous improvement in key metrics
¢ Our approach to customer visits is continually reviewed to ensure that employees are operating in line with Government guidelines and/or industry best practices and that the
health and safety of employees and customers is maintained
Developments
Management is enhancing existing HSE frameworks to respond to changing risks as the Group strategy evolves to include the following activities:
¢ The continued operation of Rough as a storage facility and potential repurposing for hydrogen production and storage
¢ The expansion of the services businesses
¢ Development of new peaking plants in the UK & Ireland
¢ Construction of a battery storage project at Brigg
¢ Ongoing trial with HiiROC (a Green Technology company) to inject hydrogen into a gas peaking plant at Brigg
RISK CLIMATE
STABLE
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33
CYBER
Overview
Risk Category — Operational/Compliance
Risk of failure to prevent impacts from denial of service, cyber espionage and the related theft/disclosure of confidential/customer data leading to reputational, regulatory and
financial impacts
A cyber-attack could present to Centrica as follows:
¢ Confidentiality: leakage of customer or company confidential data by threat actor, third party, staff or system error, either maliciously or by accident
¢ Integrity: inaccuracy of Centrica’s data due to malicious or accidental alteration by internal or external parties, or malicious actors
¢ Availability: loss of assets, including data, due to a cyber compromise
Due to the diversity of Centrica’s technology, the Group 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), Smart Metering obligations (Ofgem), Security of Network &
Information Systems Regulations 2018 and enhanced NIS II
Mitigations
¢ Ongoing threat intelligence gathering, collaboration and information sharing with industry peers and National Cyber Security Centre
¢ The Cyber Security Change Programme builds security capabilities and improvements in controls that increase the difficulty of targeting Centrica and being able to exploit
weaknesses without detection
¢ The Ransomware Programme has delivered improvements to enhance Centrica’s ability to co-ordinate and recover from a ransomware attack
¢ Enhanced cyber controls dedicated to protecting operational technology (control systems used to manage domestic, commercial and industrial processes) have been
implemented
¢ Training and awareness campaigns delivered to all employees in 2023 and focused training has been developed for key groups to raise awareness and highlight responsibilities
in protecting data
¢ Cyber-attack simulations to identify and remediate control gaps
Developments
The current geopolitical situation and advancements in technology have increased the complexity of the external threat landscape. This can be attributed to several factors:
¢ Political instability in certain regions of the Middle East
¢ In Ukraine there have been several high-profile cyber-attacks on energy infrastructure
¢ The rapid pace of technological development has made it easier for cyber criminals to launch sophisticated attacks on all sectors including energy and utilities
¢ Artificial Intelligence (AI) poses a new threat to cyber security. The risk of misuse of AI to create complex attacks is expected to increase rapidly with AI tools becoming cheaper
and more accessible
¢ The targeting of supply chains as a mechanism to attack firms by exploiting the trust between known suppliers
¢ The volume, sophistication and frequency of ransomware attacks has evolved, with the most catastrophic bringing down IT systems within very short timeframes, and in some
circumstances leading to publication of exfiltrated data
¢ The increased connectivity of operational technology presents an opportunity for attackers that if exploited could cause major harm and disruption to industrial processes
including processes in the energy sector
Our business strategy to expand to low carbon markets and help our customers toward net zero may increase our regulatory obligations in maintaining our cyber security
posture, requiring enhanced Governance and external regulator oversight
RISK CLIMATE
DETERIORATED
OPERATIONAL ASSET INTEGRITY
Overview
Risk Category — Operational
Risk that impaired structural or asset integrity, resulting from any of a failure in design, failure in appropriate maintenance and inspection, operating outside of design
conditions and/or human error, leads to a major accident (such as loss of containment of flammable/hazardous materials or structural collapse) that could result in multiple
fatalities and/or major damage to the environment
¢ Failure to invest in the inspection, maintenance and development of our assets could result in significant safety issues, such as personal or environmental harm, or asset
underperformance through unplanned outages
¢ Failure to capture adequate return on our nuclear investment due to operational issues or early station closures suppressing earnings and cash flows
Mitigations
¢ The Group Annual Plan includes contingencies to cover events such as unexpected outages from assets
¢ Group-wide minimum operational and safety standards are applied to all assets, whether operated or non-operated, and adherence against them is monitored and reported
¢ Maintenance activity and improvement programmes are conducted across the asset base to optimise effectiveness and maximise production levels
¢ We use our presence on the Board of EDF Energy Nuclear Generation Group Limited to monitor the performance of the nuclear fleet
¢ Continued investment in training to ensure maintenance of safe operating practices
¢ HSE Management Systems are established to include policies, standards and procedures to protect employees, third parties and our environment
¢ Continuous engagement with regulatory agencies such as the Environment Agency, North Sea Transition 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
Developments
¢ The Whitegate Plant operated with strong availability and reliability in 2023. As the plant ages and we move to more flexible generation, plant reliability and safety risks will need
to be carefully managed as the impact of any outages can be significant. A close focus on long-term asset integrity is required through proactive management, maintenance
and investment
¢ Rough gas storage facility reopened in October 2022, with increased levels of inspection and ongoing maintenance. The Group Insurance team continues to discuss the cost
and benefits of business interruption cover with relevant BUs
¢ The HSE Function works with the business to ensure effective HSE resources and competency operate consistently and effectively across the business
¢ Spirit Energy continues to focus on safely delivering production from existing assets; meeting and de-risking decommissioning obligations and pursuing strategic energy
transition opportunities from existing assets
¢ The Nuclear fleet has performed well in 2023 with strong reliability metrics, although outage downside risks are binary and potentially significant. In March 2023, a two-year
lifetime extension was announced in respect of Heysham 1/ Hartlepool. Our nuclear business has also announced an ambition to further extend the lives of the four
generating Advanced Gas-cooled Reactor stations (Heysham 1&2, Hartlepool, Torness), subject to inspections and regulatory approvals. There is a strategic intention to
extend our Pressurised Water Reactor station Sizewell by 20 years to 2055. The nuclear business continues to monitor performance and station lifetimes very carefully
RISK CLIMATE
STABLE
34
Strategic report | Centrica plc Annual Report and Accounts 2023
ASSESSMENT OF VIABILITY
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 and Accounts on
pages 41 and 10 respectively.
REQUIREMENT
In accordance with provision 31 of the UK Corporate Governance
Code the Directors have assessed the prospects and viability of the
Group considering the business model (as set out in the Strategic
Report on pages 2 to 3), current position in the context of liquidity and
credit metrics of the Group, and Principal Risks.
4. The Group’s strategic objectives
The Group’s strategic purpose is to energise a greener, fairer future –
because we believe in energy that works for colleagues, customers and
communities, today and tomorrow, as set out on page 2 of this Annual
Report and Accounts. This supports the assessment of the Group’s
prospects.
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 & Solution are the
largest residential energy supplier and home services provider in the
UK; Bord Gáis Energy is the second largest residential energy supplier
in Ireland; and the Centrica Energy business is a leading route to
market services provider across Europe. Centrica also has the largest
heating engineer workforce in the country who are highly trusted by our
customers and 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
¢ Commodity price volatility and its impact on the UK energy supply
market;
¢ Cost of living crisis and its impact on our customers;
¢ Increasing progress and Government support for net zero,
corporates committing to clear net zero targets;
¢ Competition remains intense with margins under pressure within our
retail business, and we expect that may remain the case as the
market emerges from the current crisis;
¢ Falling costs for battery, solar and wind, electric vehicles deployment
accelerates, growing need for flexibility;
¢ Increasing LNG demand; and
¢ Role of data analytics, artificial intelligence, and automation
increasingly important.
We continuously monitor emerging trends to proactively identify
potential risks and strategically shape our investment approach where
we could leverage a competitive advantage.
3. Customer needs
¢ Hassle-free, empathetic, personalised, and safe service. Offering
solutions, not just products;
¢ Responsible options (including green tariffs) and expert guidance to
help them achieve their net zero goals;
¢ Trusted and credible counterparty; and
¢ Lower costs and greater efficiency.
5. The Principal Risks facing the Group, as set are out on pages
28 to 34
The risks we consider to be of greatest significance in assessing our
prospects include:
¢ Political or regulatory intervention, including increased focus on ESG
interventions and responding to climate change;
¢ External risks associated with weather, commodity price movements
and the cost of living crisis;
¢ Risk of financial loss due to counterparty default or a credit event
limiting the availability of financial facilities or unsecured credit lines;
¢ Compromised asset production and health and safety impacts of
process loss of containment; and
¢ Operational risks associated with the effectiveness of our internal
control environment in relation to cyber risk, data protection and
customer conduct.
Climate change is one of the most important drivers guiding Centrica’s
prospects today and is a core part of our Purpose as reflected by the
actions we have taken, which include:
¢ We’ve outlined our plans for how we intend to decarbonise power,
heat and transport through our Climate Transition Plan;
¢ 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; and
¢ We’re committed to capital investment of £600–800m per year
until 2028, of which we are aiming for at least 50% into green
taxonomy eligible projects as set out on pages 47 to 56.
Good progress has been made on managing the prospects of the
Group during 2023. We continue to simplify our management structure
and increase 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 than in
previous years, with an improved adjusted net cash position as at
31 December 2023.
The Board has confidence in the long-term prospects of the business.
The Board believes that the strategic steps taken in 2023 aligned with
the Group’s revised strategy as outlined in the July 2023 strategy
update will set the Group up to be successful and generate sustainable
profits in the long term while investing in renewable generation, security
of supply and our customers.
ASSESSMENT OF VIABILITY
The assessment is based on the Group Annual Plan for 2024 and the
longer-term strategic forecasts 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, commodity prices, trading performance,
margin cash requirements, weather, and asset performance.
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35
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 liquidity
which support the Group’s planned financial commitments. During
2023, Centrica successfully refinanced the core credit facilities with
strong support from the relationship bank group. As at 31 December
2023, the Group had total committed credit facilities of £5.3bn, of
which £0.2bn expire in 2024, £1.0bn expire in late 2026 and £4.1bn
expire in 2028. Of the £5.3bn of committed credit facilities, a total of
£3.8bn remained undrawn as at 31 December 2023.
While commodity prices have shown a notable decrease in volatility
throughout 2023, and the Group anticipates a relatively stable trend in
2024, 2025, and 2026, it is crucial to acknowledge that in a setting
characterised by erratic commodity prices, the Group's portfolio
presents greater potential for value capture and outperformance.
However, it comes with a considerably broader range of risk outcomes.
In such an environment, the pressure on liquidity intensifies, making it
imperative for entities to focus on ensuring access to a reliable and
diverse portfolio of financial resources.
In addition, the cost of living crisis continues. Although inflation has
started to fall in 2023 it could remain elevated due to underlying
pressures. As a result, the Group is exposed to elevated levels of bad
debt as customers struggle to pay their bills.
To reflect the current volatility of risk factors, the Company has used
judgement to determine severe but plausible scenarios and has
modelled three versions of the Viability Assessment to give a high, base
and low-price scenario. These scenarios reflect a range of reasonably
possible increases or decreases in commodity prices due to market
conditions. The price curves used for the high and low scenario are
summarised right:
LOW PRICE ENVIRONMENT
2024
2025
2026
NBP (p/th)
Baseload Power (£/Mwh)
69
54
68
56
68
52
HIGH PRICE ENVIRONMENT
2024
2025
2026
NBP (p/th)
Baseload Power (£/Mwh)
319
245
210
189
162
134
Viability was initially assessed based on August 2023 prices. We have
continued to monitor these price changes to ensure that our base, high
and low curves remain appropriate and specifically whether our base
assumptions remain within the high to low range. As a result of this
exercise, the high and base price scenarios were not adjusted (as the
base scenario remained within the high to low range).
Commodity prices for NBP have fallen sharply in January 2024 and
consequently we have also completed a separate assessment based
on an updated low curve to confirm that the Group remains viable in
the event that both NBP and baseload power fell further.
REVISED LOW PRICE
ENVIRONMENT
NBP (p/th)
Baseload Power (£/Mwh)
2024
2025
2026
46
47
50
44
52
44
The four scenarios share the same risks but, where relevant, the risks
were flexed to reflect the Group’s exposure in each scenario. We have
modelled groups of risks within ‘clusters’. It is not plausible that all risks
would occur at the same time, and therefore each of the clusters is
considered as a plausible combination of risks. The table below details
the risk clustering and linkage to Principal Risks. Each of the clusters
includes common risks throughout in addition to the risks associated
with the cluster. The risks relating to commodity price, margin cash,
bad debt, credit risk, cyber risk and letters of credit were selected as
constant events in all four clusters.
RISK CLUSTER
RISK DESCRIPTION
LINKS TO PRINCIPAL RISKS
RISK >5% OF
OPENING
HEADROOM?*
Common risks
Commodity price impacts on earnings of asset-based
businesses
¢ Financial Markets – Market Risk
Increased margin cash requirements arising from adverse
market conditions
¢ Financial Markets – Credit & Liquidity Risk
¢ Financial Markets – Market Risk
Higher bad debt due to cost of living crisis
¢ Financial Markets – Market Risk
¢ Financial Markets – Credit & Liquidity Risk
Cyber-attack – risk of failure to prevent denial of service
¢ Cyber
Credit Risk: risk of financial loss due to counterparty default
¢ Financial Markets – Credit & Liquidity Risk
Removal of 25% of drawn uncommitted Letters of Credit
¢ Financial Markets – Credit & Liquidity Risk
Cluster 1: Industrial
& Regulatory
Regulatory risks in relation to loss of sensitive data
Operational impact of sustained employee industrial action
¢ Political, Legal, Regulatory or Ethical Intervention/
Compliance
¢ People
¢ Customer
Cluster 2: Asset
Performance
Significant disruption to the asset-based businesses leading
to loss of production and earnings
¢ Operational Asset Integrity
¢ Safety
Cluster 3: Adverse
Retail Market
Cluster 4: Trading
Business Under-
performance
See note below**
Significant adverse weather event and commodity
price volatility
¢ Financial Markets – Weather Risk
Underperformance of trading business
¢ Financial Markets – Market Risk
Increased collateral requirements arising from a single-notch
credit rating downgrade
¢ Financial Markets – Credit & Liquidity Risk
* Headroom is calculated as undrawn committed facilities plus total liquid resources.
** A credit rating downgrade risk has only been applied to scenarios where the stressed credit metrics indicate Centrica would be at significant risk of downgrade by the
credit agencies.
36
Strategic report | Centrica plc Annual Report and Accounts 2023
Group-wide assumptions include:·
¢ No material acquisitions or disposals of Group business areas; and
¢ An updated investments profile in line with the July 2023 strategy
update;
¢ Centrica have a long-standing relationship bank group and
successfully refinanced the committed credit facilities in 2023. As
such, the Directors are confident in the ability of Centrica to refinance
appropriate credit facilities; and
¢ Access to Commercial Paper and Debt Capital Markets as
sources of liquidity.
LIQUIDITY REQUIREMENTS
Centrica has established enhanced processes to manage and monitor
liquidity requirements across the entire organisation with a focus on
trading entities and possible increased cash margin requirements.
These processes include:
¢ Monitoring reasonably possible scenarios for increased liquidity
requirements because of changes in commodity prices and market
conditions; and
¢ Ensuring Centrica maintains ample headroom to address
reasonably anticipated liquidity needs throughout the Viability
Assessment period. This entails ensuring flexibility in accessing
debt capital markets and a range of additional resources as
needed, including committed credit facilities, uncommitted letters
of credit, commercial paper, and various other short-term
funding options.
Centrica has also established enhanced governance measures to
review liquidity forecasts under various scenarios and implement
mitigating actions where appropriate.
Centrica uses sophisticated modelling and analysis of the volatile
market conditions over the last two years, and market forward data to
determine severe but plausible scenarios of the liquidity requirements of
the whole Group. These include high and low-price scenarios which are
reflected in the Viability Assessment. While these scenarios include
assessing to stressed market conditions that may arise in the future,
they will not necessarily predict future conditions given markets are
volatile. Therefore, Centrica maintains and monitors the liquidity
requirements across the business to ensure sufficient headroom is
retained.
Regular assessments are performed of the credit worthiness of
counterparties that Centrica trades with and pay and receive cash
margin calls from. These include assessing the level of exposure to
counterparties, monitoring and dynamically managing credit limits and
arranging credit enhancements such as requiring letters of credit from
financial institutions.
OUTCOME OF VIABILITY ASSESSMENT
The viability scenarios have been assessed to confirm whether the
Group would have sufficient liquidity available to meet its future planned
financial commitments, and that the credit metrics calculated would not
imply a sustained fall to below investment grade credit ratings (S&P
BB+ and Moody’s Ba1).
To reach a conclusion as to the Group’s viability, the Directors have
considered the following:
¢ The Directors considered whether any of the scenarios and clusters
of risks noted above breached the available headroom in the three-
year period and concluded that sufficient headroom was available in
all scenarios; and
¢ 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 identified that there are some extreme risks that
could theoretically result in Centrica entering a position whereby its
financial resources were insufficient to meet its liabilities as they fall due.
However, given the current financial strength of the Company, the
combination of events required to achieve this scenario is extremely
unlikely to occur. We therefore believe that these risks do not represent
a ’severe but plausible’ threat to the viability of the Company.
CONCLUSION
The Directors have considered all the above factors in their assessment
of viability, including the availability of mitigating actions within their
control if 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.
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37
GROUP CHIEF PEOPLE
OFFICER’S REPORT
Jill Shedden MBE | Group Chief People Officer
2023 has been another extraordinary year for
Centrica. I am really proud of what all our
colleagues have achieved together to adapt to
changing business needs and to support our
customers and each other throughout the year.
We believe our culture is a unique one, with our
‘caring’ and ‘delivery’ values standing out.
Amongst our many successes we’ve donated
and fundraised £4 million to make a big
difference to charitable causes we all care
passionately about across our local
communities. We are helping colleagues and
customers as much as possible with ongoing
energy and cost of living issues. We continued
with our returns to shareholders which will also
benefit the majority of our colleagues who are
or will become shareholders due to our Global
Profit Share award.
COLLEAGUE ENGAGEMENT
I am delighted that colleague engagement has
continued to improve quarter on quarter
improving by 0.3 points to 7.7 by the end of
the year, which is just below top quartile
performance for our sector. Our engaged
workforce is also working alongside other
business initiatives to continue improvements
in our customer satisfaction journey, and we
can see confidence in our products and
services rising.
Our People function has
made a huge contribution
to Centrica as we have
partnered change in the
business, and our positive
colleague engagement
scores illustrate our
colleagues’ appreciation
for the strong and
supportive culture
within Centrica.
38
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LISTENING TO OUR PEOPLE
The Shadow Board is a Centrica Leadership
Team sponsored initiative introduced in 2021.
The Shadow Board comprises ten colleagues,
each with different knowledge and experience,
and all from different business units and
functions and at different levels across the
Group. The Shadow Board provides an
opportunity for the views of colleagues to
positively challenge assumptions and influence
decisions by offering a colleague perspective
on a range of topics, including those of a
strategic nature. The Shadow Board is not
expected to deliver outcomes independently.
One key outcome that led from feedback from
this process between the CLT and the
Shadow Board is the closer relationship that
has been actively developed between our
networks and our British Gas Field colleagues.
DEVELOPING NEW CAPABILITIES
During 2023 we also made some leadership
appointments which will support the growth
of our businesses and achieve a cleaner,
greener future. The new business of ‘New
Business and Net Zero’ will continue to build
our in-home net zero offering to residential
customers and ensure that all of us at
Centrica continue to play a leading role in the
energy transition. Our new Chief Customer
Officer role will strengthen the voice of our
customers, continuously pushing the team to
create a customer experience that promotes
loyalty and retention for new and existing
customers. In the wider workforce, we
continued to grow our professional capability
during 2023 with over 1,000 professional
colleagues joining our Group. Our award
winning Graduate & Summer Placement
Programme and our Ex-Forces Pathway
programme supports our People Strategy
and our Workforce for the Future aspirations
and demands.
Career mobility and developing our internal
talent is critical and we have a consistent,
future-focused Talent Framework and Talent
Review approach in place which enables all
people managers to better understand team
strengths of today and development for
tomorrow.
We continue to secure our net zero
commitments by investing in our customer
facing teams and our training academies.
This includes building skills for today and the
future in purpose-built locations and driving
new apprenticeship pathways, giving us the
opportunity to serve our customers with up
to date skills and technologies.
COLLEAGUE NETWORKS
I am incredibly proud that we have a number
of active colleague-led networks that operate
across Centrica. Our networks cover areas
such as gender, sexual orientation, family,
community, disability, health and wellbeing
and ethnicity.
We have over ten employee-led networks and
we are proud of what our employee networks
are achieving. They play a key role in
partnering with the organisation to drive
change and make our workplace a more
inclusive place for our people to thrive in and
be themselves.
Centrica Forces Network is a group of
colleagues across all areas of Centrica who
have either served in, or are serving reservists
in the Armed Forces, or have an interest in
being part of a community that supports these
groups of colleagues. The objective is to
create a diverse community that supports
veterans and reservists within Centrica
ensuring that we become an employer of
choice for these groups. The network has had
some great success with its Armed Forces
pathway which brings talented veterans,
serving reservists, those about to leave the
armed forces, military spouses, and partners
into our Group. We are delighted that our
Forces network has recently been shortlisted
for Employee Network of the Year at the
British Diversity Awards.
Our Carers Network is a support group
where colleagues are able to connect with
others (who may or may not be carers) who
can share ideas and information about any
aspect of caring. Centrica has a long and
proud history of supporting colleagues who
are juggling work and care and 2024 will be
the Carers Network’s 20th anniversary. We
were the first company to earn Carers UK’s
‘Carer Confident Ambassador’ accreditation
and we have maintained this high standard
since with an industry-leading Carers Leave
Policy. I am proud that Centrica’s values for
caring shine through in all that we do.
LOOKING AFTER COLLEAGUES
AND THEIR LOVED ONES
Health, safety and wellbeing are part of
everything we do. We believe providing
education, tools, resources, and benefits
to support these key priorities, can lead to a
healthier, happier workforce and a more
prosperous workplace.
Centrica is focused on our colleagues being
able to speak openly about the issues
affecting their personal lives, as we know that
not only is the support important to their
mental and physical wellbeing, but that it is
beneficial to retention and productivity.
Looking after wellbeing is not about making
drastic changes but rather implementing
healthy habits that can help colleagues
manage everyday stressors better. We do our
utmost to create an environment and culture
where looking after wellbeing comes naturally
and is integrated into the way we operate.
Our healthcare plan which is available to all
colleagues includes many wellbeing benefits,
such as nutritional advice, physical health,
emotional wellbeing, menopause support,
giving peace of mind to colleagues and
their families.
PROACTIVE HEALTH
We have a proactive wellbeing programme
with the aim to raise awareness of difficult and
taboo subjects. We have run multiple events
on menopause, mens’ mental health, suicide
and mental wellbeing with colleagues, experts
and GP’s attending and sharing experiences
and recommending practical actions to
support, which have been attended by
thousands of colleagues. We have ongoing
reporting across many health metrics which
allows us to see any trends, concerns and
improvements. These insights drive our action
planning for the future.
LOOKING AFTER OUR COLLEAGUES
THROUGH THE RISING COST
OF LIVING
During 2023 our colleagues have continued to
face the cost of living crisis, it is important that
we support our colleagues during this time.
We have increased our colleague energy
allowance to pay a proportion of the energy
price cap. Furthermore, with inflation hitting all
aspects of life, we introduced a new charitable
trust ‘The Colleague Support Foundation’.
This gives access to funds in time of financial
need. Since our launch in July 2023, we
have supported over 100 colleagues and
paid out c.£100k. The payments range from
supporting colleagues with the funeral cost of
a loved one or covering food costs to feed
their families. Colleagues do not have to pay
the money back.
SHARE IN THE COMPANY’S SUCCESS
In 2023 we granted a further Global Profit
Share award to all colleagues, relating to our
profits in 2022. The award was made in
shares so our colleagues share in our success
as we continue to grow our business. We
will be making another profit share award in
shares in 2024, relating to our 2023 profit.
100+
Colleagues supported by
The Colleague Support Foundation
20,044
Colleagues who received a profit share
payment in 2023.
OUR PATHWAY TO PARENTHOOD & PROACTIVE HEALTH
In June 2023 we launched our
biggest support package yet to help
our colleagues who are struggling
with fertility. Our ‘Pathway to
Parenthood’ package, which is
available to all our UK employees as
part of their healthcare plan, offers
comprehensive financial support
towards fertility treatment. This can
be used for IUI, IVF, and egg or
sperm donation and storage. It can
also be used to cover costs for
adoption or surrogacy. Additionally,
we offer colleagues five days paid
leave for their fertility treatment,
adoption, or surrogacy appointments
per year. We are already seeing the
positive impact that the package is
making, helping our employees feel
supported whilst they go through
huge changes in their personal lives.
We have a suite of health and
wellbeing resources and benefits,
including our 120+ strong Mental
Health First Aider Network, Wellbeing
app, 24-hour access to a GP and
a 24-hour emotional support line. We
provide Mental Health Training for
Leaders and have added two
wellbeing vans to our wellbeing
portfolio this year allowing us to get
out and visit our remote workers to
provide health and wellbeing
consultations where they conduct
‘Know your numbers’ tests,
functional movement screening and
emotional signposting.
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39
WHAT OUR COLLEAGUES SAY ABOUT HEALTH AND WELLBEING AT CENTRICA
“ Thank you for arranging the webinar,
it was truly appreciated. I felt privileged
to work at Centrica and came away
from the call feeling so engaged and
motivated. I felt I learned strategies to help
myself and others which is fantastic.”
“ I found this very interesting from various
perspectives. I am a manager, a parent to a
daughter who struggles with anxiety and
having never suffered with anxiety myself the
menopause has started to produce anxiety
symptoms. It is great how much support
Centrica offer around mental health.”
“ I am very grateful to Centrica for providing
such an informative session on menopause
and embracing the subject. This is a subject
that gets brushed under the carpet in so
many organisations so thank you Centrica.”
“ Really pleased to have these sessions
to continue the conversations on
women’s health and menopause.
It helps reduce the stigma in workplace
and helps to know, that as a woman,
you have a support network.”
“ This topic is very close to me both
professionally and personally. I found the
training very useful and opened my eyes on
a few aspects of life that I will be more
considerate on.”
40
Strategic report | Centrica plc Annual Report and Accounts 2023
PEOPLE AND PLANET
Creating a more inclusive and
sustainable future that supports
communities, our planet and
each other.
Our People & Planet Plan consists of five
Group-wide goals that accelerate action on
issues that matter deeply to our business and
society, and where we’re well-placed to make
a world of difference – from achieving net zero
and creating the diverse and inclusive team
we need to get there, to contributing to the
communities we’re all part of.
In 2023, we made really positive progress
toward the majority of our goals but we’re
behind on others (see pages 42 to 44). This is
partly because transformation takes time, and
partly because we re-focused efforts to help
customers and communities through the
energy crisis which has been a top priority.
Consequently since 2022, we’ve donated
£140 million to support people with their
energy bills.
With the plans we have in place, we’re
confident we’ll get back on track to meet our
goals in the years ahead. Central to this will
be continuing to work closely with key
stakeholders like colleagues, communities and
governments, to help progress our goals and
manage wider activities responsibly. In doing
so, we can deliver on our Purpose of
energising a greener, fairer future, whilst
contributing positively to the United Nations
Sustainable Development Goals (SDGs).
READ MORE ABOUT OUR PEOPLE &
PLANET PLAN, CLIMATE TRANSITION
PLAN, SDGs AND MORE AT
CENTRICA.COM/PEOPLEANDPLANET
READ MORE ABOUT OUR NON-
FINANCIAL KPIS ON PAGES 249 TO 251
“ I’m really proud of what we’ve
achieved through our People &
Planet Plan and beyond – whether
that’s doing more than any other
energy supplier to help consumers
with their energy bills, or creating a
pipeline of flexible and low carbon
assets that provide the energy we
need today and through the energy
transition. The road ahead won’t
be easy but I’m excited to be
energising a greener, fairer future.”
Chris O’Shea | Group Chief Executive
OUR PEOPLE & PLANET PLAN
Supporting communities, our planet and each other
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 an engaged team that reflects the full
diversity of the communities we serve by 2030(1)
¢ Recruit 3,500 apprentices and provide career
development opportunities for under-
represented groups by 2030
(2,000 apprentices by the end of 2025)
¢ Help our customers be net zero by 2050
(28% greenhouse gas intensity reduction
by the end of 2030)
¢ Be a net zero business by 2045
(40% greenhouse gas reduction
by the end of 2034)
¢ Inspire colleagues to give 100,000 days to build inclusive communities by 2030 (35,000 days by the end of 2025)
Underpinned by strong foundations to ensure we act fairly and ethically – from customer service to human rights
DOING BUSINESS RESPONSIBLY
(1) All company and senior leaders to reflect latest 2021 Census data for working populations. This means 48% women, 18% ethnically diverse, 20% disability, 3% LGBTQ+
and 4% ex-service by 2030 (40% women, 16% ethnically diverse, 10% disability, 3% LGBTQ+ and 3% ex-service by the end of 2025).
Strategic report | Centrica plc Annual Report and Accounts 2023
41
¢ inspiring more women into engineering
through apprenticeships (see goal 2) as we
grow diversity among our wider team;
¢ rolling-out Courageous Conversations
about Race training to educate colleagues
and make them feel confident to challenge
unacceptable behaviour;
¢ creating a Great Minds programme for
launch in 2024 that will help normalise and
better support neurodiverse colleagues,
whilst encouraging more colleagues to
disclose if they have a disability; and
¢ helping carers better balance work with
caring. We extended our industry-leading
Carers Leave Policy to colleagues in
Ireland which provides up to six week’s
paid leave when matched with annual
leave. And thanks to joint campaigning
with Carers UK, all working carers in the
UK will now receive statutory carers leave
following Royal Assent of the bill.
Through these activities and more (see pages
38 to 40), we’ve received external recognition
for our efforts including earning a place in The
Times Top 50 Employers for Gender Equality.
In 2024, we’ll continue to embed our DE&I
Action Plans, with a particular focus on
improving the representation of colleagues
who are women, ethnically diverse or have a
disability. We’ll also encourage colleagues to
share who they are via our ongoing #ThisIsMe
campaign, which will enable us to target
action and track progress more effectively.
“ I enjoyed six years in the
military but I was ready for a new
adventure. So having embarked
on an apprenticeship with
British Gas two years ago, I’m
pleased to now be a fully
qualified engineer. During this
transition, the wrap-around
support has been invaluable and
it’s enabled me to be at my best
when helping customers with
their energy.”
Amy Gray | British Gas
Smart Energy Engineer
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 welcome and
able to succeed.
Towards this in 2021, our leadership team
shared an open letter with colleagues that set
out our plan for attracting, promoting and
retaining more diverse talent. Since then,
we’ve seen strong progress as better
recruitment and retention practices provided
an initial boost to the majority of our diversity
goals which improved by up to 4%.
Our performance in 2023 has, however,
remained relatively static and indicates that it
may take time to deliver systemic change
across our business and society. In particular,
diversifying senior levels and growing disability
representation are areas for us to work on.
Attracting more women into engineering is
also challenging given our large Field
engineering team reflects the existing male-
dominated market, which impacts our overall
Group performance that would otherwise be
on track. We’re taking action which includes:
¢ further embedding tailored Diversity, Equity
and Inclusion (DE&I) Action Plans and
dashboards for each business, with
progress reviewed quarterly to drive
improvement and accountability;
¢ expanding talent development programmes
to over 150 colleagues from under-
represented groups whilst embedding
succession planning and diverse shortlisting
to strengthen our senior leadership team;
WIDER GENDER BREAKDOWN(3)
Board
Senior executives
and direct reports
Senior leaders
All company
2023
Women
5 (42%)
27 (34%)
Men
7 (58%)
52 (66%)
2022
Women
4 (44%)
24 (33%)
Men
5 (56%)
49 (67%)
136 (32%)
287 (68%)
117 (33%)
243 (67%)
6,221 (30%)
14,398 (70%)
5,938 (30%)
14,190 (70%)
(3) Relates to everyone who works for Centrica. Total headcount differs from elsewhere in the report as Spirit
Energy are not included above. See page 81 for more on Board diversity.
PEOPLE
Supporting every colleague
to be themselves to better
serve our customers and
communities.
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
48% women, 18% ethnically diverse, 20%
disability, 3% LGBTQ+ and 4% ex-service(1)
2023 PROGRESS
Progress against goals: l On track l Behind
ALL
COMPANY(2)
SENIOR
LEADERS(2)
Women
30% l
32% l
– Excluding
Field engineers
41% l
32% l
Ethnically
diverse
Disability
LGBTQ+
Ex-service
15% l
9% l
3% l
3% l
2% l
2% l
2% l
2% l
(1) Updated at the start of 2023 to align with newly
released 2021 Census data for working populations.
We aim to be 40% women, 16% ethnically diverse,
10% disability, 3% LGBTQ+ and 3% ex-service by
the end of 2025.
(2) Beyond gender, data is based on voluntary
disclosure of 74% ethnic diversity, 45% disability,
51% LGBTQ+ and 3% ex-service. All company
relates to everyone who works for Centrica. Senior
leaders include colleagues above general
management and spans senior leaders, the Centrica
Leadership Team and the Board.
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Strategic report | Centrica plc Annual Report and Accounts 2023
By 2030, we want to:
Recruit 3,500 apprentices and provide
career development opportunities for
under-represented groups (2,000 apprentices
by the end of 2025)(1)
2023 PROGRESS
Progress against goals: l On track l Behind
Apprentices
(1) Base year 2021.
1,198 l
To provide the best service for customers and
get to net zero, we need to create thousands
of high-quality jobs. To fill these roles, there’s a
huge opportunity to tap into the talent of
under-represented groups to deliver a greener
and fairer future. So we’ve committed to hire
an apprentice every day over the next decade.
Since 2021, we’ve recruited 1,198
apprentices and helped over 750 trainees
professionally qualify in areas like gas and
whitegoods. This is slightly behind where we
wanted to be as we slowed recruitment in
2023 to focus on operational stability across
our customer-facing business. As a result, we
welcomed 165 apprentices to our team last
year. Less hiring opportunity also impacted
our Ex-Forces Pathway programme which got
off to a flying start in 2022 but meant that by
the end of 2023, 227 people had been hired
against our rolling ambition to recruit 500
veterans, reservists, spouses and partners, so
it will continue into 2024-25.
Meanwhile, progress against our ambition for
women to make up 50% of our Smart Energy
Apprentices, dipped from 20% to 14% but
remains much higher than the national gas
engineer average of 0.2% women. In 2024,
we’ll continue to breakdown stereotypes and
inspire more diversity in engineering through
recruitment, marketing and volunteering
campaigns as we work to diversify our wider
team too. This includes ramping up our
apprenticeship intake which we hope will get
us back on track in the years ahead.
We’re also encouraging more young people to
choose a career in energy. For example, we’re
supporting Tech She Can’s educational
programme, Tech We Can, which has directly
reached over 60,000 students.
By 2030, we want to:
Give 100,000 days to build inclusive
communities (35,000 days by the end of
2025)(2)
2023 PROGRESS
Progress against goals: l On track l Behind
Days
20,383 l
(2) Base year 2019.
We’re harnessing the passion of our people to
build inclusive communities because strong
communities are central to a more sustainable
future. It’s also a great way to help colleagues
develop skills and improve engagement.
Although COVID-19 and the energy crisis
impacted volunteering in recent years,
volunteering has grown from strength-to-
strength and is now on track having reached
20,383 days since 2019. As part of this,
colleagues gave 7,228 days in 2023. This far
exceeded our annual plan of 4,000 days
which had been based on doubling our 2022
performance.
Substantive gains were largely made possible
by fully embedding team targets at the start of
the year to help drive and plan volunteering
activity, whilst expanding volunteering
opportunities via ‘The Big Difference’, which is
inspiring colleagues to get involved in local
causes they care passionately about.
To maintain momentum, we’ll continue to
expand volunteering opportunities in 2024
including via our Get Set for Positive Energy
schools partnership with Team GB and
ParalympicsGB. This will stand us in good
stead for the annual step-up required in the
years ahead, which will see us move from
1 in 4 colleagues volunteering in 2023 to
1 in 3 by 2030.
Alongside volunteering, we support our
communities with donations and fundraising
focused in three key areas – helping people
with their energy today, building a more
sustainable energy future for tomorrow, and
making a big difference in our local
communities everyday. Towards these
causes, we invested over £500 million in total
community contributions during 2023(3).
(3) Comprises £409.44 million in mandatory and
£88.08 million in voluntary contributions to support
vulnerable customers and colleagues which
includes the Warm Home Discount and Energy
Company Obligation amongst others, alongside
£4.05 million in charitable donations.
SOME OF THE
WAYS WE MADE
A DIFFERENCE
IN 2023
10
>800
New community organisations
helped on the journey to net zero
though our Energy for Tomorrow
social impact fund, which has an
annual budget of up to £600,000
and has supported 36 initiatives
to date
Good causes supported through
The Big Difference in 2023 – our
£2 million local community fund
that supports organisations like
The Baby Bank in Windsor and
the Children’s Hospices Across
Scotland
€432k
Donated and fundraised during
the year to help prevent family
homelessness via our €4.4 million
partnership with Focus Ireland,
which has helped nearly 8,400
family cases since 2015
£140m
Cumulatively donated in energy bill
support since 2022 to help
customers through the energy
crisis, which in 2023 included an
additional £84 million being
committed in the UK for distribution
mainly via British Gas and the
British Gas Energy Trust
In Ireland during 2023, we donated
€3 million in energy bill support
managed by Bord Gáis Energy and
charity partners like Focus Ireland,
and we absorbed higher energy
costs over the first half of the year
Strategic report | Centrica plc Annual Report and Accounts 2023
43
PLANET
Supporting every customer
to live more sustainably.
¢ launching PeakSave Sundays which has
encouraged over 500,000 customers to
shift their energy use away from peak
demand to reduce pressure on the grid,
with the reward of cutting costs as well
as emissions.
13.0GW
Route-to-market for renewables under our
management – enough to power around
12 million homes
Whilst we currently purchase energy
certificates such as Renewable Energy
Guarantees of Origin and Nuclear Declarations
to back both our green and standard tariffs,
we’ll review whether that’s the right thing for
our customers and our business in 2024.
We’re acutely aware that the debate around
the value of these certificates is evolving, with
recent research studies and broader expert
opinion, identifying a number of issues such as
the risk that certificates do not incentivise the
building of additional renewable or zero
carbon power generation. We’ll engage a
range of stakeholders on our approach and
provide an update in due course.
In the meantime as set out in our Climate
Transition Plan (see pages 52 and 54), we’ll
continue to help customers reduce their
emissions by focusing on energy efficiency
and optimisation services alongside low
carbon technologies and cleaner energy.
By 2045, we want to:
Be a net zero business (40% GHG reduction
by the end of 2034)(2)
2023 PROGRESS
Progress against goals: l On track l Behind
Reduction
21% l
(2) Net zero goal measures scope 1 (direct) and 2
(indirect) GHG emissions based on operator
boundary. Comprises emissions from all operated
assets and activities including the shipping of
Liquified Natural Gas (LNG) alongside the retained
Spirit Energy assets in the UK and Netherlands.
Non-operated nuclear emissions are excluded.
Target is normalised to reflect acquisitions and
divestments in line with changes in Group structure
against a 2019 base year of 2,132,680mtCO2e.
It’s also aligned to the Paris Agreement and based
on science to limit global warming, corresponding
to a well below 2°C pathway initially and 1.5°C by
mid-century.
By 2050, we want to:
Help our customers be net zero (28% GHG
intensity reduction by the end of 2030)(1)
2023 PROGRESS
Progress against goals: l On track l Behind
Reduction
10% l
(1) Net zero goal measures the greenhouse gas (GHG)
intensity of our customers’ energy use including
electricity and gas with a 2019 base year of
183gCO2e/kWh, normalised to reflect acquisitions
and divestments in line with changes in Group
customer base. Target aligned to the Paris
Agreement and based on science to limit global
warming, corresponding to a well below 2°C
pathway initially and 1.5°C by mid-century.
The biggest thing we can do to tackle climate
change, is to help our customers use energy
more sustainably. This is because around
90% of our total GHG emissions (scope 1,
2 and 3), come from the gas and electricity
provided to customers (scope 3). In 2023, we
provided energy, services and solutions that
cut the GHG intensity of the energy our
customers use by 10% against the 2019 base
year – equivalent to the annual emissions of
more than 860,000 homes. Savings were
predominantly driven by our renewable and
low carbon energy tariffs alongside energy
efficiency and optimisation solutions like air
source heat pumps and Hive Active Heating.
This was up from the 6% reduction achieved
in 2022 and was largely due to a rise in the
zero-carbon content of our reported electricity
fuel mix, which improved by 5% to 80%
compared to the UK national average of 55%.
In 2023, we helped our customers progress
their journey to net zero by supporting them
with measures to decarbonise power, heat
and transport by:
¢ introducing market-leading incentives that
encourage the adoption of low carbon
technologies – whether that’s offering heat
pump price and performance guarantees,
or providing free electric vehicle (EV)
charging for a year with the purchase of a
Hive charger;
¢ delivering around 3,000 heat pumps for the
able to pay market and via the Energy
Company Obligation (ECO);
¢ cumulatively installing over 34,000 EV
charging points since 2013; and
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Strategic report | Centrica plc Annual Report and Accounts 2023
Meaningful progress has been made against
our net zero target in 2023, with our total GHG
emissions reducing by 21% against the 2019
base year. This was up from the 5% reduction
delivered in 2022 and was largely driven by
reduced emissions from our Whitegate power
station as well as our gas production
operations. Sustainable savings were also
secured via the gradual roll-out of our EV road
fleet and across our property portfolio with
lower occupancy being driven by FlexFirst,
which lets colleagues choose when they want
to work from home or come into the office.
Although we’re currently ahead of the
glidepath for our net zero target, like many
energy companies, our journey to net zero
won’t be a linear one. This is because we
operate in a challenging geopolitical
environment where security of supply is a real
risk for consumers and as a leading supplier
of energy in the UK and Ireland, we have a
responsibility to ensure they have the energy
they need. Towards this, we increased LNG
activity and began work on two new 100MW
flexible peaking gas-fired power plants in
Ireland which will come online in 2024. Whilst
these investments will play an important role in
securing a more affordable supply of energy
as well as providing flexible power to back-up
intermittent renewables, they are predicted to
cause our emissions to rise from 2024 before
they come back down again around 2027.
With general consensus being that gas will be
essential during the energy transition until at
least the mid-2030s, our action is in line with
what’s needed, although it does make our
pathway to net zero more challenging in the
short term. All of our gas peaking plants will,
however, be capable of running on hydrogen
when hydrogen is available which will help us
meet our goal in the medium to long term,
which we expect to do.
Alongside these activities, we’ll continue to
drive wider emissions out of our business and
identify opportunities wherever possible to
support the adoption of lower carbon energy
for customers via our Climate Transition Plan –
from securing up to 800MW of low carbon
and transition assets by 2025 which includes
solar, battery storage and flexible generation,
to exploring the conversion of our Rough gas
storage facility to store hydrogen and more
(see pages 52 and 54).
70%
Our GHG emission reduction over the last
decade(3)
(3) Represents our gross reductions. This differs from
our net zero goal which is normalised for
acquisitions and divestments against the base year.
OUR FOUNDATIONS
Our People & Planet Plan
is underpinned by strong
foundations that ensure
we act fairly and
ethically.
CUSTOMERS
We’ve taken decisive steps to secure a
stronger service for customers. For example,
in 2023, we invested in engineer training and
customer service systems, whilst recruiting
700 additional customer contact roles in the
UK as part of our aim to move all call centre
resource onshore. Compared to 2022, these
operational improvements have contributed
to our British Gas Services Engineer Net
Promoter Score (NPS) rising by seven points
to +71 and our British Gas Energy Touchpoint
NPS gaining four points to +17, alongside a
reduction in complaints. In Bord Gáis Energy
complaints similarly reduced over the course
of the year but against a backdrop of
challenging conditions, our Journey NPS
declined by one point to +18 despite a five
point improvement in the second half of 2023.
Meanwhile, at Centrica Business Solutions,
customer concern for high energy bills and
complexity relating to government support
schemes led to an increase in complaints.
Despite this, customer service delivery
remained strong with energy supply
Touchpoint NPS improving by one point to
+32. See pages 23 to 24 for more.
In recognition that energy bills remain a worry,
we continued to help customers through the
energy crisis. In 2023, we more than doubled
our energy support fund to total £140 million,
which is the largest voluntary support package
provided by an energy supplier in the UK and
Ireland. Since 2022, this has enabled
meaningful advice and grants to be provided
to customers struggling with their energy bills
whilst providing help at the heart
of communities (see pages 16 and 43).
COLLEAGUES
It’s important that colleagues feel safe,
engaged and rewarded. Although we had no
colleague fatalities in 2023, a member of the
public tragically lost their life in a road traffic
accident involving one of our Dyno
Franchisees. We also had one Tier 1 process
safety gas release at a Spirit Energy asset,
resulting in our process safety incident
frequency rate increasing from zero to 0.09
per 200,000 hours worked. Our total
recordable injury frequency rate did, however,
improve by 25% to 0.84 per 200,000 hours
worked (see page 27). We continue to focus
on keeping safety front-of-mind by reinforcing
a strong safety culture, which in 2023 included
improving new starter, safety and role-specific
training.
Alongside physical health, we’re always
mindful of wider wellbeing. So we ran
campaigns that talked about the importance
of being open about mental health whilst
encouraging use of our comprehensive suite
of support which includes a company-funded
benefit healthcare plan for all, a wellbeing app,
and our 100-strong network of mental health
first aiders. In recognition of the cost of living
crisis, we also introduced a Colleague Support
Foundation to provide dedicated money
advice and grants (see page 39). The CCLA
continued to rank us a leader for our approach
and disclosure on mental health.
We maintained focus on fair reward practices
– from paying at least the Real Living Wage in
the UK and upholding equal pay, to working
to reduce pay gaps. Our gender pay gap
continued to be largely driven by more men
working in higher paid jobs like engineering,
coupled with more women working in valued
but lower paid jobs such as customer service.
In 2023, our median gender pay gap
improved by 9% to 14%. Our ethnicity pay
gap, which we publish voluntarily, is due to
similar factors as the gender pay gap, and
increased by 1% to 11% median. We’re fully
committed to reducing our pay gaps over time
as we help transform our business, sector and
society (see pages 42 to 43).
Action like this is important to colleague
engagement. In 2023, our engagement score
improved by 0.3 points to 7.7, with gains
driven by the value we place on recognition
and growing our colleagues, as well as a
stronger belief in our purpose and strategy.
This was on track with our annual goal and is
approaching top quartile performance for our
sector. With engagement being fundamental
to our productivity and our success, we’ll
target top quartile performance in 2024 by
striving to provide a more inclusive and fulfilling
place to work.
COMMUNITIES AND ETHICS
Our Code and Our Values set out the
standards we expect for anyone who works
for us or with us. This ensures we operate
with integrity and in a way that benefits our
communities.
At the heart of Our Code is 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 and ongoing due diligence, alongside
monitoring of supplier selection and renewal.
If suppliers receive a high-risk rating relating
to the country where they operate or the
products/services provided, we consider
appropriate action which may involve
conducting a third-party audit to better
understand the level of risk. Where concerns
are identified, we work with suppliers to raise
standards, and if they can’t or won’t
improve, we may end the relationship
and report any abuse.
In 2023, we ramped up our audit programme
by conducting 20 on-the-ground site
inspections and over 6,500 remote worker
surveys. These spanned workwear and
manufacturing as well as solar panels, battery
systems, smart meters and wider electrical
products across Bangladesh, Cambodia,
China, Hong Kong, India, Pakistan, the
Netherlands and the UK. Whilst we’ve not
identified any specific instances of modern
slavery, we agreed 142 improvement
opportunities with suppliers to help raise
standards across labour as well as health and
safety practices. The majority of actions have
now been completed and the rest are planned
to finalise in 2024. As part of our due diligence
and monitoring across supplier selection
and contract renewals, we also ensured
compliance with sanctions on Russia.
Our Code additionally provides clear guidance
on bribery and corruption. We prohibit any
improper payments, including facilitation
payments regardless of value or jurisdiction,
and exchange gifts and hospitality responsibly,
declaring them on a register. Anti-bribery
training is also provided for higher risk roles
and our Financial Crime team run third-party
risk management screening. A register is used
to record and manage potential or actual
conflicts of interest.
During 2023, 96% of colleagues completed
refresher training on Our Code and confirmed
they’d uphold its principles. If anyone
suspects Our Code is being contravened, we
provide a confidential 24/7 Speak Up helpline.
In 2023, we had 1.4 reports of concern per
100 colleagues which broadly aligns with the
external benchmark of 1.5, demonstrating that
colleagues feel safe to speak up. Reports
mainly related to perceived unfair treatment
and fraud. All reports were investigated by
the Ethics and Compliance team, with
quarterly monitoring via the Safety,
Environment and Sustainability Committee
as well as the Audit and Risk Committee,
with matters as appropriate, brought to the
attention of the Board.
READ MORE IN OUR MODERN
SLAVERY STATEMENT AT
CENTRICA.COM/MODERNSLAVERY
ENVIRONMENT
Monitoring and managing our wider
environmental impact is crucial. Our water
consumption remained relatively steady during
2022-23, increasing by 6% to 335,512m3.
Waste decreased by 19% to 15,161 tonnes
due to a reduction in decommissioning works
and process enhancements in 2023
compared to 2022.
Strategic report | Centrica plc Annual Report and Accounts 2023
45
NON-FINANCIAL AND SUSTAINABILITY
INFORMATION STATEMENT
In line with the Non-Financial Reporting Directive and
Companies Act 2006, we have set out where the relevant
information we need to report against can be located.
This includes an explanation of the relevant Group policies
which relate to the stated matters below, together with an overall
summary of their effectiveness, including specific examples of
how the policies are implemented alongside due diligence
processes conducted and associated outcomes.
Reporting requirement
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
Section
Our Strategy & Business Model – Pages 9-11
Due diligence and outcome
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.
¢ Group Chief Executive’s Statement – Page 8
¢ Stakeholder Engagement – Pages 15 and 17
¢ Principal Risks and Uncertainties: People, Safety and Operational Asset Integrity –
Pages 33 to 34
¢ Group Chief People Officer’s Report – Pages 38 to 40
¢ People and Planet – Pages 42 to 43 and 45
¢ Key Performance Indicators (KPIs) – Pages 27, 39, 42 to 43, 45 and 249 to 250
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.
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 big difference by
helping to create more inclusive and sustainable communities.
We partner with community and charity organisations on key
issues and inspire colleagues to volunteer and fundraise.
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 or others.
¢ Chair’s Statement – Page 5
¢ Group Chief Executive’s Statement – Page 8
¢ Business Model and Market Trends – Pages 10 to 13
¢ Stakeholder Engagement – Pages 15 to 17
¢ Business Review – Pages 24 to 25
¢ Principal Risks and Uncertainties: Energy Market, Government and regulatory
intervention, Weather, Political, Legal, Regulatory or Ethical Intervention/
Compliance, Operational Asset Integrity and Climate Change – Pages 29, 31 to 32
and 34
¢ People and Planet including TCFD – Pages 44 to 45 and 47 to 55
¢ KPIs – Pages 24 to 26, 44 to 45, 53 to 54, 249 and 251
¢ Chair’s Statement – Pages 4 to 5
¢ Group Chief Executive’s Statement – Pages 6 to 7
¢ Stakeholder Engagement – Pages 15 to 17
¢ Business Review – Pages 23 to 24
¢ Principal Risks and Uncertainties: Inflation and cost of living, Technology,
Customer, Political, Legal, Regulatory or Ethical Intervention/Compliance,
Cyber and Safety – Pages 29, 31 to 32 and 34
¢ People and Planet – Pages 43 to 45 and 52
¢ KPIs – Pages 23 to 24, 27, 43, 45 and 250 to 251
¢ Stakeholder Engagement – Page 15 to 16
¢ Principal Risks and Uncertainties: Political, Legal, Regulatory or Ethical
Intervention/Compliance and Safety – Pages 31 and 33
¢ People and Planet – Page 45
¢ KPIs – Pages 45 and 251
¢ People and Planet – Page 45
¢ Principal Risks and Uncertainties: Political, Legal, Regulatory or Ethical
Intervention/Compliance – Page 31
¢ Based on materiality, KPIs specific to anti-bribery and corruption are not reported
externally.
46
Strategic report | Centrica plc Annual Report and Accounts 2023
TASK FORCE ON CLIMATE-
RELATED FINANCIAL
DISCLOSURES
Climate change requires
urgent action. As an
energy, services and
solutions company, we
have an essential role in
helping our customers,
communities and our
business get to net zero.
It’s important that we analyse and report what
we’re doing to effectively manage the impact
of climate-related risks and opportunities
across our business (see our Business Model
on pages 10 to 11). That’s why since 2020,
we’ve chosen to structure our reporting
around the Task Force on Climate-related
Financial Disclosures (TCFD)
recommendations (see page 55), to drive
greater transparency and action on climate-
related matters. Whilst we’ve achieved full
compliance for the third year running in our
2023 reporting, we’ll endeavour to
continuously improve across all TCFD
disclosure requirements to ensure we stay
abreast of evolving best practice and
stakeholder feedback.
GOVERNANCE
As tackling climate change is at the heart of
our purpose and strategy, climate change is
a key issue for the Board. Governance is
therefore embedded across the full breadth
of our business, with the Board supported in
its duty to oversee climate-related matters via
a series of Board-level and executive-level
committees (see governance diagram
overleaf). In 2023, climate matters were
reviewed by the Board and its Committees in
a number of meetings including at all three
meetings of the Safety, Environment and
Sustainability Committee as well as via the
annual Board strategy review. This was
complemented by further embedding net zero
criteria in our Group investment framework
and into strategic planning processes
(see page 50).
Our approach to governance and disclosure
is strongly influenced by the materiality of ESG
matters which includes climate-related issues.
To understand what’s important and what’s
not, we assess the impact of these issues on
our stakeholders as well as on our business.
To do this, we undertake research and
conduct direct engagement with stakeholders
(see page 15) whilst applying our TCFD
financial materiality thresholds. Through
identification of our material issues together
with associated laws and regulations,
management teams can then ensure the
necessary processes are in place to effectively
measure, manage, mitigate and disclose.
We recognise that stakeholder needs and
the regulatory landscape are continuously
evolving, so we remain agile and adjust our
approach in line with expectations.
To aid the Board in overseeing climate change
matters and in managing regular engagement
on the issue with stakeholders like investors,
government and regulators, it’s vital the
Board have the collective skills required.
Consequently, the Board continuously seeks
to strengthen capabilities on climate change
across energy, regulation, geopolitics and
technology, to reduce risk and maximise
opportunities. To assess capability, the Board
has ‘climate change and sustainability’ as one
of the 11 criteria used in the Skills Matrix,
spanning climate science, climate risk and
mitigation, alongside evolving stakeholder
expectations. In 2023, 60% of the Board were
identified as having these competencies
which enables us to effectively govern climate
matters and we aim to strengthen this even
further in the future. To support and grow
capability in 2023, the Board underwent
deep-dive sessions run by internal and
external experts on greenwashing, evolving
Environment, Social and Governance (ESG)
regulations and responsible sourcing.
Effectiveness in tackling climate change is
incorporated in our remuneration scheme for
Executive Directors via the ‘Restricted Share
Plan’ (RSP). Vesting is subject to an underpin
determined by the Remuneration Committee,
whereby the Committee assesses
performance across a range of financial and
non-financial KPIs, including our Climate
Transition Dashboard alongside any material
risk of regulatory failures (see pages 85 to 87).
The RSP vests every three years with the first
vesting period due at the end of 2024.
LISTING RULE COMPLIANCE
We’ve complied with the requirements of
LR 9.8.6R, by including climate-related
financial disclosures that are consistent
with the four TCFD pillars and the 11
recommended disclosures that are set
out on page 55.
Our climate-related financial disclosures
additionally comply with the requirements of
the Companies Act 2006, as amended by the
Companies (Strategic Report) (Climate-related
Financial Disclosure) Regulations 2022.
Strategic report | Centrica plc Annual Report and Accounts 2023
47
A DIAGRAM OF OUR CLIMATE GOVERNANCE
The Board
Has ultimate responsibility for climate change and delegates authority to its Committees
¢ Sets strategy for People and Planet matters including climate change
¢ Reviews strategic and financial planning to ensure integration of climate
considerations as we transition to net zero
¢ Oversees progress against climate targets and ambitions, whilst ensuring
related risks and opportunities are managed effectively
¢ Approves People and Planet annual reporting
¢ Chaired by Scott Wheway with attendance including the Group Chief
Executive, who has overall accountability for climate change and
regularly attends Committee meetings as well as chairs the CLT
READ MORE ON PAGES 57 TO 71
Our Committees
Provides challenge and reviews updates from senior leaders, with outputs shared with the Board
Safety, Environment and Sustainability Committee (SESC)
¢ Meets three times a year and is primarily responsible for supporting
the Board in overseeing climate change
¢ Assesses and approves proposals relating to net zero targets and
the Climate Transition Plan, whilst monitoring progress alongside
risks and opportunities
¢ Reviews annual reporting and associated requirements like TCFD
¢ Monitors stakeholder views on matters such as climate change
¢ Chaired by Heidi Mottram, Independent Non-Executive Director
READ MORE ON PAGES
82 TO 83
Audit and Risk Committee (ARC)
¢ Meets quarterly
¢ Reviews mitigations related to Principal
Risks, including those related to climate
change
¢ Oversees and informs Group audits,
financial statements and non-financial
disclosures
¢ Chaired by Nathan Bostock, Independent
Non-Executive Director
READ MORE ON PAGES
72 TO 78
Remuneration Committee
¢ Meets four times a year
¢ Ensures Executive Directors are
appropriately rewarded - they
consider lots of non-financial
reporting items as part of this,
including progress against our
Climate Transition Plan
¢ Chaired by Carol Arrowsmith,
Independent Non-Executive
Director
READ MORE ON PAGES
84 TO 102
Centrica Leadership Team (CLT)
Ensures ongoing oversight and challenge on climate strategy
CLT – As frequently as needed at the eight meetings held per year and chaired
by the Group Chief Executive, the CLT monitors, assesses and informs
progress and plans relating to net zero targets and ambitions as well as
Principal Risks and opportunities. At meetings of the Centrica Investment
Committee, a sub-committee of the CLT, investment opportunities are
reviewed with regard to how we can deliver net zero.
Sub-groups
Supports leadership on integrating climate change into strategy
TCFD working group – Ongoing engagement led by Group Environment
alongside Strategy, Risk, Finance and Reward, to fulfil mandated reporting
requirements and embed climate strategy Group-wide(1)
Group Risk and Controls Review – Chaired by the Group Chief Financial
Officer with business unit Managing Directors and Chief Financial Officers
in attendance, they review Principal Risks and opportunities alongside
controls quarterly (see page 28)
Managers and teams – Operationalises climate change considerations in line
with Group strategy
Risk owners – Identifies, assesses and mitigates climate risks and
opportunities
Business units
Follows and provides feedback on climate strategy
(1) Group Head of Environment develops and socialises climate change strategy and progress, whilst co-ordinating and influencing related activities. Director of Group
Strategy embeds climate change into our strategic planning and investment frameworks. Group Head of Enterprise Risk and Controls integrates climate risk and
opportunities into the Enterprise Risk Management (ERM) Framework. Head of Accounting Reporting and Tax supports the business to understand the financial impacts
of net zero. Group Head of Reward integrates ESG targets into remuneration frameworks.
48
Strategic report | Centrica plc Annual Report and Accounts 2023
Scenarios used:
¢ Transitional impacts are assessed using
four different scenarios from the National
Grid Future Energy Scenarios, where
assumptions on energy demand,
production and use cases are adjusted
out to 2050. This enables more detailed
modelling of potential impacts in the UK
and Ireland at the individual product and
commodity level, based on the level of
demand for different types of fuel like
hydrogen adoption or the scale up of
different types of technologies like EVs.
We adapt the scenarios for the Irish
context to reflect key differences, such
as off-grid consumers making up a
bigger proportion of customers.
¢ Physical impacts are assessed using
three different scenarios based on the
Intergovernmental Panel on Climate
Change Representative Concentration
Pathways. The scenarios allow physical
climate attributes to be modelled such
as temperature and sea level rise as well
as flooding and extreme weather, across
differing average temperature rises
resulting from varying radiative forces.
¢ Asset impairment is assessed using the
International Energy Agency Net Zero
Emissions scenario and Aurora Net Zero
Mixed & High Renewable Energy Share
scenarios, which model 1.5˚C pathways
to net zero for the energy sector. This
allows us to model the potential impact
on global and regional demand for
different energy sources in response to
different drivers like carbon pricing. In
turn, this affects commodity prices and
the potential implications for the
valuation of gas and power assets.
Net
financial
benefit
Our modelling suggests an overall net
financial benefit for the Group across
all climate scenarios
Our scenario analysis findings (see page 51),
show that based on our strategic plans and
capabilities, we’re well-placed to mitigate the
risks and seize the opportunities presented by
climate change as we journey to net zero.
Indeed, our modelling suggests an overall net
financial benefit for the Group across all
scenarios assessed.
This is because as a uniquely integrated
energy company with market-leading
positions across the energy value chain, our
business model has been designed to be
resilient and evolve in line with the needs of the
energy transition, to ensure that we deliver on
our Purpose of energising a greener, fairer
future. That said, in any given scenario, we
fully recognise that the potential for risks to
manifest is subject to uncertainty, as are the
opportunities and our ability to pivot effectively
to realise them. We therefore always consider
this uncertainty when assessing our strategic
resilience to decarbonisation.
Looking at our findings, we see parts of our
business exposed to potential transitional risks
and opportunities, such as those relating to
policy and regulatory changes which range
from ‘low’ to ‘high’ in significance over the
longer term. For example, the key risk for
British Gas and Bord Gáis Energy, mainly
relates to the gradual phase-out of natural gas
in heating which although an essential
transition fuel in the mid-term, may require a
shift in the range of services and solutions
offered to customers. We believe we’re well
positioned to pursue the opportunities created
by this shift, given our brands have all the
necessary systems and capabilities to adjust
from the trading and sale of gas and
electricity, to a system that’s more heavily
dependent on electricity and hydrogen.
STRATEGY
2023 saw no material changes to the shape of
our business, so we decided not to re-run our
scenario analysis as the 2022 analysis remains
fit for purpose. In 2023 we did, however, focus
efforts on wider related improvements such as
expanding the scope of our analysis to include
additional sites like our new solar farm in
Codford, whilst increasing stakeholder
engagement across the value chain.
Our scenario analysis conducted in 2022 to
test our strategic resilience to climate change,
was run using ten independent climate
scenarios that are most relevant to national
climate targets as well as our business and
the key markets in which we operate across
the UK and Ireland. As a next step, we used
our in-house scenario analysis model, to
assess the various plausible pathways relating
to global warming ranging between 1.5°C to
4°C(1), and the potential positive and negative
impact of each on our businesses’ key
services, solutions and assets.
Our in-house model projects our key lines of
business based on the relevant external
scenario, whilst maintaining our market share
and unit margin at a consistent level. This
allows us to calculate the potential growth or
shrinkage of gross margin (GM) across each
business in isolation or in aggregate, out to
2050. In 2023, we updated our short, medium
and long-term time horizon intervals from
2025, 2035 and 2050 to 2028, 2038 and
2050, which acknowledges the passage of
time since our first publication and better
aligns with our latest strategic business plan.
We consider this time horizon appropriate as
it also aligns with our net zero targets and
Climate Transition Plan, as well as
encompassing the expected lifetime of the
vast majority of our assets alongside the
materialisation of key potential transitional risks
and opportunities.
As we continue to shift our reported
timeframes further out whilst keeping our
base-year static, our analysis naturally shows
a greater impact as the scenarios accelerate
towards net zero. We do, however, recognise
that scenarios extending this far out into the
future are subject to significant uncertainties
and carry material dependencies, which need
to be taken into consideration when reviewing
insights.
Other critical assumptions on matters such
as policy and technology pathways are as
per the independent scenarios utilised in the
analysis.
(1) Climate scenario global warming measured out
to 2100.
Strategic report | Centrica plc Annual Report and Accounts 2023
49
from 2020 to 2025, whilst exploring longer
term optionality at assets for hydrogen storage
and carbon capture and storage.
Our assessment of how climate-related issues
might affect our business, is integrated into
our annual strategic and financial planning
process at a business unit level as well as a
Group level. This includes growth plans for
key opportunities identified, with metrics and
targets to determine whether performance
is on track. All investment proposals are
additionally assessed on their anticipated
GHG emissions, EU taxonomy eligibility and
their role in delivering net zero, the outcome of
which informs the final investment decision.
This process importantly underpins how we
are pivoting our organisation towards a lower
carbon future and helps shape our decisions
on energy, services and solutions.
READ MORE ABOUT OUR FINANCIAL
PLANNING PROCESS IN OUR CDP
DISCLOSURE AT CENTRICA.COM/CDP23
Progressing opportunities for a greener
future in 2023:
65MW
Battery storage plant planned in Perthshire to
store offshore wind energy – our largest battery
storage project to date that’ll be capable of
powering 130,000 homes and is due to be up and
running by 2028
18MW
Solar farm built and opened at Codford which can
power 5,000 homes – our first Centrica-owned
solar farm
(1) Strategic and critical suppliers are long-term
providers of essential products and services which
can affect our ability to operate. Core suppliers are
suppliers who aren’t essential but play an important
role in the products and services provided and were
selected by our Procurement team from a broader
group.
(2) A mixed portfolio of solar, battery and gas-fired
peaking assets, all enabling the grid to decarbonise.
For instance:
¢ our market-leading engineering workforce
primarily installs gas heating solutions today,
but can be gradually upskilled to deliver
new solutions via our centre of excellence
training campuses that are located around
the UK; and
¢ we’re continuing to enhance our strategic
resilience by structurally altering our
business model to establish positions in
low carbon solutions like heat pumps and
hydrogen, which are expected to drive
the energy transition forward. This
includes launching an internal business
unit, New Business and Net Zero, which
is dedicated to delivering low carbon
solutions to residential customers,
alongside Centrica Business Solutions
which provides some fossil fuel-based
solutions but specialises in helping large
scale energy users with the creation of
bespoke net zero action plans and the
adoption of low carbon energy solutions.
Moreover, most of the modelled opportunities
exist in areas where we’ve a strong market
presence and are associated with relatively
mature technologies like EVs, electric heat
pumps, solar and battery storage. Clean
hydrogen for heating is the only high-impact
opportunity we’ve identified that’s reliant on
more emerging technology, which may
therefore be harder to harness. Consequently,
we’ve been proactive in hydrogen research
and development opportunities – whether
that’s the trial of hydrogen production at our
Brigg power station with HiiROC, or the
exploration of hydrogen fuel switching at our
Easington Terminal.
Alongside transitional risks and opportunities,
sit our physical risks. During the scenario
analysis, we took into account acute physical
risks relating to extreme weather such as the
risk of increased wave height as well as
chronic physical risks which include those
associated with longer term shifts in climate
patterns that lead to sea level rise or sustained
heat waves. Across both, our focus was on
our energy assets in Centrica Energy
Storage+, Centrica Business Solutions and
Spirit Energy, which are typically more
vulnerable to these kinds of risks due to the
nature of activity undertaken. In 2023, we built
on our 2022 assessment by running scenario
analysis on new sites. This included our new
solar farm in Codford and our distribution
centre in Leicester. The analysis re-confirmed
that we’re generally exposed to physical acute
risks that are ‘low’ in significance in the near
and longer term. Our only potential ‘medium’
risk arose from a physical chronic risk,
whereby a rise in mean temperature with an
extreme >4°C warming future by 2050,
reduces energy demand for heating. This risk,
however, would be partially offset by an
increase in cooling demand and counters
many of the transitional risks, to provide a
natural hedge for the Group.
The risk of asset impairment was additionally
refreshed in 2023 based on price forecasts
aligned with a 1.5°C scenario. This showed
that our most exposed assets were our gas
production fields alongside our investment in
nuclear. We found that the impact on the
value of our gas assets was relatively ‘low’
due to both existing impairment headroom
and the fact that the majority of fields are
expected to have produced most of their
reserves within the next five years. Our
investment in nuclear would be further
impaired by around £15 million, as baseload
power price scenarios are slightly over net
zero price forecasts (see note 7 to the financial
statements). Further details on how the
Directors’ have considered the impact of
climate risk and opportunities on the wider
financial reporting judgements and estimates,
are provided in note 3 to the financial
statements.
In 2023, we shifted our approach to engage
suppliers on the potential impact of climate
change to their operations, and their
subsequent supply of goods and services to
us. Through our updated Responsible
Procurement Framework, we targeted all
‘strategic’ and ‘critical’ suppliers as well as
some ‘core’ suppliers to participate in our
assessment(1).
We had a strong supplier response rate of
30%, with around 80% assessing their
exposure to risk, 60% using sophisticated
scenario analysis and 100% having resilience
plans in place – this included the one
company who reported a risk of disruption
supplying us due to climate-risk. Overall, we
concluded that our supply chain risk remained
‘low’ in significance over the near and longer
term. We believe that risk across our supply
chain can be effectively managed through our
ongoing deepening of dialogue with suppliers,
alongside defined hedging strategies and
collaboration with counterparties. As with all
risks identified, we’ll continue to monitor our
supply chain risk, so that we can act if the
level of potential impact rises.
As the energy transition deepens, all modelled
scenarios involve significant disruption to our
markets. So we’ll need to adapt accordingly.
Our assessment of the capital expenditure
required to manage potential risks and
opportunities, remains in line with our current
plans and balance sheet. We’ve also identified
numerous opportunities for capital investment
into new and existing assets and technologies
through the process. For example, through
our green-focused investment strategy,
we’ll build investment levels to £600-£800
million per year through to 2028, with at least
50% of capital expenditure due to go into
green taxonomy eligible projects compared
to 5% only two years ago. This will help us
meet our targets to achieve net zero and
our climate transition ambitions, including our
commitment to invest up to £100 million in low
carbon and transition assets(2) annually
50
Strategic report | Centrica plc Annual Report and Accounts 2023
SUMMARY OF OUR MOST MATERIAL RISKS AND OPPORTUNITIES(1)
Impact on gross margin (GM)
0-5%
(low)
5-10%
(medium)
>10%
(high)
TFCD
category
Climate
related trend
Potential financial
impact
Potential materiality
Strategic response
and resilience
2028
2038
(short
term)
(medium
term)
2050
(long
term)
Transition: Policy,
Markets and
Technology
Transition away
from fossil
fuelled heating
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
Transition: Policy,
Markets and
Technology
Transition away
from natural gas
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
Transition:
Markets
Growth of EV
transport market
Transition:
Energy Source
Growth in
demand for
renewable
energy
Risk: Reduced GM from the
sale and servicing of natural gas
residential boilers and
commercial Combined, Heat
and Power (CHP) units at British
Gas Services & Solutions (BG
S&S), Centrica Business
Solutions (CBS) and Bord Gáis
Energy (Bord Gáis)
Opportunity: Increased sales
and servicing of electric and
hydrogen fuelled heating
systems, and associated
opportunities in energy
efficiency at BG S&S, CBS
and Bord Gáis
Risk: Reduced GM from the
sale of natural gas from fuel
switching and energy efficiency
at British Gas Energy (BGE),
CBS and Bord Gáis
Opportunity: Increased sales of
electricity and green/low carbon
hydrogen at BGE, CBS and
Bord Gáis
Opportunity: Access to new
and growing value pools related
to EV charging installs,
operation and maintenance
(O&M), and energy supply at
BG S&S and Bord Gáis
Opportunity: Strong growth in
solar and battery markets driven
by decarbonisation at CBS,
Bord Gáis and BG S&S
Physical Chronic Rising mean
temperatures
Risk: Reduced sales of natural
gas and electricity for heat at
BGE, CBS and Bord Gáis
Net impact for
the Group
>2° C l
1.5° C l
>2° C l
1.5° C l
>2° C l
1.5° C l
>2° C l
1.5° C l
>2° C l
1.5° C l
>2° C l
1.5° C l
>2° C l
1.5° C l
>2° C l
+
1.5° C l
+
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
+
l
+
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
+
l
+
¢ Strategic aim to remain the market
leader in heating solutions in the UK and
Ireland (UK&I), whilst growing market
share in heating installs
¢ Installation of hydrogen-ready boilers
and CHP units
¢ Heat pump business launched with
material growth plans, aiming for 20,000
installs a year by 2025 with plans to
build from there
¢ Partnering to grow capability and
adoption with hydrogen use trials
alongside research and development
into low carbon CHP
¢ Strategic aim to grow customer
numbers in UK&I energy supply
¢ Systems and capabilities in place to
pivot towards trading and selling
hydrogen
¢ Partnering in hydrogen production and
use trials to grow capability and
adoption
¢ Internal business unit, New Business
and Net Zero, launched with the aim of
becoming a leader in EV charging
infrastructure installs and O&M
¢ Ambition to install up to 100,000 EV
charging points per annum by 2025
¢ Strategy to invest up to £100 million
each year by 2025 to build a low carbon
and transition asset portfolio of more
than 800MW
¢ Value derived from install, O&M and
asset ownership
¢ Strategic aim to grow customer
numbers in UK&I energy supply
¢ Heat pump business launched with
material growth plans, which is also
capable of providing cooling
¢ Analysis suggests an overall net
financial benefit for the Group across all
scenarios, based on our strategic plans,
portfolios and capabilities
(1) Our financial scenario analysis is conducted every three years unless there is a material change to the business or external scenarios. Materiality above is therefore based
on 2021 Group GM due to our last scenario analysis taking place in 2022 (see page 49). A well-below and well-above 2°C scenario for global warming has been used to
best demonstrate the spectrum of proactive and inactive progress on climate change in our key markets, and the impact this may have on our business. In the analysis
which spans over 95% of the Group, this table includes our most material risks and opportunities together with the inclusion of our most material physical risk because
whilst less material than all other key risks in the long term, we believe it’s important to transparently show the net impact of physical risk on GM. All listed ‘opportunities’
result in a positive impact on GM whilst all listed ‘risks’ correlate to a negative impact on GM. The table concludes by showing an overall positive net financial benefit for
the Group across all climate scenarios and time periods assessed.
Strategic report | Centrica plc Annual Report and Accounts 2023
51
OUR CLIMATE TRANSITION PLAN SET OUT IN 2021
Our Plan helps us effectively manage our risks and opportunities to ensure we deliver our net zero targets, whilst enabling a fair and
affordable transition for all. Within our Plan, we’ve set a number of ambitions that are aspirational but are fully baked into business unit
growth plans, to advance the energy transition.
Our ambitions to help our customers be net zero by 2050
are to:
¢ double the number of Hive customers to 2.5 million by 2025;
¢ deliver 6 million additional smart meters by 2025;
¢ achieve annual installs of up to 100,000 EV charging points
and 20,000 heat pumps by 2025; and
¢ invest up to £100 million in low carbon and transition
assets each year from 2020 to 2025(1).
Our ambitions to be a net zero business by 2045 are to:
¢ build a zero-emission road fleet in the UK by 2025(2);
¢ cut our UK property emissions by a further 50% by 2030;
¢ progress our strategic transformation to exit remaining
activities in oil and gas exploration and production with the
intention to run-off remaining fields and meet
decommissioning obligations substantively by the early
2030s, whilst stopping any further investment in new oil
and gas fields;
¢ redirect investment into assets that drive the transition
forward – from securing up to 800MW of low carbon and
transition assets by 2025(1), to exploring the conversion of our
Rough gas storage facility to store hydrogen by 2035, and
decarbonising the Humber industrial cluster by 2040; and
¢ grow the portion of our capital allocated to green-eligible
activities from 5% to at least 50% by 2025(2).
We can’t achieve these ambitions on our own, so we’ll need to
maintain an open dialogue with customers, government and
others, to ensure they play their part as we play ours. For the
transition to be a success, we must also ensure that we don’t
leave anyone behind. We’ll therefore champion the needs of
our customers and ensure support for those who struggle with
their energy bills, create thousands of high quality inclusive
green jobs, back sustainable initiatives in communities and
work towards a low carbon supply chain.
Every three years, we’ll provide an update on our Climate
Transition Plan, with the next iteration due in 2024 followed by
a shareholder advisory vote at the AGM in 2025. At the AGM
in 2022, our existing Plan achieved a 79.96% shareholder
advisory approval rate.
READ MORE ABOUT PROGRESS AGAINST
OUR AMBITIONS ON PAGE 54
READ MORE AT CENTRICA.COM/
CLIMATETRANSITION
READ MORE ABOUT CLIMATE ENGAGEMENT
WITH TRADE ASSOCIATIONS AT
CENTRICA.COM/TRADEASSOCIATIONS
(1) A mixed portfolio of solar, battery and gas-fired peaking assets,
all enabling the grid to decarbonise.
(2) From 2024, our ambition for a zero-emission van fleet will be extended
out to 2030 (see page 53). Our capital allocated to green investment will
also run out to 2028 (see page 11).
RISK MANAGEMENT
Transition and physical climate risks alongside
all wider risks, continued to be predominantly
managed via our ERM Framework to ensure
consistency in identification and controls
management. The Framework uses a time
horizon of 0–3 years to assess Principal Risks,
coupled with a longer timeframe of 3–20 years
to assess Emerging Risks. Following this
process, climate change was made a Principal
Risk in 2021 through to 2023.
The process starts with our wider strategic
planning process, whereby 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
Group Enterprise Risk and Control, to ensure
full consideration of potential financial impacts
across time horizons, alongside integration
within the ERM Framework, the Group
Principal Risks table and business unit risk
registers. Climate change risks alongside other
business unit risks are then considered at the
Group Risk and Controls Review. The most
material Principal Risks which include Climate
change alongside other risks that may impact
our ability to deliver on our Climate Transition
Plan such as Weather and Operational Asset
Integrity, are subsequently reported to the CLT
and then to the Board’s ARC (see page 28).
This is supported by more detailed reports on
climate change strategy, progress, risk and
opportunities, presented to the SESC. The
Board Annual Planning Conference then
examines the external landscape and strategic
plans, which includes risk relating to market,
competition, technology and policy, that are all
influenced by climate change. With this
context, the Board is able to review the
robustness of the business’s strategic
proposals and transition plans.
READ MORE ABOUT RISK ON PAGES
28 TO 37
METRICS AND TARGETS
We’ve a strong track record in adopting best
practice reporting of GHG emissions as well
as in setting and achieving climate-related
targets. Having fully considered the TCFD
recommendations on metrics and targets,
we report those that are most relevant and
material to our business and stakeholders. As
part of this, we robustly manage and mitigate
our impact through our metrics, targets,
ambitions.
These include:
¢ metrics for energy consumption and global
GHG scope 1, 2 and 3 emissions (see
emissions table overleaf). The majority of
these metrics have undergone limited
external assurance every year since 2012.
In 2022-23, our emissions declined, mainly
as a result of reductions at our Whitegate
power station as well as our gas production
operations.
52
Strategic report | Centrica plc Annual Report and Accounts 2023
¢ targets in our People & Planet Plan focus on being a net zero
business by 2045 and helping our customers be net zero by 2050.
They therefore actively contribute to the UK’s target to get to net zero
by 2050. The targets are also aligned to the Paris Agreement and
based on science, corresponding to a well below 2°C pathway
initially and 1.5°C by mid-century. We are, however, currently unable
to progress our validation by the Science Based Target initiative
(SBTi) due to the continued delayed Oil and Gas guidance, which
the SBTi believe will apply to us. In alignment with best practice, our
targets will predominantly be delivered through carbon abatement
rather than offsetting. Although we expect to have hard-to-remove
residual emissions in the 2040s, we’ll use our in-house carbon
trading team to engage high-quality carbon removal projects like tree
planting, to achieve net zero in a credible way. Our targets receive
limited external assurance on a rotational basis every three years. In
2023 we were on track with both our customer and business targets
(see page 44); and
¢ climate transition ambitions. Our ambitions were introduced
in our Climate Transition Plan to help respond to key risks and
opportunities, and drive progress toward our People & Planet
Plan net zero targets. Through incorporation into budgets,
business plans and accounting assumptions, good progress is
being delivered against our ambitions although we’re behind on
some of them. For example, our EV van fleet roll-out has been
slowed due to deployment issues which includes not all
engineers being able to charge their vehicles easily and efficiently
due to the majority not having private driveways in which to
charge their EV, especially as the wider charging infrastructure is
growing at a slower rate than anticipated. This means we will not
meet our 2025 ambition. Delivering for our customers will remain
our top priority, so we have re-set our ambition for a zero-
emission van fleet to 2030, which still remains five years ahead of
the re-stated UK ban of new petrol and diesel vans. Likewise,
demand for installing EV charging points and heat pumps has
grown over the years but at a slower pace than expected. So
we’ll need to remain focused on developing capability and
market-leading offers that excite customers into taking up and
harnessing the value these technologies create (see page 44).
We will review our ambitions in full as we develop our updated
Climate Transition Plan due for publication in 2024. See more
about our progress in our Climate Transition Dashboard overleaf,
the performance of which is embedded into remuneration
arrangements for Executive Directors.
To ensure we reduce our emissions and progress toward our climate
transition targets and ambitions, we use an internal carbon price which
helps guide commercial decisions in line with our Climate Transition
Plan. In 2023 our internal carbon price ranged between £92/tCO2e and
£119/tCO2e. The carbon price is time-sensitive and rises over time to
incentivise future decisions and better predict long-term impact of
regulation on our business. For example in 2023, our internal carbon
price was utilised for hedging to support the decarbonisation of our fuel
mix as well as to determine the price point for bidding in the energy
market auction for potential future generation assets, alongside power
purchase agreements.
Whilst the metrics and targets set out below and on pages 44 and 54
relate to our most material climate-related risks and opportunities, we
measure and track a number of wider less material environmental
metrics including water and waste (see pages 45 and 251). Our
metrics, targets and ambitions will likely evolve in line with best
practice and the changing world around us.
OUR ENERGY USE AND GHG EMISSIONS
Total GHG emissions (scope 1 and 2)(1)
Scope 1 GHG emissions
Scope 2 GHG emissions
Scope 3 GHG emissions(9)
Total GHG intensity by revenue(10)
Total energy use
2023
1,681,475tCO2e †(2)
1,674,829tCO2e †(5)
6,647tCO2e †(7)
21,180,922tCO2e
64tCO2e/£m (11)
7,437,652,380kWh †(13)
2022
2,009,885tCO2e (3)(4)
2,004,693tCO2e (4)(6)
5,193tCO2e (4)(8)
24,330,208tCO2e
85tCO2e/£m (12)
9,047,097,047kWh (14)
Reporting practices for environmental metrics are drawn from the WRI/WBCSD Greenhouse Gas Protocol and Defra’s Environmental Reporting Guidelines. Reporting is
additionally based on operator boundary which is the more commonly used approach for reporting environmental matters, and includes all emissions from our shipping
activities relating to LNG alongside the retained Spirit Energy assets in the UK and Netherlands. Non-operated nuclear emissions are excluded.
† Included in DNV’s independent limited assurance report. See page 249 or centrica.com/assurance for more.
(1) Comprises scope 1 and scope 2 emissions as defined by the Greenhouse Gas Protocol.
(2) Comprises UK 547,542tCO2e and non-UK 1,133,933tCO2e.
(3) Comprises UK 726,891tCO2e and non-UK 1,282,994tCO2e.
(4) Restated due to availability of improved data.
(5) Comprises UK 542,244tCO2e and non-UK 1,132,585tCO2e.
(6) Comprises UK 722,810tCO2e and non-UK 1,281,883tCO2e.
(7) Market-based, comprises UK 5,299tCO2e and non-UK 1,348tCO2e. Location-based is 17,041tCO2e.
(8) Market-based, comprises UK 4,082tCO2e and non-UK 1,111tCO2e. Location-based is 16,275tCO2e.
(9)
Includes emissions from the following scope 3 categories defined by the Greenhouse Gas Protocol: purchased goods and services, capital goods, fuel and energy-
related activities, waste generated in operations, business travel, employee commuting, upstream and downstream transportation and distribution, use of sold
product and investments. All emissions are calculated in line with the methodologies set out by the Greenhouse Gas Protocol’s technical guidance, apart from
working from home emissions which are based on methodology set out in EcoAct’s homeworking emissions whitepaper. Other categories spanning upstream leased
assets, processing of sold products, end-of-life treatment of sold product, downstream leased assets and franchises, are not included because they are not relevant
to our business.
(10) 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.
(11) Comprises UK 25tCO2e/£m and non-UK 267tCO2e/£m.
(12) Comprises UK 42tCO2e/£m and non-UK 203tCO2e/£m.
(13) Comprises UK & Offshore 1,654,616,311kWh and non-UK energy use 5,783,036,069kWh.
(14) Comprises UK & Offshore 2,394,832,533kWh and non-UK energy use 6,652,264,514kWh.
Strategic report | Centrica plc Annual Report and Accounts 2023
53
OUR CLIMATE TRANSITION DASHBOARD – PROGRESS AGAINST OUR CLIMATE TRANSITION PLAN 2021(1)
Includes our net zero targets, supported by our climate transition ambitions
Progress against targets and ambitions: l On track l Behind
TARGETS & AMBITIONS
Customer GHG emissions – 28% intensity reduction by 2030 and net zero by 2050
(from 2019)
Hive Active Heating – 2.5 million customers by 2025 (units to date)
Smart meters – 6 million additional installed by 2025 (from 2020)
EV charging points – 100,000 in year by 2025 (annual units)
Heat pumps – 20,000 in year by 2025 (annual units)
2023 Progress
2022 Progress
10% reduction l
6% reduction l
2.4m l
3.0m l
7.0k l
3.0k l
2.0m l
2.3m l
7.4k l
1.0k(2) l
Centrica GHG emissions – 40% reduction by 2034 and net zero by 2045 (from 2019)
21% reduction l 5% reduction(3) l
Low carbon and transition assets – 800MW installed by 2025 (from 2020)(4)
Fleet by 2025 (total to date)(5)
– 100% EV van roll-out
– 100% EV car roll-out
Property – 50% reduction in UK emissions by 2030 (from 2019)
Capex – grow capital allocated to green activities from 5% to at least 50% by 2025 (from 2019)(5)
132MW l
101MW l
29% l
74% l
65% l
31% l
23% l
43% l
63% l
9% l
(1) Glidepath trajectory for climate transition ambitions is not linear. Demand is expected to increasingly grow, resulting in accelerated delivery against the target as we
approach the target date.
(2) Restated to additionally include installations via ECO.
(3) Restated due to availability of improved data.
(4) A mixed portfolio of solar, battery and gas-fired peaking assets, all enabling the grid to decarbonise.
(5) From 2024, our ambition for a zero-emission van fleet will be extended out to 2030 (see page 53). Our capital allocated to green investment will also run out to 2028
(see page 11).
READ MORE ABOUT OUR WIDER DATA AND TRENDS IN
OUR DATA CENTRE AT CENTRICA.COM/DATACENTRE
54
Strategic report | Centrica plc Annual Report and Accounts 2023
TASK FORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES
The table below sets out the 11 TCFD recommendations and where the related information can be found.
Recommendation
Recommended disclosure
Pages
Governance
Strategy
a) Describe the Board’s oversight of climate-related risks and
¢ Pages 47 to 48 and 57 to 71
opportunities
b) Describe management’s role in assessing and managing
¢ Pages 47 to 48, 52, 72 to 78
climate-related risks and opportunities
and 82 to 83
a) Describe the climate-related risks and opportunities
¢ Pages 49 to 52,138 to 142
the organisation has identified over the short, medium,
and long term
and 152 to 156
b) Describe the impact of climate-related risks and
¢ Pages 49 to 52, 138 to 142
opportunities on the organisation’s businesses, strategy,
and financial planning
and 152 to 156
¢ CDP 2023 submission
centrica.com/CDP23
c) Describe the resilience of the organisation’s strategy, taking
¢ Pages 49 to 52
into consideration different climate-related scenarios,
including a 2°C or lower scenario
Risk management
a) Describe the organisation’s processes for identifying and
¢ Pages 28 to 29, 48 and 52
assessing climate-related risks
Metrics and targets
b) Describe the organisation’s processes for managing climate-
¢ Pages 28 to 29, 31 to 32, 34,
related risks
c) Describe how processes for identifying, assessing, and
managing climate-related risks are integrated into the
organisation’s overall risk management
a) Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with its strategy
and risk management process
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3
greenhouse gas (GHG) emissions, and the related risks
c) Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets
48 and 52
¢ Pages 28 to 29, 48 and 52
¢ Pages 52 to 54
¢ Data centre at centrica.com/
datacentre
¢ Pages 49 to 53
¢ Pages 44 and 52 to 54
¢ Climate Transition Plan at
centrica.com/climatetransition
The Strategic Report has been approved by the Board and
signed on its behalf by:
Raj Roy
Group General Counsel
& Company Secretary
14 February 2024
Strategic report | Centrica plc Annual Report and Accounts 2023
55
Governance
57 Directors’ and Corporate Governance Report
59
– Board of Directors
64 Corporate Governance Statement
72
79
82
84
– Audit and Risk Committee
– Nominations Committee
– Safety, Environment and Sustainability Committee
– Remuneration Report
110 Other Statutory Information
56
Governance | Centrica plc Annual Report and Accounts 2023
DIRECTORS’ AND CORPORATE
GOVERNANCE REPORT
DEAR SHAREHOLDER
I am pleased to present the 2023
Directors’ and Corporate Governance
Report. The Board recognises that good
governance is essential for the effective
delivery of our strategy and the ongoing
development and sustainability of the
Group, and in this report, we will update
you on Centrica’s corporate governance,
what the Board did in 2023 and the
Board’s focus areas for the year ahead.
Having successfully revitalised the business by materially simplifying our
portfolio and strengthening our balance sheet, alongside a relentless
focus on operational performance, the Board has spent time seeking to
build on this success and, as a result, significant efforts have been
dedicated to crafting a green-focused investment strategy. This
strategy is designed to ensure Centrica’s long-term sustainability and
enhance stakeholder value. More information about this can be found
on pages 14 and 15.
The Board is dedicated to delivering sustainable value to both
shareholders and other stakeholders. In 2023, the Company declared
and paid a total of 4.0p per share in dividends to shareholders (up
33% on the total dividend of 3.0p per share paid in 2022). As of
31 December 2023, we returned £613 million to our shareholders
through our share buyback programme, with a further £2 million
committed not yet settled, being a total of £615 million, as part of our
commitment to distribute surplus capital. We expect to invest around
£600-£800 million a year until 2028, primarily in customer technology,
renewable generation and flexible power assets, enhancing the security
of energy supply in the UK, while creating value for our shareholders.
We have also maintained a strong focus on advancing the Company’s
energy transition journey as outlined in our Climate Transition Plan
(CTP). The CTP, and details of our progress to date, can be found
at centrica.com/sustainability and in earlier sections of this Annual
Report and Accounts.
ORGANISATIONAL CULTURE
Centrica is grounded in values of Care, Delivery, Agility, Courage and
Collaboration, which form the core of our organisational culture. Our
values are supported by Our Code that sets out our fundamental
standards for engagement and collaboration. Our Code guides our
decision-making, reflects our commitment to integrity and can be
accessed at centrica.com/ourcode.
The Group Chief Executive regularly updates the Board on issues
related to employee engagement, with the quarterly ‘Our Voice’ survey
offering the Board crucial insights into the Company’s culture. This is
supplemented with feedback from a variety of other sources, including
dedicated colleague engagement meetings. I and my fellow Directors
find these meetings to be most informative and we appreciate the
opportunity to engage directly with colleagues in this way. You can find
more information on the survey and other workforce engagement
practices on pages 38 and 39. The Board maintains a focus on
cultivating the Company’s culture, emphasising colleague development
and digital enablement for Centrica’s future readiness.
DIVERSITY, EQUITY AND INCLUSION
Diversity, equity and inclusion continue to be key priorities for the
Board. As at 31 December 2023, we complied with the diversity
targets outlined in the FTSE Women Leaders Review and the Parker
Review to have over 40% female representation on the Board and at
least one Director from a minority ethnic background. We also
complied with the Board and senior executive gender and ethnicity
targets in the Listing Rules, save for the target that at least one senior
position (Chair, Senior Independent Director, Group Chief Executive
and Group Chief Financial Officer) be held by a woman. This situation
arose when Kate Ringrose stepped down as Group Chief Financial
Officer last year and Russell O’Brien was appointed following a
thorough and robust recruitment process involving both a diverse
candidate pool and interview panel. However, as explained in further
detail in the Nominations Committee Report, the Board is fully
committed to meeting the diversity target in relation to the above-
mentioned senior Board roles. The Board will therefore, as part of its
ongoing succession planning arrangements, ensure that this
requirement is taken into account in a way that enables the Company
to meet the diversity target at the earliest possible opportunity. Overall
the Board’s range and depth of experience and skills has expanded
over the past year with new appointments to the Board in a way that
will assist the Company in the delivery of its strategy.
The Board has recently updated its diversity policy to comply with
Disclosure Guidance and Transparency Rule 7.2.8A, the FTSE Women
Leaders Review, and the Parker Review. This update also extends the
policy to the Board’s Committees. For more detailed information on the
Board’s diversity policy, please visit centrica.com or refer to the
Nominations Committee Report on page 80.
Centrica is dedicated to fostering an inclusive environment where all
individuals, regardless of their background, can succeed. We are
actively working to ensure that our workforce, including senior
leadership, mirrors the diversity of the communities we serve. Our
Company has implemented policies aimed at enhancing diversity,
equity and inclusion at every level. We have made progress in
recruiting, promoting, and developing employees from diverse
backgrounds, and we are committed to continuing these efforts.
Governance | Centrica plc Annual Report and Accounts 2023
57
Throughout the year, Non-Executive Directors have visited a number of
sites to immerse themselves in the operational aspects and
communicate directly with employees about their work experiences
and other significant issues. For instance, in 2023 the Board visited
numerous sites Group wide, including the Brigg power station, the
Hessle office, the Centrica Energy Storage gas terminal at Easington
and the British Gas contact centre in Stockport. This engagement
strategy is reviewed periodically to ensure its effectiveness.
Further details of how the Board has discharged its duties under
Section 172 of the Companies Act 2006 can be found in our Section
172 statement and Stakeholder Engagement section on pages 16
to 17.
LOOKING FORWARD
Overall, I am pleased with the strong progress that was made in terms
of the governance of the Company in 2023. The Board naturally
remains focused on delivering against strategy, succession planning
and ultimately creating long term sustainable value for all our
stakeholders.
Thank you for your continued support and I look forward to updating
you again during the year at our Annual General Meeting in June.
Scott Wheway, Chair
14 February 2024
BOARD COMPOSITION
On 1 March 2023, Russell O’Brien became Group Chief Financial
Officer. During the year, after a detailed assessment of the Board’s
needs and the strategic path of the Group by the Nominations
Committee, three new independent Non-Executive Directors were
appointed; Philippe Boisseau, Jo Harlow and Sue Whalley, each of
whom brings a wealth of diverse experience to the Board. You can find
more information on these Directors and their appointments in the
biographies and the Nominations Committee Report on pages 59 to 62
and 79 to 80 respectively.
BOARD, COMMITTEE AND DIRECTOR EVALUATIONS
AND EFFECTIVENESS
In September 2023, the Board conducted a self-evaluation supported
by Lintstock, a corporate advisory firm specialising in Board
performance evaluations. The evaluation focused on a broad range
of topics, which are discussed in more detail on page 66. Lintstock
generated a tailored report, drawing on input from all the Directors.
The output from this evaluation was reviewed at the Nominations
Committee meeting in November 2023, in which all Directors
participated.
The Directors concluded that, overall, the Board was performing
effectively and the Committees were effective in supporting the Board
to deliver against its objectives. The evaluation also identified areas
which could benefit from increased focus and these topics (see page
69) will be amongst the key priorities for the Board in the year ahead,
in addition to the strategic and operational priorities already discussed
in other sections of this Annual Report and Accounts.
ENGAGEMENT WITH OUR STAKEHOLDERS
Stakeholder views are gathered through an extensive network of
strategic engagements to help grow the business and deliver
improvements for our customers, colleagues and society over the long
term. During 2023, representatives from the Board met with major
shareholders from time to time in order to obtain their perspectives on a
range of matters, including the Company’s performance, strategy and
ESG matters.
The Board maintains collective responsibility for engaging with
employees regularly throughout the year, recognising the insights and
benefits gained by all Board members from regular interactions with a
diverse range of colleagues.
58
Governance | Centrica plc Annual Report and Accounts 2023
BOARD OF DIRECTORS*
Scott Wheway | Chair
Chris O’Shea | Group Chief Executive
Russell O’Brien | Group Chief Financial Officer
Scott joined the Board on 1 May 2016
and became Chair of the Board on
17 March 2020.
Chris joined Centrica in 2018 as Group
Chief Financial Officer and was appointed
as Group Chief Executive in 2020. Chris is
also Chair of the Disclosure Committee and
Chair of Spirit Energy (joint venture).
Russell joined the Centrica plc Board on
1 March 2023 and is also on the Board
of the majority-controlled subsidiary,
Spirit Energy.
Relevant skills and experience
Scott has a wealth of experience as a senior
customer-facing business leader with a mix of
deep retail and consumer expertise. He has
considerable knowledge gained in both the
retail and insurance sectors, together with a
strong understanding of operating within
highly regulated businesses.
Previous experience
Scott worked in retail for 27 years both in the
UK and internationally. His prior roles include
chair of AXA UK plc from December 2017 until
June 2022, seven years on the board of
Santander UK plc, where he was the senior
independent director, and non-executive
director of Aviva plc between 2007 and 2016.
He is the former chief executive officer of Best
Buy Europe (retail services), director of The
Boots Company plc, managing director and
retail director of Boots the Chemist at Alliance
Boots plc and a director of the British Retail
Consortium. He formerly held a number of
senior executive positions at Tesco plc (retail
services), including chief executive of Tesco
in Japan.
Relevant skills and experience
Chris has wide-ranging experience across the
entire energy value chain together with
recognised experience in transforming
business and financial performance. He has
considerable knowledge of working in highly
regulated industries and in complex, multi-
national organisations, not only in the energy
sector but also in technology-led
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.
External appointments
Non-executive director of Lloyds Banking
Group plc and chair of Scottish Widows
Group.
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.
Relevant skills and experience
Russell has broad experience from across the
energy value chain having spent more than 25
years with Shell plc. He developed his financial
management experience through work in
various business models from Retail through
to upstream development. Russell has
extensive knowledge of controlling, capital
markets, commercial finance and mergers
and acquisitions activities.
Previous experience
Prior to joining Centrica, Russell worked for
Shell plc from 1995 to 2021. From 2006 to
2009 Russell was financial controller for Shell’s
upstream operations in the Americas. Russell
was then CFO for Shell’s global retail business
from 2009 to 2013. Following this, he was
CFO for Shell’s Integrated Gas division. In
2015 he was appointed group treasurer.
During his time as treasurer Russell was also a
board member of Shell Trading and chairman
of Shell Asset Management Co. Russell has
lived and worked in the USA, Singapore, the
Netherlands and the UK. He was a board and
advisory council member of the FICC Market
Standards Board from 2015 to 2021. Russell
is a Fellow of the Chartered Institute of
Management Accountants and the Association
of Corporate Treasurers. Russell studied
Economics and Management and graduated
from St. Andrews University in 1995.
External appointments
None.
Governance | Centrica plc Annual Report and Accounts 2023
59
Carol Arrowsmith | Independent Non-Executive
Director
Philippe Boisseau | Independent Non-Executive
Director
Nathan Bostock | Independent Non-Executive
Director
Carol joined the Board on 11 June 2020
and is Chair of the Remuneration
Committee.
Philippe joined the Board on 1 September
2023.
Nathan joined the Board on 9 May 2022
and is Chair of the Audit and Risk
Committee.
Relevant skills and experience
Carol brings extensive advisory experience,
especially of advising boards on executive
remuneration across a range of sectors, and is
a Fellow of the Chartered Institute of
Personnel and Development.
Previous experience
Carol is a former deputy chair and senior
partner of Deloitte LLP. She was a member of
the Advisory Group for Spencer Stuart, Global
Partner of Arthur Andersen, managing director
of New Bridge Street Consultants and non-
executive director of Compass Group PLC
and Vivo Energy plc.
External appointments
Director and trustee of Northern Ballet Limited.
Relevant skills and experience
Philippe brings broad experience of the
energy industry, particularly of energy assets,
energy infrastructure, energy trading and the
renewable energy transition.
Previous experience
Philippe was the chief executive officer of
CEPSA (Compañía Española de Petróleos
SA), the Spanish multinational oil and gas,
chemicals, and renewable energy business,
from 2019 to 2021. Before joining CEPSA, he
worked at TotalEnergies SA for over two
decades. During his tenure there, Philippe held
president and senior executive roles across
various business divisions and was
instrumental in establishing and leading Total’s
New Energies division from 2007 to 2016.
Philippe was a senior advisor to Carlyle
International Energy Partners between 2017
and 2019 and was a board member at I-Pulse
Inc. from 2017 to 2021.
Philippe graduated from Ecole Polytechnique
and has an MSc in Theoretical Physics.
External appointments
Senior advisor to OMERS Infrastructure,
Ondra Partners and Sibanye-Stillwater
Limited.
Relevant skills and experience
Nathan has worked in financial services since
the mid-1980s and brings a wealth of
financial, commercial, risk and compliance
expertise, particularly in large-scale customer-
facing businesses. Nathan possesses current
and pertinent experience in financial matters.
Previous experience
Nathan was chief executive officer of
Santander UK from 2014 until early 2022, as
well as global head of investment platforms of
Banco Santander before leaving in late 2023.
He joined Santander from the Royal Bank of
Scotland plc (RBS), where he was an
executive director and group finance director.
He previously held the post of group chief risk
officer and head of restructuring having joined
RBS in 2009. Nathan served on the board of
Abbey National plc (now Santander UK) as an
executive director and chief financial officer
from 2005 until 2009. Prior to this he held a
number of senior positions with Abbey
National, 2001 to 2004, RBS, 1992 to 2001
and Chase Manhattan Bank, 1985 to 1992.
Nathan is a chartered accountant and holds
a BSc (Hons) in Mathematics.
External appointments
None.
60
Governance | Centrica plc Annual Report and Accounts 2023
Chanderpreet (CP) Duggal | Independent Non-
Executive Director
Jo Harlow | Independent Non-Executive Director
Heidi Mottram | Independent Non-Executive
Director
CP joined the Board on 16 December
2022.
Jo joined the Board on 1 December 2023.
Relevant skills and experience
CP brings valuable expertise of digital
technology and the use of data and analytics
in large customer-facing businesses.
Relevant skills and experience
Jo has more than 25 years’ experience
working in various senior roles, predominantly
in the branded and technology sectors.
Previous experience
CP worked for 20 years at American Express
in various senior roles, the last of which was
leading the company-wide digital and analytics
organisation to enable growth, efficiency, and
innovation globally. His experience includes
managing digital/mobile channels and
technology platforms across the customer
lifecycle, applications of AI and Data Science
across wide-ranging business applications,
operational excellence and managing fraud
risk.
In his most recent executive role, CP was the
chief digital and analytics officer for Burberry
plc and a member of its executive committee.
He was responsible for transforming
e-commerce and omni-channel strategy
globally, accelerating customer relationship
management focus and leveraging analytics
across the company.
External appointments
None.
Previous experience
Prior to her non-executive career, Jo held
the position of corporate vice president of
the phones business unit at Microsoft.
She previously spent 11 years at Nokia
Corporation in a number of senior
management roles, including executive vice
president of smart devices. Jo was also non-
executive director at InterContinental Hotels
Group PLC from 2014 to 2023 (including as
remuneration committee chair from 2017 to
2023) and was a non-executive director of
Ceconomy-AG from 2017 to 2021.
Jo attended Duke University in North Carolina
and has a BSc in Psychology.
External appointments
Non-executive director and chair of
remuneration committee at J Sainsbury plc.
Senior independent director and remuneration
committee chair at Halma plc, and non-
executive director at Chapter Zero Ltd.
Heidi joined the Board on 1 January 2020
and is Chair of the Safety, Environment and
Sustainability Committee.
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 Group 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 managing
director of Northern Rail from 2004, and
before that she was commercial director of
Arriva Trains Northern and operations director
of Midland Mainline Limited from 1999 to
2003. Additionally, Heidi was vice-chair of the
North East Local Enterprise Partnership and
Newcastle University Council.
External appointments
Chief executive director of Northumbrian
Water Limited and Northumbrian Water Group
Limited, and a member of the board of The
Great British Railways Transition Team.
Governance | Centrica plc Annual Report and Accounts 2023
61
Kevin O’Byrne | Senior Independent Director
Rt Hon. Amber Rudd | Independent
Non-Executive Director
Sue Whalley | Independent Non-Executive Director
Kevin joined the Board on 13 May 2019.
He became Senior Independent Director
on 1 June 2022.
Amber joined the Board on 10 January
2022.
Sue joined the Board on 1 December 2023.
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. Kevin possesses current
and pertinent experience in financial matters.
The Board considers that Kevin has recent
and relevant financial experience.
Previous experience
Kevin was chief financial officer of J Sainsbury
plc from January 2017 to March 2023. Prior
to that, he was chief executive officer of
Poundland Group plc, and previously 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. Kevin was chair of Centrica plc’s Audit
and Risk Committee from 2019 to 2023.
External appointments
Non-executive director of International Flavors
& Fragrances Inc. (NYSE listed)
Relevant skills and experience
Amber brings a wealth of real-world
experience in energy, policy and business.
Previous experience
After around 20 years working in business,
Amber served as a Member of Parliament
between 2010 and 2019. In addition to
holding the roles of Home Secretary,
Secretary of State for Work and Pensions and
Minister for Women and Equalities, Amber
served as Secretary of State for Energy and
Climate Change from 2015 to 2016, having
been Parliamentary Under Secretary of State
at the Department of Energy and Climate
Change from July 2014 until May 2015.
Amber led the UK team to the successful
completion of the Paris Climate Change
Agreement. This UN sponsored 2015
Conference of the Parties (COP21) achieved
a landmark global commitment to reduce
national carbon emissions.
External appointments
Non-executive director of Pinwheel, advisor to
businesses including Energy 1, Equinor, FGS,
Centerview Partners and Phoenix Group, and
a trustee of The Climate Group, RUSI.
Relevant skills and experience
Sue brings a blend of experience in people
and cultural transformation, and strategic,
technological, and operational evolution in
large, complex organisations, championing
the use of innovation to improve customer
service.
Previous experience
Prior to joining Associated British Foods plc in
2019, Sue spent 12 years at Royal Mail where
she held several executive roles. She was
chief executive officer of the UK post and
parcels business where she led complex
organisation and digital transformation to
support e-commerce growth in the logistics
and delivery business. Sue has extensive
experience working with complex stakeholder
landscapes including unions and regulators.
Sue spent nearly 18 years in management
consultancy working in a range of industries
including retail and utilities.
Sue is a graduate of the University of
Cambridge and holds an MBA from Harvard
Business School.
External appointments
Chief people and performance officer at
Associated British Foods plc.
62
Governance | Centrica plc Annual Report and Accounts 2023
Raj Roy | Group General Counsel & Company
Secretary
Raj was appointed Group General Counsel
& Company Secretary on 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 nine years
at Vodafone, holding a number of senior in-
house legal roles in the Group and UK legal
functions. Raj started his career in private
practice, qualifying as a solicitor at Slaughter
and May in London and subsequently working
for Freshfields in Brussels.
External appointments
Member of the Board of Energy UK
(representing Centrica) and the Board of
General Counsel for Diversity and Inclusion
(GCD&I).
*as at 14 February 2024
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 2024 which will be made
available on our website centrica.com/agm24.
Full biographies can be found at centrica.com/
board
Governance | Centrica plc Annual Report and Accounts 2023
63
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
2023, the Company complied with all relevant provisions of the UK
Corporate Governance Code (UK Code) apart from Provisions 40 and
41. An explanation of the non-compliance can be found in the
Remuneration Committee Report on page 108. Our application of
the UK Code is set out below.
An explanation of non-compliance with Listing Rule 9.8.6(9) whereby
the Company does not have at least one senior position held by a
woman can be found on page 80. The UK Code and associated
guidance are available on the Financial Reporting Council’s website at
frc.org.uk. The index on page 110 sets out where to find each of the
required disclosures in respect of Listing Rule 9.8.4 and Disclosure
Guidance and Transparency Rules 4.1.5 R and 7.2.1.
Section 1 | Board Leadership and Company Purpose
Principles A, B, C,
D, E
The Corporate Governance statement (CG Statement) on pages 64 to 71 gives information on the Group’s compliance
with the principles relating to the Board’s Leadership and Company Purpose. More detailed information on:
¢ the Group’s statement of purpose can be found on page 9;
¢ the Group’s strategy, resources and the indicators it uses to measure performance can be found on pages 10 to 11
and 26 to 27 respectively;
¢ the Group’s engagement with stakeholders and the Group’s Section 172(1) Statement is set out on pages 14 to 17;
and
¢ the Group’s approach to workforce matters can be found in the Chief People Officer’s report and in ‘Our
people’ within our People and Planet section on pages 38 to 43.
Details of AGM voting results can be found on page 70, the Group’s framework of controls is contained in the Audit
and Risk Committee report on pages 73 to 74 of the CG Statement and in the Principal Risk and Viability Disclosure
section on pages 28 to 37.
Section 2 | Division of Responsibilities
Principles F, G, H, I The CG Statement describes the structure and operation of the Board. In the CG statement, we describe on page 66
the process the Company conducts to evaluate the Board, to ensure that it continues to operate effectively, that
individual Director’s contributions are appropriate and that the oversight of the Chair promotes a culture of openness
and constructive yet challenging debate. The policies and processes which support the Board to function effectively
and efficiently can be found on our website at centrica.com/board.
Section 3 | Composition, Succession and Evaluation
Principles J, K, L
Details of the skills, experience and knowledge of the existing Board directors can be found in the Board biographies on
pages 59 to 63. Information on the Board’s appointment process and approach to succession planning is contained in
the Nominations Committee report on pages 79 to 80. Information on the Board evaluation process can be found on
page 66.
Section 4 | Audit, Risk and Internal Control
Principles M, N, O
Information on the policies and procedures the Group has in place to monitor the effectiveness of the Group’s Internal
and External Audit functions, and the integrity of the Group’s financial statements, is contained in the Audit and Risk
Committee report on pages 72 to 74 of the CG Statement, along with an overview of the procedures in place to manage
risk and oversee the internal control framework. Further information on the Group’s approach to risk management is
contained in the Principal Risk and Viability Disclosure section of the Strategic Review on pages 28 to 37. The Board
believes the 2023 Annual Report to be a fair, balanced and understandable assessment of the Company’s position and
prospects. A description of the Audit and Risk Committee’s work in enabling the Board to reach this conclusion is
contained in the Audit and Risk Committee report on page 73.
Section 5 | Remuneration
Principles P, Q, R
The Directors’ Remuneration Report section of the CG Statement describes the Group’s approach to Directors’
remuneration, including the procedure for developing policy and the Remuneration Committee’s discretion for
authorising remuneration outcomes. Details of linkage of the Directors’ Remuneration Policy with long-term strategy
are contained on page 102.
The Board and its committees continue to monitor developments in governance, and welcome the important revisions to the UK Corporate
Governance Code (the Code) published by the Financial Reporting Council (FRC) on 22 January 2024.
64
Governance | Centrica plc Annual Report and Accounts 2023
GOVERNANCE FRAMEWORK
The Board is responsible for leading the Group in an efficient manner,
establishing the Group’s purpose, values and strategy, to which the
Group’s culture is aligned. It focuses primarily on strategic and policy
issues and is responsible for developing long-term sustainable value
for stakeholders. It is responsible for ensuring there are effective risk
assessment and management processes, setting the Group’s strategy,
overseeing the allocation of resources and monitoring the performance
of the Group. The framework to enable this is set out in a schedule
of matters reserved for the Board. In order to allow the Board to focus
on its priorities, a number of its oversight responsibilities have been
delegated to four principal Committees. These responsibilities are set
out in the terms of reference for each Committee. The Board regularly
reviews the remit, authority, composition and terms of reference of
each Committee. In performance of these duties, the Board has regard
to the interests of the Group’s key stakeholders and the potential
impact of the decisions it makes on wider society.
Matters reserved exclusively for the Board
There are certain key responsibilities that the Board does not
delegate, and which are reserved for its consideration. The Board’s
responsibilities include: the development of strategy; the acquisition
and divestment policy; the approval of major capital expenditure; the
Group’s capital structure; the approval of financials; and oversight
and independent assurance of policies and procedures. The full
schedule of matters reserved is available on the governance page
of our website at centrica.com.
OUR BOARD
The Board comprises the Non-Executive Chair (independent on
appointment), two Executive Directors (Group Chief Executive and
Group Chief Financial Officer), and nine independent Non-Executive
Directors. There is a clear division of responsibilities between the Chair
and the Group Chief Executive, reflected in the schedule of matters
reserved for the Board.
Board Committees
The Board oversees the Group’s operations through a unitary Board
and four principal Committees, these being the Audit and Risk
Committee, Nominations Committee, Remuneration Committee and
the Safety, Environment and Sustainability Committee. The terms of
reference for these Committees can be found on our website,
centrica.com, and attendance at meetings of each of these
Committees in 2023 can be found on page 68. Further information on
the work of these Committees can be found in later sections of this
Annual Report and Accounts (pages 72, 79, 82 and 84).
In addition to the above-mentioned Committees, the work of the Board
is supported by a Disclosure Committee, the terms of reference for
which are available on our website. The Disclosure Committee is
responsible for overseeing the timely and accurate disclosure of
sensitive information and maintaining procedures and controls to
enable compliance with legal and regulatory disclosure obligations.
Meetings of the Disclosure Committee are convened as and when
necessary and membership of the Committee comprises the Group
Chief Executive, Group Chief Financial Officer and the Group General
Counsel & Company Secretary.
Centrica Leadership Team (CLT)
The CLT is led by the Group Chief Executive and members include the
Group Chief Financial Officer, Group General Counsel & Company
Secretary and the Chief People Officer. The CLT is responsible for
ensuring the delivery of the Group’s strategy, business plans and
financial performance.
Board appointments
The report of the Nominations Committee on pages 79 to 80 describes
the work of the Committee in relation to Board appointments. 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.
The Board is responsible for corporate governance, developing strategy and major policies, reviewing management performance, approving financials
and providing entrepreneurial leadership to the Company within a framework of prudent and effective controls which enable risk to be assessed
and managed. It is also responsible for setting the Company’s culture, values and the behaviours it wishes to promote in conducting its business.
The Board’s role and responsibilities are reviewed against the UK Code to ensure that it is meeting all of its responsibilities.
The Board
Chair
Group Chief Executive
The Chair is responsible for the leadership and management of the
Board. In doing so, he is responsible for promoting high ethical
standards, ensuring the effective contribution of all Directors and,
with support from the Group General Counsel & Company
Secretary, ensuring best practice in corporate governance and the
timely distribution of accurate and clear information to Directors.
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.
Independent
Non-Executive Directors
Senior Independent
Director
Group Chief
Financial Officer
Group General Counsel
& Company Secretary
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. All of the
Non-Executive Directors are
considered independent.
The Senior Independent
Director acts as a sounding
board for the Chair and serves
as a trusted intermediary for the
other Directors, as well as
shareholders, as required.
The Group Chief Financial
Officer is responsible for
providing strategic financial
leadership to the Company and
for the day-to-day management
of the finance function.
The Group General Counsel &
Company Secretary advises the
Chair on governance, together
with updates on regulatory and
compliance matters; supports the
Board agenda with clear
information flow; and acts as a
link between the Board and its
Committees, and between
Independent Non-Executive
Directors and senior
management.
Governance | Centrica plc Annual Report and Accounts 2023
65
Evaluation and effectiveness of the Board, Committees
and the Directors
To ensure that the Board and its Committees continue to operate
effectively, a performance evaluation of the Board and its principal
Committees is undertaken annually with an externally facilitated
evaluation every third year. We used the services of external advisors,
Lintstock Limited, to support the 2023 internal evaluation process,
which year on year has built on the priorities identified in the
previous years.
The 2023 evaluation, overseen by the Group General Counsel &
Company Secretary, was conducted by way of a questionnaire which
covered a broad range of topics, including:
¢ Board composition;
¢ Board dynamics;
¢ Stakeholder oversight;
¢ Strategic oversight;
¢ Management and focus of meetings;
¢ Risk management and internal controls;
¢ Succession planning and people oversight;
¢ Board support; and
¢ priorities.
The outcome of this year’s evaluation demonstrated that the Board
and its Committees continue to operate effectively.
The evaluation highlighted certain topics and actions for focus in the
year ahead, including additional training on technological threats and
opportunities, with a focus on green technologies and artificial
intelligence, enhancing insights into global supply chain considerations
and competitor strategies and performance. The Board and the
Nominations Committee will also continue to focus on succession
planning, both at Board and senior executive level. Creating further
opportunities for engagement with senior leadership and management
was also identified.
Feedback from the 2022 evaluation related to succession planning,
Board training and increasing the Board’s exposure to and
understanding of certain stakeholders. During the course of 2023,
meetings dedicated to talent and succession planning, including
assessment of Board skills and composition, were held. The Board
reviewed its training requirements and the 2023 and 2024 work
programmes were updated to include training sessions on a broad
range of topics. Stakeholder related information provided to the Board
was enhanced, including site visits, meetings with colleagues and
increased content on supply chain and customers as part of business
unit deep-dive sessions.
Independent Board Evaluation will be appointed to provide the triennial,
in-depth, externally facilitated evaluation of the Board’s effectiveness in
2024. Further information on the process and feedback from this
evaluation will be reported in the 2024 Annual Report and Accounts.
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 Chair,
supported by the Group General Counsel & Company Secretary
and Secretariat, and informed by the Nominations Committee, is
responsible for the ongoing development of all Directors. The Chair
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 2023, the
Directors received deep dives including British Gas Energy, Centrica
Energy and Centrica Energy Storage+, and training on various matters
including, directors’ duties and hydrogen and carbon capture storage
models (including economic regulation frameworks). 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, on corporate governance matters. Should it prove
necessary, Directors are also able to seek independent professional
advice at the Company’s expense in respect of their duties.
66
Governance | Centrica plc Annual Report and Accounts 2023
Directors’ independence and conflicts
All our Non-Executive Directors are considered to be independent
against the criteria in the UK Code, and free from any business interest
which could materially interfere with the exercise of their independent
judgement. In addition, the Board is satisfied that each Non-Executive
Director is able to dedicate the necessary amount of time to the
Company’s affairs.
The Non-Executive Directors’ Letters of Appointment state that they
must inform the Group General Counsel & Company Secretary of any
other businesses, directorships, appointments, advisory roles, or other
relevant commitments (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 Chair 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.
Directors’ induction
The Board has in place processes for the Directors’ induction and
ongoing training. The Directors’ induction programme is led by the
Chair and supported by the Group General Counsel & Company
Secretary and Secretariat. 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 Chair. For example, CP Duggal met with each of
the business Managing Directors and their teams during the year,
including a visit to the Stockport Call Centre and Bord Gáis Energy
in Dublin, together with deep dive sessions with the Centrica Energy
and British Gas Energy businesses, and some external training
and mentoring sessions.
DIRECTOR INDUCTION 2023 – CP DUGGAL,
RUSSELL O’BRIEN, PHILIPPE BOISSEAU,
JO HARLOW AND SUE WHALLEY
Following appointment, all Directors receive a comprehensive
and tailored induction programme. This is designed through
discussion with the Chair and the Group General Counsel &
Company Secretary and considers existing expertise and any
prospective Board Committee roles.
The induction plans for CP Duggal and Russell O’Brien
comprised a combination of in-person and virtual sessions
with both internal functions and external advisors over an
initial period of six months. This was structured to ensure that
information material to their roles was delivered in the early
stages of the programme.
These briefings provided an initial opportunity to meet senior
leaders and were supported by site visits to provide on-the-
ground understanding of business units and working
environments.
The induction for Philippe Boisseau, who joined the Board
on 1 September 2023, and for Jo Harlow and Sue Whalley,
who joined the Board on 1 December 2023, has begun.
An update on their respective inductions will be provided
in the 2024 Annual Report & Accounts.
Areas covered during induction
Sessions covered by
Centrica’s purpose, strategic priorities and business unit operations
Group Chief Executive and Managing Directors of each
Business Unit, Group Head of Strategy
Financial position, performance, investment and funding, including
credit ratings
Group Chief Financial Officer, Group Financial Controller and the
Company’s brokers
Pensions, Treasury & Insurance
External assurance
Remuneration Committee advisors
Rewards & Benefits
People & Culture
Energy sector and trends, energy markets
Net zero, sustainability
Stakeholder communication and engagement
Corporate governance and Board operations
Group Head of Treasury, Pensions, & Insurance
External auditors
PwC
Group Chief People Officer, Director of Rewards & Benefits
Group Chief People Officer
Group Strategy Director, Group Regulatory Affairs Director,
Group Head of M&A, Group Head of Investor Relations
Group Strategy Director, Group Head of Environment
Group General Counsel & Company Secretary and Group
Corporate Affairs Director
Chair of the Board and Group General Counsel & Company
Secretary
Shareholder and investment perspectives
Group Head of Investor Relations and the Company’s brokers
Legal and regulatory landscape
Group General Counsel & Company Secretary, Director of
Regulatory Affairs and Policy
Centrica’s risk profile
Chief Risk Officer
Safety, health and environment, people and culture
Group General Counsel & Company Secretary, Group Chief People
Officer
Digital technology / Cyber security
Chief Information Officer, VP – Cyber Security
Site visits
The Directors recognise the importance of, and benefits gained by,
visiting the Group’s operations and endeavour to visit Centrica sites
each year. The site visits that the Board undertook in 2023 and
the interactions at those visits are described in the Chair’s letter
on page 58.
Board meetings
The Board is committed to upholding high standards of corporate
governance and compliance, recognising their importance for the
Company’s enduring performance and value generation. These
standards underpin the Company’s strategic objectives and critical
decision-making, crucial for reinforcing its financial foundation and
navigating challenging market conditions.
The Board held eight formal meetings in 2023, which primarily occurred
face-to-face. In addition, supplementary meetings were called for
specific approvals. The table showing the attendance of Directors at
Board meetings in 2023 can be found on page 68. If Directors are
unable to attend a meeting, they have the opportunity beforehand to
discuss any agenda items with the Chair. The agendas for Board
meetings are agreed in advance by the Chair, 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.
During the year, the independent Non-Executive Directors, including
the Chair, met twice without management present.
Governance | Centrica plc Annual Report and Accounts 2023
67
Number of Board and Committee meetings attended during 2023(1):
Joined the
Board
Name
Role
Tenure(2)
Board
Scott Wheway
Chair
01/05/2016
7 years, 8 months
Chris O’Shea
Group Chief Executive
01/11/2018
5 years, 2 months
Kate Ringrose(3)
Group Chief Financial Officer
18/01/2021
2 years, 1 month
Russell O’Brien(3)
Group Chief Financial Officer
01/03/2023
0 years, 10 months
Carol Arrowsmith
Independent Non-Executive Director
11/06/2020
3 years, 6 months
Philippe Boisseau
Independent Non-Executive Director
01/09/2023
0 years, 4 months
Nathan Bostock
Independent Non-Executive Director
09/05/2022
1 year, 7 months
CP Duggal
Jo Harlow
Independent Non-Executive Director
16/12/2022
1 year, 1 month
Independent Non-Executive Director
01/12/2023
0 years, 1 month
Heidi Mottram
Independent Non-Executive Director
01/01/2020
4 years, 0 months
Kevin O’Byrne
Senior Independent Non-Executive Director 13/05/2019
4 years, 7 months
Amber Rudd
Independent Non-Executive Director
10/01/2022
1 year, 11 months
Sue Whalley
Independent Non-Executive Director
01/12/2023
0 years, 1 month
8/8
8/8
2/2
6/6
8/8
3/3
8/8
8/8
1/1
8/8
8/8
8/8
1/1
AC
N/A
N/A
N/A
N/A
4/4
1/1
4/4
4/4
N/A
N/A
4/4
N/A
N/A
NC
3/3
N/A
N/A
N/AN
3/3
1/1
3/3
3/3
N/A
3/3
3/3
3/3
N/A
RC
N/A
N/A
N/A
N/A
5/5
N/A
N/A
5/5
N/A
5/5
N/A
5/5
N/A
SC
3/3
N/A
N/A
N/A
N/A
1/1
3/3
N/A
N/A
3/3
N/A
3/3
N/A
(1) Any Director who is unable to attend a Board meeting provides feedback to the Chair on the matters to be discussed in advance of the meeting.
(2) Data as at 31 December 2023.
(3) Kate Ringrose stepped down as Group Chief Financial Officer and an Executive Director on 28 February 2023 and Russell O’Brien joined as Group Chief Financial Officer
and an Executive Director on 1 March 2023.
Board activity including Section 172(1) considerations
The Board, as custodian of the Company, acknowledges the
importance of understanding stakeholder needs and expectations to
secure the Company’s long-term viability and to deliver value to all
stakeholders and society at large.
Throughout the year, the Board’s activities have included evaluating
regular operational and financial reports, strategising, and approving
various governance matters. Read more about Board discussions held
on page 69. Moreover, they have conducted deep dives on special
topics. The Directors ensure that their decisions are informed by the
considerations set out in Section 172 of the Companies Act 2006.
Feedback from key stakeholder engagements is routinely considered
by the Board, and this report, alongside our website, contains
additional examples and evidence of the Directors’ adherence to their
duties as outlined in Section 172. Read more about the Section 172
statement and the principal decision taken by the Board described on
page 17.
Section 172
The likely consequences of any decision in the long term
The interests of our colleagues
Evidence
Please see page 9 to 11, 14 to 17, 41 to 55 and 67 to 69
Please see page 14 to 17, 38 to 40, 42 to 43, and 67 to 71
The need to foster relationships with suppliers, customers and others
Please see page 14 to 17, 70 and 82 to 83
The impact of the Company’s operations on the community and the
environment
Please see pages 41 to 55 and 82 to 83
The desirability of the Company maintaining a reputation for high
standards of business conduct
Please see pages 45, 70 to 71, and 82 to 83 and visit our website
centrica.com
The need to act fairly between members of the Company
Please see pages 15 to 17 and 69
68
Governance | Centrica plc Annual Report and Accounts 2023
BOARD DISCUSSIONS HELD DURING THE YEAR INCLUDED
Strategy and business plan
Performance and risk
The Board set the delivery of the strategic direction of the Group
and oversaw the delivery of that strategy for the benefit of relevant
stakeholders. In particular, the Board also considered the following
matters:
¢ Group Annual Plans for 2023 and 2024
¢ The Group’s new strategic & investment framework
¢ The Energy Supply Market – future investment strategy
¢ The Climate Transition Plan
¢ Return of surplus capital to shareholders
¢ Energy transition investment opportunities
¢ Responsible sourcing strategy
¢ Stress testing under range of scenarios
Stakeholders considered:
Culture and stakeholders
The Board recognises that understanding the views and interests of
the Company’s diverse community of stakeholders, including
customers, is important.
The views and interests of stakeholders are considered in the
development, delivery and oversight of the Group’s business model,
strategy and culture. During the year, the Board considered the
following matters:
¢ Cost of living crisis and the impact on customers and colleagues
¢ Colleague engagement
¢ Pensions
¢ Company culture
¢ Investor updates and feedback
¢ Senior leadership development and succession planning
¢ Diversity, Equity & Inclusion strategy
Stakeholders considered:
Political and regulatory environment
During the year, the Board considered a range of political and
regulatory matters relevant to the Group’s activities and strategy,
including in particular:
¢ Macro/geopolitical developments
¢ Reform of energy markets
¢ Modern Slavery Act developments
¢ TCFD disclosure
¢ Government intervention initiatives
¢ UK and Ireland energy security
¢ FCA Consumer Duty
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. These reports covered a wide range of topics, including:
¢ Health and safety performance and process safety risk
¢ Group Performance Reports
¢ 2022 preliminary results statement and 2023 interim results
statement
¢ Group credit exposure and liquidity
¢ Business reviews, including operational performance
¢ Periodic results
¢ Cyber security risk management
¢ Commodity price movements
¢ Climate Transition Plan performance
¢ People & Planet Plan performance
¢ Going concern and viability statements
¢ Audit fees
¢ Internal Audit review
¢ Internal controls
¢ Tax
¢ Treasury risk management
¢ Insurance
¢ Ensek migration
¢ 2022 final dividend
¢ 2023 interim dividend
¢ Technology systems roadmap
Stakeholders considered:
Governance
The Board receives regular reports from the Group General Counsel
& Company Secretary on governance and regulatory matters, as
well as regular updates and insights on market trends from the
Investor Relations function. During the year, the Board took time to
consider or oversee the following key governance activities/matters:
¢ 2022 Annual Report and Accounts
¢ Independent Non-Executive Director recruitment
¢ Board effectiveness evaluation
¢ Succession planning for the Board
¢ Committee composition
¢ Reports from Committee Chairs
¢ Conflicts of interest reviews
¢ Terms of reference reviews
¢ Director skillset and Director training requirements
¢ Director independence
¢ Workforce engagement
¢ All-Employee Share Plan
¢ Dividend policy
¢ Company’s investigation results on warrant-based prepayment
meter installations
Stakeholders considered:
Stakeholders considered:
Governance | Centrica plc Annual Report and Accounts 2023
69
RELATIONS WITH OUR STAKEHOLDERS
Shareholder engagement
The Board is committed to maintaining open channels of
communication with all of the Company’s stakeholders. An important
part of this is providing a clear explanation of the Company’s strategy
and objectives, and ensuring feedback is acknowledged, considered
and, where appropriate, acted upon.
Meetings, roadshows and conferences
The Company reports its financial results to shareholders twice a year,
with the publication of its annual and half-year results. The Group Chief
Executive and Group Chief Financial Officer typically meet with our
major institutional shareholders twice a year, following the Company’s
preliminary and interim results, which provides an opportunity for a
review of the Company’s strategy and performance. The results
presentations, webcast and announcement from the 2022 preliminary
results and 2023 interim results are available on our website,
centrica.com.
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. Senior management, the Chair, Senior Independent
Director and Remuneration Committee Chair are also available to meet
on an ad-hoc basis with major shareholders if requested.
Engagement themes with our institutional shareholders
During the year, engagement themes included:
¢ Centrica’s strategic refresh;
¢ Full year and interim results;
¢ the Rough storage facility;
¢ UK energy security;
¢ Dividends and shareholder returns;
¢ The regulatory and political environment for UK energy;
¢ Impact of rising commodity prices;
¢ Energy transition investment opportunities;
¢ Board succession;
¢ Liquidity and result of stress tests; and
¢ ESG matters.
GENERAL MEETINGS
The Board is committed to communicating with shareholders and other
stakeholders in a clear and open manner and seeks to ensure effective
engagement through the Company’s regular communications, the
AGM and other investor relations activities. During 2023, the Company
undertook an ongoing programme of meetings with investors (in
person and virtually). The majority of these meetings were led by the
Group Chief Executive and Group Chief Financial Officer.
The Company holds an Annual General Meeting (AGM) each year and
holds General Meetings as required. At the AGM, the Chair gives his
thoughts on governance aspects of the preceding year and the Group
Chief Executive reviews the performance of the Group over the last
year. In advance of each AGM, we write to our largest shareholders
inviting discussion on any questions they might like to raise and
making the Chairs of the Board, the Audit and Risk Committee and
the Remuneration Committee available to meet shareholders should
they so wish. In addition, the Company engaged with its largest
shareholders and key governance agencies in early 2023, on
resolutions concerning the Directors’ Remuneration Policy and our
Climate Transition Plan. Feedback was received from major
shareholders and governance agencies and dialogue entered into
with a number of shareholders regarding the proposals.
The 2023 AGM was held as a hybrid meeting, giving shareholders the
opportunity to participate (including asking questions and voting) in
person or virtually via an online platform (Lumi). Shareholders were
encouraged to exercise their votes by submitting their proxy forms
either electronically or by post. We also invited shareholders to submit
their questions in advance of the AGM via a dedicated question facility
on our website and, where appropriate, the answers were published
on our website.
Our 2023 AGM was well supported with voting in favour of the
resolutions ranging from 92% to 99% and with 65% of issued share
capital voted.
Information about the 2024 AGM will be provided in the Notice of
Meeting and will be available in due course at centrica.com/agm24.
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 Report and
Accounts, shareholder circulars, share price information, news
releases, presentations to the investment community and information
on shareholder services.
WORKFORCE
Workforce engagement
Responsibility for workforce engagement is shared amongst the
Directors of the Board, which is a well-recognised approach adopted
by companies. Through engaging with colleagues and understanding
what they think and feel, the Board is able to make more informed
decisions which enable better outcomes for colleagues as well as the
Company.
During the year, the Chair and Non-Executive Directors engaged with
members of the workforce in various ways. This included site visits
to Brigg, Hessle, Easington Terminal, and Park House where they met
with colleagues to better understand the businesses.
Quarterly engagement surveys, feedback from the Shadow Board,
town halls, meetings with members of the Centrica Leadership Team,
both individually and together, leader-led listening sessions and
colleague-led network sessions provided additional mechanisms to
better understand the views of the workforce and to foster a more
collegial culture.
Ongoing and holistic engagements like these contributed to the
decision-making of the Centrica Leadership Team and the
Board throughout the course of 2023. Further information on some
of the decision-making of the Board can be found on page 17.
Equal opportunities
The Group has, and is committed to, an active equal opportunities
policy which includes, but is not limited to, recruitment and selection,
training, career development, performance reviews, promotion and
through to retirement. Our culture is to create an inclusive and safe
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.
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Governance | Centrica plc Annual Report and Accounts 2023
We have created channels for colleagues to voice concerns
confidentially, through a Speak Up helpline that is operated by a
third party.
Action like this helps to ensure that decisions relating to employment
practices are objective and based upon work criteria and individual
merit. See pages 45 for more information.
Colleagues with disabilities
It is our policy that current and prospective colleagues with a disability
have the same right to access and develop their careers as anyone
else, which is why we are actively targeting to grow disability
representation as part of our People & Planet Plan to ensure we reflect
the full diversity of our communities (see page 42). Colleagues with a
disability receive full and fair consideration when applying for all
vacancies and we interview those who meet the minimum criteria
required, whilst making all reasonable adjustments during recruitment
or during their employment with us. To help everyone reach their full
potential, we provide training, career development and promotion
opportunities that are open to anyone who works for us alongside
tailored programmes that specifically support colleagues with
disabilities to achieve the next steps in their career. We also endeavour
to retain colleagues in the workforce if they become disabled during
employment.
To support this approach, in 2017 we launched Diverse-ability, a
network that celebrates physiological and neurological diversity among
colleagues. Over the years, the network has grown from strength-to-
strength to become a family of networks including the neurodiversity
network and The Fertility Sanctuary. They are a vital source of support
and education for colleagues, whilst providing us with essential
feedback to help us evolve our business in a more inclusive way. As
part of our ambition to be a more inclusive business, we support The
Valuable 500 initiative to champion disability inclusion across the
business and beyond. We are also members of their Generation
Valuable mentoring programme to help identify and build a community
of disabled talent to develop their skills and share their experiences
upwards, informing the C-suite about how to make businesses more
inclusive. In addition to this, we are a Level 2 Disability Confident
Employer, partner with Scope and are members of the Business
Disability Forum, which offers support, toolkits and advice to
businesses around disability matters. In 2024, we plan to launch our
Great Minds programme to help normalise and better support
neurodiversity amongst other activities.
Human rights
We are fully committed to upholding the fundamental human rights and
freedoms of everyone who works for us, with us, or lives in the
communities where we operate. We uphold the UN Guiding Principles
on Business and Human Rights and are signatories of the United
Nations Global Compact. As set out in Our Code, we take steps to
ensure that we never knowingly cause or contribute to human rights
abuses through activities like employment checks and supplier due
diligence. We also aim to contribute positively to global efforts to ensure
human rights are understood and observed. Further information about
our efforts can be found in our People & Planet Plan on page 46, as
well as in our Modern Slavery Statement and Our Code available on our
website centrica.com.
Governance | Centrica plc Annual Report and Accounts 2023
71
DEAR SHAREHOLDER
The Audit and Risk Committee is pleased to present its
report for the year ended 31 December 2023, which
summarises the Committee’s work to ensure the accuracy
of the Group’s published financial information and the
effectiveness of the Group’s risk management and internal
controls framework.
This report should be read in conjunction with the following
sections in the Annual Report and Accounts:
¢ Principal Risks and Uncertainties, pages 28 to 34
¢ Viability Statement, pages 35 to 37
¢ UK Corporate Governance Code application, page 64
COMMITTEE OVERVIEW
The Committee has a yearly agenda which is linked to the Company’s
financial calendar. The agenda is flexible, enabling in-depth reviews of
topics of particular importance to the Committee.
The core responsibilities of the Committee are to:
¢ monitor and review the adequacy and effectiveness of the
governance and oversight of the Company’s financial processing
and reporting, internal controls and risk management, including key
judgments and estimates;
¢ provide advice and assurance to the Board on whether it has
discharged its duties and whether the Annual Report and Accounts,
when taken as a whole, is fair, balanced and understandable and
provides all the necessary information for shareholders and other
stakeholders to assess the Company’s position, performance,
business model and strategy;
¢ monitor and review the operation and effectiveness of the Group’s
Internal Audit function, including its independence, strategic focus,
activities, plans and resources;
¢ supervise the appointments of the Group Chief Risk Officer and
Group Head of Internal Audit;
¢ manage the relationship with the Group’s external auditors on behalf
of the Board (including appointment, independence, effectiveness
and remuneration);
¢ conduct a tender for the external audit contract at least every
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.
AUDIT AND RISK COMMITTEE
MEMBERSHIP, MEETING ATTENDANCE
AND KEY FOCUS
Committee members
— Nathan Bostock (Chair) (with effect from
1 March 2023)
— Kevin O’Byrne (Chair until 28 February
2023)
— Carol Arrowsmith
— Philippe Boisseau (with effect from
1 September 2023)
— CP Duggal
All Committee members are independent
Non-Executive Directors. Nathan Bostock
and Kevin O’Byrne have recent and relevant
financial experience and the Committee has
sector relevant competence, as disclosed on
pages 59 to 63.
Carol Arrowsmith is connected to Deloitte
LLP (‘Deloitte’) as, historically, she was a
partner there. However, she had left Deloitte
prior to their appointment as the Group’s
external auditors. In addition to this, Deloitte
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.
Meeting attendees by invitation
All other Non-Executive Directors, Group Chief
Executive, Group Chief Financial Officer, Group
General Counsel & Company Secretary, General
Counsel, Secretariat & Corporate Services,
Group Financial Controller, Group Head of
Accounting, Reporting and Tax, Group Head of
Treasury, Pensions and Insurance, Group Chief
Risk Officer and Group Head of Internal Audit,
and the External auditors.
Focus areas in 2023
¢ The Group’s published financial information.
¢ The effectiveness of the Group’s risk
management and internal controls
framework.
¢ The Enterprise Risk and Control Framework
including risks managed by the other Board
committees.
¢ The management of cyber risks.
¢ Ethical, legal and regulatory matters.
¢ Deep dives on Centrica Energy.
¢ Finance Systems Review and Finance
health check.
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Governance | Centrica plc Annual Report and Accounts 2023
Main activities during 2023
During the year, the Committee met four times and considered a broad
range of topics. Our key highlights are disclosed below:
¢ Accounting judgments, especially those related to Spirit Energy and
Centrica Energy Storage, the reversal of the onerous supply contract
provision, the impairment of the Nuclear asset, the Electricity
Generator Levy and the assessment of the downstream supply bad
debt provision.
¢ Viability and Going Concern assessments and related disclosures.
¢ Review of the 2022 financial results, the Annual Report and
Accounts, and the 2023 interim financial results, including any
relevant communications from Deloitte.
¢ Evaluation of the effectiveness of the external audit process and the
Internal Audit function.
¢ Continued oversight of the control environment and finance systems
maintenance and development, particularly regarding the migration
of British Gas Energy customers’ migration to a new technology
platform.
¢ Assessment of credit risk exposure amidst volatile commodity prices
and the broader impacts of high commodity price environments.
¢ Review of the Group’s pension schemes, including the forthcoming
triennial review and the impact of changes in gilt yields (see note 22).
¢ Monitoring of sanctions compliance, information systems, cyber
security and data security risk management, especially considering
geopolitical developments and updating the Board accordingly.
¢ Updates on legal, regulatory, and ethical compliance, with a focus on
energy trading and the sale and delivery of FCA-regulated products
and services, including the operation of Our Code and the Speak Up
helpline.
¢ Preparation for upcoming legal and regulatory changes, such as
reforms to the UK corporate governance regime.
¢ Regular reports and recommendations from Internal Audit and the
external auditors on risk, assurance, and controls.
¢ Regulatory compliance considerations regarding British Gas Energy,
including in relation to the installation of prepayment meters.
¢ Bad debt provisioning in the context of the cost of living crisis and
suspension of prepayment meter installations.
¢ In-depth reviews of the risks and controls environment across
various divisions of the Group, including British Gas Energy, British
Gas Services & Solutions, Centrica Business Solutions, Bord Gáis
Energy, and Centrica Energy, as well as the Group-wide financial
risk and definitions of capital employed.
¢ Report on the changes to the Government support schemes
for suppliers.
¢ Evaluated risks and opportunities related to climate change
alongside the Safety, Environment and Sustainability Committee,
to ensure that the Annual Report and Accounts comprehensively
outlines the actions taken to effectively address major climate-
related concerns.
RISK MANAGEMENT AND INTERNAL CONTROLS
Internal Audit
The Committee oversees the Group’s Internal Audit function, ensuring
its efficiency, independence, and alignment with strategic objectives.
This includes regular reviews and approval of the annual Internal Audit
plan, which is developed in response to the Group’s evolving Principal
Risks (details on pages 28 to 34). The Group Head of Internal Audit
maintains direct communication with the Board Chair and Committee
Chair and is accountable to the Committee. Throughout the year, the
Committee is updated on Internal Audit’s findings. It also monitors the
implementation of follow-up actions by business units.
The independence, objectivity and effectiveness of the Internal Audit
function was reviewed by reference to the output from a combination of
self-assessment, independent assessment conducted by survey
involving the CLT and a broader group of senior managers, as well as
assessment by the Committee. The review concluded that the Internal
Audit function operated in accordance with the Institute of Internal
Auditors’ International Professional Practices and continued to be
independent, objective, and effective.
Review of the system of risk management and internal controls
Our risk management and internal controls are assessed through a
self-certification process, a Group Entity Level Controls assessment
program, and internal reviews by Internal Audit and the Committee.
The Committee oversees the work of Internal Audit, the functional
support teams, and the management teams, receiving regular updates
on Group Principal Risks and other Group frameworks. At every
meeting, the Committee receives an update on the Group’s Enterprise
Risk and Controls from the Chief Risk Officer and Group Head of
Accounting, Reporting & Tax. This details the key risks the Group
faces, the change in risk climate since the last meeting and any new
emerging risks. The update also highlights the control environment, any
changes in that environment as the control framework keeps pace with
business change, and any areas of weakness identified, together with
proposed mitigations. The Committee has confidence in its ability to
identify issues and the business units’ ability to remediate control gaps.
The risk management process and internal controls have been in place
throughout the year and remain effective, with ongoing review and
improvement.
The Committee has received regular reports throughout the year on the
status of the Group’s transition to the new billing system, Ensek. The
Committee was made aware of the evolving nature of the control
activities performed in relation to this in-development Software as a
Service (SaaS) environment. Given the controls were still developing,
the external auditors did not plan to place reliance on controls in this
area and, as expected, their control design and implementation work
led to certain control findings and observations. Notwithstanding these
findings, management and the Committee are satisfied with the manual
review controls that have been put in place, which include a significant
number of validations, checks, and other broad assurance activities,
providing financial integrity and ensuring we remain comfortable with
the financial results. The business is committed to evolving further the
manual and IT controls in place and the extent of automation, as the
platform continues its development. Alongside Ensek, the Committee
also noted external audit findings across some of the Group’s systems
around user access and oversight of service organisations, leading to
more substantive audit testing. The Committee discussed these
challenges with management and the mitigations and improvements in
these areas expected in 2024.
The Committee also noted that, in line with the culture of continuous
improvement in the business, there is an ongoing review being
undertaken on the Group Enterprise Risk Management framework.
Fair, balanced and understandable
In line with the UK Code, the Committee, on behalf of the Board,
reviews the Annual Report and Accounts to ensure it is compliant
with applicable laws and regulations and provides shareholders and
stakeholders with the necessary information to assess the Company’s
position, performance, culture, business model, and strategy. The
Committee also considers the processes and controls involved in
the production of the Annual Report and Accounts, the governance
framework for review and the responsibilities of the Directors.
There is a robust governance framework around the production of
the Annual Report and Accounts to ensure they have been critically
reviewed and verified by the key teams in the relevant businesses and
functions. This includes review and agreement by the Fair, Balanced
and Understandable Committee (comprising Heads of Function from
Finance, Corporate Communications, Investor Relations, Internal Audit,
People Function, Strategy and Corporate Legal & Secretariat) together
with review and input from other content owners and their managers.
Governance | Centrica plc Annual Report and Accounts 2023
73
EXTERNAL AUDITORS
External auditors and Effectiveness of the external audit process
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 maintain objectivity, principal members of the external
audit team are rotated off the Company's audit. Additionally, to protect the
independence of the external auditors and the integrity of the audit
process, the Company prohibits hiring senior staff from its auditors for at
least two years after they stop providing services to the Company. Jane
Boardman was appointed as the lead audit partner after the completion of
the 2021 audit and has been serving in this role for two years.
To assess the effectiveness of the external audit process and
independence and objectivity of the external auditors, the Committee
carried out an assessment, as in prior years, primarily looking at the key
areas of:
¢ robustness of the audit process
¢ quality of people and service
¢ quality of delivery
¢ independence and objectivity
¢ value added advice
This assessment included an internal questionnaire, which was
completed by the Chair of the Board, Committee members and senior
members of management on their views of Deloitte's performance. The
questionnaire covered a review of the audit partner and team, the audit
scope and approach, audit plan execution, auditor independence and
objectivity and robustness of challenge of management. Separately,
Deloitte also provided an assessment, via an internal management
questionnaire, of management's controls, judgements and
engagement throughout the audit process. The feedback was
reviewed by management and reported to the Committee.
The Committee and the Board confirm that they have taken all the
necessary steps to become aware of any relevant audit information and
to pass that information onto Deloitte. The Committee was satisfied
with the external auditors' commitment to audit quality, the robust and
professional working relationship with management and demonstration
of strong technical knowledge and professional scepticism. In addition,
to ensure the independence of the external auditors, and in accordance
with International Standards on Auditing (UK & Ireland) 260 and Ethical
Standard 2019 issued by the Accounting Practices Board and as a
matter of best practice, Deloitte 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 re-appointment of Deloitte as auditors for the 2023 financial year
was approved by shareholders at the AGM in June 2023 and Deloitte
has been recommended for re-appointment again in 2024. The
Committee confirms that this recommendation is free from influence by
any third party and no contractual term of the kind mentioned in Article
16(6) of the Audit Regulation has been imposed on the Company.
Deloitte has been the Company’s auditor since 2017. The Committee
has considered the timing of a competitive tender and has decided to
conduct the tender in early 2025. This will allow sufficient time for audit
firms otherwise working with Centrica in any capacity to become
independent in advance of taking on the audit in 2027. Deloitte will be
invited to participate in the tender.
The Company has complied with the Statutory Audit Services Order
2014 for the financial year under review.
Non-audit fees
To safeguard the objectivity and independence of the external auditors,
the Committee is responsible for the policy on the award of non-audit
services to the external auditors. A copy of this policy is available on our
website centrica.com. The Chair of the Committee must approve all
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Governance | Centrica plc Annual Report and Accounts 2023
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.
Overall total non-audit fees incurred in 2023 were £0.7 million (2022:
£0.9 million), including £0.5 million for the review of the interim results.
All non-audit fees relate to assurance services (e.g. Interim review or
local regulatory requirements). 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 and Deloitte were best
placed to provide these services on a timely and cost efficient basis,
given their position as the external auditor. The amount incurred in the
year is well below the legal cap of 70% of non-audit fees (for services
not required by regulation) compared to the three-year average of
statutory audit fees, amounting to approximately 9%.
In normal circumstances, all significant non-audit work is put out to
tender and Deloitte is only 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
businesses. For further information, see note S9 to the accounts on
page 220.
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 has a role in overseeing the internal and external auditors,
as well as interacting with other members of management and external
stakeholders as required.
The FRC’s Corporate Reporting Review (‘CRR’) team carried out a
review of the Company’s Annual Report and Accounts (‘ARA’) for the
year-ended 31 December 2022. The Committee was pleased to note
that the CRR team did not raise any questions or queries with the
Company in relation to compliance with reporting requirements.
Whilst the CRR team do not benefit from a detailed knowledge of the
business or underlying transactions and therefore their review does not
provide an assurance that the ARA is correct in all material respects,
it is nonetheless a positive outcome.
In advance of the Audit, Reporting and Governance Authority being
created, the Committee, during the year, complied with the majority of
the FRC's Audit Committees and the External Audit: Minimum Standard.
UK Corporate Governance Code preparedness
The Board regularly receives updates from the Group General
Counsel & Company Secretary about important developments and
upcoming changes in UK Corporate Governance. During the year,
the Committee, aided by the Group General Counsel & Company
Secretary, considered the changes to the UK Corporate Governance
Code and considered how these changes affect the roles and terms
of reference of the Board Committees.
Committee effectiveness
The Committee reviews its terms of reference annually to ensure they
remain appropriate in light of legal, regulatory and best practice
changes. No material changes were made to the Committee’s terms
of reference in the year under review (available on centrica.com).
The effectiveness and performance of the Committee was evaluated
as part of the overall evaluation of the Board and its Committees.
Feedback from that process indicated that the Committee was
performing effectively. Read page 66 for further information. Focus
areas for the Committee in the year ahead include the review and
update of the Group Enterprise Risk Management framework,
alongside relevant Controls; the continued scrutiny of cyber risks,
the rotational deep dives into material businesses and preparation
for the audit tender in 2025.
Nathan Bostock
on behalf of the Audit and Risk Committee
14 February 2024
Key judgements and financial reporting matters in 2023
Audit and Risk Committee reviews and conclusions
Electricity Generator Levy
The Electricity Generator Levy (EGL) applies a tax rate of 45% on
revenues from sales exceeding a benchmark price of £75/MWh on
electricity generated from nuclear sources. It applies from 1 January
2023 to 31 March 2028. Because EGL is a tax on revenue and not
profits, it falls under IFRIC 21: Levies and is not in the scope of IAS 12:
Income Taxes. This means that EGL is not recognised in the tax line but
instead reduces the Group’s adjusted operating profit.
EGL is chargeable within the Group’s associate accounted 20% nuclear
investment for its sale of electricity, as well as on off-take arrangements
with significant minority shareholders in such generators.
During the year, the Group’s share of its Nuclear associate’s EGL
payments amounted to £41 million (recorded within the share of profit
after tax from associates). The Group has also made payments on
account to HMRC of £285 million in relation to its estimated EGL
liabilities for its minority shareholder Nuclear offtake arrangements
during the year and this expense has been recorded within Cost of
Sales.
The EGL legislation is new, and its interpretation and application is
unclear in respect of the Group’s minority shareholder Nuclear offtake
arrangements. As such, the extent of the levy that will ultimately be due
in this regard is not yet certain, and a different amount (up to the £285
million paid to date) may ultimately be determined. If this were the case,
the Group would be due repayment of excess monies paid to HMRC
and at the point at which such repayment became probable, a tax
deposit asset would be recorded on the Group’s balance sheet, and as
a credit within Cost of Sales in the income statement, in accordance
with the 2019 IFRIC Agenda decision on Deposits relating to taxes other
than income taxes. No tax deposit asset has been recorded because it
is not deemed probable, as at the balance sheet date, that this will
ultimately be recoverable (or used to settle another tax liability).
Determination of forecast commodity prices and
their use in valuing long-lived assets and derivative contracts
Commodity price forecasts are a key assumption in the valuation of the
Group’s long-lived assets and derivative contracts. For short-term
commodity prices over the next four years, observable liquid market
prices (as at 31 December 2023) are taken as the best view of expected
price. For the longer-term period thereafter, the Group uses a ‘P50’
median price curve, derived from a collection of third-party forecasts.
This approach is deemed to align to pricing that a reasonable market
participant would use. The Group has used these price curves in its
asset impairment testing and contract valuations.
The Group has also obtained commodity price forecasts which are
intended to be consistent with net zero by 2050. These are lower than
the ‘P50’ curves the Group has adopted for NBP Gas but broadly similar
for baseload power. The Group has shown the impact of such price
forecasts on the gas assets and Nuclear assets in note 7 of the financial
statements.
The Committee reviewed and discussed the complexity around the
interpretation of the Electricity Generator Levy legislation.
It also held discussions with the external auditors to confirm their view
and the appropriateness of the accounting treatment adopted.
The Committee concluded that the judgement reached was appropriate
and concurred with the accounting approach.
The Committee also noted the disclosures included in the financial
statements to highlight the key source of estimation uncertainty in this
area.
Further detail is provided in notes 1 and 3 on pages 132 to 133 and 136
to 142.
The Committee noted the fall in short-term commodity prices during the
year, with year-end prices well below 2022 levels. It also observed the
flattening of summer/winter gas price spreads. The Committee
understood that these outputs impact many of the other judgements
listed below.
The Committee reconfirmed continued support for the longer-term ‘P50’
median curve (derived from third parties) approach. It noted that the
‘P50’ long-term commodity price forecasts were broadly similar year-on-
year for all commodities and that these prices movements were
insignificant compared with the near-term falls.
As a result of the above, the Committee was comfortable the curves
were reasonable.
Sensitivities of the asset impairment tests to changes in price forecasts
are provided in note 7 on page 152 to 156.
The Committee noted the use of a price curve intended to be consistent
with net zero by 2050 in the impairment sensitivities and believed the
output provided useful information to readers of the accounts.
The Committee also noted the continued inclusion of a Climate Change
accounting considerations section in note 3.
Governance | Centrica plc Annual Report and Accounts 2023
75
Key judgements and financial reporting matters in 2023
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 certain re-measurement derivative net gain
of £3.6 bn was predominantly as a result of the unwind of prior year out-
of-the money positions. Although commodity prices fell during the year,
the timing of each business (e.g. UK supply book, Upstream/
infrastructure asset books) entering into new hedge trades was
important, such that the net movement on unrealised trades was small in
comparison to the unwind.
The Committee noted that following the extremely volatile prices in
2022, all of the books had moved into more normal closing derivative
positions, with Supply load books (buy books) being out-of-the-money
following a period of falling prices, and Upstream/infrastructure asset
and Centrica Energy (sell books) being in-the-money. These closing
positions are also at significantly lower values compared with the prior
period, with the consequent expectation that the future 2024 certain re-
measurement unwind will also be at significantly lower levels than seen
in 2022 and 2023.
The Committee noted the link between the derivative certain
re-measurements for the UK supply books and the onerous supply
contract provision certain re-measurements, as discussed below.
Further detail is provided in notes 2 and 7 on pages 134 to 135 and 152
to 156.
The Committee noted and continued to concur with the specific
judgement around LNG contract own use classifications.
The Committee reviewed the change in the underlying derivative hedge
values of the business books and therefore the movement in the
onerous energy supply contract provision.
The Committee noted that this movement is mainly driven by the unwind
of the previous hedges.
The Committee observed that an onerous provision could come back
in 2024 if derivative hedges moved back into the money but this is
dependent on energy prices and the hedged position.
The Committee noted the disclosures included in the financial
statements to highlight this area.
The Committee held discussions with the external auditors to re-confirm
the appropriateness of the accounting treatment and to confirm their
views of the assumptions used.
Further detail is provided in notes 2, 3 and 7 on pages 134 to 142 and
152 to 156.
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/infrastructure 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/infrastructure
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 income
statement until the point at which the related costs to purchase
electricity and gas are incurred.
At the end of 2022, business supply hedges were significantly in-the-
money, following previous increases in near-term commodity prices.
Because of this hedge value recognition, the assessment of whether the
business supply contracts were onerous had to be calculated based on
the cost of fulfilling these arrangements, including the reversal of
previous mark-to-market gains.
Accordingly, the Group determined that at 31 December 2022, the future
costs to fulfil business customer contracts including mark-to-market
reversals would exceed the charges recovered from customers because
the associated hedging gains had already been recognised in the
Income Statement. The Group therefore retained an onerous supply
contract provision of c.£1 billion at that date.
During 2023, the business supply hedges moved to being out-of-the-
money and consequently, the costs to fulfil the customer contracts
including mark-to-market reversals no longer exceed the charges
expected to be recovered from the customer. Therefore no onerous
supply contract provision is required and the previous provision has
been unwound.
The movement in the onerous provision has been reflected as a certain
re-measurement in the Income Statement because these supply
contracts are economically related to the fair value movements on the
hedges (note that the certain re-measurement Income Statement
movement is £0.8 billion, because a £0.2 billion onerous provision was
acquired as part of the Avanti Gas purchase).
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Governance | Centrica plc Annual Report and Accounts 2023
Key judgements and financial reporting matters in 2023
Audit and Risk Committee reviews and conclusions
Impairment of long-lived assets
The Group makes judgements and estimates in considering whether the
carrying amounts of its assets are recoverable:
Upstream (Power assets and Gas assets (including gas storage))
For Upstream/infrastructure assets, discounted cash flows are prepared
from projected production profiles of each field or power asset, taking
into account forecast future commodity prices, to assess their
recoverable amount. When deriving forecast cash flows, market prices
are used for the period when a commodity is liquid. For the longer-term
illiquid period, the ‘P50’ median price curve is used (see ‘Determination
of forecast commodity prices and their use valuing long-lived assets and
derivatives’, above).
Judgement is also required around production volumes. For Nuclear,
individual station information and recent availability data is factored in to
the overall asset valuation. The expected operating life of Sizewell has
continued to be reflected to 2055 in the modelling, beyond the original
design life. During 2023, the expected closure dates for Heysham 1 and
Hartlepool stations were extended by two years to March 2026, with a
plus or minus one year window either side of this date. For Gas assets,
each field has specific reservoir and field characteristics and is modelled
independently. For the Rough gas storage asset, in addition to the
above process associated with its cushion gas production, an
assessment is also made of value to be derived from cycling gas in and
out of the reservoir (predominantly from summer/winter gas spreads).
This assessment utilises the forward market prices noted above and is
also used to calculate the optimum cushion gas production date to
maximise the recoverable amount of the asset.
Consistent with previous years, taxes and levies are also included in the
discounted cash flow modelling. For Nuclear, the Electricity Generator
Levy (see ‘Electricity Generator Levy’ above) applies a tax rate of 45%
on revenues exceeding a benchmark price of £75/MWh and applies from
1 January 2023 to 31 March 2028. For Gas assets, the Energy Profits
Levy applies a rate of 35% (bringing the headline rate on Gas asset
profits to 75%) and also continues until 31 March 2028.
Predominantly as a result of the year-on-year decrease in forecast
commodity prices, an exceptional impairment of £549 million has been
booked in relation to the Nuclear investment.
For Gas assets, the Rough gas storage field has booked an exceptional
impairment of £82 million as a result of both the fall in forecast gas
prices and the flattening of summer/winter gas spreads. All other gas
fields retained impairment headroom.
Credit provisions for trade and other receivables
The IFRS 9 impairment model requires credit provisions (‘bad debt’) for
trade and other receivables to be based on an expected credit loss
model, as opposed to an incurred loss basis. The economic effects of
the inflationary pressures on household income, not least energy prices,
and the wider cost of living crisis will likely impact the ability of the
Group’s customers to pay amounts due. Accordingly, there is significant
judgement around the levels of forecast bad debt and the provisioning
required at the year-end.
The Group’s residential and business energy supply customers account for
the majority of the Group’s credit exposure (with balances associated with
our trading business generally received within 30 days). Expected default
rates in these areas are calculated initially on a matrix basis by considering
recent historical loss experience, the nature of the customer, payment
method selected and, where relevant, the sector in which they operate.
Management has then also factored in forward-looking economic
assumptions, taking into account inflation and affordability forecasts.
In the prior year a high-level macroeconomic provision of £125 million
was maintained to cover inflationary concerns. During 2023, the deemed
quality and relative ageing of the Group’s debt has declined with
difficulties in field debt recovery following the suspension of prepayment
meters and the fragile economic climate. Given these issues and the
economic environment, the high level macroeconomic provisions have
been increased by £50 million (to £175 million) to cover these concerns.
For UK Downstream energy supply, the bad debt charge as a
percentage of revenue increased to 2.7% (2022: 2.1%). The closing bad
debt provision moved to 34% (2022: 26%) of UK energy supply gross
receivables.
Due to the significant estimation uncertainty in this area, management
continues to provide detailed analysis and sensitivities in note 17 to the
Financial Statements.
The Committee challenged management and the external auditors on
the key inputs to the impairment models including price, outage rates,
assumed lives, tax and discount rates, and were comfortable with the
conclusions reached.
The Committee reviewed the Nuclear investment impairment and noted
that the decrease in near-term commodity prices had more than offset
the benefit of life extensions at Heysham and Hartlepool.
It also considered the Rough gas storage field impairment, following
price and summer/winter spreads falls and highlighted the difficulty in
assessing option value.
The Committee noted that price sensitivity disclosures have been
included in the financial statements.
Further detail on impairments and the assumptions used in determining
the recoverable amounts is provided in notes 7 and S2 on pages152 to
156 and 191 to 203.
The Committee reviewed management’s groupings of receivables by
the key factors affecting recoverability (e.g. payment method, nature of
customers) and considered the levels of provisions booked against each
grouping, at the year-end.
The Committee discussed the approach with the external auditors.
The Committee was comfortable with the provisions booked, including
the increase in the macroeconomic provisions, whilst noting the
significant estimation uncertainty in this area.
The Committee noted the continued enhanced disclosure in note 17,
setting out the judgemental nature of the provisioning and the sensitivity
analysis to allow users of the accounts to model different outcome
scenarios.
Governance | Centrica plc Annual Report and Accounts 2023
77
Key judgements and financial reporting matters in 2023
Audit and Risk Committee reviews and conclusions
The Committee noted that the policy on certain re-measurements and
exceptional items remains unchanged from the prior year.
The Committee had formally reviewed and approved the Group’s policy
on exceptional items in previous years and, in the current year, it used
this policy to help inform the appropriateness of the proposed
classifications. It challenged the items classified as exceptional items,
considering their size, nature and incidence and in the context of the
Group policy. The Committee concluded that separate disclosure of
these items as exceptional was appropriate in the Financial Statements.
The Committee ultimately agreed that presenting certain re-measurements
and exceptional items separately continues to allow underlying performance
to be reflected on a consistent and comparable basis through the use of the
adjusted alternative performance measures (e.g. adjusted operating profit).
Further detail is provided in notes 2, 3 and 7 on pages 134 to 142 and
152 to 156.
The Committee has reviewed the level of unread revenue and unbilled
accrual made during the year and discussed with management and the
external auditors.
The Committee noted that the Ensek platform uses a different process
to calculate the unbilled accrual compared with the legacy SAP system.
Data from smart meters, industry information and from customers on the
SAP system was utilised to finalise the Ensek revenue adjustment and
the external auditors had independently reperformed this calculation to
within an immaterial difference.
More details on unread energy income are provided in note 3 on pages
136 to 142 and on unbilled energy income in note 17 on pages 168 to
174.
The Committee noted the key pension assumptions and disclosures
in the Financial Statements.
It noted that these assumptions were derived on a consistent basis
to previous periods.
The Committee recognised the role of the independent actuary, who is
consulted on the appropriateness of the assumptions, and discussions
were also held with the external auditors.
The Committee also understood the need to continue to provide extra
funding to the schemes to ensure they remained appropriately hedged.
It also noted the greater proportion of unquoted assets in the scheme
portfolio and welcomed the greater scrutiny on these valuations.
Further details on pensions are set out in note 22 on pages 178 to 182.
Classification and presentation of exceptional items and certain
re-measurements
The Group reflects its underlying financial results in the business
performance column of the Group Income Statement. To be able to
provide this in a clear and consistent presentation, the effects of certain
re-measurements of financial instruments and onerous supply contract
provisions, and exceptional items are reported separately in a different
column in the Group Income Statement.
The classification of items as exceptional and specific trades as certain
re-measurements (see ‘Onerous energy supply contract provision’ and
‘Energy Derivatives – classification and valuation’ sections above) are
subject to defined Group policies. These policies are reviewed annually
by management.
At the year-end, exceptional items included the Nuclear and Rough gas
storage asset impairments noted above. Also included is a write-off of
£14 million predominantly associated with a battery storage asset and a
gas engine in Centrica Business Solutions.
Certain re-measurements totalled an overall c.£4.4 billion gain – being
£3,573 million gain from derivatives and £833 million gain from the
onerous supply contract provision movement.
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 £3.0 billion (2022: £2.9 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 liability position was £117 million (2022: £40
million asset). The UK defined benefit schemes used a nominal discount
rate of 4.6% (2022: 4.7%) and inflation of 2.9% (2022: 3.0%)
Following the Liability Driven Investment (LDI) crisis in the pensions
arena in late 2022, the Group continues to provide a £400 million
interest-bearing loan to the UK Registered Pension Schemes to ensure
the schemes can maintain a high level of interest and inflation hedging
and meet any collateral requirements.
The Group judged that this should be accounted for as a loan (within
Securities) in the books of the Group and as a reduction in scheme
assets for the Pension Schemes.
As a consequence of the LDI issues, the pension scheme continue to have a
greater proportion of unquoted assets in its asset portfolio. As a result the
Group undertakes more detailed reviews of these valuations, whilst
acknowledging the inherent uncertainty compared with quoted assets.
Fair, balanced and understandable
The Board is required to confirm that the Annual Report and Financial
Statements are fair, balanced and understandable. To enable the Board
to make this declaration, there is a year-end review process to ensure
that the Committee and the Board have access to all relevant
information, including management’s papers on significant issues.
The Committee reviewed the key factors considered in determining
whether the Annual Report is fair, balanced and understandable. The
Committee and all Board members received a draft of the Annual Report
and Financial Statements in sufficient time to review and challenge the
disclosures therein. In addition, the Committee took into consideration
the external auditors’ reviews of the consistency between the reporting
narrative of the Annual Report and the Financial Statements.
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Governance | Centrica plc Annual Report and Accounts 2023
NOMINATIONS COMMITTEE
MEMBERSHIP, MEETING ATTENDANCE
AND KEY FOCUS
Committee members
— Scott Wheway (Chair)
— Carol Arrowsmith
— Philippe Boisseau (with effect from
1 September 2023)
— Nathan Bostock
— CP Duggal
— Jo Harlow (with effect from 1 December 2023)
— Heidi Mottram
— Kevin O’Byrne
— Amber Rudd
— Sue Whalley (with effect from 1 December
2023).
Biographical details of the Committee Chair
and members can be found on pages 59 to
62. Meeting attendance of the Committee
members can be found on page 68.
Meeting attendees by invitation
Group Chief Executive, Group General
Counsel & Company Secretary, Group Chief
People Officer and Group Chief Financial
Officer.
Focus areas in 2023
¢ Board skills.
¢ Board diversity.
¢ Independent Non-Executive Director
succession planning.
¢ Executive Director succession planning.
¢ Board Committee composition.
¢ Independent Non-Executive Director
recruitment.
¢ Approach to workforce engagement.
¢ Board training requirements.
¢ Election and re-election of Directors at the
2023 AGM.
¢ Approach to, and findings arising from,
an annual Board effectiveness evaluation
(see page 66).
¢ Oversight of Directors’ external
appointments.
DEAR SHAREHOLDER
On behalf of the Board, I am pleased to present the
Nominations Committee report for 2023 which explains
the Committee’s focus and activities during the year.
COMMITTEE OVERVIEW
The Nominations Committee is responsible for ensuring that the Board
and its Committees have the appropriate balance of skills, knowledge,
and experience to effectively lead the Company both now and in the
future. This is achieved through a formal procedure for the appointment
of new Directors to the Board, an effective succession planning
process, reviewing Board composition and Board skills, and assessing
Board training requirements.
MAIN ACTIVITIES DURING 2023
Board succession planning and Board skills
The Committee is responsible for leading the succession planning
process and making recommendations to the Board. The Committee
takes a long-term view to succession planning, regularly reviewing
Board tenure, Board diversity (particularly diversity of gender, cultural
background and experience) and assessing the skills required by the
Board to best support the Company’s strategy on a multi-year look
ahead as well as in the near term. Details of the wide range of skills,
backgrounds and experience possessed by the Board today can be
found in the Directors’ biographies.
The Committee’s work on succession planning directly informed
recruitment in 2023. A focus area for the Committee in 2024 will remain
ensuring the Company continues to have appropriate succession plans
for different time horizons.
Independent Non-Executive Director recruitment
A primary focus area for the Committee in 2023 was independent
Non-Executive Director recruitment that would continue to strengthen
the Board’s existing capabilities in a way that would further support the
delivery of the Company’s strategy.
Centrica has a thorough and robust search process for the selection
of independent Non-Executive Directors involving the engagement of
specialist external search firms. In identifying and nominating
candidates to fill Board vacancies, the Committee considers
candidates from a wide range of backgrounds, assessing them on
merit against objective criteria and with due regard for the benefits of
diversity on the Board. The Committee therefore takes particular
interest in the recruitment process of its independent search firms to
ensure that a diverse pool of candidates is considered for any vacancy.
A shortlist of candidates is shared with the Committee, meetings are
scheduled with Directors and members of management, and then
once the candidates have been identified, and their ability to meet the
necessary time commitment is confirmed, a recommendation is made
to the Board.
Governance | Centrica plc Annual Report and Accounts 2023
79
The Committee therefore continues to embrace the strategic
importance of diversity, equity and inclusion, including as part of the
Board’s own succession planning. The Committee will report in the
2024 Annual Report and Accounts how the updated Board diversity
policy was implemented and the results thereof.
As at 31 December 2023, 41.7% of the Board and 55.6% of
independent Non-Executive Directors (excluding the Chair of the Board)
were women, and the Board composition met, and continues to meet,
the Listing Rules target for ethnic minority representation. As noted in
the Governance introduction on page 57, the Board is fully aware that it
currently does not meet the expectation that one of the following four
roles, Chair, Group Chief Executive, Group Chief Financial Officer and
Senior Independent Director is held by a woman. Through steps taken
as part of its succession planning arrangements, the Board is fully
committed to addressing this situation at the earliest possible
opportunity. Further information on compliance with Board diversity
targets can be found in the Governance introduction on page 57,
and set out in the table on page 81.
As disclosed in the table on page 81, there was a decline in the
proportion of ethnically diverse individuals on the Board from 11%
in 2022 to 8% in 2023. This decrease is attributed to the Board’s
expansion from nine members in 2022 to 12 members in 2023, which
enhanced the Board’s gender diversity whilst the number of individuals
from an ethnically diverse background remained unchanged.
Further information on the steps that the Company is taking to create
a diverse and inclusive workplace can be found in the Chief People
Officer’s Report on pages 38 to 40.
Workforce engagement
The Committee reviewed the Board’s approach to workforce
engagement pursuant to the expectations of Provision 5 of the UK
Corporate Governance Code. The Committee supports the Board’s
view that workforce engagement is a collective responsibility shared
amongst the Directors of the Board and therefore ultimately decided to
adopt a collective approach to workforce engagement involving all
Directors and leveraging a combination of different types of
engagement, including listening sessions with colleagues; meetings
with senior leaders and future talent where they discuss opportunities
for improving colleague performance and Company growth; and
dedicated engagement sessions with the Chairs of the employee-led
colleague networks such as the Women’s network and the Diverse-
Ability network. The Board believes this approach enables it to
effectively fulfil its responsibility of staying engaged and informed about
the workforce’s interest and matters.
Committee effectiveness
The Committee conducted its annual review of its terms of reference
and concluded that no material changes were required. The
Committee’s terms of reference are available on our website
centrica.com.
The effectiveness and performance of the Committee was evaluated
as part of the overall evaluation of the Board and its Committees.
Feedback from that process indicated that the Committee was
performing effectively. Succession planning at Board, executive and
senior management levels and developing a talent pipeline continue
to be key priorities for the Committee in the year ahead. Read page 66
for further information.
Scott Wheway
on behalf of the Nominations Committee
14 February 2024
Lygon Group supported the search processes that led to the
appointments of Philippe Boisseau in September 2023 and Jo Harlow
and Sue Whalley in December 2023. Philippe brings significant
experience of the energy sector, particularly energy assets, energy
infrastructure and renewable energy transition, all of which is immensely
valuable and relevant to Centrica. Jo has extensive knowledge on the
use of technology and data to enhance development and drive growth
in consumer businesses and Sue brings a blend of experience in
people and cultural transformation, as well as strategic, technological
and operational evolution in large, complex organisations. The collective
experience and contribution from each of these Directors will
undoubtedly be of great benefit to Centrica. Further information about
Philippe, Jo and Sue can be found in their biographies.
There are no connections between Lygon Group, the Company and its
individual Directors.
Executive Director succession
As disclosed in last year’s Annual Report and Accounts, Russell
O’Brien was appointed Group Chief Financial Officer and Executive
Director with effect from 1 March 2023, bringing broad experience
across the energy value chain. Following an orderly transition to Russell,
Kate Ringrose stepped down as Chief Financial Officer and Executive
Director on 28 February 2023. Further information about Russell can be
found in his biography.
Board training
The Committee reviewed the training received by the Board during
2023 as well as the training requirements for the Board in 2024.
In doing so, the Committee sought to ensure the Board remained
equipped with the latest knowledge and understanding to support
effective decision-making. Board training in 2023 included sessions
on directors’ duties and models of economic regulation for hydrogen
production and storage as well as carbon capture and storage. The
Committee also identified further areas of training that will inform the
Board’s training programme in 2024. Further details of training,
development and induction for all new Directors are on page 66.
Oversight of Director external appointments
To ensure that Directors will continue to have sufficient time to commit
to their Centrica responsibilities, any additional external appointments
taken up require advance consultation with the Chair and, where
appropriate, approval by the full Board.
The Committee considered Kevin O’Byrne’s external appointment
to International Flavors & Fragrances, Inc. which took effect from
10 March 2023. The Committee was satisfied that following his
stepping down from the board of J Sainsbury plc in March 2023 that
Kevin would continue to have sufficient time to commit to his Centrica
responsibilities.
A focus on diversity, equity and inclusion
We operate in increasingly diverse communities and this diversity is
evident in our workforce and our customers, suppliers, and other
stakeholders.
As set out in our Board diversity policy, we know that being inclusive
of the diversity we have in our business will give us a competitive
advantage.
We updated our Board diversity policy in December 2023 to clarify that
it extends to key Board Committees, and to provide for consideration
of a wider list of diversity characteristics, including ethnicity, sexual
orientation, disability and socio-economic background.
The purpose of the Board diversity policy is to guarantee that both the
Board and the Nominations Committee adopt an inclusive approach
during the nomination and appointment processes.
The revised Board diversity policy can be found on our website at
centrica.com.
80
Governance | Centrica plc Annual Report and Accounts 2023
BOARD AND SENIOR
LEADERSHIP DIVERSITY
SEX/GENDER REPRESENTATION
Men
Women
Other/not Specified
Prefer not to say
Number of
Board members
7
5
—
—
Percentage
of the Board
58%
42%
—
—
Number of
senior positions
on the Board*
4
—
—
—
Percentage of
senior positions
on the Board*
100%
—
—
—
Number in
executive
management
7
3
—
—
Percentage of
executive
management
70%
30%
—
—
*There are 4 senior positions on the Board (Group Chief Executive, CFO, SID and Chair).
ETHNICITY REPRESENTATION
White British or other White
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number of
Board members
11
—
1
—
—
—
Percentage
of the Board
92%
—
8%
—
—
—
Number of
senior positions
on the Board*
4
—
—
—
—
—
Percentage of
senior positions
on the Board*
100%
—
—
—
—
—
Number in
executive
management
8
—
2
—
—
—
Percentage of
executive
management
80%
—
20%
—
—
—
*There are 4 senior positions on the Board (Group Chief Executive, CFO, SID and Chair).
READ MORE ABOUT BOARD DIVERSITY ON PAGE 80
Explanatory notes
(1) The information above is stated as at 31 December 2023.
(2) We recognise the importance of driving greater diversity across the full breadth of our business – from the Boardroom to our customer-facing colleagues and we therefore
actively track, monitor and work towards our diversity goals to reflect the communities we serve.
(3) As at 31 December 2023, we met the Parker Review target to have at least one Director from a minority ethnic background. We also made good progress towards the
Board diversity targets set out in Listing Rule 9.8.6(9). This included (i) at least 40% female representation on the Board (2023: 42%) and (iii) at least one Director being
ethnically diverse (2023: 1 person) which aligns with the Parker Review. However with Kate Ringrose stepping down from being Chief Financial Officer on 28 February
2023, and Russell O’Brien joining the Board on 1 March 2023, we did not meet target (ii) to have at least one senior position held by a woman.
(4) To grow our diversity further, we have taken positive action which includes succession planning and mandating diverse candidates for senior roles. By the end of 2030,
it is our goal for our Board, executive management and senior leaders to be 48% women and 18% ethnically diverse. As part of our commitment to the Parker Review in
setting a senior leader ethnic diversity target by 2027, in 2023 we decided to bring our 18% goal forward by three years.
(5) Our diversity data is collated through our HR management system. We encourage all colleagues to self-report information such as gender, gender identity, ethnicity, age,
sexual orientation, disability and military background, whilst also including a ‘prefer not to say’ option. We continued to run our #ThisIsMe campaign to encourage more
people to share who they are in 2023, which helps us better understand who is working for us and where we need to target action to grow greater diversity.
Governance | Centrica plc Annual Report and Accounts 2023
81
SAFETY, ENVIRONMENT AND
SUSTAINABILITY COMMITTEE
MEMBERSHIP, MEETING ATTENDANCE
AND KEY FOCUS
Committee members
— Heidi Mottram (Chair)
— Philippe Boisseau (with effect from
1 September 2023)
— Nathan Bostock
— Amber Rudd
— Scott Wheway
Biographical details of the Committee Chair
and members can be found on pages 59 to
63. Meeting attendance of the Committee
members can be found on page 68.
Meeting attendees by invitation
All other Non-Executive Directors, Group Chief
Executive, Group General Counsel & Company
Secretary, Group Chief People Officer, Group
HSE Director, Group Head of Environment, Chief
Procurement Officer, Head of Business Ethics
and Compliance and Deputy Head of Secretariat.
Focus areas in 2023
¢ Health and safety risks.
¢ Environment.
¢ Emerging climate reporting requirements and
climate matters.
¢ Responsible sourcing including human
rights and modern slavery risk.
¢ Societal contribution.
¢ Reputation.
82
Governance | Centrica plc Annual Report and Accounts 2023
DEAR SHAREHOLDER
On behalf of the Board, I present the Safety, Environment
and Sustainability Committee (SESC) report for the year
ended 31 December 2023.
COMMITTEE OVERVIEW
The Committee’s role and responsibilities, on behalf of the Board, is to
review and monitor the culture, practices, risks and performance of
Centrica with respect to health and safety, climate, environment and
broader responsible business matters. This is achieved through a
rigorous review of performance data, and the Company’s goals and
initiatives in these areas. As part of its focus, the Committee also
provides input to, and review of, the Company’s annual climate
reporting disclosure requirements.
MAIN ACTIVITIES DURING 2023
The Committee considered a broad range of topics in 2023 and the
key highlights are disclosed below.
Health and Safety
The Committee’s standing health and safety agenda items focused on
relevant performance metrics, assurance activity and the approach to
HSE risk management in specific business unit reviews. During these
discussions, taking into account the needs of customers and
employees, the Committee considered risk identification, appropriate
HSE controls and processes.
At each meeting, the Committee invited management to discuss
occupational and process safety reviews, outcomes and improvements
derived from targeted interventions and future action plans. Examples
included a thorough review of the British Gas Services & Solutions
health and safety performance, a maturity assessment for Bord Gáis
Energy and external process safety audits for Centrica Energy Storage+
and Spirit Energy, during which any concerns or incidents were
considered in detail and, where appropriate, remedial actions proposed
by management were scrutinised to assess their effectiveness.
The Committee acknowledged the Group’s positive safety mindset
driven by highly engaged employees throughout 2023.
Environment
The Committee provides oversight of the Company’s continued
commitment to, and role in, the drive to net zero. During 2023, the
Committee reviewed progress made against the Company’s People &
Planet Plan and the Climate Transition Plan, and specifically the
implications of recent strategic investment decisions against Climate
Transition Plan targets and ambitions and the Company’s strategic
framework.
Key focus areas for the Committee in 2023 were reviewing emerging
voluntary and mandatory climate reporting requirements, both in the
UK and in the EU, including Task Force on Climate related Financial
Disclosures (TCFD) and Climate-Related Financial Disclosure (CFD)
regulations. The Committee considered the application of these
requirements to the Company, taking into account changing
stakeholder expectations, and assessing how the Company would
ensure compliance and governance with impending reporting
requirements. The Committee also received regular updates and
training on relevant legal and policy developments and trends regarding
climate matters.
Responsible business
Throughout the year, the Committee considered the Company’s
responsible sourcing approach focusing on the supply chain that carry
potentially higher inherent risk due to the associated jurisdiction and/or
nature of the product, in particular in relation to issues such as the
manufacture of solar panels, batteries or garments. The Committee
reviewed the 2023 strategy for visits to supplier sites and the results of
supplier audits.
During discussions, the Committee assessed on a regular basis human
rights and the risk of modern slavery occurring in Centrica’s operations,
taking into account the increasing expectations of stakeholders and
enhanced modern slavery disclosures. Further details of the
Company’s management of modern slavery risk can be found on our
website at centrica.com/modernslavery. The Committee also received
training on emerging responsible sourcing supply chain requirements
and considered changes that might be required to the Company’s
current approach.
The Committee continued to oversee societal contribution including the
Company’s approach to charitable partnerships, its role in local
communities and its People Goals including, in that context, the
Company’s performance against its diversity and inclusion targets, its
apprenticeship and volunteering ambitions. The Committee also
reviewed perceptions of the Company’s reputation amongst a wide
range of stakeholders in relation to topics such as the Company’s role in
providing energy security in the markets in which it operates as well as
supporting customers and communities in their transition to net zero in
an affordable and secure way.
Governance
In addition to the above areas of focus, the Committee also reviewed
relevant disclosures in the Annual Report and Accounts within the
Committee’s remit, as well as the TCFD and CFD regulations. The
Committee also considered and recommended to the Board the
Modern Slavery Act statement, which can be found on our website.
Committee effectiveness
The Committee undertakes an annual review of its terms of reference to
ensure that it accurately reflects the role carried out by the Committee,
taking into account any new internal and external developments and
responsibilities. The Committee’s terms of reference are available on
our website, centrica.com. The Committee considers that it has
continued to discharge its oversight role effectively in an area where
expectations and requirements are constantly evolving with insightful
and regular engagement and support from management. Read more
about the Committee’s effectiveness on page 66.
Heidi Mottram
on behalf of the Safety, Environment and Sustainability Committee
14 February 2024
READ MORE ABOUT OUR PEOPLE &
PLANET PLAN ON PAGES 41 TO 55
Governance | Centrica plc Annual Report and Accounts 2023
83
REMUNERATION REPORT
MEMBERSHIP, MEETING ATTENDANCE
AND KEY FOCUS
Committee members
— Carol Arrowsmith (Chair)
— CP Duggal
— Jo Harlow (with effect from 1 December
2023)
— Heidi Mottram
— Amber Rudd
— Sue Whalley (with effect from 1 December
2023)
Biographical details of the Committee Chair
and members can be found on pages 59 to
63. Meeting attendance of the Committee
members can be found on page 68.
Meeting attendees by invitation
All other Non-Executive Directors, Chair of the
Board, Group Chief Executive, Group Chief
People Officer, People Director, Reward,
Benefits and Wellbeing
Focus areas in 2023
¢ Executive Directors’ salary reviews
¢ Gender and ethnicity pay gap report
¢ Review of pay issues across the wider
workforce
¢ Closure CUPS-DC pension scheme
¢ Review of total remuneration packages for
the Centrica Leadership Team
¢ Review and approve 2023 financial and
business targets and individual objectives.
¢ Recruitment of new senior executives
¢ Review Executive Directors shareholding
¢ Review and approve Director Expenses
84
Governance | Centrica plc Annual Report and Accounts 2023
DEAR SHAREHOLDER
On behalf of the Board, I am pleased to present the
Remuneration Report for the year ended 31 December 2023.
BUSINESS CONTEXT FOR 2023
Centrica has delivered strong financial and operational performance
including EPS performance of 33.4 pence. Centrica was also one of
the best performing shares in the FTSE 100 with our share price
increasing by more than 45% in 2023. At the same time, the Company
has supported our customers through the cost of living crisis including
£140m committed since 2022 to help them with their energy costs.
The turnaround of the Company over the last three years is credit to
the management team led by Chris O’Shea, the Group Chief Executive.
The team has simplified the business, strengthened and de-risked the
balance sheet, and improved operational performance especially in
our Retail businesses. As a uniquely integrated energy company,
our Optimisation and Infrastructure businesses have contributed
significantly towards Group profitability by applying their expertise in
trading and storing energy in turbulent markets particularly during 2022
and 2023. The Company now has a solid foundation and clear purpose
of energising for a greener, fairer future. This means we can invest in
the future for the benefit of all our stakeholders, including our
customers, colleagues, communities and shareholders. Some
examples of these investments are:
Customers: We have invested in supporting customers by providing
new on-demand services to install and maintain their home heating
systems, and improved customer service by employing an extra 700
colleagues across customer contact centres in Stockport, Leicester,
Leeds, Edinburgh, and Cardiff. During the year, we remained acutely
aware of the cost of living pressures that our customers faced, and we
have committed a total of £140m during 2022-23 to continue to help
customers with their energy costs. This included creating an Energy
Support Fund managed by the British Gas Energy Trust, which has so
far helped over 25,000 customers while funding new drop-in centres
and advisors across the UK to support people with their finances. We
have launched new innovative tariffs, which aim to be greener and fairer
such as ‘Peak Save’ to help our customers manage their energy usage
through the day and save money on their bills, and our offer of free
Electric Vehicle charging at home for a year for customers that buy
an EV charger from British Gas.
Colleagues: We have hired over 1,000 new colleagues. We have
launched our “Pathway to Parenthood” benefit to support colleagues
through fertility treatment, adoption, or surrogacy. We have rewarded
employees with £2,640 in free shares through our profit share plan to
recognise our performance in 2023. This means that, over the last
three years, we have paid a total of £5,886 in profit share to each
colleague to ensure they share in our success. We maintained our
focus on fair reward practices – from paying at least the Real Living
Wage in the UK and working to reduce pay gaps. The average salary
increase across the wider workforce in the UK was 6%, with our lowest
paid colleagues receiving an average salary increase of between 7.8%
to 9.5%.
Communities: We have invested in improving energy storage and
security for the UK, including doubling the gas storage capacity at
Rough, which now provides half the UK’s gas storage capacity or
enough gas to heat over three million homes. As part of our People &
Planet Plan, our colleagues gave 7,200 days volunteering to help the
communities and causes they are passionate about.
Shareholders: The financial strength of the business has also allowed
us to deliver value to our shareholders with a 33% increase in the 2023
interim dividend to 1.33 pence per share, and a proposed final dividend
of 2.67 pence per share, alongside the £450m extension of our share
buyback programme to be completed by around July 2024.
REMUNERATION OUTCOMES FOR 2023
In deciding the remuneration outcomes for 2023, the Remuneration
Committee has focused on balancing the views and experiences of all
our stakeholders with our responsibility to attract and retain high-
performing executives to lead a highly complex organisation. Our
remuneration principles for Executive Directors are consistent with the
wider workforce and can be found on page 96.
ANNUAL INCENTIVE PLAN (AIP)
Pay-outs under the AIP for members of the Centrica Leadership Team
are based on financial and business performance (75%) and individual
performance against strategic objectives (25%).
The financial and business performance element for the year was split
equally between Earnings Per Share (EPS) and the outcome of a
balanced scorecard of financial and operational measures critical to the
success of the organisation in 2023.
The EPS measure had defined threshold, target and maximum levels
that were set at the start of the financial year. During the first half of the
year, market conditions were materially better than expected when the
targets were set. Therefore, when reviewing progress against the EPS
target during the year, the Committee determined that the original
targets were no longer appropriate and should be increased to reflect
these improved market conditions. Reflecting the strong performance
of the business, Centrica achieved earnings performance of 33.4pence,
resulting in an outturn of 100% of maximum against the revised targets
for this part of the AIP.
Excellent performance across the Group also meant the majority of
customer, colleague and financial targets in the balanced scorecard
were met in full, including delivering operating profits of £2,752m and
free cash flow of £2,207m. We were particularly pleased to see a
reduction in rescheduled appointments for customers in Services and
Solutions and an improvement in our customer satisfaction scores.
Given the cost of living challenges faced by our customers, we have
seen an increase in our bad debt charges, and we will continue to
engage with those customers who are struggling to pay their bills using
a variety of mechanisms including payment spreading and utilising the
£140m we have committed so far to help the most vulnerable and in
need. We have made significant progress against both our goal to be a
net zero business by 2045, and our goal to help our customers be net
zero by 2050. Performance against the balanced scorecard measures
resulted in an outturn of 85% of maximum for this part of the AIP. This
gave a combined financial and business performance outturn of 185%
of target.
In response to shareholder feedback in previous years, we have
provided more detail on each executive’s individual objectives in the
body of the remuneration report on page 91. Chris O’Shea achieved an
individual performance outturn of 87.5% of maximum, and Russell
O’Brien, Group Chief Financial Officer, achieved an individual
performance outturn of 82.5% of maximum for this part of the AIP.
In determining the overall AIP outcome for 2023, the Committee
considered the impact of a national newspaper undercover
investigation in February 2023 into the fitting of prepayment meters
under court warrant by a third-party contractor working for British Gas.
The Group Chief Executive was deeply concerned when he observed a
lack of empathy and respect in some of these cases; he apologised
unreservedly and immediately commissioned an investigation into the
issue, overseen by external compliance consultants. We ceased all
warrant activity with the third-party contractor immediately.
This investigation found no wide-ranging systemic issues with the
installation of prepayment meters under warrant and noted the high
degree of complexity involved in the assessment of each case.
However, it did highlight that in some cases the Company had fallen
short of the high standards of behaviour that we set for ourselves when
engaging with customers and identified where improvements should be
made to existing processes.
In addition to implementing all the recommended actions identified in
the investigation and fully endorsing Ofgem’s new Code of Practice
on the installation of prepayment meters under warrant, Centrica has
re-affirmed its commitment to prepayment customers in the following
ways:
¢ Bringing this work in-house, giving British Gas direct oversight of the
process and ensuring our agents benefit from training at British Gas’
award-winning academies.
¢ Swiftly introduced the cheapest prepayment meter tariffs of any
supplier in the country, in line with the cost of energy for direct debit
customers.
¢ Extended our scheme of direct customer support for prepayment
customers to £20m, offering up to £250 in free credit to those
who are struggling with energy costs.
After considering the findings of the investigation, the Remuneration
Committee determined that the payment under the Annual Incentive
Plan should be reduced. Therefore, the Committee reduced the outturn
of the financial and business performance by 10% from 185% to 175%
of target. This resulted in a reduced AIP payment for the Group Chief
Executive and Group Chief Financial Officer to reflect the impact of the
prepayment meter investigation.
Overall, after combining the outturn for financial and business
performance with the outturn for individual performance, and after
deducting 10% for the prepayment meter investigation, the total AIP for
Chris O’Shea was 87.5% of the maximum opportunity, which equated
to 175% of salary or £1,426,250. The AIP for Russell O’Brien, who
joined part way through the year, was 86.3% of the maximum
opportunity (pro-rated for time served), which equated to 118.6% of
salary or £640,606. Kate Ringrose, our previous Group Chief Financial
Officer who served for part of the year, received an AIP of 78.1% of
maximum (pro-rated for time served), which equated to 19.5% of salary
or £90,088. The Committee was satisfied that the overall AIP outcome
was fair and reasonable given the strong shareholder experience and
financial performance, and that the outcome also reflected the wider
stakeholder experience. Half of the AIP was paid in cash and half of the
AIP was deferred into shares for a further three years.
LONG-TERM INCENTIVE PLAN
In line with our previous Remuneration Policy, a Long-Term Incentive
Plan (LTIP) award was granted in 2021 to Chris O’Shea and Kate
Ringrose, our former Chief Financial Officer. The maximum award
granted was 300% of salary in Centrica shares for Chris O’Shea and
175% of salary for Kate Ringrose. The LTIP awards were subject to the
achievement of performance conditions over three financial years
ending 31 December 2023. The performance targets for the LTIP
award included relative Total Shareholder Return (TSR), cumulative
EPS, cash conversion (conversion of EBITDA into Operating Cash
Flows), and key non-financial performance indicators (KPIs) focused on
safety, customer and colleague engagement.
TSR performance over the three-year period was outstanding with
Centrica having the highest TSR in the FTSE 100 comparator group.
Centrica’s TSR was 267.4%, which compared to 47.1% for the upper
quartile TSR of the FTSE 100. Performance against the financial
measures was near maximum vesting and performance against the
non-financial KPIs was around target vesting.
The overall formulaic outcome was therefore 85% of the maximum.
Kate Ringrose’s award was also pro-rated to reflect time served.
As a matter of course, the Committee reviews the formulaic vesting
outcome against the overall underlying performance of the Group and
considers whether there have been any windfall gains. The 2021 LTIP
was granted to the Centrica Leadership Team at a share price of
52.46p, compared to the 2020 LTIP award, which was granted at
55.0p. As there was no significant reduction in the share price between
grants, the Committee concluded it was not necessary to make an
adjustment for windfall gains.
Governance | Centrica plc Annual Report and Accounts 2023
85
Additionally, as highlighted above, management has delivered excellent
performance over the period, not only in respect of key underlying
financial metrics but also in our share price, with Centrica significantly
outperforming the market over the period. The Committee therefore
concluded that the formulaic outturn was appropriate, and no
adjustment was necessary.
We have simplified some of our legacy reward arrangements and,
with effect from 31 December 2023, we have closed the Centrica
Unapproved Pension Scheme Defined Contribution Section (CUPS DC)
to future contributions. Chris O’Shea was a member of CUPS DC, and
because of the scheme closing, he has elected to receive his 10% of
salary as a cash allowance in lieu of pension.
There are no changes to the AIP or RSP awards to be granted in 2024.
The maximum AIP will be 200% of salary for the Group Chief Executive
(and 150% of salary for the Chief Financial Officer). The maximum RSP
award will be 150% of salary for the Group Chief Executive (and 125%
of salary for the Group Chief Financial Officer).
NON-EXECUTIVE DIRECTOR FEES
In the year, the Board welcomed Philippe Boisseau, Jo Harlow, and
Sue Whalley as new Non-Executive Directors. They bring excellent skills
and experiences, and I very much look forward to working with them.
The Committee undertook an annual review of the fees payable to
Scott Wheway, Chair of the Board. With effect from 1 April 2024,
Scott’s fees will increase to £440,000, which is a 4.6% increase and
lower than the average increase payable to the wider workforce of 6%.
The Chair of the Board, the Executive Directors, and the Chief People
Officer conducted an annual review of non-executive director fees and
concluded there should be no change in 2024. The review recognised
that the role of a non-executive director is becoming more complex,
and the time commitment is becoming increasingly demanding.
However, it was decided that Non-Executive fees would be reviewed
again as part of the next Remuneration Policy review during 2024.
CONCLUSION
In 2024, the Committee will conduct a comprehensive review of our
Remuneration Policy in preparation for shareholder approval at the
AGM in 2025. As part of this review, we will continue to have an open
and transparent dialogue with our shareholders on our remuneration
arrangements and any future changes.
We try to make our Remuneration Report comprehensive and
transparent and have provided additional information in support of this,
including details on how the Committee benchmarks executive
remuneration, insights into Centrica’s remuneration policies across the
wider workforce, as well as enhanced information on each Executive
Director’s individual objectives. We hope shareholders will find this
additional information useful.
Centrica’s performance and the executive team’s leadership in
challenging conditions are reflected in the remuneration outcomes and
the decisions the Committee has made in 2023. It is also consistent
with the objectives of our Remuneration Policy to deliver remuneration
that attracts and retains high calibre executives in a competitive global
business environment in return for the achievement of our strategic
objectives and the delivery of sustainable long-term shareholder value
and returns. I hope you will give us your support.
Carol Arrowsmith
on behalf of the Remuneration Committee
14 February 2024
The value of the LTIP award for the Group Chief Executive was £5.9m
as at the end of the performance period, 31 December 2023, and this
has been included in the single figure for total remuneration table on
page 89. Of this amount, share price growth accounted for £3.9m
(or 66% of the total value). The vested shares are subject to an
additional two-year holding period.
OVERALL SINGLE FIGURE OF TOTAL REMUNERATION
FOR OUR GROUP CHIEF EXECUTIVE
Having determined that the LTIP outcome was a fair reflection of
business performance, the Committee also felt it appropriate to review
the overall single figure of total remuneration earned by the Group Chief
Executive in respect of 2023. The Group Chief Executive’s single figure
in 2023 was £8.23m, which compares to £4.49m in 2022. The year-
on-year increase is due to continued improvements in underlying
performance and substantial share price growth. Since his appointment
as Group Chief Executive, Chris O’Shea has helped create significant
value for shareholders with Centrica’s TSR outperforming the FTSE100;
his cumulative single figure of total remuneration over the same period
is broadly in line with the median cumulative single figure for CEOs in
the FTSE 100. The Committee believes that the single figure
appropriately reflects the performance of both Chris O’Shea and the
business over the relevant period. It is worth noting that the single figure
of total remuneration for the Group Chief Executive over the next two
years is likely to be lower to reflect outcomes of long-term incentive
awards made under our Restricted Share Plan (RSP), where the
maximum awards were discounted by 50% compared to previous
LTIP awards.
REMUNERATION FOR 2024
For Executive Directors, we benchmark salaries and total
compensation against companies in the FTSE 100. We use this
comparator group as it provides a broad group of organisations where
we compete for talented executives. Centrica is a uniquely integrated
energy company, with over 21,000 employees operating in a highly
regulated and highly unionised environment. The FTSE 100 includes
companies that operate in similar sectors and are of comparable size
and complexity (e.g. the energy sectors, retail & consumer companies,
support services, utilities, insurance and commodity trading
companies). In terms of size, Centrica is also a constituent of the FTSE
100 index and is currently positioned around the median of the FTSE in
terms of market capitalisation. The ‘At a Glance’ section on page 88
shows how our Executive Director salaries and target total direct
compensation (salary plus target annual bonus plus expected value of
long-term incentives plus pensions) compares to the median FTSE 100
benchmark.
In determining salary increases for the Executive Directors for 2024, the
Committee considered both the average salary increases awarded to
the wider workforce and the performance and development of the
executives in their roles throughout the year.
With effect from 1 April 2024, Chris O’Shea’s salary will increase
by 4.9% to £855,000. Given this year’s overall single figure of
remuneration for the Group Chief Executive, the Committee decided to
increase Chris’ salary at a rate that was below the average for the wider
workforce of 6%. Russell O’Brien’s salary will increase by 9.3% to
£590,000. The Committee awarded a higher salary increase to Russell
to recognise his performance and development in the role since joining
Centrica. Even after these increases, the salary and target total direct
compensation for Chris and Russell are below the median benchmarks
for similar roles in the FTSE 100. The Committee will keep the
competitiveness of the remuneration packages for Executive Directors
under review to ensure we can continue to attract and retain the talent
we need to deliver the business strategy.
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Governance | Centrica plc Annual Report and Accounts 2023
REMUNERATION AT A GLANCE
HOW WE’VE SUPPORTED OUR STAKEHOLDERS IN 2023
£140m
Support given to help customers with
their energy costs since 2022
25,000
Customers supported through the British
Gas Energy Trust since the start of the
energy crisis
700
Extra colleagues hired across our
customer contact centres
£100k
Contributions to colleagues via the
Colleague Support Foundation
1,000
Professional colleagues joined our
business
3ppt
Increase in colleague engagement
4.0p
Full year dividend per share
£613m
Shares repurchased in 2023
45%
Increase in share price over
the financial year
SINGLE FIGURE OF TOTAL REMUNERATION IN FY 2023
GROUP CHIEF EXECUTIVE
GROUP CHIEF FINANCIAL OFFICER
790 1,422
2,262
4,490
810
1,426
0
2,500
5,902
8,231
5,000
£,000
7,500
459
498
0
500
576
1,084
640
1,196
1,000
£,000
1,500
Further details on page 89 | ¢ Salary ¢ Pension and Benefits ¢ AIP ¢ LTIP
Kate Ringrose stepped down from the Board on 28 February 2023. Russell O’Brien was
appointed to the Board on the 1 March 2023.
FY2023 AIP PERFORMANCE
2021 LTIP OUTCOMES
The table below sets out details of the relevant measures in the Annual
Incentive Plan and their link to our group priorities, and the resulting outcome
The table below sets out details of the relevant measures in the Long-Term
Incentive Plan and their link to our group priorities, and the resulting outcome.
MEASURE
EPS
BG Cost to Serve
Customers to Ensek
BG complaints
BG reschedules
BG complaints
Centrica cost/income
CBS order intake
Bord Gáis Cost to Serve
Unique customer numbers
Colleague engagement
Climate transition plan progress
Adjusted operating Profit
Free Cash Flow
Net debt/cash
Individual measures
Group Chief Executive
Group Chief Financial Officer
Deduction for prepayment meter
investigation
OVERALL OUTCOME (% MAXIMUM)
Group Chief Executive
Group Chief Financial Officer
Weighting
Outcome
37.5%
100 %
37.5%
85 %
25%
87.5 %
82.5 %
(10) %
87.5 %
86.3 %
MEASURE
Relative TSR
Cumulative EPS
Cash conversion
Employee engagement
Aggregate Brand NPS
Complaints
Total Recordable Injury Frequency
Rate (TRIFR)
Overall outcome
Weighting
33%
22%
22%
Vesting Outcome
(% of max)
100 %
100 %
75 %
22%
57 %
85 %
Governance | Centrica plc Annual Report and Accounts 2023
87
FYE 2022FYE 2023FYE 2022 (Kate Ringrose)FYE 2023(Russell O’Brien) MARKET COMPETITIVE BENCHMARKS
When we set the remuneration levels, one of the factors we consider is the competitiveness of the total compensation package for the role in the relevant market.
For the Group Chief Executive and Group Chief Financial Officer, we benchmark their roles against companies in the FTSE 100. The table below shows the
competitiveness of salary and total compensation for target performance versus the median of the FTSE 100.
GROUP CHIEF EXECUTIVE
GROUP CHIEF FINANCIAL OFFICER
Salary
Target Total Compensation(1)
Chris O'Shea
£815,000
£2,934,000
Median FTSE 100
benchmark
£935,000
£3,533,000
Salary
Target Total Compensation(1)
Russell O'Brien
£540,000
£1,674,000
Median FTSE 100
benchmark
£596,000
£2,097,000
(1) Salary + target annual bonus + expected value of long-term incentives + pension
EXECUTIVE DIRECTOR SHAREHOLDINGS % OF BASE SALARY
The chart below sets out the minimum shareholding requirements and the shareholdings of the Executive Directors. The shareholding requirement must be
built up over five years and then subsequently maintained. For unvested shares with no performance conditions, we have assumed shares net of tax.
FURTHER DETAIL REGARDING THE EXECUTIVE DIRECTORS’ OUTSTANDING SHARE AWARDS CAN BE FOUND ON PAGE 94
GROUP CHIEF EXECUTIVE
¢ Vested and owned shares ¢ Unvested shares with no performance conditions
GROUP CHIEF FINANCIAL OFFICER
¢ Vested and owned shares ¢ Unvested shares with no performance conditions
300
200
224
222
446
48
82
130
69
83
152
0%
100%
200%
300%
400%
500%
0%
50%
100%
150%
200%
250%
300%
Shareholding as % of salary
Shareholding as % of salary
2024 REMUNERATION
The table below sets out a summary of the implementation of the Policy for 2024.
FURTHER DETAILS CAN BE FOUND ON PAGE 101
Base Salary
Benefits
Pension
Short-term incentive
Long-term incentive
CEO: £855,000 (+4.9%)
CFO: £590,000 (+9.3%)
The average increases for the
wider workforce in the UK was
6%.
No change and remains in line
with the wider workforce
10% of salary in line with the
wider workforce
With effect from 31 December
2023, we have closed the
Centrica Unapproved Pension
Scheme Defined Contribution
Section (CUPS DC) to future
contributions. Chris O'Shea will
no longer be eligible contribute
his 10% of salary pension
contribution to CUPS DC.
Instead, he has elected to receive
10% of salary as a cash
allowance in lieu of pension.
CEO: 200% of salary at max
100% of salary at target
CFO: 150% of salary at max
75% of salary at target
Measured 75% against financial
and business measures and with
25% against individual objectives.
50% of any bonus earned is
deferred into shares that vest
after three years.
Restricted Share Plan award
subject to underpin framework.
CEO: 150%of salary
CFO: 125% of salary
Awards vest after three years and
plus a two year additional holding
period.
88
Governance | Centrica plc Annual Report and Accounts 2023
GoalActual31/12/2023Actual31/12/2022GoalActual31/12/2023Actual31/12/2022 DIRECTORS’ ANNUAL REMUNERATION REPORT
DIRECTORS’ REMUNERATION IN 2023
This report sets out information on the remuneration of the Directors for the financial year ended 31 December 2023.
Single figure for total remuneration (audited)
Executives
£000
2023
Chris O’Shea
Russell O’Brien(5)
Kate Ringrose(6)
Total
2022
Chris O’Shea
Kate Ringrose(6)
Total
Salary/
fees
Bonus
(cash)
Bonus
(deferred)(1)
Benefits(2)
LTIPs(3)
Pension(4)
Total
Total fixed
remuneration
Total variable
remuneration
810
498
77
713
320
45
713
320
45
1,385
1,078
1,078
790
459
1,249
711
288
999
711
288
999
16
13
3
32
16
16
32
5,902
—
1,833
7,735
2,262
—
2,262
77
45
—
122
—
33
33
8,231
1,196
2,003
11,418
4,490
1,084
5,574
903
556
80
1,527
806
508
1,314
7,328
640
1,923
9,891
3,684
576
4,260
(1) In accordance with the Remuneration Policy, 50% of the bonus is deferred into shares and will vest after three years.
(2) Taxable benefits include car allowance, health and medical benefits. Non-taxable benefits include matching shares received under the Share Incentive Plan (SIP).
Both taxable and non-taxable benefits are included in the table.
(3) The estimated value of the LTIP award that was granted in respect of the 2021-23 performance period is included in the table above, based on a share price of 150 pence
(the 3 month average share price for the period ending 31 December 2022). Of the £5.9m for Chris O’Shea, £3.9m (or 66% of the value) was due to share price growth.
The award will vest in June 2024 and the shares will then be subject to an additional two-year holding period. Further details of the performance outcomes are set out on
page 90. Dividend equivalents of £230K and £71K have been included.
(4) Notional contributions to the Centrica Unapproved Pension Scheme defined contribution section (CUPS DC) for Chris O’Shea and Kate Ringrose have been included in
this table as if CUPS DC was a cash balance scheme. This includes a deduction in respect of an allowance for CPI inflation on the opening balance of 11.1% in 2023
(4.1% in 2022). CUPS DC was closed on 31 December 2023 and Chris O’Shea will receive his pension contribution as cash in lieu.
(5) Russell O’Brien was appointed to the Board on 1 March 2023.
(6) Kate Ringrose stepped down from the Board on 28 February 2023.
Single figure for total remuneration (audited)
Non-Executives
£000
Scott Wheway
Carol Arrowsmith
Nathan Bostock(1)
CP Duggal(2)
Heidi Mottram
Kevin O’Byrne
Amber Rudd(3)
Philippe Boisseau(4)
Jo Harlow(5)
Sue Whalley(6)
Total
(1) Nathan Bostock joined the Board on 9 May 2022
(2) CP Duggal joined the Board on 16 December 2022
(3) Amber Rudd joined the Board on 10 January 2022
(4) Philippe Boisseau joined the Board on 1 September 2023
(5) Jo Harlow joined the board on 1 December 2023
(6) Sue Whalley joined the board on 1 December 2023
Salary/fees
Total
2023
418
96
97
76
96
100
76
25
6
6
996
2022
410
93
47
3
93
109
71
N/A
N/A
N/A
826
2023
418
96
97
76
96
100
76
25
6
6
996
2022
410
93
47
3
93
109
71
N/A
N/A
N/A
826
Governance | Centrica plc Annual Report and Accounts 2023
89
BASE SALARY / FEES
With effect from 1 April 2024, the Group Chief Executive’s salary will increase by 4.9% to £855,000 per annum. The increase is below the average
salary increase for the wider workforce in the UK of 6%. Please see page 96 for further details on Reward Across the Wider Workforce. The rate of
increase was set lower than the wider workforce to reflect the increase in single figure for total remuneration in 2023. The salary for the Group Chief
Financial Officer will increase by 9.3% to £590,000 per annum. A higher than average workforce increase was given to the Group Chief Financial
Officer to reflect his performance and development in role since joining Centrica. Both the salaries of the Group Chief Executive and the Group
Chief Financial Officer remain below the median benchmarks for similar roles in the FTSE 100.
The fees for the Chair of the Board were reviewed by the Remuneration Committee and increased by 4.6% to £440,000 per annum with effect
from 1 April 2024. The increase is below the increase for the wider workforce in the UK. Non-Executive Director fees were also reviewed but there
will be no increase in 2024. The Non-Executive Director fees will be reviewed again as part of the next Remuneration Policy review to ensure
Centrica is able to continue to attract and retain Non-Executive Directors with the right skills, knowledge and experience, and to reflect the
increasing time commitment and complexity of the role.
FY23 ANNUAL INCENTIVE PLAN (AIP)
In line with the Remuneration Policy, 75% of the award was based on a mix of financial and business measures based on Centrica’s priorities for
2023 and 25% was based on individual objectives.
The financial and business performance element for 2023 was split equally between Earnings Per Share (EPS) and the outcome of a balanced
scorecard of financial and operational measures critical to the success of the organisation in 2023.
The EPS measure had defined threshold, target and maximum levels that were set at the start of the financial year. During the first half of the year,
market conditions were materially better than expected when the targets were set. Therefore, when reviewing progress against the EPS target
during the year, the Committee determined that the original targets were no longer appropriate and should be increased to reflect these improved
market conditions. This resulted in EPS targets for the FY23 AIP as follows:
Adjusted EPS
Threshold
17.6p
Target
22.0p
Max
26.4p
Outcome
33.4p
Reflecting the strong performance of the business in the year against these revised targets, Centrica achieved earnings performance above the
maximum with an EPS of 33.4 pence, resulting in an outturn of 100% for this part of the AIP.
In addition, the Committee determined a balanced scorecard for the remaining financial and business elements of the AIP. It was agreed that there
would be no formula to translate the scorecard to a bonus outcome and no formal weighting of individual measures. The Committee monitored
performance against the scorecard at regular points during the year. At the end of the year, the Committee took a holistic assessment of overall
performance to determine an outturn. The balanced scorecard of measures, targets and outcomes are noted below.
Group
Measure
Adjusted Operating Profit
British Gas Energy
British Gas Services & Solutions
British Gas Services & Solutions
Bord Gáis
British Gas Energy
Centrica Business Solutions
Centrica Energy
Free Cash Flow
Net (Debt)/Cash
Complaints
Complaints
Reschedules
Cost to serve
Cost to serve(1)
Order Intake
Opex: Gross Margin Ratio
Target
£1,878m
£672m
£1,089m
11.5%
10.8%
5.0%
€212 per customer
£127 per customer
£264m
33.5%
Outcome
£2,752m
£2,207m
£2,744m
13.3%
8.5%
3.1%
€187 per customer
£142 per customer
£225m
33.3%
Customer numbers
10,228,00 unique customers
10,264,000 unique customers
Colleague engagement
7.7
7.7
On target for emissions reduction in
line with the long-term glidepath but
mixed performance against customer
reduction ambitions. See page 47 for
further details.
Progress towards climate transition plan
– see People and Planet plan for further
details. See page 47.
Goal 4 – helping our customers be net
zero by 2050
Goal 5 – be a net zero business by 2045
Make good progress against the
interim climate targets including;
Centrica carbon emissions
Low carbon and transition
assets
Electric vehicles in fleet
Reduction in property emissions
CAPEX allocated to green
activities
Hive active heating units sold
SMART meters installed
EV charger points installed
Heat pumps installed
(1) British Gas Energy cost to serve per customer excluding bad debt was £84, against a target of £83.
Customers on Ensek
5m
5.4m
90
Governance | Centrica plc Annual Report and Accounts 2023
Excellent performance across the Group also meant the majority of customer, colleague and financial targets in the balanced scorecard were met
in full, including delivering operating profits of £2,752m and free cash flow of £2,207m. We were particularly pleased to see a reduction in
rescheduled appointments for customers in Services and Solutions and an improvement in our customer satisfaction scores. Given the cost
of living challenges faced by our customers, we have seen an increase in our bad debt charges, and we will continue to engage with those
customers who are struggling to pay their bills using a variety of mechanisms including payment spreading and utilising the £140m we have
committed so far to help the most vulnerable and in need. We have made significant progress against both our goal to be a net zero business by
2045, and our goal to help our customers be net zero by 2050. Performance against the balanced scorecard measures resulted in an outturn
of 85% for this part of the AIP. The Committee is satisfied that the current incentive structure for senior executives does not drive unintended risks
or ESG concerns.
The Committee carefully considered the outcomes against the EPS target and the balanced scorecard measures, determining an outcome of
100% against the EPS target and 85% against the balanced scorecard. Achievement against the overall financial and business performance
element of the AIP was 185% of target. However, as outlined in the Remuneration Committee Chair’s statement, the Remuneration Committee
determined that the financial and business performance part of the AIP should be reduced by 10% to 175% of target to reflect the findings of the
prepayment meter investigation.
Individual Objectives
Each Executive Director had a set of stretching individual objectives which included key non-financial and strategic performance indicators (KPIs)
that were important to the success of the business in 2023. The KPIs were cascaded to business and functional leaders to ensure a strong line
of sight to key priorities throughout the organisation. The Committee assessed that the majority of individual objectives were met in full and good
progress was made against others. Based on an assessment of performance against Chris O’Shea’s individual objectives, the Committee
determined an outcome of 87.5% of maximum was appropriate. The Committee determined for Russell O’Brien an outcome of 82.5% of
maximum under the individual objectives part of the Annual Incentive Plan. For Kate Ringrose, who served for two months of the financial year
as CFO, the Committee determined an outcome of 50% of maximum of the individual objectives part of the AIP.
The table below summarises the key individual objectives for Executive Directors during the year:
Chris O’Shea
Key objectives
Chris delivered further improvements in capability, culture, and operational delivery, including the launch of
our new corporate purpose, established a new business operating model to support strategic plans for
commercial and customer growth, investment in infrastructure and net zero, and a step change in our
approach to health & safety. Achieved objective to return Services and Solutions to profitability and
operational improvements continue to be delivered. With the team, Chris developed a compelling strategic
plan and investment case to deliver shareholder returns including dividends and share buy backs. Launched
new customer propositions in the year, including PeakSave and continued to provide customer support
with over £140m of committed funds to help customers during the energy crisis since 2022.
Personal objectives
Outturn (as % of
maximum)
87.5%
Russell O’Brien
Smooth transition from former CFO. Refreshed capital allocation and investment framework and new risk
capital framework. Developed new strategic plan and investment narrative, which was well received by
investors at interim results in 2023. Reviewed the finance function with a focus on improving the efficiency
and effectiveness of the function.
Kate Ringrose
Kate’s focus was to complete the financial year-end reporting process for FY2022 and to provide an
effective handover to Russell O’Brien, the incoming CFO.
82.5%
50%
Governance | Centrica plc Annual Report and Accounts 2023
91
Overall AIP outcome
Overall, after combining the outturn for financial and business performance with the outturn for individual performance, and after deducting 10%
for the prepayment meter investigation, the total AIP for Chris O’Shea was 87.5% of maximum, which equated to 175% of salary or £1,426,250.
The table below summarises the outcomes under the AIP for all Executive Directors:
Measure
EPS
Balanced scorecard
Deduction for prepayment meter
investigation
Individual objectives
Total AIP (as % of maximum)
Total AIP (£)
(1) Prorata for the employment period.
(2) Prorata for the employment period.
Chris O’Shea
Russell O’Brien
Kate Ringrose
100%
85 %
(10%)
87.5%
87.5%
£1,426,250
100%
85%
(10%)
82.5%
86.3%
£640,406(1)
100%
85%
(10%)
50%
78.1%
£90,088(2)
Half of the AIP earned was paid in cash and half of the AIP was deferred into shares, vesting in three years.
LONG-TERM INCENTIVE AWARDS RELATING TO THE PERFORMANCE PERIOD 2021-23
The performance conditions relating to the three-year period ending in 2023 are set out below, together with the achievement against these
performance conditions. Vesting between stated points is on a straight-line basis.
Financial targets and
outcomes
Measures
Relative Total Shareholder Return
(TSR)
Cumulative EPS
Cash conversion
Non-financial KPI improvement
Overall
(1) 3-year cumulative EPS
Weightings
33.3%
22.2%
22.2%
22.2%
100%
Targets
Threshold (25%)
Maximum (100%)
FTSE 100
median
7.5p
EBITDA to
OCF of 85%
See below
FTSE 100
upper quartile
10.5p(1)
EBITDA to
OCF of 100%
See below
Outcomes
Ranked first
at 267.4%
72.4p
95.0%
Vesting
100%
100%
75.5%
57.3%
85%
Centrica’s TSR was outstanding over the three-year performance period being ranked in first position relative to the FTSE 100. Our TSR was
267.4% compared to 47.1% for the upper quartile of the FTSE 100, therefore the TSR portion of the LTIP will vest at 100%.
Financial performance across the three-year performance period was strong, resulting in above maximum outcome against the Cumulative EPS
target (vesting at 100%) and above target performance for cash conversion (vesting at 75.5%).
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Governance | Centrica plc Annual Report and Accounts 2023
Non-financial KPI targets and outcomes
The KPI measures, targets and outcomes for the 2021-23 cycle were:
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
Targets
Threshold
Maximum
Outcomes
Vesting
0.85
0.65
0.84
29%
+10.52
+12.35
+18.3
100%
2,820
2,600
6,010
0%
Colleague engagement (percentage favourable)
45%
54%
77%
100%
(1) Per 200,000 hours worked.
Performance against the non-financial KPIs across the performance period was mixed with not all measures meeting threshold. The Committee
determined that the outcome for this portion of the award would vest at 57.25%.
Overall performance outcome
The LTIP award was granted in June 2021 and will vest in June 2024, after which the shares are then subject to a mandatory holding period of
two years. Taking into account the achievement against the financial performance targets, and the agreed outcome against the non-financial
targets, the Committee approved the overall vesting outcome of 85% of the maximum award.
The estimated value of the shares that will vest in respect of the three-year performance period, which ended in December 2023, has been
included in the single figure for total remuneration on page 89. The shares will be released at the end of the holding period, in June 2026.
As stated in the Remuneration Committee Chair’s statement, as a matter of course, the Committee reviews the formulaic vesting outcome against
the overall underlying performance of the group. The Committee considered whether there have been any windfall gains and determined there
were none, and no adjustment was made.
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 2023 the pension contribution rate across the UK workforce was 10-14%, depending on the pension scheme.
Chris O’Shea and Kate Ringrose participated in the Centrica Unapproved Pension Scheme Defined Contribution section (CUPS DC), until
31 December 2023 when we closed the scheme to future contributions. For the period to 31 December 2023, 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)
(1) The retirement age for the CUPS DC scheme is 62.
Total notional
pension fund as at
31 December 2023
£
431,775
79,500
Total notional
pension fund as at
31 December 2022
£
319,407
78,761
Governance | Centrica plc Annual Report and Accounts 2023
93
Following 31 December 2023 when the CUPS DC scheme closed to future contributions Chris O’Shea chose to take his pension contribution of
10% of salary as cash in lieu of pension. Upon appointment Russell O’Brien similarly received his pension contribution of 10% of salary as cash in
lieu of pension.
Chris O’Shea
Russell O’Brien
% of salary
10% cash in lieu of pension
10% cash in lieu of pension
Taxable benefits
Taxable benefits include car allowance, health and medical benefits. Non-taxable benefits include matching shares received under the Share
Incentive Plan (SIP) on the same terms as all employees. Both taxable and non-taxable benefits are included in the table of single figure for total
remuneration.
DIRECTORS’ INTERESTS IN SHARES (NUMBER OF SHARES) (AUDITED)
The table below shows the interests in the ordinary shares of the Company for all Directors who served on the Board during 2023.
For the Group Chief Executive the minimum shareholding requirement is 300% of base salary and for the Chief Financial Officer the minimum
shareholding requirement is 200% of base salary. The achievement against the requirement is shown below.
Executive Directors have a period of five years from appointment to the Board, or from any material change in the minimum shareholding
requirement, to build up the required shareholding. A post-cessation shareholding requirement of 100% of the in-employment shareholding
requirement (or full actual holding if lower) is applicable for two years post-cessation of employment. The Committee continues to keep both the
shareholding requirement, and achievement against the shareholding requirement, under review and will take appropriate action should they feel
it necessary.
Executives
Chris O’Shea(5)
Russell O’Brien(5)
Kate Ringrose(4)
Non-Executives
Carol Arrowsmith
Phillippe Boisseau(7)
Nathan Bostock
CP Duggal
Jo Harlow
Heidi Mottram
Kevin O'Byrne
Amber Rudd(6)
Sue Whalley
Scott Wheway
Beneficially
owned(1)
Shares subject to
performance
conditions
Shares vested but
unexercised
Shares subject to
continued service
only(2)
Shares
exercised
in the year
Shareholding
requirement
(% of salary)
Current
shareholding
(% of salary)(3)
1,295,884
7,954,419
185,511
—
550,940
1,501,143
49,286
2,669
27,000
15,000
—
10,000
40,000
42,559
13,868
110,187
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,289,274
314,566
348,139
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
300
200
200
—
—
—
—
—
—
—
—
—
—
224
48
126
—
—
—
—
—
—
—
—
—
—
(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 shares purchased by the Executive Director in March with deferred AIP funds which have mandatory holding periods of three years
and which will be subject to tax at the end of the holding periods.
(2) Shares owned subject to continued service include RSP shares awarded and SIP free and matching shares that have not yet been held for the three-year holding period.
The values are net of tax.
(3) The share price used to calculate the achievement against the guideline was 1.4065 pence, the price on 31 December 2023.
(4) Kate Ringrose stepped down from the Board on the 28 February 2023 and the number reflects her holding on this date.
(5) During the period 1 January 2024 to 15 February 2024 both Chris O’Shea and Russell O’Brien acquired 264 shares through the SIP.
(6) During the period 1 January 2024 to 15 February 2024 Amber Rudd acquired 1,580 shares through the NED Share Purchase Agreement.
(7) During the period 1 January 2024 to 15 February 2024 Phillippe Boisseau acquired 1,459 shares through the NED Share Purchase Agreement.
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Governance | Centrica plc Annual Report and Accounts 2023
SHARE AWARDS GRANTED IN 2023 (AUDITED)
Set out below are details of share awards granted in 2023 to Executive Directors.
2023 RSP
Chris O’Shea
Russell O’Brien
Plan
RSP
RSP
Award Type
Conditional
Conditional
Number
of shares(1)
1,186,547
655,148
Basis of
award
% of salary
150%
125%
Face value
of award
£
Vesting
date
Release
date
1,222,500
March 2026
March 2028
675,000
March 2026
March 2028
(1) The number of shares awarded under the RSP was calculated by reference to a price of 103.03 pence, being the average of the Company’s share price over the five
trading days immediately preceding the date of grant of 21 March 2023.
The RSP award is subject to an underpin. If the Committee is not satisfied the underpin has been met, the Committee may scale back the awards
(including to zero). In assessing the underpin, the Committee will consider the 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.
2023 DEFERRED AIP
The 2023 AIP award was delivered 50% in cash and 50% in deferred shares, which were awarded on 21 March 2023. The face value of the
award is based on the share price on the date of award, which was 102.30 pence. Deferred shares are not subject to further performance
conditions and vest in three years.
Chris O’Shea
Kate Ringrose
Plan
Award Type
AIP Deferred shares
AIP Deferred shares
Number
of shares
694,925
281,073
Face value
of award
£000
710,965
287,561
Vesting
date
March 2026
March 2026
Governance | Centrica plc Annual Report and Accounts 2023
95
2023 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 0.0004% (2022: 0.04%) of the Group’s operating cash flow.
2023
20%
0%
32%
4%
44%
2022
27%
0.04%
23%
1%
48%
Reward Across The Wider Workforce
Centrica comprises 21,000 diverse colleagues with different roles in different business units across different countries. Our approach to reward
aims to unify us as a team working with a common purpose and values. To achieve this, we have established some key reward principles across
the workforce that balance the needs of our colleagues with the needs of the business and our customers. The same principles apply to Executive
Directors and members of the Centrica Leadership Team:
For our colleagues, we aim to provide reward that is:
For our business, we aim to provide reward that is:
Market competitive
Fair and consistent
Simple
Supports wellbeing
Sustainable
Agile
Flexible
Compliant
Total reward at Centrica consists of more than just salary. All colleagues receive fixed pay comprising a salary plus a wide range of pensions &
benefits (see table below for more detail). In addition, all colleagues are eligible to earn variable pay subject to performance (such as annual
bonuses, recognition awards, and Profit Share). For frontline colleagues in the organisation, they can expect a higher proportion of their total
reward to be fixed pay. The variable pay element is often based on individual performance and is typically paid in cash quarterly or annually.
At senior executive levels, colleagues have a higher proportion of variable pay linked to the financial and business performance of the Company.
This variable pay is often paid in shares that vest over multiple years. Therefore, our approach to total reward is to vary the fixed pay and variable
pay mix depending on the individual’s role, responsibilities, and performance compared to competitive market practice for comparable roles.
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Governance | Centrica plc Annual Report and Accounts 2023
To staffTo DirectorsTo governmentTo shareholdersInvesting activitiesTo staffTo DirectorsTo governmentTo shareholdersInvesting activities Performance measures applying to Executive Directors and the Centrica Leadership Team are cascaded through the organisation to ensure a
clear line-of-sight and alignment around performance in categories of ‘Colleagues’, ‘Customers’ and ‘Cash’.
The table below summarises some key highlights of wider workforce reward in the UK. Executive Directors and the Centrica Leadership Team
participate in the same benefits and on the same terms as the wider workforce.
Fair pay
Centrica is an accredited member of the Real Living Wage Foundation, and we pay at least the Real Living Wage in the UK.
During the cost of living crisis, we have focused on improving the pay of our lowest paid colleagues, through salary increases
and one-off payments. The average salary increase across the wider workforce in the UK is 6%, with our lowest paid
colleagues receiving an average salary increase of between 7.8% to 9.5%.
Salary levels for the wider workforce are negotiated with our recognised trade union partners to ensure fair living standards.
Salary levels for management reflect the individual’s role, experience and performance compared to competitive market rates.
Looking after colleagues
and their loved ones
All employees in the UK receive comprehensive health and medical cover and can purchase additional cover for their
dependants. This includes 24-hour access to a GP, eye care; support for parents with fertility, adoption, and surrogacy; life
assurance; and personal accident insurance.
Saving for the future
The Company has various legacy pension arrangements. While our Defined Benefit pension is closed to new members it is still
open to future accrual for existing members. Our Defined Contribution Scheme provides a generous employer contribution of
10% of salary or cash in lieu of pension. Our Lifestyle Savings offer discounts from everyday shopping to one-off big
purchases.
Recognising colleague
contribution
In 2023, we recognised colleagues over 258,000 times through our Recognition platform. This allows anyone in the Company
to recognise the performance or values of a colleague or team, or simply say “thank you”.
Sharing in our success
We operate a number of performance-related incentives plans across the Group. 5,500 employees participate in an annual
bonus plan aligned to the bonus for executives and senior management. All of our field engineers and customer facing teams
participate in incentives aligned to their individual performance.
All employees in the UK are eligible to participate in our Share Incentive Plan, where they can purchase shares in the Company
and receive free matching shares, provided they hold them for at least three years. In addition, all colleagues are eligible to an
award of free shares every year via our Profit Share plan depending on our performance over the prior year. Field and
Customer Support colleagues participate in quarterly and annual incentives linked to their performance. Senior managers are
eligible to receive annual bonuses and long-term restricted share awards aligned to the performance of the business.
Being an Ambassador for
Centrica products & services
We provide discounts on colleagues’ energy bills if they are a Centrica customer, as well as discounts on new boilers,
HomeCare cover, and our new energy efficient products for example, Electric Car charging points, solar & battery storage,
and home insulation.
Making a difference in the
world
Colleagues are given time off to volunteer for local communities and causes they are passionate about. We also operate a
Give As Your Earn scheme, where colleagues can donate in a tax-efficient way. The Colleague Support Foundation aims to
provide additional support for those experiencing extreme financial difficulties, where existing financial support mechanicians
have been explored and exhausted.
Governance | Centrica plc Annual Report and Accounts 2023
97
ANNUAL PERCENTAGE CHANGE IN REMUNERATION OF DIRECTORS AND COLLEAGUES
The table below shows the percentage changes (on a full-time equivalent basis) in the Executive and Non-Executive Directors’ remuneration over
the last three financial years compared to the amounts for full-time colleagues of the Group for each of the following elements of pay:
Percentage change from
2019 to 2020
Percentage change from
2020 to 2021
Percentage change from
2021 to 2022
Percentage change from
2022 to 2023
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
Executive Directors
Chris O’Shea(1)
Russell O’Brien(2)
Kate Ringrose(11)
6.3
—
Non-Executive Directors
Scott Wheway
268.8
Carol Arrowsmith
Nathan Bostock(3)
CP Duggal(4)
Heidi Mottram
Kevin O’Byrne(5)
Amber Rudd(6)
Philippe Boisseau(7)
Jo Harlow(8)
Sue Whalley(9)
Average per
colleague (excluding
Directors)(10)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27.8
—
—
—
—
—
-28.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.5
—
2.5
-11.1
—
6.7
100
—
18.7
2.6
—
—
—
0.3
—
-83.3
-81.2
-84.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.6
3.8
32.9
—
3.8
-20.7
—
—
—
—
4.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
42.3
1.1
236.4
1.8
-10.3
16.3
1.9
(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) Russell O’Brien was appointed to the Board on 1 March 2023.
(3) Nathan Bostock was appointed to the Board on 9 May 2022.
(4) CP Duggal was appointed to the Board on 16 December 2022.
(5) Kevin O’Byrne took on the role of Senior Independent Director from 1 June 2022.
(6) Amber Rudd was appointed to the Board on 10 January 2022.
(7) Philippe Boisseau joined the Board on 1 September 2023.
(8)
(9) Sue Whalley joined the board on 1 December 2023.
(10) The comparator group includes all management and technical or specialist colleagues based in the UK in Level 2 to Level 6 (where Level 1 is the Executive and Non-
Jo Harlow joined the board on 1 December 2023.
Executive Directors). There are insufficient colleagues in the Centrica plc employing entity to provide a meaningful comparison. The colleagues selected have been
employed in their role for full years to give meaningful comparison. This group has been chosen because the colleagues have a remuneration package with a similar
structure to the Executive Directors, including base salary, benefits and annual bonus.
(11) Kate Ringrose stepped down from the Board on the 28 February 2023.
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Governance | Centrica plc Annual Report and Accounts 2023
The chart below shows the ratio of remuneration of the CEO to the
average UK colleague of the Group.
CEO pay ratio
2023
2022
2021
2020
2019
2018
25th
percentile
198:1
128:1
29:1
32:1
34:1
72:1
50th
percentile
142:1
75th
percentile
120:1
77:1
24:1
15:1
29:1
59:1
70:1
15:1
14:1
22:1
44:1
Option B
Option B
Option B
Option B
Option B
Option B
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.
2023
CEO remuneration
Colleague 25th percentile
Colleague 50th percentile
Colleague 75th percentile
Salary
Total pay and benefits
810,000
26,484
41,415
47,970
8,231,007
41,514
58,029
68,439
2020
2019
2018
2017
2016
2015
Chris O’Shea
2023
2022
2021
2020
Iain Conn
Sam Laidlaw
2014
The Company has used its gender pay gap data (Option B in the
Directors’ Reporting Regulations) to determine the colleagues whose
remuneration packages sit at the lower, median and upper quartile
positions across the UK workforce. This is deemed the most
appropriate methodology for Centrica given the different pension and
benefit arrangements across the diverse UK workforce. To ensure this
data accurately reflects individuals at each quartile position, a sensitivity
analysis has been performed. The approach has been to review the
total pay and benefits for a number of colleagues immediately above
and below the identified employee at each quartile within the gender
pay gap analysis. We have determined our 25th, 50th, and 75th
percentile individual using data from our gender pay gap as of the
5 April 2023.
The annual remuneration for the three identified colleagues has been
calculated on the same basis as the CEO’s total remuneration for the
same period in the single figure table on page 89 to produce the ratios.
The ratio of CEO pay compared with the pay for the average colleague
has increased in the last two years due to the strong vesting of the LTIP
awards that were granted in 2021 and will be released in shares in
2026. As a large proportion of CEO remuneration was delivered
through the LTIP which was measured over a three-year performance
period, from 2021-2023 the CEO ratio will be impacted by any long
term incentive outcomes. Under the current Remuneration policy, long-
term incentives will be delivered to the CEO through the Restricted
Share Plan which has a lower overall quantum, at 50% of the previous
LTIP. The Company believes the ratios are appropriate given financial
and business performance outcomes in 2023, and the size and
complexity of the business.
Pay for performance
The table below shows the CEO’s total remuneration over the last
10 years and the achieved annual short-term and long-term incentive
pay awards as a percentage of the plan maximum.
Chief Executive
single figure for
total remuneration
£000
Annual short-term
incentive payout
against max
opportunity
%
Long-term incentive
vesting against max
opportunity
%
8,231
4,490
875
765
239
1,186
2,335
1,678
4,040
3,025
3,272
87.5
89.5
0
0
0
0
41
0
82
63
34
85
76
0
0
0
0
18
26
0
0
35
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 2023. The FTSE 100 Index has been chosen as it is
an index of similar-sized companies and Centrica has been a
constituent member for the majority of the period.
Total return indices – Centrica and FTSE 100
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 2023.
Governance | Centrica plc Annual Report and Accounts 2023
99
Centrica Total Return IndexFTSE 100 Total Return Index20132014201520162017201820192020202120222023050100150200
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows the percentage change in total remuneration paid to all colleagues compared to expenditure on dividends and share
buyback for the years ended 31 December 2022 and 2023.
Share repurchase(1)
Dividends
Staff and employee costs(2)
(1) 510,787,195 shares were purchased during 2023 as part of the share buyback arrangement
(2) Staff and employee costs are as per note 5(b) in the notes to the Financial Statements.
2023
£m
613
186
2022
£m
43
59
1,400
1,440
%
Change
1,326
215
(3)
PAYMENTS TO PAST DIRECTORS (AUDITED)
During 2023, no payments were made to past Directors with the exception of the payments disclosed in the single figure for total remuneration
table on page 89.
PAYMENTS FOR LOSS OF OFFICE (AUDITED)
Kate Ringrose stepped down from the Board as Chief Financial Officer on 28 February 2023 and she left employment with Centrica on 1 October
2023. Other than the treatment set out below, no further payments for loss of office will be made to Kate. Payments for loss of office to Kate
Ringrose were consistent with the Policy and her contract of employment.
Fixed remuneration
Kate Ringrose was paid salary and benefits for the duration of her employment to a total of £279,163.
Annual Incentive Plan (AIP)
Kate Ringrose was eligible for an AIP award for the period worked as Chief Financial Officer during the 2023 financial year, details in respect of the
achievement of which can be found on page 91. Kate’s FY2023 bonus was paid 50% in cash and 50% in shares deferred for a further three
years. Kate’s deferred bonus of £243k from FY2021 and £288k from FY2022 will be subject to the three year deferral period in line with the usual
policy. The Remuneration Committee considers that ‘good leaver’ treatment is appropriate in recognition of Kate’s contribution to the business.
Long-term Incentive Awards
The Remuneration Committee determined Kate Ringrose was a ‘good leaver’ in respect of her 2021 LTIP and 2022 RSP awards. Awards will be
pro-rated based on the performance period that has elapsed at the point Kate ceased employment and will vest on the normal vesting dates,
subject to relevant performance conditions and underpins. Holding periods of two years will apply to any vested shares. Kate did not participate in
the FY2023 RSP award.
Post-employment shareholding requirement
Kate Ringrose is subject to a two-year post-employment shareholding requirement. On cessation of employment, Kate had a shareholding in
excess of 200% of salary. Therefore, Kate is required to maintain a shareholding of 200% of salary for a period of two years post-employment.
ADVICE TO THE REMUNERATION COMMITTEE
Following a competitive tender process, PwC was appointed as independent external advisor to the Committee in May 2017.
PwC also provided advice to Centrica globally during 2023 in the areas of employment taxes, regulatory risk and compliance issues and additional
consultancy services.
PwC’s fees for advice to the Committee during 2023 amounted to £134,450 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 advisors. 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.
STATEMENT OF VOTING
Shareholder voting on the resolutions to approve the Directors’ Remuneration Policy put to the 2022 AGM, and the Directors’ Remuneration
Report, put to the 2023 AGM, was as follows:
Resolution
Directors’ Remuneration Policy
Directors’ Remuneration Report
AGM
2022
2023
Votes
for
Votes for
%
Votes
against
Votes against
%
3,132,342,144
3,463,208,517
83.48%
619,903,528
93.19%
252,986,960
16.52%
6.81%
Votes
withheld
1,275,033
1,244,130
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Governance | Centrica plc Annual Report and Accounts 2023
IMPLEMENTATION IN THE NEXT FINANCIAL YEAR
The table below sets out details of how we implemented our remuneration policy in 2023, and how we intend to implement the policy in 2024.
Remuneration element
Implementation in 2023
Base salary
With effect from 1 April 2023, salaries for Executive Directors were:
¢ Group Chief Executive: £815,000
¢ Group Chief Financial Officer: £540,000
Annual Incentive
Plan (AIP)
Restricted Share
Plan (RSP)
Maximum opportunity:
¢ Group Chief Executive: 200% of salary (100% of salary at target)
¢ Group Chief Financial Officer: 150% of salary (75% of salary at target)
The performance measures and their weighting as a percentage of maximum opportunity were
¢ EPS: 37.5%
¢ Balanced Scorecard: 37.5%
¢ Individual objectives: 25%
EPS payout ranges were as follows (as a percentage of maximum opportunity):
¢ Threshold performance: 25%
¢ On-target performance: 50%
¢ Maximum performance: 100%
RSP awards were granted at the following levels:
¢ Group Chief Executive: 150% of salary
¢ Group Chief Financial Officer: 125% of salary
For the 2023 award, the underpin 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;
¢ progress against broader ESG commitments including customer service, colleague engagement and our
transition to net zero.
Pensions
The maximum benefit for Executives is 10% of base salary earned during the financial year. This compares
with the average pension benefit across the wider UK workforce, currently 10-14% of salary.
Benefits
Benefits to be provided in line with the Policy
All-employee
share plan
Shareholding
requirements
NED Fees
Executives were entitled to participate in all-employee share plans on the same terms as all other eligible
employees.
Group Chief Executive: 300% of salary
Group Chief Financial Officer: 200% of salary
Post-employment, Executive Directors will continue to 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.
Implementation in 2024
With effect from 1 April 2024,
salaries for Executive Directors
are:
¢ CEO: £855,000 (+4.9%)
¢ CFO: £590,000 (+9.3%)
The average increase across
with wider workforce in the UK
is 6%. A lower increase was
given to the CEO to reflect his
single figure remuneration.
A higher increase was given
to the CFO to reflect his
performance and development
in role since joining Centrica
No change
No change
No change
No change
No change
No change
Chair of the Board
Basic fee for Non-Executives
Additional fees
Chair of Audit and Risk Committee
Chair of Remuneration Committee
Chair of Safety, Environment and Sustainability Committee
Senior Independent Director
Employee Champion
With effect from
1 April 2023
With effect from 1 April 2024
£420,500
£76,000
£440,000 (+4.6%)
No change
£25,000
£20,000
£20,000
£20,000
£20,000
No change
No change
No change
No change
No change
The Remuneration Report has been approved by the Board of Directors and signed on its behalf by:
Raj Roy
Group General Counsel & Company Secretary
14 February 2024
Governance | Centrica plc Annual Report and Accounts 2023
101
DIRECTORS’ REMUNERATION POLICY
The Remuneration Policy was approved by shareholders at the AGM
on 7 June 2022.
This section contains a summary of Centrica’s Directors’ Remuneration
Policy (Policy) that will govern and guide the Group’s future
remuneration payments. The full version can be found on our website
at centrica.com.
The Policy operated as intended in 2023.
OBJECTIVES OF THE POLICY
The Policy aims to deliver remuneration arrangements that:
¢ attract and retain high-calibre Executives in a challenging and
competitive global business environment;
¢ place strong emphasis on both short-term and long-term
performance;
¢ are strongly aligned to the achievement of strategic objectives and
the delivery of sustainable long-term shareholder value through
returns and growth; and
¢ seek to avoid creating excessive risks in the achievement of
performance targets.
Summary of Policy design
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
HOW THE POLICY LINKS TO OUR STRATEGY
Our strategy is driven by our Purpose “energising a greener, fairer
future”, and our enduring values at Centrica underpin our culture.
Further information on our Purpose and values is set out on page 9.
We need to engage our leadership team to fulfil our Purpose and to
ensure Centrica is focused on delivery and positioned for growth.
The AIP focuses the Executives on the delivery of our near-term
objectives, with at least 75% of the award based on a mix of financial
and business measures based on Centrica’s priorities for the
forthcoming year and up to 25% based on individual strategic and
personal objectives for the year. All targets align with the Group
Annual Plan.
At the time of the last remuneration policy review, the Remuneration
Committee identified the RSP as the appropriate long term 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.
The RSP has a three-year vesting period and the Committee will
consider the Company’s overall financial and non-financial performance
during this period. Consideration will be given to elements such as
revenue, profitability, shareholder experience and Centrica’s progress
towards a net zero future.
As we continue to restore shareholder value, the RSP will ensure a
large proportion of our Executives’ pay is based on direct and
uninhibited share price movement.
We operate an RSP for leaders below the most senior management
and this approach therefore creates alignment between our Executives
and our senior colleagues.
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Governance | Centrica plc Annual Report and Accounts 2023
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
Base pay/salary
Reflects the scope and
responsibility of the role
and the skills and
experience of the
individual.
Salaries are set at a level
sufficient for the Group to
compete for international
talent and to attract and
retain Executives of the
calibre required to
develop and deliver our
strategy.
Base salaries are reviewed annually
taking into account individual and
business performance, market
conditions and pay in the Group as
a whole.
When determining base salary levels,
the Committee will consider factors
including:
¢ remuneration practices within the
Group;
¢ change in scope, role and
responsibilities;
¢ the performance of the Group;
¢ experience of the Executive 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.
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.
Malus and clawback apply to the cash
and share awards.
Not applicable.
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.
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.
Governance | Centrica plc Annual Report and Accounts 2023
103
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
The maximum opportunity for RSP
awards will be 150% of salary earned
during the financial year for Executive
Directors.
Restricted Share Plan (RSP)
Designed to reward and
incentivise the delivery of
long-term performance
and shareholder value
creation.
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.
Malus and clawback apply to the
awards.
The RSP will be subject to an
underpin framework. In
assessing the underpin, the
Committee will consider the
Company’s overall
performance, including
financial and non-financial
performance measures over
the course of the vesting
period as well as any material
risk or regulatory failures
identified.
Financial performance can
include elements such as
revenue, profitability,
shareholder experience and
return on capital. Non-
financial performance can
include a range of operational
and strategic measures critical
to the Company’s long-term
sustainable success.
The Committee may scale
back the awards (including to
zero) if it is not satisfied the
underpin has been met.
Pensions
Positioned to provide a
market competitive post-
retirement benefit, in a
way that manages the
overall cost to the
Company.
Benefits
Positioned to support
health and wellbeing and
to provide a competitive
package of benefits that is
aligned with market
practice.
The maximum benefit for Executives is
10% of base salary earned during the
financial year. This compares with the
average pension benefit across the
wider UK workforce, currently 10-14%
of salary.
Not applicable.
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):
Cash allowance in lieu of company car –
currently £15,120 per annum.
Not applicable.
¢ a company-provided car and fuel, or
a cash allowance in lieu;
¢ life assurance and personal accident
The benefit in kind value of other
benefits will not exceed 5% of base
salary.
insurance;
¢ health and medical insurance for the
Executive and their dependants; and
¢ health screening and wellbeing
services.
All-employee share plans
Provides an opportunity
for employees to
voluntarily invest in the
Company.
Executives are entitled to participate in
all-employee share plans on the same
terms as all other eligible employees.
Maximum contribution limits are set by
legislation or by the rules of each plan.
Levels of participation apply equally to
all participants.
Not applicable.
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Governance | Centrica plc Annual Report and Accounts 2023
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Shareholding requirements
To align the interests of
Executive Directors with
shareholders over a long-
term period including after
departure from the Group.
Not applicable.
In-employment requirement
During employment, the Group Chief
Executive and Group Chief Financial
Officer 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.
In-employment requirement
The current shareholding requirement is
maintained at 300% of base salary for
the Group Chief Executive and 200% of
base salary for the Group Chief Financial
Officer.
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
Group Chief Executive and 200% of
base salary for the Group Chief Financial
Officer for a period of two years.
Only shares earned from vested
incentives will be included within the
post-employment shareholding
requirement.
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 above, 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 Director of the Company and, in the
opinion of the Committee, the payment was not in consideration for
the individual becoming a Director 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. The
Committee may make minor amendments to the Policy (for regulatory,
exchange control, tax or administrative purposes or to take account
of a change in legislation) without obtaining shareholder approval for
that amendment.
Malus and clawback
In line with UK corporate governance best practice, the Committee
can apply malus (that is reduce the number of shares in respect of
which an award vests) or delay the vesting of awards. In addition,
where an award has vested, the resulting shares will generally be held
for a period during which they may be subject to clawback. The
following provisions apply:
¢ AIP – cash awards: malus will apply up to the payment of the cash
AIP award and clawback will apply for a period of 3 years after the
cash AIP payment.
¢ AIP – deferred shares: clawback will apply during the period of three
years following the payment of the cash AIP award the deferred
share relates to.
¢ 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.
¢ 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.
During the year, the Remuneration Committee has not needed to apply
clawback or malus to any payments to Executive Directors or other
members of the Centrica Leadership Team.
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. CUPS was closed to future contributions from 31
December 2023.
Governance | Centrica plc Annual Report and Accounts 2023
105
Discretion and judgement
It is important that the Committee maintains the flexibility to apply discretion and judgement to achieve fair outcomes as no remuneration policy
and framework, however carefully designed and implemented, can pre-empt every possible scenario. The Committee needs to be able to exercise
appropriate discretion to determine whether mechanistic or formulaic outcomes are fair, in context and can be applied in an upward or downward
manner when required.
Judgement is applied appropriately by the Committee, for example when considering the political and social pressures on the business, the impact
of significant movements in external factors such as commodity prices, in setting and evaluating delivery against individual and non-financial
performance targets to ensure they are considered sufficiently stretching and that the maximum and minimum levels are appropriate and fair.
The Committee has absolute discretion to decide who receives awards, the level of the awards under the incentive plans and the timing, within the
parameters set in the rules and the limits in the Policy table.
Recruitment Policy
The Committee will apply the same 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 AIP
entitlements and/or unvested long-term incentive awards (at an expected value no greater than what is forfeit) from an existing employer, if any,
and the additional provision of benefits in kind, pensions and other allowances, as may be required in order to achieve a successful recruitment.
The Company has a clear preference to use shares wherever possible and will apply timescales at least as long as previous awards.
Details of the relocation and expatriate assistance that may be available as part of the recruitment process can be found in the table below.
Relocation and expatriate assistance
Purpose and link to strategy
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 UK Corporate Governance Code 2018, in order to attract and retain suitable candidates.
It reserves the right to offer contracts which contain an initial notice period in excess of one year, provided that at the end of the first such period
the notice period reduces to one year. All Executive and Non-Executive Directors are required to be re-elected at each AGM.
Executive Director
Chris O’Shea
Russell O’Brien
Date of appointment to role
Date of current contract
Notice from the Group
Notice from the individual
1 November 2018
10 December 2020
30 January 2023
30 January 2023
12 months
12 months
12 months
12 months
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Governance | Centrica plc Annual Report and Accounts 2023
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
Base salary, pension
and other benefits
Scenario
Payment
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
comprising base salary only.
Typically any payment in lieu of notice will be made in monthly instalments and reduce,
or cease completely, in the event.
AIP
Dismissal with cause
AIP award and any deferred awards will be forfeit.
Resignation
Change of control
Exceptions*
LTIP and RSP
Dismissal with cause or
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).
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 a 50% deferral vesting in
line with the normal time-frame.
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 in service, 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.
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 in the UK, Ireland, Europe and North America 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.
No consultation in respect of the development of the Director's Remuneration Policy place with employees occurred.
Governance | Centrica plc Annual Report and Accounts 2023
107
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
Proportionality
The link between individual awards, the delivery of strategy and the long-term
performance of the Group should be clear. Outcomes should not reward poor
performance
Alignment to culture
Incentive schemes should drive behaviours consistent with the Group’s purpose,
values and strategy
How the Policy aligns
The Policy is simple and designed to support long-term, sustainable performance.
Shareholders were extensively consulted on the design of the Policy, and the key
rationale for the changes that were made. The Policy received shareholder approval
at the AGM in June 2022. The Committee proactively seeks engagement with
shareholders on remuneration matters on an ongoing basis.
During the year, consultation took place with recognised trade unions on pay
across the wider workforce. No direct engagement with the workforce occurred
on executive remuneration.
In order to enhance the level of engagement with our employees, a Shadow Board,
comprising colleagues across the business and in different locations, was launched
in 2021. In 2023 a new Shadow Board was established and through the Shadow
Board, colleagues are able to share views with the Board on executive pay, wider
workforce terms & conditions, and people-related policies.
The Shadow Board will be our primary forum for engaging on executive pay. The
Remuneration Committee is actively exploring ways to enhance engagement across
all groups in 2024.
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 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.
Remuneration is appropriately balanced between fixed and variable pay.
Short-term performance targets are linked to the Group’s strategy and the use of
deferral in the AIP ensures a link to long-term performance through this element.
The introduction of an RSP ensures a strong link to long-term performance as
executive reward is directly linked to the share price of the Company.
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.
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Governance | Centrica plc Annual Report and Accounts 2023
NON-EXECUTIVE DIRECTORS’ REMUNERATION
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.
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
The maximum level of fees payable to
Non-Executives, in aggregate, is set out
in the Articles of Association.
Not applicable.
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 Chair are reviewed
by the Remuneration Committee.
The fee levels of the Non-Executives are
reviewed by the Chair of the Board,
Executive Directors and the Chief People
Officer.
Non-Executives are paid a base fee for
their services. Where individuals serve as
Chair of a Committee of the Board,
additional fees are payable. The Senior
Independent Director also receives an
additional fee.
The Company reserves the right to pay a
Committee membership fee in addition to
the base fees.
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 Chair, do not have service contracts. Their appointments are subject to Letters of Appointment and the Articles of
Association. All Non-Executives are required to be re-elected at each AGM. The date of appointment and the most recent re-appointment and the
length of service for each NED are shown in the table below:
Non Executive Director
Scott Wheway
Carol Arrowsmith
Amber Rudd
Nathan Bostock
CP Duggal
Heidi Mottram
Kevin O’Byrne
Phillippe Boisseau
Jo Harlow
Sue Whalley
Date of appointment to role
Date of current contract
Notice from the Group
Notice from the individual
1 May 2016
11 June 2020
10 January 2022
9 May 2022
16 December 2022
1 January 2020
13 May 2019
13 June 2023
13 June 2023
13 June 2023
13 June 2023
13 June 2023
13 June 2023
13 June 2023
1 September 2023
1 September 2023
1 December 2023
1 December 2023
1 December 2023
1 December 2023
6 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
6 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
Governance | Centrica plc Annual Report and Accounts 2023
109
The Directors submit the 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 2023. The
Directors’ Report required under the Companies Act 2006 (the ‘Act’)
comprises this Directors’ and Corporate Governance Report (pages 57
to 112) including the TCFD section for disclosure of our greenhouse
gas (GHG) emissions in the Strategic Report (pages 47 to 55) and note
26 (page 189) to the Financial Statements. The index on this page
includes matters contained in the Strategic Report that would otherwise
be required in the Directors’ Report. The management report required
under Disclosure Guidance and Transparency Rule 4.1.5 R comprises
the Strategic Report (pages 2 to 55) (which includes the risks relating to
our business), Shareholder Information (page 243) and details of
acquisitions and disposals made by the Group during the year in note
12 (page 161). The Strategic Report on pages 2 to 55 fulfils the
requirements set out in Section 414 of the Act. This Directors’ and
Corporate Governance Report fulfils the requirements of the corporate
governance statement required under Disclosure Guidance and
Transparency Rule 7.2.1.
ARTICLES OF ASSOCIATION (‘ARTICLES’)
The Company’s Articles were adopted at the 2023 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 2023, Centrica had received notification of the
following interests in voting rights pursuant to the Disclosure and
Transparency Rules:
BlackRock, Inc.
Date
notified
08.04.2022
Schroders Investment Management Limited
27.04.2023
Bank of America Corporation
02.06.2023
% of share
capital(1)
5.25%
<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 14 February
2024, the Company had received no further notifications. Copies of historic
notifications and any notifications received since 14 February 2024, can be found
on our website at centrica.com/rnsannouncements.
OTHER STATUTORY
INFORMATION
Index to Directors’ Report and other disclosures
70
110
114 to 126
59 to 63
10 to 11
66
111
109
94
111
Annual General Meeting (AGM)
Articles of Association
Audit Information
Board of Directors
Business Model
Conflicts of Interest
Directors’ indemnities and insurance
Directors’ service contracts and letters of
appointment
Directors’ share interests
Disclosure required under Listing Rule
9.8.4 R
42, 57, 81 and 249 Diversity
Note 11
Page 160
Dividends
Note 26
Page 189
Note 19 on page
175, note S2 on
pages 191 to 203,
and note S6 on
pages 215 to 217
2 to 55
53 and 251
71
73
110
38 to 43
111
Note S8
Page 219
12 to 45
1
28 to 34
Events after the balance sheet date
Financial instruments
Future developments
Greenhouse Gas (GHG) Emissions
Human rights
Internal control over financial reporting
Material shareholdings
People
Political donations and expenditure
Related party transactions
Research and development activities
Results
Risk management
17 and 68 to 69
Section 172(1) Statement (Director’s Duty)
111
45
14 to 15
41 to 44
47 to 55
15, 38 to 40, 45, 46,
58, 70 to 71, 90, 96,
107 and 111
Share capital
Speak Up
Stakeholder engagement (including
employees, suppliers and customers)
Sustainability
TCFD and CFD
The Company’s approach to investing in
and rewarding its workforce
110
Governance | Centrica plc Annual Report and Accounts 2023
Share capital
The Company has a single share class which is divided into ordinary
shares of 6 14/81 pence each. The Company was authorised at the
2023 AGM to allot up to 1,895,391,323 ordinary shares as permitted
by the Act. A renewal of a similar authority will be proposed at the 2024
AGM. The Company’s issued share capital as at 31 December 2023,
together with details of shares issued during the year, is set out in note
25 to the Financial Statements on page 189.
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 2023.
Purchase of shares
As permitted by the Articles, the Company obtained shareholder
authority at the 2023 AGM to purchase its own shares up to a
maximum of 568,617,397 ordinary shares of 6 14/81 pence each
(‘shares’). The 2022-23 repurchase programme completed on
29 March 2023 having purchased 250,483,802 shares. The 2023
programme commenced on 5 April 2023 and completed on 9 October
2023 with 235,455,079 shares purchased.
As announced in the Company’s Interim Results on 27 July 2023,
the Company intends to repurchase a further £450m of shares to
return surplus capital to shareholders. The 2023-2024 programme
commenced on 10 October 2023. From 10 October 2023 to
31 December 2023, 72,049,447 shares were purchased (of which
70,465,051 shares had settled and were held as treasury shares).
The shares purchased during this period represent approximately
1.2% of the issued ordinary share capital at an aggregate cost of
approximately £108m (£106m in respect of settled shares).
The total number of shares purchased during the financial year was
512,273,445, which represents approximately 8.7% of the Company’s
issued share capital, at an aggregate cost of approximately £615m.
Of the total number of shares purchased during the year, 66,123,754
were used for share schemes with the rest held as treasury shares.
As at 31 December 2023, there were 490,250,737 shares held in
the treasury shares account representing approximately 8.3% of the
Company’s issued share capital. Dividends are waived in respect of
shares held in the treasury share account. Further details are set out
in note S4 to the Financial Statements on page 212.
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 a Share Incentive Plan (SIP) in the
UK, with a take-up of 28%. In 2023, all eligible employees globally were
awarded a Profit Share award under the SIP.
OTHER INFORMATION
Directors’ indemnities and insurance
In accordance with the Articles, the Company has granted a deed
of indemnity, to the extent permitted by law, to the Directors of the
Company. Qualifying third-party indemnity provisions (as defined
by Section 234 of the Act) were in force during the year ended
31 December 2023 and remain in force. The Company also maintains
directors’ and officers’ liability insurance for its Directors and officers.
The Company has granted qualifying pension scheme indemnities
in the form permitted by the Companies Act 2006 to the directors of
Centrica Pension Plan Trustees Limited, Centrica Engineers Pension
Trustees Limited and Centrica Pension Trustees Limited, that act as
trustees of the Company’s UK pension schemes.
Political donations
The Company operates on a politically neutral basis. No political
donations were made by the Group for political purposes during
the year.
Payments policy
We recognise the importance of good supplier relationships to the
overall success of our business. We manage dealings with suppliers
in a fair, consistent and transparent manner.
Significant agreements – change of control
There are a number of agreements to which the Company is party that
take effect, alter or terminate upon a change of control of the Company
following a takeover bid.
The significant agreements of this kind include:
¢ Those that relate to 2009, when the Company entered into certain
transactions with EDF Group in relation to an investment in the
former British Energy Group, which owned and operated a fleet
of nuclear power stations in the UK. The transactions include rights
for EDF Group and the Company to offtake power from these
nuclear power stations. As part of the arrangements, on a change
of control of the Company, the Group loses its right to participate on
the boards of the companies in which it has invested. Furthermore,
where the acquirer is not located in certain specified countries,
EDF Group is able to require Centrica to sell out its investments
to EDF Group; and
¢ Committed facility agreements, subordinated fixed rate notes
and bonds issued under the Company’s medium-term note
programme.
The Remuneration Policy sets out on page 107 details on the treatment
of the Executive Directors’ pay arrangements, including the treatment
of share schemes in the event of a change of control.
Disclosures required under Listing Rule 9.8.4 R
The Company is required to disclose certain information under Listing
Rule 9.8.4 R in the Directors’ Report or advise where such relevant
information is contained. All such disclosures are included in this
Directors’ and Corporate Governance Report, other than the following
sections of the 2023 Annual Report and Accounts:
Information
Location in Annual Report
Page(s)
Capitalised interest
(borrowing costs)
Details of long-term
incentive schemes
Financial Statements
156, note 8
Remuneration Report
85 and 92
Governance | Centrica plc Annual Report and Accounts 2023
111
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 6 to 8 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 35 to
37. Further details of the Group’s liquidity position are provided in notes
24 and S3 to the Financial Statements on pages 185 to 188 and 204
to 210.
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law, the Directors are required to
prepare the Group financial statements in accordance with international
accounting standards, in conformity with the requirements of the
Companies Act 2006. The Directors have also chosen to prepare the
parent company financial statements in accordance with Financial
Reporting Standard 101 ‘Reduced Disclosure Framework’.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss of the
Company for that period.
In preparing the parent company financial statements, the Directors are
required to:
¢ Select suitable accounting policies and then apply them consistently;
¢ Make judgements and accounting estimates that are reasonable and
prudent;
¢ State whether Financial Reporting Standard 101 ‘Reduced
Disclosure Framework’ has been followed, subject to any material
departures disclosed and explained in the Financial Statements; and
¢ Prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group Financial Statements, International Accounting
Standard 1 requires that Directors:
¢ Properly select and apply accounting policies;
¢ Present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
¢ Provide additional disclosures when compliance with the specific
requirements in IFRS Standards 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.
DIRECTORS’ RESPONSIBILITY STATEMENT
Each of the Directors confirm that to the best of their knowledge:
¢ The Financial Statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole;
¢ The Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the Principal Risks and Uncertainties
that they face; and
¢ The Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
The names of the Directors and their functions are listed on pages 59
to 62.
Information to the independent auditors
The Directors who held office at the date of this Report confirm that:
¢ There is no relevant audit information of which Deloitte LLP are
unaware; and
¢ 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.
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.
This report, including the Directors’ Responsibility Statement, was
approved by the Board of Directors on 14 February 2024 and is signed
on its behalf by:
By order of the Board
Raj Roy
Group General Counsel & Company Secretary
14 February 2024
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Governance | Centrica plc Annual Report and Accounts 2023
Financial
Statements
114
Independent Auditor’s Report
127 Group Income Statement
128 Group Statement of Comprehensive Income
129 Group Statement of Changes in Equity
130 Group Balance Sheet
131 Group Cash Flow Statement
132 Notes to the Financial Statements
229 Company Financial Statements
241 Gas and Liquids Reserves (Unaudited)
242
Five Year Summary (Unaudited)
Financial Statements | Centrica plc Annual Report and Accounts 2023
113
INDEPENDENT AUDITOR’S REPORT
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
1. Opinion
In our opinion:
¢ the financial statements of Centrica plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the
Group’s and of the Company’s affairs as at 31 December 2023 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 Statement of Changes in Equity;
¢ the Group Balance Sheet;
¢ the Group Cash Flow Statement;
¢ the related notes to the Group financial statements 1 to 26;
¢ the supplementary notes S1 to S11 of the Group financial statements;
¢ the Company Statement of Changes in Equity;
¢ the Company Balance Sheet; and
¢ the notes I to XVI to the Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and United
Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the
Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure
Framework’ (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to
the Group for the year are disclosed in note S9 to the financial statements. We confirm that we have not provided any non-audit services
prohibited by the FRC’s Ethical Standard to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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Financial Statements | Centrica plc Annual Report and Accounts 2023
3. Summary of our audit approach
Key audit matters
The key audit matters identified in the current year were:
¢ the valuation of residential energy supply billed debt provisions within British Gas;
¢ the accuracy and completeness of revenue arising from British Gas’s new billing platform, ENSEK, including manual adjustments
made in respect of revenue recognised through this platform;
¢ impairment considerations in respect of the Group’s investment in its Nuclear associate;
¢ accounting for the Electricity Generator Levy (“EGL”); and
¢ the valuation of complex energy derivative contracts.
Other than as explained below, these key audit matters are consistent with those identified in the prior year:
¢ In the prior year, we noted a key audit matter in respect of energy supply arrangements, which covered a number of judgements
associated with the supply of energy including the billed debt provision, accounting for customer support schemes and ENSEK
revenue. This year the judgement in respect of government support schemes has reduced following the wind-down of those
schemes, leading to this area no longer being considered a key audit matter, and the other two areas have been reported on as
separate key audit matters this year. The Group has continued to migrate customers onto ENSEK and ENSEK is now a bigger
proportion of overall Group revenue which has led to increased risk.
¢ A new key audit matter in the year relates to accounting for the Electricity Generator Levy (“EGL”). At the end of 2022, the
Government announced the implementation of the temporary levy applicable to receipts that the Group has realised from electricity
generation in the UK from nuclear and renewable sources in the period from 1 January 2023 to 31 March 2028.
There is significant uncertainty in how the legislation should be interpreted in relation to the Group’s significant minority shareholder
off-take arrangement with its Nuclear associate. Payment has been made on account to HMRC for the maximum potential cost
however the Group has also made considerations as to whether this could constitute a tax deposit asset. Given the complexity of the
legislation, the impact on the Group and the estimation uncertainty in relation to the amount of levy the Group owes for 2023 and
whether a tax deposit asset should be recorded for the recovery of payments on account made to HMRC, we identified a key audit
matter in respect of the accounting for the EGL.
Whilst the commodity price environment has remained volatile in 2023, commodity prices are lower than in 2022. Centrica’s higher
liquidity headroom, reduced volatility and management’s active liquidity risk management has reduced margin call risk significantly.
Hence the audit of the going concern assumption is no longer identified as a key audit matter. Section 4 of our report describes the
specific procedures performed to reach our conclusions related to the going concern basis of accounting in the preparation of the
Group financial statements.
Within this report, key audit matters are identified as follows:
! Newly identified
r Increased level of risk
vw Similar level of risk
s Decreased level of risk
Materiality
Scoping
The materiality used for the audit of the Group financial statements is £135m (2022: £158m), determined based on adjusted profit
before tax. Adjusted profit before tax is the pre-tax profit adjusted for the impact of exceptional items and certain remeasurements. The
decrease in materiality in 2023 reflects the decrease in commodity prices contributing to lower adjusted profit in the Upstream and
Trading segments, partially offset by profit in the Energy Supply segments which is higher than in prior year.
All components of the Group were subject to a full-scope audit other than New Energy Services (within the Centrica Business Solutions
segment) which continues to be subject to review procedures and the components presented below which were subject to specified
audit procedures:
¢ Centrica Business Solutions Energy Supply;
¢ Bord Gáis;
¢ British Gas Services and Solutions segment; and
¢ Centrica Energy Storage+ (within the Upstream segment).
Component materiality levels were set based on the size and audit risk associated with each component on a range of applicable
metrics. Our risk assessment procedures resulted in a reduction in the group reporting scope for Centrica Business Solutions Energy
Supply from a full-scope audit in the prior year to an audit of specified account balances in the current year.
In the current year the audit team has defined Head office as a separate component of the Group. The business activities of the Head
office component are materially in line with those of the Company and this component has been subject to a full-scope audit in line with
the audit of the Company.
Significant changes
in our approach
Other than the changes in key audit matters and scope discussed above, there were no other significant changes in our audit approach
when compared to 2022.
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115
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group’s and Company’s ability to continue to
adopt the going concern basis of accounting included:
¢ Assessing the Group’s future cash flow forecasts, by considering actual cash flow performance in 2023, the current commodity price
environment, historical accuracy of the Group forecasts and key assumptions underpinning management’s going concern assessment;
¢ Agreeing the level of committed undrawn facilities of £3.8bn (2022: £4.0bn) to signed facility agreements, along with support from our
treasury specialists, where relevant, to review the key terms of new facility agreements;
¢ We obtained an understanding of the relevant controls over the going concern and viability assessment.
¢ Testing the clerical accuracy of the model used to prepare the cash flow forecasts and assessing the sophistication of the model used
to prepare the forecasts;
¢ Assessing whether management’s cash flows consider the impact of Group’s planned investment strategy announced in July 2023;
¢ Assessing the sensitivities run by the directors and the linkage of these sensitivities to the Group’s principal risks disclosed on pages 30
to 34 of the Annual Report & Accounts. These sensitivities include the impact of margin cash volatility, a reduction in the Group’s credit
rating, a reduction in commodity prices and Upstream asset underperformance, a reduction in commodity trading performance, or the
risk of adverse weather and worsening macroeconomic factors and the resultant impact on cashflows;
¢ Assessing the mitigating actions that could be taken by the directors to maximise liquidity headroom including a reduction in capital
expenditure and a reduction in discretionary spend; and
¢ Assessing the appropriateness of management’s going concern disclosures in light of the above assessment.
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.
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5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit
and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
5.1 The valuation of residential energy supply billed debt provisions within British Gas vw
Key audit matter
description
The Group supplies gas and power to residential customers in the UK through its British Gas Energy segment. Of the Group total of
£2,991 million (2022: £2,207 million) billed trade receivables, the British Gas Energy reporting segment contributes £2,380 million
(2022: £1,531 million). British Gas Energy includes residential and small business customers.
How the scope of
our audit responded
to the key audit
matter
The Group’s energy supply business has seen changes as a result of current macroeconomic factors, restrictions on debt recovery
actions and reduced continued pressure on customer finances throughout 2023. As a result, there continues to be increased judgement
in determining the recoverability of customer debt, which raises the risk of material misstatement in determining the billed debt provision
at 31 December 2023. Credit losses of £1,240m (2022: £822m) have been recognised on billed trade receivables of which £764m
(2022: £501m) relate to UK residential customers, including additional provisions to reflect changes in the macroeconomic environment
as a result of the cost-of-living crisis. Further details on billed debt provisions relating to trade receivables can be found in notes 3(b) and
17. These matters are also considered by the Audit and Risk Committee in its report on pages 75 to 78.
To determine the billed debt provision, certain key assumptions are made. These include the methodology used to assess the impact of
macroeconomic factors on future cash collection. The need to make significant additional provisions (“additional macroeconomic”
provision) beyond those provisions that are indicated by past collection performance (“business-as-usual” provision) increases the level
of judgement and accordingly risk of material misstatement. We have therefore also identified this as a fraud risk.
In the current year the “business-as-usual” provision has increased as a result of declines in actual cash collection rates during 2023,
triggered by the ongoing cost-of living crisis now being reflected in the backwards looking calculation. Consequently, the “additional
macroeconomic” provision for residential customers has reduced as a percentage of billed debt in the current year from 3.9% to 3.8%.
¢ We tested and relied upon controls relevant to the calculation of billed debt provisions, where applicable.
¢ With involvement of our IT and data analytics specialists, we tested the accuracy of the underlying debt books, including the age of
debt, and recalculated management’s provision rates based on historical cash collection.
¢ We assessed how amounts receivable at 31 December 2022 were collected over 2023 in order to estimate an expected profile of the
recovery of 31 December 2023 balances, on a “business as usual” basis. We applied this profile to 31 December 2023 debt and
then assessed:
– the impact and sensitivity of this profile based on external forecasts such as household disposable income and inflation forecasts
and the impact on billed debt provisions as the economic situation changes; and
– management’s accounting for the impact of these changes in the billed debt provision estimate.
¢ We considered the extent to which the provision on a ”business as usual” basis factors in the continuing uncertainty in the current
macroeconomic environment.
¢ We obtained an understanding of the relevant controls and challenged the methodology over the determination and recording of the
“additional macroeconomic” provision, with reference to available third party analysis.
¢ We performed procedures to challenge the completeness and the appropriateness of the “additional macroeconomic” provision by
evaluating the reasonableness of management’s assumptions and economic data (both forecast and historical) used to derive this.
¢ We assessed the appropriateness of the disclosures provided relating to this key source of estimation uncertainty, and the range of
sensitivities disclosed.
Key observations
We are satisfied that the billed debt provisions including the additional provisions to reflect macroeconomic uncertainty on residential
customers, and the associated methodology to calculate this adjustment, are appropriate. We consider the “additional macroeconomic”
provision recognised beyond “business-as-usual” provisions to be appropriate and close to the mid-point of a calculated reasonable
range, which is consistent with the prior year.
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117
5.2. The accuracy and completeness of revenue arising from British Gas’s new billing platform, ENSEK, including manual
adjustments made in respect of revenue recognised through this platform r
Key audit matter
description
In 2023, British Gas Energy generated revenues of £17.7bn (2022: £13.0bn) with 5.4m (2022: 2m) customers having been migrated to
the new ENSEK platform by the year end, as seen on page 90. As at 31 December 2023 a significant proportion of this revenue was
therefore recognised from customers on this platform. Revenue from customers on the ENSEK platform is presented within the overall
revenue figure for British Gas Energy in note 4.
These matters are also considered by the Audit and Risk Committee in its report on pages 75 to 78.
ENSEK was adopted in order to improve customer service and reduce cost to serve, hence the consumption mechanism is deliberately
more simplistic in ENSEK when compared to the one in the legacy SAP system. Whilst SAP applies sophisticated bias correction
factors, reflecting machine learning as a result of comparing estimated to actual consumption, when it comes to the estimation of
unbilled revenue, ENSEK relies more on industry data flows which is a more common approach taken by other suppliers in the market.
Industry data flows are based on historical information however and experience delays from data collection to publication. Judgemental
manual adjustments to estimated unbilled revenue are therefore required in ENSEK to allow for the most recent consumption trends
experienced.
ENSEK is a Software-as-a-Service (“SaaS”) arrangement and the system is controlled by, and continues to be developed by a third
party. British Gas Energy Supply is therefore dependent on the efficacy of the general IT controls, application controls, and other
controls that the third party operates on its behalf. As highlighted in the Audit and Risk Committee’s report on page 73, the ENSEK
system is still in development and evolving alongside the migration process and hence these controls are evolving and developing and
cannot be tested directly by British Gas due to the nature of the SaaS arrangement. Given the significant quantum of revenue, as well as
the developing ENSEK control environments and the differences in the process between the unbilled revenue recognition for customers
on the legacy SAP system and the ENSEK system, there remains a reliance on manual adjustments to appropriately record ENSEK-
driven unbilled revenue. This increases the risk of material misstatement, and we have additionally identified this as a potential fraud risk
given the extent of judgement applied in determining the appropriate manual adjustments.
¢ We obtained an understanding of the relevant controls over the recognition of revenue from customers within the ENSEK system,
both in the Centrica and ENSEK environment, including those regarding the completeness and accuracy of consumption data within
the ENSEK environment and the manual adjustment to ENSEK estimated revenue. We did not plan to place reliance on these
controls due to the maturity of the control environment, as detailed by the Audit and Risk Committee in its report on pages 75 to 78.
¢ Considering the developing control environment, we performed test of details over the billed energy supply volume and pricing
revenue data in the ENSEK platform, agreeing amounts back to contractual tariffs and actual or estimated meter readings.
¢ We calculated an expectation of the billed energy supply revenue recognised through the ENSEK environment, comparing
differences to predetermined thresholds and tested the completeness and accuracy of the key inputs to the expectation.
¢ We worked with our data analytics specialists to recalculate the unbilled revenue recognised through the ENSEK platform and to test
the accuracy and completeness of the source data used in the recalculation, including that migrated from the legacy SAP systems.
¢ We challenged the methodology and key inputs used to calculate the manual adjustment to billed and unbilled revenue in ENSEK.
We have also tested the arithmetical accuracy of the model computing the revenue derecognition adjustment.
Given we did not rely on ENSEK controls due to their developing nature, we increased the level of substantive testing performed to
respond to the increased level of risk. Through the performance of our fully substantive procedures, we are satisfied that the accuracy
and completeness of the Group’s energy supply revenue recognised through the ENSEK platform, including the methodology to
generate unbilled revenue and manual derecognition adjustment is appropriate.
Management has had in place throughout the year a Finance Systems Roadmap, which includes plans in relation to the development of
an established control environment in ENSEK. Progress against these plans is reported to the Audit and Risk Committee at regular
intervals. We have provided feedback to management to further enhance these plans, including: negotiating the right to perform, directly
or indirectly, testing of the ENSEK system to gain assurance over the system controls; and formalising management’s review controls to
provide sufficient evidence of effective operation.
How the scope of
our audit responded
to the key audit
matter
Key observations
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Financial Statements | Centrica plc Annual Report and Accounts 2023
5.3. Impairment considerations in respect of the Group’s investment in its Nuclear associate vw
Key audit matter
description
How the scope of
our audit responded
to the key audit
matter
Power prices have continued to reduce from the high levels in 2022, resulting in a significant decrease in the expected cash flows from
the Nuclear investment. The decrease in future forecast cashflows in the assessment of the value of the investment in Nuclear was
offset by the extension of station lives pertaining to Heysham 1 and Hartlepool, both which have been extended to operate to March
2026, which represents a two year extension. The total pre-impairment book value of the investment in Nuclear was £1,452m (2022:
£1,560m) with a pre-tax impairment of £549m (2022: pre-tax impairment reversal of £195m) recorded at 31 December 2023.
The details on the key sources of estimation uncertainty underpinning the impairment 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 power prices are disclosed in note 7(c). This
includes sensitivities associated with the Group’s commodity price curves if these curves were aligned with the Net Zero scenario (‘Net
Zero curve’) which assumes governmental policies are put in place to achieve the temperature and net zero goals by 2050. The matter
is also considered by the Audit and Risk Committee in its report on page 77.
Given the significant impairment in the investment in Nuclear in the current year, we identified a key audit matter around the valuation of
these assets for impairment testing purposes. The underlying impairment cost has been recorded within the exceptional items and
certain re-measurements column of the Group income statement.
The key assumptions and judgements underpinning the impairment testing of the investment in Nuclear include:
¢ forecast future commodity prices, including the likely impact of climate change and international governmental intervention to reduce
CO2 emissions on those prices;
¢ forecast future generation profiles of the assets;
¢ forecast future cash flows for the assets;
¢ useful life estimates;
¢ impact of the Electricity Generator Levy on the future forecast of cashflows; and
¢ the discount rate.
Procedures on the overall impairment review:
¢ We understood management’s process for identifying indicators of impairment and impairment costs 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 valuation specialists to evaluate management’s discount rates, which involved benchmarking against available
market views and analysis.
¢ We tested the arithmetical accuracy of the impairment models.
¢ We assessed the appropriateness of management’s disclosures of the key assumptions and sensitivities including the presentation of
the impairment cost within the exceptional items and certain re-measurements column of the Group income statement.
Procedures relating to forecast future cash flows:
¢ We assessed whether forecast cash flows were consistent with the operator approved forecasts, where relevant, and analysed
reasonably possible downside sensitivities.
¢ We assessed the reasonableness of the plants’ forecast outage rates by looking at recent historical outage rates and sensitised the
impact of a change in assumptions on the overall impairment model.
¢ We assessed the reasonableness of the life extension at Heysham 1 and Hartlepool by assessing management's intention and
rationale for the extension. We further inspected evidence from the station operators, EDF, as well as information available in the
public domain.
¢ We evaluated the Group’s estimation of future commodity prices, benchmarked against externally available future commodity price
estimates and performed sensitivity analysis with alternative future prices. This includes a scenario which assumes governmental
policies are put in place to achieve the temperature and net zero goals by 2050. We recalculated management’s disclosures relating
to the sensitivity of the Group’s impairment tests to reduced commodity prices, including the Net Zero curves.
¢ We worked with our tax specialist to conclude on the reasonableness of implementation of the Electricity Generator Levy and as a
result, aid our subsequent impact assessment on the forecast future cash outflows.
Key observations
We are satisfied that the key assumptions used to determine the value in use of the Group's investment in Nuclear, including production
and availability forecasts, are appropriate. We are also satisfied that the Group's discount rate assumptions are based on acceptable
valuation methodologies.
The Group's future commodity price estimates fall within the middle of the acceptable range of external sources, which is consistent
with the prior year. We observed that the baseload price forecasts from acceptable external sources were generally higher than the
assumed prices in the net zero scenario. We consider the sensitivity disclosures related to the impact of future commodity price
estimates arising from climate change on the Group's impairment reviews to be acceptable.
We are satisfied that the impairment cost recognised by the Group for the year is appropriate and we found the presentation of this cost
under the exceptional items and certain re-measurements column of the Group income statement to be consistent with Group policy.
Financial Statements | Centrica plc Annual Report and Accounts 2023
119
5.4. Accounting for the Electricity Generator Levy (“EGL”) !
Key audit matter
description
At the end of 2022, the UK Government announced the implementation of the EGL, a new, temporary levy applicable to receipts that
the Group has realised from electricity generation in the UK from nuclear and renewable sources in the period from 1 January 2023 to
31 March 2028. The levy applies a 45% charge on receipts generated from the production of wholesale electricity sold at an average
price in excess of £75/Mwh, exceeding an annual threshold of £10m. It applies to generators whose generation exceeds 50GWh
annually, as well as off-take arrangements with significant minority shareholders in such generators.
During the year, the Group’s share of its Nuclear associate’s EGL payments amounted to £41m (recorded within the share of profit after
tax from associates). The Group has also made payments on account to HMRC of £285m in relation to its estimated EGL liabilities for
its minority shareholder Nuclear offtake arrangements during the December 2023 financial year and this expense has been recorded
within the income statement, as part of Cost of Sales.
The EGL legislation is new and its interpretation and application is unclear in respect of the Group’s minority shareholder Nuclear offtake
arrangements. While the Group has made payments on account to HMRC totalling £285m, were it considered probable that these
payments on account are recoverable, then (up to) the £285m could be recognised as a tax deposit asset on the balance sheet rather
than as a cost within the income statement, in accordance with the 2019 IFRIC Agenda decision on Deposits relating to taxes other
than income taxes. However, no tax deposit asset has been recorded because it is not deemed probable, as at the balance sheet date,
that this will ultimately be recoverable (or used to settle another tax liability).
Given the complexity of the legislation and the impact on the Group, we identified a key audit matter in respect of the accounting for the
EGL, principally whether the amounts due should be recorded within the income statement or as a tax deposit on the balance sheet.
The Group has recognised the full charge in the income statement. Further detail can be found in note 3(b). The Audit & Risk Committee
also consider this matter on page 75.
¢ We gained an understanding of the Group’s process and judgements applied in accounting for and recognising EGL within the
financial statements and evaluated the objectivity and competence of management’s experts and the appropriateness of the
underlying source documents relied upon.
¢ We gained an understanding of the relevant controls in relation to review of the judgements formed by management.
¢ We tested EGL payments on account to HMRC in the year to supporting third party evidence.
¢ We worked with our tax specialists to assess the appropriate interpretation of the EGL legislation in addition to reviewing legal advice
received by the Group. We assessed the accounting for the EGL with a particular focus on whether any of the amount of £285m paid
in December 2023 should be recorded in the income statement or on the balance sheet as a tax asset. We evaluated the
appropriateness of management's conclusions, considering the identified sources of estimation uncertainty, the opinions of
management’s experts and the evaluation of reasonability performed by our tax specialists.
¢ We considered the appropriateness of the disclosures within the financial statements on the accounting position adopted and the
judgements involved.
¢ We considered the nature and impact of the contradictory audit evidence on management’s assessment.
How the scope of
our audit responded
to the key audit
matter
Key observations
We are satisfied that that the EGL expenditure has been appropriately presented within the Group income statement, that the non-
recognition of a tax deposit asset at this stage is appropriate and that the disclosures within the financial statements relating to EGL are
appropriate.
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5.5. The valuation of complex energy derivative contracts vw
Key audit matter
description
How the scope of
our audit responded
to the key audit
matter
Note 7 of the financial statements discloses a re-measurements profit of £3,573m for the year (2022: loss of £5,160m) on energy
derivative contracts. Details on the Group’s energy contracts can be found in note 19 and note S3(a). The key sources of estimation
uncertainty associated with energy contracts can be found in note 3(b) with further details on the presentation of certain re-
measurement arising on derivatives disclosed in note 2(b). The matter is also considered by the Audit and Risk Committee in its report
on page 76.
The Group undertakes proprietary trading activities and enters into forward commodity contracts to optimise the value of its production
and generation assets, as well as to meet the future needs of its customers. Certain of these arrangements are accounted for as
derivative financial instruments and are recorded at fair value. We identified a key audit matter related to the valuation of complex
derivative trades performed internally by management's valuation specialists. Valuing complex energy derivative contracts requires
judgement, particularly where there is modelling complexity and bespoke contractual terms (level 3 in accordance with IFRS 13 'Fair
Value Measurement'). Given the judgement involved and the potential for management bias in the modelling, we identified a potential
risk of fraud.
Level 3 complex energy derivative financial assets of £156m (2022: £592m) were recognised at 31 December 2023 and £272m (2022:
£850m) level 3 complex energy derivative financial liabilities. Although the value of complex energy derivative contracts decreased during
the year due to the continued reduction in commodity prices, these continue to be a significant balance within the financial statements.
Given the continued complexity and heightened level of risk, the valuation of these contracts is a key audit matter.
¢ We obtained an understanding of the Group’s processes, including the user access and segregation of duties controls, for
authorising and recording commodity trades.
¢ We obtained an understanding of management’s process and the relevant controls relating to the valuation of complex energy
derivatives within the Group’s Centrica Energy business. We were unable to place reliance on these controls due to findings relating
to user access and the oversight of service organisations, as set out in the Audit and Risk Committee report on page 73.
We increased the extent of our substantive work to sample further valuations to mitigate the risk.
¢ We assessed the competence, capability and objectivity of management’s own internal valuation specialists.
¢ We worked with our financial instrument specialists to assess the value of material complex trades, either by creating an independent
valuation or by testing how management developed their estimate. Particular emphasis was made to assess any new material
models and material changes to relevant models including additional procedures to assess the reasonableness and appropriateness
of these.
¢ We assessed the movement in the fair values based on the change in significant inputs, while testing these inputs, where relevant.
¢ We considered the appropriateness of the relevant complex derivative energy contracts disclosures, including the key source of
estimation uncertainty disclosures.
Key observations
We are satisfied that complex derivative energy contracts are valued on an appropriate basis.
We have provided feedback to management with respect to control improvements in respect of user access and oversight of service
organisations.
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121
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined the materiality of the financial statements as a whole as follows:
Materiality
Basis for
determining
materiality
Rationale for the
benchmark applied
Group financial statements
Company financial statements
£135 million (2022: £158 million)
£54 million (2022: £150 million)
We determined materiality on the basis of 5% (2022: 5%) of
adjusted profit before tax. Adjusted profit before tax is the pre-tax
profit adjusted for the impact of exceptional items and certain
remeasurements.
We determined materiality based on 3.0% (2022: 3.0%) of net
assets but capped materiality at 40% (2022: 95%) of the Group
materiality. Our final materiality constituted 0.7% of net assets
(2022: 2.8% of net assets).
We considered net assets to be the most appropriate benchmark
given the primary purpose of the Company is a holding company.
We reduced the cap on Group materiality percentage in the current
year to align to the group audit strategy more clearly.
We considered adjusted profit before tax to be the most
appropriate benchmark to measure the performance of the Group.
We consider it appropriate to adjust for exceptional items and
remeasurements as these items are volatile and not reflective of
the underlying performance of the Group.
In determining materiality, we also considered a range of alternative
benchmarks. The materiality of £135m represents 0.4% (2022:
0.5%) of business performance revenue, 0.6% (2022: 0.5%) of
total assets, and 6.1% (2022: 6.4%) of free cash flow. Given that
the determined materiality was within the range of those alternative
benchmarks, we have concluded it to be appropriate.
We considered our established materiality against the final audit
results and considered that it remained appropriate in the context
of the financial statements as a whole.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
Company financial statements
70% (2022: 70%) of Group materiality
70% (2022: 70%) of Company materiality
The factors we considered in setting performance materiality at 70% of Group and Company materiality included:
¢ The overall quality of the control environment and that we were able to rely on controls in certain of the Group’s businesses.
¢ The nature, size and number of uncorrected misstatements identified in previous audits and management’s willingness to correct
those adjustments.
6.3. Error reporting threshold
The decrease in materiality has led to a decrease in the error reporting threshold, which stands at £6.8m (2022: £7.9m). We have
however, at the Audit and Risk Committee’s request continued to report individual audit differences in excess of £5m (2022: £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.
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7. An overview of the scope of our audit
7.1 Identification and scoping of components
The Group is organised into segments as outlined in note 4. These segments contain a number of individual businesses, and we use these
businesses as the basis for identifying and scoping components. In the current year, the Head Office was identified as a component of the
Group given the significant contribution to the Group’s adjusted profit before tax. Other changes in scoping have been outlined in section
3 above.
Our audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the
risks of material misstatement at the Group level. Having performed this assessment, we established the following audit scope for each of
the Group’s businesses.
Segment
British Gas Energy
Business
British Gas Energy
Audit scope
Full scope audit
British Gas Services and Solutions
British Gas Services and Solutions
Audit of specified account balances
Bord Gáis Energy
Centrica Energy (formerly EM&T)
Bord Gáis Energy
Centrica Energy (London)
(formerly EM&T (London))
Audit of specified account balances
Full scope audit
Centrica Business Solutions
New Energy Services
Review procedures
Centrica Energy (Aalborg) (formerly EM&T (Aalborg))
Full scope audit
Upstream
Head office
Energy supply
Nuclear
Spirit Energy
Centrica Energy Storage+
(formerly Centrica Storage)
Central functions
Audit of specified account balances
Full scope audit
Full scope audit
Audit of specified account balances
Full scope audit
This scoping resulted in 99% of Group revenue, 98% of Group adjusted profit before tax and 88% of Group shareholders’ equity being
subject to audit excluding those where we performed review procedures. The equivalent figures in 2022 were 99% of Group revenue,
100% of the adjusted profit before tax and 89% of shareholders’ equity.
7.2 Our consideration of the control environment
Our audit strategy is to rely on controls over certain processes within the more established businesses of the Group. These included revenue within
British Gas Services and Solutions, Bord Gáis and within the legacy SAP system in British Gas Energy and Centrica Business Solutions Energy
supply; billed debt provision in British Gas Energy; and the Group’s central expenditure processes. The use of data analytics in Centrica Energy
(London) means the need for controls reliance is reduced as we are able to test close to 100% of all trades.
Given the importance of IT to the recording of financial information and transactions, we tested the general IT controls, and placed reliance
on them in certain areas. The key IT systems we included in scope include the Group’s SAP general ledger and consolidation financial
reporting systems, the SAP and ENSEK revenue reporting systems in British Gas Energy and CBS Energy, the SAP reporting system in
Bord Gáis Energy, the Endur trading system in Centrica Energy, and Workday which is used to manage the Group’s payroll processes.
The control environment within the more established processes is regarded as mature and we are generally able to place reliance on these
controls. The control environment for the ENSEK platform has continued to evolve in 2023, and therefore as described in section 5.2, we
did not plan to place reliance on these controls this year.
Across some of Group’s systems we had findings in relation to the Group’s approach to the oversight of service organisations and user
access controls, including in respect of the Centrica Energy complex valuations (section 5.5) and the Group’s central payroll system. As a
result, we performed mitigating procedures and extended our substantive testing. We have provided feedback to management in relation
to their improvement of the oversight of service organisations and to enhance the robustness of user access controls.
7.3 Our consideration of climate-related risks
Management performed an assessment of the resilience of their annual strategic and financial planning process in the face of climate-
related issues. This included assessing the potential impact of the material risks and opportunities and its Climate Transition Plan on both
the current balance sheet position and its accounting policies.
Management identified higher risks of material misstatement on the impact of the Net Zero price scenario on the non-current long-life
asset Upstream impairment tests. In response, management performed further sensitivities based on forecast prices aligned to net zero
price curves. The net zero price curves for E&P and Nuclear consider prices from third party experts in forecast curves.
We reviewed management’s climate change risk assessment and evaluated the completeness of the identified risks and impact on the
financial statements. We also considered climate change within our audit risk assessment process in conjunction with our assessment of
the balances.
To mitigate the Net Zero price scenario risk for the Exploration and Production (E&P) assets and the Group’s investment in Nuclear, we
performed the following procedures:
¢ Assessed the reasonableness of management‘s net zero prices by comparing these to credible third-party net zero price curves.
¢ Evaluated the price providers data utilised by the Group to assess whether net zero price curves are appropriate.
¢ Verified the mathematical accuracy of the conversion to Nominal 2023 prices by adjusting the raw external price forecast data for inflation.
With the involvement of our climate specialists, we:
¢ evaluated the financial statement disclosures to assess whether climate risk assumptions underpinning specific account balances were
appropriately disclosed; and
¢ read the climate change-related statements (as disclosed in the ‘People and Planet’ section in the Strategic Report) and considered
whether the information included in the narrative reporting is materially consistent with the financial statements and our knowledge
obtained in the audit.
Financial Statements | Centrica plc Annual Report and Accounts 2023
123
7.4 Working with other auditors
All components except for Bord Gáis Energy and Aalborg are audited from the UK and we oversee all component audits through regular meetings
and direct supervision. Whilst we visited Aalborg during the year, the oversight procedures on Bord Gáis were performed virtually.
The Group audit team was directly involved in overseeing the component audit planning and execution, through frequent conversations,
virtual and in person meetings, debate, challenge and review of reporting and underlying work papers. We held a two-day planning
meeting with all component teams and specialists to discuss audit execution and our risk assessment, including risks of material
misstatement due to fraud. In addition to our direct interactions and detailed instructions to our component audit teams, Jane Boardman,
as lead audit partner, is also the lead Audit Partner for the British Gas segment. This enables direct Group supervision on one of the most
significant components of the Group.
We are satisfied that the level of involvement of the lead audit partner and Group audit team in the component audits has been extensive
and has enabled us to conclude that sufficient appropriate audit evidence has been obtained in support of our opinion on the Group
financial statements as a whole.
8. Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s report
thereon. This information comprises the Strategic report, the Directors’ and Corporate Governance report, the Committee reports, the
Remuneration Report and the Other Statutory Information. The directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the Directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when 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.
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.
124
Financial Statements | Centrica plc Annual Report and Accounts 2023
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
¢ the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
¢ the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error including the Group’s fraud risk
programme;
¢ results of our enquiries of management, internal audit and the Audit and Risk Committee about their own identification and assessment
of the risks of irregularities, including those that are specific to the group’s sector;
¢ 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:
¢ The valuation of residential energy supply billed debt provisions within British Gas;
¢ The accuracy and completeness of revenue arising from British Gas’s new billing platform, ENSEK, including manual adjustments made
in respect of revenue recognised through this platform;
¢ The valuation of complex energy derivative contracts; and
¢ The valuation of decommissioning provisions.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management
override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those laws
and regulations that:
¢ had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations
we considered in this context included the UK Companies Act, the UK Listing Rules, the Electricity Generator Levy, 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 regulations set by the Office of Gas and Electricity Markets (Ofgem) and Regulations
levied by the UK Financial Conduct Authority and Prudential Regulatory Authority.
11.2. Audit response to risks identified
As a result of performing the above, we identified the following as key audit matters related to the potential risk of fraud: (1) the valuation of
residential energy supply billed debt provisions within British Gas; (2) the accuracy and completeness of revenue arising from British Gas’s
new billing platform, ENSEK, including manual adjustments made in respect of revenue recognised through this platform and (3) the
valuation of complex energy derivative contracts. 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;
¢ in addressing the risk of fraud associated with decommissioning provisions, we used data analytics to identify the assumptions to which
the decommissioning model is most sensitive and performed audit procedures, including benchmarking these inputs to independent
documentation (such as project management cost, wells cost and norms and rates) and external industry reports; and
¢ in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating
the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and component audit teams, and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Financial Statements | Centrica plc Annual Report and Accounts 2023
125
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
¢ the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
¢ the Strategic report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit,
we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
¢ the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 112;
¢ 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 35 to 37;
¢ the directors' statement on fair, balanced and understandable set out on page 73;
¢ the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 29;
¢ the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
page 73; and
¢ the section describing the work of the Audit and Risk Committee set out on pages 72 to 78.
14. Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
¢ we have not received all the information and explanations we require for our audit; or
¢ adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
¢ the Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not
been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit and Risk Committee, we were reappointed by the shareholders on 13 June 2023 to audit the
financial statements for the year ending 31 December 2023 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 7 years, covering the years ending 31 December 2017 to 31
December 2023.
15.2. Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these
financial statements form part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism of the FCA in
accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether the Electronic Format Annual
Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over
whether the annual financial report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
Jane Boardman FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
14 February 2024
126
Financial Statements | Centrica plc Annual Report and Accounts 2023
GROUP INCOME STATEMENT
Year ended 31 December
Group revenue
2023
Business
performance
£m
Exceptional items
and certain re-
measurements
£m
Notes
Results for the
year
£m
Business
performance
£m
2022
Exceptional items
and certain re-
measurements
£m
Results for the
year
£m
4,7
32,561
(6,916)
25,645
32,785
(9,896)
22,889
Insurance services revenue
4, S7
813
—
813
Total Group revenue
Cost of sales (i)
33,374
(6,916)
26,458
5,7
(27,682)
17,497
(10,185)
Insurance services cost of sales
5,S7
(475)
—
(475)
852
33,637
(27,616)
(582)
—
852
(9,896)
23,741
14,986
(12,630)
—
(582)
Re-measurement and settlement of derivative
energy contracts
Gross profit
Operating costs before insurances services
operating costs, exceptional items and credit
losses on financial assets
Insurance services operating costs
Credit losses on financial assets
Exceptional items – (impairment)/write-back of
power assets
Exceptional items – impairment of gas storage
asset
Exceptional items – net loss on significant
disposals
Operating costs
Share of profits/(losses) of joint ventures and
associates, net of interest and taxation
Group operating profit/(loss)
Financing costs
Investment income
Net finance cost
Profit/(loss) before taxation
Taxation on profit/(loss)
Profit/(loss) for the period
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per ordinary share
Basic
Diluted
Interim dividend paid per ordinary share
Final dividend proposed per ordinary share
7
7
7
5
6
4
8
8
8
7,9
10
10
11
11
7
4,7
—
5,217
(6,175)
(6,175)
4,406
9,623
—
5,439
(8,484)
(3,394)
(8,484)
2,045
5
(1,778)
5,S7
5,17
(294)
(602)
—
—
—
(1,778)
(1,608)
(294)
(602)
(264)
(351)
—
—
—
(563)
(563)
(82)
(82)
—
—
—
—
—
(2,674)
(645)
(3,319)
(2,223)
—
—
—
(1,608)
(264)
(351)
207
207
—
—
(362)
(155)
(362)
(2,378)
209
2,752
(308)
269
(39)
2,713
(838)
1,875
1,859
16
(1)
3,760
—
—
—
208
6,512
(308)
269
(39)
3,760
6,473
(1,595)
(2,433)
2,165
4,040
2,070
95
3,929
111
92
3,308
(220)
77
(143)
3,165
(1,046)
2,119
2,050
69
1
(3,548)
—
—
—
(3,548)
793
(2,755)
(2,832)
77
Pence
70.6
69.4
1.33
2.67
93
(240)
(220)
77
(143)
(383)
(253)
(636)
(782)
146
Pence
(13.3)
(13.3)
1.00
2.00
(i) Cost of sales includes an £833 million credit (2022: £1,766 million credit) relating to the unwind of the onerous energy supply contract provision within the certain
re-measurements column. See note 7.
The notes on pages 132 to 228 form part of these Financial Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2023
127
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December
Profit/(loss) for the period
Other comprehensive income
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 the Group Income Statement on disposal
Items that will not be reclassified to the Group Income Statement:
Net actuarial losses on defined benefit pension schemes, net of taxation
Gains on revaluation of equity instruments measured at fair value through other comprehensive
income, net of taxation
Share of other comprehensive loss of associates, net of taxation
Other comprehensive loss, net of taxation
Total comprehensive income/(loss) for the period
Attributable to:
Owners of the parent
Non-controlling interests
Notes
S4
S4
S4
S4
S4
14,S4
S11
2023
£m
4,040
(2)
(44)
—
(288)
3
(95)
(426)
3,614
3,504
110
2022
£m
(636)
(20)
(90)
272
(124)
—
(293)
(255)
(891)
(1,042)
151
(i) Exchange differences on translation of foreign operations includes £43 million (2022: £95 million) of losses attributable to the equity holders of the parent, and £1 million of
losses (2022: £5 million of gains) attributable to non-controlling interests.
The notes on pages 132 to 228 form part of these Financial Statements.
128
Financial Statements | Centrica plc Annual Report and Accounts 2023
GROUP STATEMENT OF CHANGES IN EQUITY
1 January 2022
(Loss)/profit for the year
Other comprehensive (loss)/income
Total comprehensive (loss)/income
Employee share schemes and other
share transactions
Share buyback programme (note S4)
Dividends paid to equity holders (note 11)
Distributions to non-controlling interests
31 December 2022
Profit for the year
Other comprehensive loss
Total comprehensive income/(loss)
Employee share schemes and other share
transactions
Share buyback programme (note S4)
Dividends paid to equity holders (note 11)
Distributions to non-controlling interests (note 12)
Share
capital
£m
Share
premium
£m
Retained
earnings
£m
363
2,377
—
—
—
2
—
—
—
—
—
—
17
—
—
—
377
(782)
—
(782)
(2)
—
(59)
—
Other
equity
£m
(752)
—
(260)
(260)
(14)
(250)
—
—
365
2,394
(466)
(1,276)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,929
—
3,929
(3)
—
(186)
—
—
(425)
(425)
45
(500)
—
—
2,365
(782)
(260)
(1,042)
3
(250)
(59)
—
1,017
3,929
(425)
3,504
42
(500)
(186)
—
31 December 2023
365
2,394
3,274
(2,156)
3,877
The notes on pages 132 to 228 form part of these Financial Statements.
Non-controlling
interests
£m
Total
£m
Total
equity
£m
2,750
(636)
(255)
(891)
3
(250)
(59)
(273)
1,280
4,040
(426)
3,614
42
(500)
(186)
(17)
4,233
385
146
5
151
—
—
—
(273)
263
111
(1)
110
—
—
—
(17)
356
Financial Statements | Centrica plc Annual Report and Accounts 2023
129
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
Other investments
Securities
Current assets
Trade and other receivables, and contract-related assets
Other intangible assets
Inventories
Derivative financial instruments
Current tax assets
Securities
Cash and cash equivalents
Total assets
Current liabilities
Derivative financial instruments
Trade and other payables, and contract-related liabilities
Insurance contract liabilities
Current tax liabilities
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, 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
2023
£m
31 December
2022
£m
Notes
1,846
903
340
405
456
210
899
64
61
116
1,748
1,580
707
409
1,709
129
1,393
150
—
525
5,300
8,350
5,409
8,450
293
1,079
2,373
64
405
6,443
16,066
21,366
—
1,269
6,034
93
—
4,842
20,688
29,038
(2,391)
(8,841)
(7,000)
(10,016)
(165)
(299)
(279)
(1,002)
(160)
(472)
(1,213)
(1,009)
(11,136)
(21,711)
(424)
(615)
(207)
(8)
(1,310)
(165)
(1,469)
(1,446)
(181)
(3,101)
(5,997)
(110)
(3,008)
(6,047)
(17,133)
(27,758)
13
14
15
15
16
17
19
22
24
17
15
18
19
24
24
19
20
S7
21
24
16
19
20
21
22
24
25
4,233
365
2,394
3,274
S4
(2,156)
S11
3,877
356
4,233
1,280
365
2,394
(466)
(1,276)
1,017
263
1,280
The Financial Statements on pages 127 to 228, of which the notes on pages 132 to 228 form part, were approved and authorised for
issue by the Board of Directors on 14 February 2024 and were signed below on its behalf by:
Chris O’Shea
Group Chief Executive
Russell O’Brien
Group Chief Financial Officer
Centrica plc Registered No: 03033654
130
Financial Statements | Centrica plc Annual Report and Accounts 2023
GROUP CASH FLOW STATEMENT
Year ended 31 December
Group operating profit/(loss) including share of results of joint ventures and associates
Deduct share of 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 and amortisation
Write-downs, impairments and write-backs
Loss on disposals
Decrease in provisions
Cash contributions to defined benefit schemes in excess of service cost income statement charge
Employee share scheme costs
Unrealised (gains)/losses arising from re-measurement of energy contracts
Operating cash flows before movements in working capital relating to business performance and payments
relating to taxes, exceptional charges and operating interest
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables and contract-related assets relating to business performance
(Decrease)/increase in trade and other payables and contract-related liabilities relating to business performance
Operating cash flows before payments relating to taxes, exceptional charges and operating interest
Taxes paid
Operating interest paid
Payments relating to exceptional charges in operating costs
Net cash flow from operating activities
Purchase of businesses, net of cash acquired
Sale of businesses, including receipt of deferred consideration
Purchase of property, plant and equipment and intangible assets
Sale of property, plant and equipment and intangible assets
Investments in joint ventures and associates
Dividends received from joint ventures and associates
Interest received
Net purchase of other investments
Settlement of securities
Purchase of securities
Net cash flow from investing activities
Proceeds from exercise of share options
Payments for own shares
Share buyback programme
Cash inflow from borrowings
Distributions to non-controlling interests
Financing interest paid
Cash outflow from repayment of borrowings and capital element of leases
Equity dividends paid
Net cash flow from financing activities
Net increase/(decrease) 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
The notes on pages 132 to 228 form part of these Financial Statements.
Notes
6
13,15
4,7
9
8
7
12
12
4
14
14
24
24
S4
S4
S4
24
12
24
24
11
24
24
24
24
2023
£m
6,512
(208)
6,304
518
669
—
2022
£m
(240)
(93)
(333)
669
(99)
343
(1,021)
(1,903)
(215)
31
(2,949)
3,337
186
2,911
(2,853)
3,581
(803)
(20)
(6)
(184)
10
4,095
2,598
(593)
(2,302)
2,239
1,942
(574)
(30)
(24)
2,752
1,314
(34)
55
(335)
—
(9)
220
267
(37)
—
(12)
115
6
—
(613)
930
(17)
(286)
12
92
(371)
11
(18)
60
46
—
150
(548)
(566)
—
(5)
(43)
1,220
(273)
(172)
(1,248)
(1,585)
(186)
(1,414)
1,453
4,242
(66)
5,629
6,443
(814)
(59)
(917)
(169)
4,328
83
4,242
4,842
(600)
Financial Statements | Centrica plc Annual Report and Accounts 2023
131
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 2023 or later years, and if and how
these are expected to impact the financial position and
performance of the Group.
The material 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 United Kingdom adopted International Accounting
Standards 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 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 Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and
Group have adequate resources to continue in operational
existence for the foreseeable future, which reflects a period of
twelve months from the date of approval of the accounts, with
modelled analysis extending to 31 December 2026. The scenarios
considered as part of the going concern assessment are consistent
with those used in the longer-term viability statement. In particular,
cash forecasts for the Group have been stress-tested for different
scenarios including reasonably possible increases/decreases in
commodity prices and the risk scenarios described in the viability
statement, assessing reasonably possible combinations of risks,
the largest of which is the increased margin outflows in our trading
and upstream businesses. Risks considered also include the
impact of significant adverse weather events, increased bad debt
charges due to the cost of living crisis, the risk of financial loss due
to counterparty default, underperformance of the trading business
and production falls in the Group’s upstream business. The
persistent volatility of the external risk environment in recent years
underscores the significance of securing ample financial facilities,
placing a heightened emphasis on trading entities to maintain
sufficient collateral for mark-to-market positions. The Group
continues to manage 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. The level of undrawn
committed bank facilities and available cash resources has enabled
the Directors to conclude that there are no material uncertainties
relating to going concern. As a result, the Group continues to adopt
the going concern basis of accounting in preparing the financial
statements. Further information on the Group’s strong liquidity
position, including its indebtedness and available committed
facilities, is provided in note 24.
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 2023
From 1 January 2023, the following standards and amendments
are effective in the Group’s consolidated Financial Statements:
¢ IFRS 17 ‘Insurance Contracts’;
¢ Amendments to IAS 8 ‘Accounting policies, Changes in
Accounting Estimates and Errors’, distinguishing changes in
accounting estimates from changes in accounting policies;
¢ Amendments to IAS 1 ‘Presentation of Financial Statements’,
disclosure of accounting policies and materiality judgements; and
¢ Amendments to IAS 12 ‘Income Taxes’:
– Deferred tax related to assets and liabilities arising from a
single transaction; and
– International tax reform, pillar 2 model rules.
There has been no material impact on the consolidated Financial
Statements from any amendments effective during the year.
IFRS 17 ‘Insurance Contracts’
IFRS 17 became effective on 1 January 2023. The Group has fixed-
fee service contracts that it previously accounted for as insurance
contracts under IFRS 4 ‘Insurance Contracts’. These contracts 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 is applying the
simplified ‘Premium Allocation Approach’ to its fixed-fee service
contracts on the basis that the coverage period of the Group’s
insurance contracts is not greater than one year. No material
change in accounting has arisen from the application of IFRS 17
and therefore there has been no impact on the opening balance
sheet. Revenue arising from the Group’s insurance contracts within
the scope of IFRS 17 amounts to £813 million (2022: £852 million).
The Group has presented both current and prior year revenue and
costs from insurance contracts on the Group Income Statement
and net insurance liabilities on the Group Balance Sheet in
accordance with IFRS 17. Further detail regarding the Group’s
fixed fee insurance contracts is provided in note S7.
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Financial Statements | Centrica plc Annual Report and Accounts 2023
(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:
¢ Amendments to IAS 1 ‘Presentation of Financial Statements’:
– Classification of liabilities as current or non-current, effective
from 1 January 2024; and
– Non-current liabilities with covenants, effective from 1 January
2024;
¢ Amendments to IFRS 16 ‘Leases’; effective from 1 January
2024:
– Lease liability in a sale and leaseback;
¢ Amendments to IAS 7 ‘Statement of Cash Flows’ and IFRS 7
‘Financial Instruments: Disclosures’, effective from 1 January
2024:
– Supplier finance arrangements;
¢ Amendments to IAS 21 ‘The Effects of Changes in Foreign
Exchange Rates’, effective from 1 January 2025; and
¢ Amendments to IFRS 10 ‘Consolidated Financial Statements and
IAS 28 ‘Investments in Associates and Joint Ventures’; effective
date deferred but available for early adoption.
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.
1. BASIS OF PREPARATION AND SUMMARY
OF SIGNIFICANT NEW ACCOUNTING
POLICIES AND REPORTING CHANGES
Electricity Generator Levy
At the end of 2022, the Government announced the
implementation of the Electricity Generator Levy (EGL), a new,
temporary levy applicable to receipts that the Group realises from
electricity generation in the UK from nuclear and renewable sources
in the period from 1 January 2023 to 31 March 2028. It was
legislated in the Finance (No 2) Act 2023. The levy applies a 45%
charge on receipts generated from the production of wholesale
electricity sold at an average price in excess of £75/MWh,
exceeding an annual threshold of £10 million. It applies to
generators whose generation exceeds 50GWh annually, as well as
off-take arrangements with significant minority shareholders in such
generators (e.g. generation within our Nuclear associate and
potentially our off-take from that associate).
The Group has determined that the accounting for the levy falls
within the scope of IAS 37 ‘Provisions, contingent liabilities, and
contingent assets’ and IFRIC 21 ‘Levies’ on the basis that the levy
represents a legislative liability imposed by the Government,
calculated with reference to revenue generated. The Group
recognises the levy progressively over time, as the related electricity
is sold. The Group also considered the applicability of IAS 12
‘Income Taxes’, however the EGL is based on revenue generated,
and not taxable profit and is therefore outside the scope of IAS 12.
During the year an amount of £285 million has been reflected within
cost of sales as a result of this levy. A further £41 million is
recorded within the share of profit after tax from the Nuclear
associate.
Whilst the legislation was substantively enacted on 20 June 2023
and received Royal Assent on 11 July 2023, there remain some
uncertainties in how it should be interpreted in relation to significant
minority shareholder off-take arrangements. It is currently expected
to remain in effect until 31 March 2028. As payment has been
made on account to HMRC, the Group also considered whether
this tax deposit could constitute an asset. In accordance with the
2019 IFRIC agenda decision on Deposits relating to taxes other
than income taxes, the Group’s policy is to recognise an asset
where it is probable that the EGL payment on account will
ultimately be due back from HMRC (or used to settle another tax
liability). The Group’s current view is that it is not probable and
accordingly no asset has been recorded. Further details are
included in the Key Sources of Estimation Uncertainty, note 3(b).
Renewables certificates
The Group purchases both renewable certificates and carbon
dioxide emissions allowances in order to comply with, and meet its
obligations under a number of UK and EU renewable energy
schemes. These items are initially recognised at cost and are
presented within other intangible assets. The certificates are
classified as current or non-current based on the Group’s
expectations, at the end of each reporting period, of when it
expects to realise those assets. Where the renewable certificates
are expected to be surrendered within a year of purchase they are
presented as current assets, otherwise they are presented as non-
current. At 31 December 2022, the portfolio of certificates of £280
million was classified as non-current. At 31 December 2023, the
portfolio of renewable certificates of £293 million was classified as
current based on the Group’s assessment of the expected
submission dates of the certificates within the portfolio.
Financial Statements | Centrica plc Annual Report and Accounts 2023
133
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. Similarly, for Segmental adjusted operating
profit, the impact of the colleague profit share is excluded because
management considers it unrelated to Segmental business
performance.
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 adjusted net cash/(debt) measure
and are therefore viewed by the Directors as related to the manner
in which the Group finances its operations.
Adjusted net cash/(debt) is used by management to assess the
underlying indebtedness of the business. Adjusted net cash/(debt)
is defined as cash and cash equivalents, net of bank overdrafts,
borrowings, leases, interest accruals and related derivatives. This is
adjusted for:
¢ Securities; and
¢ Sub-lease assets.
(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.
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Financial Statements | Centrica plc Annual Report and Accounts 2023
2. CENTRICA SPECIFIC ACCOUNTING
MEASURES
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 derivative energy
contracts’ line item. The Group’s result for the year presents the
unrealised onerous supply contract provision movements within the
‘Cost of sales’ line item.
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, debt repurchase costs, certain
pension past service credits/costs, asset impairments/write-backs,
and the tax effects of these items.
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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
135
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
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.
Share buyback programme
On 10 November 2022, the Group announced an intention to
undertake a share buyback of £250 million and the Group entered
into contracts with third parties to undertake this repurchase
programme which has now completed. During 2023, the Group
firstly increased the share buyback by an additional £300 million
which completed during the second half of the year.
Subsequently, in July 2023, the Group announced a further £450
million extension to the share buyback programme and as a result,
the Group signed an agreement with a third party to undertake the
repurchase of £200 million of shares which is expected to complete
by March 2024. The repurchase of the remaining £250 million of
shares is expected to commence in the first half of 2024.
The Group judges that the terms and conditions of the contracts
mean that, at 31 December 2023, it was unable to cancel the
obligation arising under the contract signed in the second half of
2023. Accordingly, the Group has recorded a financial liability at 31
December 2023 of £94 million (31 December 2022: £207 million)
for this obligation in accordance with IAS 32 ‘Financial instruments:
Presentation’ that is subsequently measured in accordance with
IFRS 9 ‘Financial instruments’. This liability is included within other
payables, with the corresponding debit presented in the other
equity reserve.
The Group has not recognised a liability relating to the further £250
million announced during 2023, as no contract has been signed
and therefore no financial liability has yet arisen. The monthly
breakdown of all shares purchased and the average price paid
(excluding expenses) in relation to the financial liability recognised at
31 December 2023 are detailed in note S4.
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. The Group holds a 69% interest in Spirit Energy.
While Spirit Energy has a 31% non-controlling interest, 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 Spirit Energy
business. The Group has concluded that it controls Spirit Energy
and consequently Spirit Energy is fully consolidated with a non-
controlling interest of 31%.
Metering contracts
As part of the ongoing smart meter roll-out, the Group periodically
renews meter rental arrangements with third parties. The last
renegotiation took place in 2021. 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 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. The transaction completed in the first
half of 2022. See note 12.
The Group assessed whether the disposal group constituted a
discontinued operation. Key considerations included the effect of
the disposal on the Upstream business and whether the disposal
group represented a separate major line of business or
geographical operation. Following the disposal, because the
Upstream segment retained other European producing fields, the
Group judged that it was neither exiting a geographical area nor a
separate major line of business, and hence concluded the disposal
group did not constitute a discontinued operation.
Supplier of Last Resort (SoLR)
During 2021, the Group was appointed as the Supplier of Last
Resort (SoLR) to eight suppliers who ceased trading during the
year; one further appointment was made in January 2022. Under
Ofgem’s licence conditions, the Group was 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.
The Group submitted an initial claim in 2021 and a second claim in
2022, both of which were accepted by Ofgem. The claims covered
both incremental commodity costs, incurred as a result of
procuring gas and electricity to supply affected customers, and the
cost of recovering customer credit balances, where the Group had
not waived the right to do so. The initial claim was settled between
April 2022 and April 2023 and the second claim is being settled
over the current twelve month period ending in April 2024.
The value recognised for the SoLR receivable at 31 December
2023 is £48 million (31 December 2022: £275 million). This includes
residual balances for which the Group has submitted a third claim
to be settled between April 2024 and April 2025, but no significant
incremental costs have been incurred during the year (31
December 2022: £299 million).
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.
136
Financial Statements | Centrica plc Annual Report and Accounts 2023
3. CRITICAL ACCOUNTING JUDGEMENTS
AND KEY SOURCES 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.
Electricity Generator Levy
As detailed in note 1(b), the Electricity Generator Levy (EGL) is
applicable from 1 January 2023. During the year, the Group’s share
of its Nuclear associate’s EGL payments amounted to £41 million
(recorded within the share of profit after tax from associates). The
Group has also made payments on account to HMRC of £285
million in relation to its estimated EGL liabilities for its minority
shareholder Nuclear offtake arrangements during the December
2023 financial year and this expense has been recorded within the
income statement, as part of Cost of Sales.
Similar to other relevant businesses, the Group is reviewing the
EGL legislation and its application. The EGL legislation is new, and
its interpretation and application is unclear in respect of the
Group’s minority shareholder Nuclear offtake arrangements. As
such, the extent of the levy that will ultimately be due in this regard
is not yet certain, and a different amount may eventually be
determined. If this were the case, a tax deposit asset would be
recorded on the Group Balance Sheet, and as a credit within Cost
of Sales in the income statement, when it became probable, in
accordance with the 2019 IFRIC Agenda decision on Deposits
relating to taxes other than income taxes. No tax deposit asset has
been recorded because it is not deemed probable, as at the
balance sheet date, that this will ultimately be recoverable (or used
to settle another tax liability).
We have determined there is a key source of estimation uncertainty
in relation to the amount of levy the Group owes for 2023 and
whether a tax deposit asset should be recorded for the recovery of
payments on account made to HMRC of up to £285 million. Whilst
a material change in the accounting could occur in the next
financial period, ultimate resolution of this uncertainty may take a
number of years.
Credit provisions for trade and other receivables
The macroeconomic environment continues to be challenging with
continued higher interest rates, high inflation and low growth all
contributing to cost of living pressures which may impact the ability
of the Group’s customers to pay amounts due. Leading debt
indicators, including the number of customers going into debt and
direct debit cancellation rates in the Group’s residential portfolio
have continued to deteriorate in 2023. The Group also suspended
all debt recovery field activity throughout the majority of the year,
and this has resulted in a deterioration of debt performance for
affected cohorts of customers during the period. Customer support
schemes, implemented by the Government in 2022 to provide
discounts to energy customers, largely ended on 30 June 2023
and despite declining commodity prices during the year, prices are
still significantly higher than in previous years.
These factors all result in the assessment and adequacy of credit
provisions for trade and other receivables to continue to be a key
source of estimation uncertainty. See note 17 for further
information.
The Group utilises a range of factors, including both internal and
external, historic and forward-looking, to assess the adequacy of
the Group’s credit provisions. Whilst the Group utilises a matrix
output model to record provision coverage, management
recognises that the model does not adequately capture scenarios
where there is a delayed impact on customer payments, such as
the ending of Government support schemes, and forward-looking
macroeconomic challenges. The Group has therefore recorded a
macroeconomic credit provision of £175 million (31 December
2022: £125 million) which results in a total credit provision for trade
and other receivables at 31 December 2023 of £1,309 million (31
December 2022: £872 million).
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 Solutions 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 and losses 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 contracted energy purchase costs and
those mark-to-market reversals. As a result, the Group recognised
an onerous supply contract provision of £999 million in the
consolidated Group Financial Statements for the year ended 31
December 2022.
During 2023, commodity costs have declined and as a result, fair
value movements on energy purchase contracts entered to meet
the future needs of both British Gas Energy residential customers
and the Group's non-domestic customers have resulted in losses
rather than gains being recognised as certain re-measurements in
the Group’s Income Statement. As a result, the Group determined
that at the reporting date, the future costs to fulfil both British Gas
residential and the Group's non-domestic customer contracts fell
below charges recoverable from customers and the onerous supply
contract provision previously recognised in relation to the fulfilment
of the Group's customer contracts has been either utilised, or
reversed, in full. £833 million of this movement has been reflected
in certain re-measurements, where it was originally recorded. The
remainder, which was recognised on the balance sheet as part of
the Avanti Gas acquisition in 2022, has been presented in the
business performance column to match the unwind of the related
derivatives also acquired.
Note that cumulatively, over time, the onerous contract provision
certain re-measurements movement in the Group's Income
Statement will total £nil.
The key sources of estimation uncertainty previously related to the
expected future tenure of the Group’s customer portfolio, and the
estimated gross margin attributable to them. Due to the fair value
losses recognised on energy purchase contracts at 31 December
2023, no onerous supply contract arises and the estimation of
tenure and gross margin is no longer required. Therefore, there is
no longer a key source of estimation uncertainty. If commodity
prices increase, a provision may be required in the future. Further
disclosures relating to movements in certain re-measurements are
provided in note 7.
Financial Statements | Centrica plc Annual Report and Accounts 2023
137
3. CRITICAL ACCOUNTING JUDGEMENTS
AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
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 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.
Forward commodity prices have declined during 2023, both in
terms of observable market prices and forecast forward prices. This
follows significant year-on-year increases in both 2021 and 2022.
Predominantly as a result of the declining prices the recoverable
amounts of certain assets have been affected and an impairment of
£645 million has been recorded. See note 7(b) for details.
Upstream gas assets
Forward prices for gas are a key input in the determination of the
recoverable amount of the Group’s gas assets (including storage
asset). 2023 has seen declines in the prices of this commodity,
both in terms of observable market prices and forecast forward
prices. As a result of both price declines and increased operating
costs, the Group assesses that the net recoverable value of the
Rough storage asset has fallen below its carrying value and an
impairment of £82 million has been recognised at the year-end.
Impairment headroom remains for the Group’s other significant
fields at the year-end. As at 31 December 2023, this remains a key
source of estimation uncertainty due to potential future price
decreases. As a sensitivity, were gas prices in the liquid period
(2024-28) to fall by 50% a post-tax impairment of £269 million
would arise. Potential future price increases give rise to less
estimation uncertainty, as the recoverable amounts of the Group’s
gas assets are capped at depreciated historic cost.
Further details of the assumptions used in determining the
recoverable amounts and sensitivities 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. During the year, the recoverable
amount has decreased, predominantly due to falling forecast
commodity prices. This has resulted in an impairment of
£549 million.
The key source of estimation uncertainty is commodity price
forecasts, other input assumptions include production levels,
application of the Electricity Generator Levy and station lives.
Further details of these uncertainties, together with the
methodology, assumptions and impairment booked during the year
are provided in note 7, together with related sensitivities.
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, including where changes in customer
behaviour in response to elevated prices, affects estimated
consumption. At 31 December 2023 unread revenue arising from
these customers amounted to £2,992 million (2022: £2,893 million).
A change in these assumptions of 2% would impact revenue and
profit by £60 million.
Decommissioning costs
The estimated cost of decommissioning at the end of the
producing lives of gas 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 2035.
The level of provision held is 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 2023 is 1% (2022: 1%). There are a number of variable
inputs into the calculation of discount rates including risk-free
interest rates and debt and equity risk premium. A 1% change in
this discount rate would change the decommissioning liability by
approximately £85 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 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. The factors impacting gas and liquids estimates, the
process for estimating reserve quantities and reserve recognition
and details of the Group’s 2P reserves are given on page 241.
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
The fair values of energy derivatives classified as Level 3 in
accordance with IFRS 13 ‘Fair Value Measurement’ are determined
to be a key source of estimation uncertainty as they are not actively
traded and their values are estimated by reference in part to
published price quotations in active markets and in part by using
complex valuation techniques. The key source of estimation
uncertainty is future commodity prices and their inclusion in the
reliable estimation of the unobservable components of the Group’s
Level 3 derivatives in an elevated and volatile commodity price
environment. 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.
138
Financial Statements | Centrica plc Annual Report and Accounts 2023
3. CRITICAL ACCOUNTING JUDGEMENTS
AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
Climate change
In preparing the financial statements, the Directors have considered
the impact of climate change in the context of the risks and
opportunities identified in the Task Force on Climate-related
Financial Disclosures (TCFD) disclosures on pages 47 to 55. There
has been no material impact identified on the financial reporting
judgements and estimates. The Directors specifically considered
the impact of climate change in the following areas:
¢ Cash flow forecasts used in the impairment assessment of non-
current assets, including goodwill;
¢ Carrying value and useful economic lives of property, plant and
equipment;
¢ Recoverability of deferred tax assets; and
¢ Going concern and viability of the Group over the next
three years.
Whilst there is no short-term impact expected from climate change,
the Directors are aware of the risks and regularly assess these risks
against judgements and estimates made in preparation of the
Group’s financial statements.
Further detail is provided in the ‘Climate change’ note below.
Financial Statements | Centrica plc Annual Report and Accounts 2023
139
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
(c) Climate change
The Group’s assessment of how climate-related issues might affect the business has been integrated into its annual strategic and financial
planning process. At the same time, the Group reviews the potential impact of the material risks and opportunities and its Climate
Transition Plan on both the current balance sheet position and its accounting policies (including the useful economic lives of its assets).
Summary of our most material risks and opportunities
TCFD category
Climate-related trend
Potential impact
Transition: Policy, Markets and
Technology
Transition away from fossil fuelled
heating
Transition: Policy, Markets and
Technology
Growth in low carbon heating market
Risk: Reduced GM from the sale and servicing of natural gas residential
boilers and commercial Combined, Heat and Power (CHP) units at
British Gas Services & Solutions (BG S&S), Centrica Business Solutions
(CBS) and Bord Gáis Energy (Bord Gáis)
Opportunity: Increased sales and servicing of electric and hydrogen
fuelled heating systems, and associated opportunities in energy
efficiency at BG S&S, CBS and Bord Gáis
Risk: Reduced GM from the sale of natural gas from fuel switching and
energy efficiency at British Gas Energy (BGE), CBS and Bord Gáis
Transition: Policy, Markets and
Technology
Transition: Policy, Markets and
Technology
Transition away from natural gas
Growth in low carbon heating market
Opportunity: Increased sales of electricity and green/low carbon
hydrogen at BGE, CBS and Bord Gáis
Transition: Markets
Growth of EV transport market
Opportunity: Access to new and growing value pools related to EV
charging installs, operation and maintenance (O&M), and energy supply
at BG S&S and Bord Gáis
Transition: Energy Source
Growth in demand for renewable energy Opportunity: Strong growth in solar and battery markets driven by
Physical Chronic
Rising mean temperatures
decarbonisation at CBS, Bord Gáis and BG S&S
Risk: Reduced sales of natural gas and electricity for heat at BGE, CBS
and Bord Gáis
IFRS dictates how each asset or liability should be accounted for (e.g. cost, fair value or other measurement criteria) and accordingly,
there is a fundamental difference between the holistic forward-looking risk and opportunities business analysis (see TCFD disclosure on
pages 47 to 55), and the possible sensitivity of current accounting carrying values to these risks and opportunities.
For example, whilst the activity of supplying gas to customers or servicing/installing gas boilers is clearly subject to climate-related risks
(and opportunities), the balance sheet does not reflect an overall value of those businesses (aside from an element of goodwill). Instead,
accounting balances related to these businesses generally manifest themselves in short-term working capital assets and liabilities
associated with procuring and selling gas or servicing/installing boilers; with those balances generally settled within six months and so
specifically less exposed to climate risks.
In a similar vein, Upstream assets are tested for impairment in accordance with relevant IFRS accounting standards. These generally
require the recoverable amount of the asset to be calculated based on a best estimate of long-term forecast commodity prices, which
the Group estimates based on current market prices and the consensus of reputable commodity pricing consultants forecasts. However,
these estimates are not consistent with net zero scenarios from the consultants (as they do not factor in any prospective, yet to be
announced legislative or market changes that would be required to meet temperature targets) and hence impairment reviews are not
based on net zero scenario forward prices. The Group instead discloses the impact on the carrying value of Upstream assets by way of
sensitivity analysis (see note 7(c)).
140
Financial Statements | Centrica plc Annual Report and Accounts 2023
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Accordingly, the Group is mindful of these dynamics when it considers which areas of the balance sheet are exposed to key estimation
uncertainty from climate-related issues. The Group considers which assets are most exposed to impairment from climate risks and
similarly whether there are any liabilities that are either currently unrecognised or might increase as a result of those risks.
The Group’s assets/liabilities have been segmented into three tranches, grading each balance’s exposure to climate risks/opportunities:
(i) Higher risk – As the consumption of gas and power is intrinsically linked to carbon emissions, their pricing is consequently exposed to
climate and legislative risk. Accordingly, where assets or contract values have a key dependency on commodity price assumptions,
those assets (or contracts) are deemed higher risk.
(ii) Medium risk – Gross margin energy transition considerations and their potential impact on forward-looking balances (e.g. Supply and
Services and Energy Trading goodwill) and decommissioning balances in E&P.
(iii) Lower risk – No significant risk identified on the basis that positions are short-term in nature or are specifically linked to the energy
transition or are immaterial.
The key non-current asset (and decommissioning provision) balance sheet items have been presented in more granular detail below,
together with the groupings into the above risks and with rationale set out below the table:
As at 31 December 2023 related to (£m):
Goodwill
Intangibles
Investment in
associates
Property, plant &
equipment
Deferred tax
assets
Decommissioning
provision
Energy Supply
Customer relationships
Application software
Energy Services
Customer relationships
Brand (mainly Dyno)
Application software
Battery storage
Electric vehicles (vans/cars)
Non-electric vehicles (vans/cars)
Energy Trading
Customer relationships
Application software
LNG vessel leases
Gas Assets (E&P and Storage)
E&P fields (Spirit)
E&P tax losses (Spirit)
Gas storage facility (Rough)
Power Assets
Nuclear investment
Gas-fired power stations/engines
Combined heat power (CHP)/other power assets
Solar
Group/Other
Application software
Land & buildings (i)
Derivatives deferred tax (i)
Other (i)
Total (notes 13-16 and 21)
197
63
145
14
117
6
57
107
2
27
10
903
405
340
903
66
55
50
100
1,015
8
233
53
39
145
82
1,846
(69)
94
145
(1,191)
(319)
(17)
343
(57)
456
(1,527)
(i) Land & buildings, Derivatives deferred tax and Other Property, plant & equipment/Deferred tax have not been allocated out across business type.
Higher
Medium
Lower
Financial Statements | Centrica plc Annual Report and Accounts 2023
141
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
All items noted above may be impacted by climate-related risks but are not currently considered to be key areas of judgement or sources
of estimation uncertainty in the current financial year.
Higher risk
E&P field valuations are dependent on forecast commodity prices. Climate change risk means that there is uncertainty over gas demand
and forecast prices. This is not currently a key source of estimation uncertainty because current liquid commodity prices mean that there is
impairment headroom over current carrying values. Nonetheless, valuation sensitivity information based on a net zero price forecast has
been provided in note 7(c) to show field values can move significantly. (Note that the Group’s intention is to run-off remaining fields with
most production forecast in the next five years. Decommissioning obligations will be substantively met by the early 2030s, whilst further
investment in exploring for new gas fields has ceased.) Recoverability of E&P deferred tax assets associated with historic losses is
dependent on future field profitability and so is subject to climate change risk.
The valuation of the investment in Nuclear is also highly dependent on forecast commodity prices. Climate change risks and opportunities
means there is uncertainty over electricity demand and forecast prices. The underlying Nuclear stations, which produce electricity with no
carbon emissions, have different useful economic lives, with the last station forecast to cease operating in 2055. Valuation sensitivity
information based on a net zero price forecast has been provided in note 7(c).
Medium risk
The Group’s small number of gas-fired power stations and engines are exposed to climate change risk, with valuations dependent on
forecast gas and electricity prices and electricity demand. However, they are deemed medium risk as they do not have a significant
carrying value in the context of the Group.
Similarly the Group’s investment in CHP and other power assets are also exposed to climate risk. They have useful economic lives of up to
15 years but they do not, individually or in total, have material carrying values.
LNG Vessels on the balance sheet are exposed to risk from climate change, but as they are leased assets with the current term remaining
less than five years, this risk is reduced to medium.
The Group is in the process of transitioning to an electrified vehicle fleet. Non-electric vehicles are deemed medium risk because their
remaining useful economic lives are generally quite short.
Decommissioning provisions are generally longer-term but this could be brought forward for E&P assets if the energy transition
accelerates. However, as the decommissioning discount rate is only 1% (real), the balance sheet and income statement impact of earlier
decommissioning would not be material.
Deferred tax associated with field accelerated capital allowances and decommissioning in E&P and Storage is not considered high risk
due to the length of carry-back rules for decommissioning and the mechanical unwind of other temporary differences. Deferred tax assets
associated with derivatives are considered medium risk as the derivatives generally realise within two years.
Energy Supply, Energy Services and Energy Trading Goodwill and Application Software are categorised as medium risk because the
businesses are exposed to energy transition risk as a result of climate change. However, there are also significant opportunities for these
businesses and the carrying values are not material.
Lower risk
All other assets denoted in the table above are considered lower risk because they are either specifically related to the energy transition
(e.g. electric vehicles, battery storage) or are immaterial.
Other contracts
The Group also has long-term LNG supply contracts with Cheniere, Delfin and Mozambique. These are not reflected on the balance sheet
but the Group has certain purchase commitments (see note 23). The contracts currently have significant value because of gas price
locational spreads but are exposed to climate-change risk and therefore could ultimately become onerous in net zero scenarios. The
commitments note provides detail of the length of the contracts and commodity purchase commitments.
142
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
The types of products and services from which each reportable segment derived its income during the year are detailed below. All
reportable segments are operating segments. Income sources are reflected in total Group revenue unless otherwise stated:
Segment
Description
British Gas Services &
Solutions
British Gas Energy
Bord Gáis Energy
Centrica Business Solutions
Centrica Energy
Upstream
¢ 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
¢ the supply of new technologies and energy efficiency solutions in the UK.
¢ The supply of gas and electricity to residential and small business customers in the UK.
¢ The supply of gas and electricity to residential, commercial and industrial customers in the Republic of Ireland;
¢ the installation, repair and maintenance of domestic central heating and related appliances in the Republic of
Ireland;
¢ the procurement, trading and optimisation of energy in the Republic of Ireland (i); and
¢ power generation in the Republic of Ireland.
¢ The supply of gas and electricity to business customers in the UK (i);
¢ the supply of energy services and solutions to large organisations in the UK, Europe and North America; and
¢ the development and operation of large-scale power assets in the UK and Europe.
¢ The procurement, trading and optimisation of energy in the UK and Europe (i); and
¢ the global procurement and sale of LNG.
¢ The production and processing of gas and liquids principally within Spirit Energy (i);
¢ the sale of power generated from nuclear assets in the UK; and
¢ gas storage in the UK.
(i) Where income is generated from contracts in the scope of IFRS 9, this is included in re-measurement and settlement of derivative energy contracts.
Financial Statements | Centrica plc Annual Report and Accounts 2023
143
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. Total 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
British Gas Services & Solutions
British Gas Energy
Bord Gáis Energy
Centrica Business Solutions
Centrica Energy
Upstream
Total Group revenue included in business
performance
Less: revenue arising on contracts in scope of IFRS 9
included in business performance
Total Group revenue
Gross
segment
revenue
£m
1,597
17,742
1,815
3,522
7,732
2,935
2023
Less inter-
segment
revenue
£m
(57)
—
—
(6)
(476)
(1,430)
Total
Group
revenue
£m
1,540
17,742
1,815
3,516
7,256
1,505
Gross
segment
revenue
£m
1,527
13,096
1,771
3,000
14,441
2022
Less inter-
segment
revenue
£m
(50)
—
—
(19)
(219)
3,351
(3,261)
Total
Group
revenue
£m
1,477
13,096
1,771
2,981
14,222
90
35,343
(1,969)
33,374
37,186
(3,549)
33,637
(6,916)
26,458
(9,896)
23,741
The table below shows the total 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.
Year ended 31 December
Energy services and solutions
British Gas Services & Solutions
Energy supply – UK
British Gas Energy
Energy supply – Republic of Ireland
Bord Gáis Energy
Energy supply – UK
Energy services
Centrica Business Solutions
Energy sales to trading and energy procurement counterparties
Centrica Energy
Gas and liquid production
Upstream
2023
Revenue from
fixed-fee service
and insurance
contracts in
scope of IFRS
17, and leasing
contracts in
scope of IFRS 16
£m
Revenue from
contracts with
customers in
scope of IFRS 15 (i)
£m
Revenue in
business
performance
arising from
contracts in
scope of IFRS 9
£m
Total Group
revenue included
in business
performance
£m
Total Group
revenue
£m
727
727
17,742
17,742
1,438
1,438
2,232
208
2,440
3,132
3,132
133
133
25,612
813
1,540
—
1,540
—
17,742
—
17,742
—
1,438
377
1,815
4
2,444
1,072
3,516
29
3,161
4,095
7,256
—
846
133
26,458
1,372
6,916
1,505
33,374
(i) The Group has recognised £3,698 million (2022: £1,539 million) of revenue from the Government in relation to the Energy Price Guarantee scheme for domestic customers
in the British Gas Energy segment. A further £448 million (2022: £219 million) of revenue has been recognised in respect of the Energy Bill Relief Scheme. £320 million
(2022: £175 million) of this total relates to Centrica Business Solutions customers and £128 million (2022: £44 million) relates to non-domestic customers in the British Gas
Energy segment.
144
Financial Statements | Centrica plc Annual Report and Accounts 2023
4. SEGMENTAL ANALYSIS
Year ended 31 December
Energy services and solutions
British Gas Services & Solutions
Energy supply – UK
British Gas Energy
Energy supply – Republic of Ireland
Bord Gáis Energy
Energy supply – UK
Energy services
Centrica Business Solutions
Energy sales to trading and energy procurement counterparties
Centrica Energy
Gas and liquid production
Upstream
2022
Revenue from
fixed-fee service
and insurance
contracts in
scope of IFRS 17,
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
Total Group
revenue included
in business
performance
£m
Total Group
revenue
£m
625
625
13,096
13,096
1,323
1,323
1,465
249
1,714
5,639
5,639
462
462
22,859
852
1,477
—
1,477
—
13,096
—
13,096
—
1,323
448
1,771
14
1,728
1,253
2,981
16
5,655
8,567
14,222
—
882
462
23,741
(372)
9,896
90
33,637
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.
Year ended 31 December
UK
Republic of Ireland
Scandinavia (including Denmark)
North America
Rest of the world
Total Group revenue
(based on location of customer)
Non-current assets
(based on location of assets) (i)
2023
£m
22,207
1,438
919
390
1,504
2022
£m
17,480
1,323
1,473
867
2,598
2023
£m
2,875
229
170
12
314
2022
£m
3,827
152
181
14
353
26,458
23,741
3,600
4,527
(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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
145
4. SEGMENTAL ANALYSIS
(c) Adjusted gross margin and adjusted operating profit/(loss)
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.
Year ended 31 December
British Gas Services & Solutions
British Gas Energy (i)
Bord Gáis Energy
Centrica Business Solutions
Centrica Energy
Upstream
Segmental adjusted gross margin/adjusted operating profit
Reconciling items to Group Income Statement:
Colleague profit share (ii)
Total Group adjusted gross margin/adjusted operating profit
Certain re-measurements:
Onerous energy supply contract provision movement
Derivative contracts
Share of re-measurement of certain associates’ energy contracts (net of taxation)
Gross profit
Exceptional items in operating profit
Operating profit/(loss) after exceptional items and certain re-measurements
Adjusted gross margin
Adjusted operating profit/(loss)
2023
£m
616
2,141
139
309
1,016
999
5,220
2022
£m
504
1,114
160
238
1,558
1,874
5,448
(3)
(9)
5,217
5,439
833
3,573
—
9,623
1,766
(5,160)
—
2,045
2023
£m
47
751
1
104
774
1,083
2,760
(8)
2,752
833
3,573
(1)
(645)
6,512
2022
£m
(9)
72
31
44
1,400
1,793
3,331
(23)
3,308
1,766
(5,160)
1
(155)
(240)
(i)
Included within British Gas Energy adjusted operating profit in 2023 is a £84 million (2022: £50 million) charge relating to increases in the British Gas Energy Support
Fund, supporting downstream customers. £62 million of this charge is booked as a revenue deduction and £22 million within operating costs.
(ii) The impact of the colleague profit share is excluded because management considers it unrelated to segmental business performance.
146
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
British Gas Services & Solutions
British Gas Energy
Bord Gáis Energy
Centrica Business Solutions
Centrica Energy
Upstream
Other (i)
Depreciation and impairments of
property, plant and equipment
Amortisation, write-downs and
impairments of intangibles
2023
£m
(42)
(3)
(9)
(11)
(30)
(281)
(28)
(404)
2022
£m
(31)
(3)
(8)
(13)
(31)
(481)
(31)
(598)
2023
£m
(12)
(54)
(11)
(26)
(18)
—
(17)
2022
£m
(16)
(79)
(13)
(32)
(15)
—
(24)
(138)
(179)
(i) The Other segment includes corporate functions, subsequently recharged.
Impairments and write-downs of PP&E
During 2023, £9 million of impairments of PP&E (2022: £88 million) were recognised within business performance.
Impairments and write-downs of intangible assets
During 2023, £15 million of impairments of other intangible assets (2022: £20 million) were recognised within business performance.
Financial Statements | Centrica plc Annual Report and Accounts 2023
147
4. SEGMENTAL ANALYSIS
(e) Capital expenditure
Capital expenditure represents additions, other than assets acquired as part of business combinations or asset
purchase agreements, to property, plant and equipment and intangible assets. Capital expenditure has been reconciled
to the related cash outflow.
Year ended 31 December
British Gas Services & Solutions
British Gas Energy
Bord Gáis Energy
Centrica Business Solutions
Centrica Energy
Upstream
Other
Capital expenditure
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) (i)
Net cash outflow
Capital expenditure on property,
plant and equipment
Capital expenditure on intangible
assets other than goodwill
2023
£m
45
—
69
80
5
95
79
373
(2)
(89)
—
—
282
2022
£m
52
—
3
47
—
124
26
252
—
(49)
109
—
312
2023
£m
32
565
7
193
14
18
—
829
—
4
—
(780)
53
2022
£m
25
582
4
205
14
13
—
843
—
5
10
(799)
59
(i) Purchases of emissions allowances and renewable obligation certificates of £565 million (2022: £578 million) in British Gas Energy, £193 million (2022: £203 million) in
Centrica Business Solutions, £18 million (2022: £13 million) in Upstream, and £4 million (2022: £5 million) in Centrica Energy.
148
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 is used by management as an adjusted measure of the
cash generation of the business. Free cash flow excludes investing cash flows that are related to adjusted net cash/
debt. This measure is reconciled to the net cash flow from operating and investing activities.
Year ended 31 December
British Gas Services & Solutions
British Gas Energy (i)
Bord Gáis Energy
Centrica Business Solutions
Centrica Energy (ii)
Upstream (iii)
Other (iv)
Segmental free cash flow excluding tax
Taxes paid
Total free cash flow
UK pension deficit payments (note 22)
Movements in variation margin and collateral (note 24)
Interest received
Purchase and settlement of securities (note 24)
Net cash flow from operating activities
Net cash flow from investing activities
Total cash flow from operating and investing activities
2023
£m
64
302
(146)
220
1,354
1,236
(20)
3,010
(803)
2,207
(180)
585
267
(12)
2,867
2,752
115
2,867
2022
£m
(19)
1,283
81
(48)
199
1,539
26
3,061
(574)
2,487
(214)
(1,173)
46
(398)
748
1,314
(566)
748
(i) British Gas Energy free cash flow in 2023 includes significant working capital outflows of approximately £500 million largely related to the impact of falling commodity
prices. British Gas Energy free cash flow in 2022 includes £440 million received under the Energy Bill Support Scheme, which was disclosed as restricted cash, and
accelerated cash flows of approximately £700 million under the Energy Price Guarantee.
(ii) Centrica Energy free cash flow in 2023 includes operating cash inflows of around £580 million driven by profit on 2022 derivative positions cash settling during the year.
Centrica Energy free cash flow in 2022 includes cash outflows associated with increased gas in storage, and working capital movements of approximately £500 million.
Centrica Energy adjusted operating profit in 2022 included a significant portion of unrealised derivative positions.
(iii) Upstream free cash flow in 2023 includes inflows of £55 million relating to deferred consideration received from the 2022 Spirit Norway disposal, and realised hedge cash
outflows of £34 million (2022: £161 million) have been incurred relating to the Norwegian assets, but were held outside the disposal groups. £630 million of free cash flow
excluding tax in 2022 relates to the Norwegian disposal groups, including its disposal cash flows. £300 million of taxes paid in 2022 relate to the Norway disposal group.
(iv) The Other segment includes corporate functions.
Financial Statements | Centrica plc Annual Report and Accounts 2023
149
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)
Costs included within business performance before
credit losses on financial assets
Credit losses on financial assets (net of recovered amounts)
(note 17)
2023
2022
Cost of sales
and settlement
of certain
energy
contracts
£m
Operating
costs
£m
Total
costs
£m
Cost of sales
and settlement
of certain
energy
contracts
£m
(4,813)
(20,258)
(324)
(608)
—
—
(218)
(777)
(2,154)
(1,077)
(4,813)
(20,258)
(542)
(1,385)
(3,231)
(4,694)
(20,748)
(441)
(704)
(1,611)
Operating
costs
£m
—
—
(336)
(753)
(783)
Total
costs
£m
(4,694)
(20,748)
(777)
(1,457)
(2,394)
(28,157)
(2,072)
(30,229)
(28,198)
(1,872)
(30,070)
—
(602)
(602)
—
(351)
(351)
Total costs included within business performance
(28,157)
(2,674)
(30,831)
(28,198)
(2,223)
(30,421)
Adjustment for gross cost of settled energy contracts in the
scope of IFRS 9 and onerous energy supply contract
provision
Exceptional items and re-measurement and settlement of
derivative energy contracts (note 7)
17,497
—
17,497
14,986
—
14,986
(6,175)
(645)
(6,820)
(8,484)
(155)
(8,639)
Total costs within Group operating profit
(16,835)
(3,319)
(20,154)
(21,696)
(2,378)
(24,074)
(i) Commodity costs include £nil recoverable under the Last Resort Supplier Payment claim (2022: £241 million credit), a further credit of £5 million is included in other direct
operating costs (2022: £nil). These credits offset costs incurred as a result of the Group’s appointment as Supplier of Last Resort to customers of energy suppliers who
have ceased trading. See note 3.
(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
Repayment of Coronavirus government support programmes
Employee costs recognised in business performance in the Group Income Statement
2023
£m
2022
£m
(1,105)
(1,159)
(146)
(118)
(31)
(100)
(171)
(10)
(1,400)
(1,440)
15
—
10
(27)
(1,385)
(1,457)
150
Financial Statements | Centrica plc Annual Report and Accounts 2023
5. COSTS
(c) Average number of employees during the year
Year ended 31 December
British Gas Services & Solutions
British Gas Energy
Bord Gáis Energy
Centrica Business Solutions
Centrica Energy
Upstream
Group Functions
2023
Number
12,309
3,979
395
1,334
780
699
1,518
21,014
2022
Number
12,470
3,257
320
1,444
573
670
1,220
19,954
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 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 certain re-
measurements
Exceptional items and re-measurement of certain contracts
Operating profit/(loss)
Financing gain
Taxation on profit/(loss)
2023
Share of
exceptional
items and
certain re-
measurements
£m
Share of
business
performance
£m
680
(397)
—
283
—
(74)
—
—
(1)
(1)
—
—
Share of
results for the
year
£m
Share of
business
performance
£m
680
592
(397)
(1)
282
—
(74)
(472)
—
120
3
(31)
Share of post-taxation results of joint ventures and
associates
209
(1)
208
92
Further information on the Group’s investments in joint ventures and associates is provided in notes 14 and S10.
2022
Share of
exceptional
items and
certain re-
measurements
£m
Share of
results for the
year
£m
—
—
1
1
—
—
1
592
(472)
1
121
3
(31)
93
Financial Statements | Centrica plc Annual Report and Accounts 2023
151
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.
If the future costs to fulfil customer supply contracts, including the mark-to-market reversal of any energy hedging
contracts entered into to meet this demand, exceed the charges recoverable from customers, an onerous contract
provision will be recognised. Because the associated hedging gains or losses will be recognised in certain
re-measurements, the movements in the onerous provision will also be recognised in certain re-measurements.
Year ended 31 December
Certain re-measurements recognised in relation to energy contracts:
Net gains/(losses) arising on delivery of contracts
Net gains/(losses) 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 movement (i)
Net re-measurements included within gross profit
Net (loss)/gain 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)
Certain re-measurements after taxation
2023
£m
2022
£m
3,529
44
3,573
833
4,406
(1)
4,405
(1,649)
2,756
(1,403)
(3,757)
(5,160)
1,766
(3,394)
1
(3,393)
1,000
(2,393)
(i) The onerous supply contract provision represents the future costs to fulfil customer contracts on a current market price basis. During the period, this provision has been
fully unwound. The associated hedging gains or losses are separately recognised within the gains/losses arising on market price movements and new contracts. The
movement in the onerous provision is detailed in note 3(b).
(ii) Taxation on onerous energy supply contracts amounted to a £196 million debit (2022: £295 million debit) and taxation on other certain re-measurements amounted to
£1,453 million debit (2022: £1,295 million credit).
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 movement (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/Centrica Energy/Bord Gáis
Unrealised certain re-measurements recognised in relation to energy contracts included in gross profit
2023
£m
(6,175)
(6,916)
2022
£m
(8,484)
(9,896)
16,664
13,220
3,573
833
4,406
(5,160)
1,766
(3,394)
2023
£m
506
3,067
3,573
2022
£m
(6,364)
1,204
(5,160)
152
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
Loss on disposal of E&P Norway
Impairment of gas storage asset (i)
(Impairment)/write-back of power assets (ii)
Exceptional items included within Group operating profit (iii)
Net exceptional item taxation (note 9) (iv)
Total exceptional items recognised after taxation
2023
£m
—
(82)
(563)
(645)
54
(591)
2022
£m
(362)
—
207
(155)
(207)
(362)
(i)
(ii)
In the Upstream segment, an impairment of the Rough gas storage asset of £82 million (post-tax £59 million) has been recorded as a result of a reduction in both forecast
gas prices and forecast summer/winter gas price spreads.
In the Upstream segment, an impairment of the Nuclear investment of £549 million (post-tax £549 million) (2022: write-back of £195 million (post-tax £195 million)) has
been recorded predominantly as a result of the decrease in forecast power prices offset by the positive effect of life extensions at Heysham and Hartlepool. In the
Centrica Business Solutions segment, an impairment of £14 million (post-tax £11 million) (2022: write-back of £12 million (post-tax £9 million)) has been recorded,
predominantly related to a battery storage asset and a gas engine, also following lower forecast commodity prices. See note 7(c).
(iii) Exceptional items for 2023 are non-cash. The cash flows recorded as payments relating to exceptional charges of £6 million (2022: £24 million) in the Group Cash Flow
Statement relate to previous year exceptional restructuring costs.
(iv) Exceptional item taxation includes a credit of £28 million associated with net deferred tax asset recognition predominantly related to exploration and production PRT
carry-back, offset by a reduction in the expected recovery of tax losses and investment allowance, due to the reduction in forecast commodity prices. This item is
unrelated to the other exceptional items.
Financial Statements | Centrica plc Annual Report and Accounts 2023
153
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 during the year.
Exceptional impairment assessments of assets measured on a value-in-use (VIU) basis
Segment
Upstream
Asset/CGU
Nuclear (i)
Basis for impairment assessment
The decrease in short-term baseload power prices has more than offset
the impact of life extensions at Heysham 1 and Hartlepool stations
Recoverable
amount
£m
Impairment
£m
903
549
(i) During the year ended 31 December 2022, an impairment write-back of £195 million was booked in relation to the Nuclear investment. The recoverable amount at the end
of 2022 was £1,560 million.
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,
and operating and capital expenditure requirements. Price assumptions are based on liquid market prices for 2024 to 2027 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 Electricity Generator Levy, applying a 45% tax rate to revenues generated over £75/MWh until 31 March 2028, based on the above
price assumptions, has also been included in the assessment. See notes 1 and 3.
In March 2023, the Nuclear business announced that estimated operating lifetimes at the Heysham 1 and Hartlepool stations would be
extended by two years to March 2026, with a range of plus or minus one year. Based on prices at 31 December 2023, the lifetime
extensions increase the value of the Group’s investment in Nuclear by £131 million. The plus/minus one-year range would impact value by
an increase of £48 million or a decrease of £53 million.
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 £98 million. All other stations’ life
assumptions are aligned to lifetime closure dates announced by the operator (being between March 2026 and March 2028).
The VIU calculation is also sensitive to changes in outage assumptions, and the base level generation volumes assumed for the fleet were
decreased during the period based on a review of planned and unplanned outages. A reduction of 5% in the unplanned outage rate
applied to volumes across the Nuclear fleet would lead to a write-back movement of £125 million.
The future pre-tax cash flows generated by the investment in the associate are discounted using a pre-tax nominal discount rate of 17.3%
(2022: 24.8%). This equated to a post-tax rate of 8.5% (2022: 8.0%). 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. As baseload power prices for the liquid period remain higher than longer-term forecast prices, the near-term cash flows are elevated,
which caused the pre-tax discount rate to remain high. A 2% increase in the post-tax discount rate would lead to an impairment of £56
million (when compared with the closing year-end carrying value). Similarly, a 2% reduction in the post-tax discount rate would lead to a
write-back of £73 million.
The asset is particularly sensitive to changes in commodity price and the table below details average prices for the first 5- and 10-year
periods and associated sensitivities. Note that the asset is valued for its entire economic life and not just this 15-year period.
Five-year liquid and blended-
period price (i)
Ten-year long-term
average price (i)
2024-2028
2023-2027
2029-2038
2028-2037
Change in pre/post-tax write-back/(impairment) (ii)
+10%
-10%
31 December
2023
31 December
2022
31 December
2023
31 December
2022
31 December
2023
31 December
2022
31 December
2023
31 December
2022
Baseload power
£/MWh
71
£/MWh
164
£/MWh
£/MWh
56
68
£m
148
+50%
Five-year liquid
and blended-
period only
325
£m
(198)
£m
£m
198
(191)
-50%
Five-year liquid
and blended-
period only
(672)
(i) Prices are shown in 2022 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 volatility in commodity prices during recent years, a further sensitivity has been included based on a 50% change in liquid and
blend-period commodity prices only. 31 December 2023 sensitivities are impacted by the effect of the Electricity Generator Levy threshold of £75/MWh.
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 the
average forecast prices aligned to the net zero price curves issued by Aurora and Baringa (power analytics providers), 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 (four years) but replaces the longer term thereafter with the average of Aurora and Baringa’s forecast prices for net zero.
154
Financial Statements | Centrica plc Annual Report and Accounts 2023
7. EXCEPTIONAL ITEMS AND CERTAIN RE-MEASUREMENTS
Baseload power (£/MWh)
Ten-year
long-term
average price (i)
Change in
pre/post-tax
impairment (ii)
2029-2038
2023
56
£m
(15)
(i) Prices shown in 2022 real terms. The ten-year long-term average net zero price is the same as the Group’s base case but the annual price profiles differ.
(ii) Change would lead to a small further write-off of the carrying value.
Exceptional impairment assessments of assets measured on a FVLCD basis
Segment
Upstream
Asset/CGU (or group of CGUs) Basis for impairment assessment
Rough gas storage asset
The reduction in both forecast NBP gas prices and
forecast summer/winter NBP gas price spreads
Recoverable
amount (i)
£m
FV hierarchy
Impairment
£m
(183)
L3
82
(i) Recoverable amount includes the decommissioning costs associated with the gas field, together with related tax impacts. The decommissioning provision for Rough at
the year-end is £319 million.
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.
An exceptional impairment has been recorded in 2023 for the Rough gas storage asset measured on a FVLCD basis. No other Upstream
gas assets have been impaired during the year but they still have a significant carrying value on the balance sheet and accordingly further
sensitivities (including for the Rough gas storage asset) are provided in the paragraph below:
Upstream gas assets (including Rough gas storage asset)
For Upstream gas 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 2024 to 2027, 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. Following the implementation of the Energy Profits Levy, the increased tax rates have been
included in the FVLCD calculations until the sunset date of 31 March 2028. For the Rough gas storage asset, in addition to the above
process associated with its cushion gas production, an assessment is also made of value to be derived from cycling gas in and out of the
reservoir (predominantly from summer/winter NBP gas spreads). This assessment utilises the forward market prices noted above and is
also used to calculate the optimum cushion gas production date to maximise the recoverable amount of the asset.
The future post-tax cash flows are discounted using a post-tax nominal discount rate of 11.0% (2022: 10.5%).
As forward commodity prices are a key assumption in these valuations, average prices and associated impairment sensitivities for the
Group’s upstream gas assets are shown below. Note that the fields are valued over their respective economic lives and the 5- and
10-year pricing information shown below is just to provide context. Note that the asset portfolio reserves are predominantly gas (rather
than liquids) and therefore only NBP figures have been shown below.
Five-year liquid and blended-
period price (i)
Ten-year long-term
average price (i)
2024-2028
2023-2027
2029-2038
2028-2037
Change in post-tax write-back/(impairment) (ii)
+10%
-10%
31 December
2023
31 December
2022
31 December
2023
31 December
2022
31 December
2023
31 December
2022
31 December
2023
31 December
2022
NBP (p/th)
71
155
61
75
£m
6
£m
—
£m
(5)
£m
—
+50%
Five-year liquid
and blended-
period only
32
-50%
Five-year liquid
and blended-
period only
(269)
(i) Prices are shown in 2022 real terms.
(ii) Sensitivity relates to Upstream exploration and production assets and CGUs (including gas storage assets). 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 impairment tests.
Given the significant movements in commodity prices during the last few years, a further sensitivity has been included based on a 50% change 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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
155
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 gas demand and forecast prices. As a result, a further sensitivity is disclosed below based on forecast prices
aligned to an average of the International Energy Agency’s (IEA), Aurora and Baringa’s 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 (four years) but replaces the longer term thereafter with the average of these forecast prices for net zero emissions by 2050.
NBP (p/th)
Ten-year
long-term
average price (i)
2029-2038
Change in
post-tax
write-back/
(impairment) (ii)
2023
57
£m
—
(i) Prices shown in 2022 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, as well as most hydrocarbon production being in the liquid period and hence unaffected by net zero pricing.
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.
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 (losses)/gains on revaluation
Notional interest arising from discounting
Other interest charges (i)
Capitalised borrowing costs (ii)
Financing (cost)/income (iii)
Financing
costs
£m
2023
Investment
income
£m
—
(262)
(12)
(274)
(2)
(14)
(290)
(20)
2
(308)
269
—
—
269
—
—
269
—
—
269
Financing
costs
£m
2022
Investment
income
£m
—
(184)
(6)
(190)
—
(3)
(193)
(31)
4
(220)
52
—
—
52
22
3
77
—
—
77
Total
£m
269
(262)
(12)
(5)
(2)
(14)
(21)
(20)
2
(39)
Total
£m
52
(184)
(6)
(138)
22
—
(116)
(31)
4
(143)
(i) Other interest charges includes interest charged on cash collateral, and fees for letters of credit. The cash flow associated is £20 million (2022: £30 million).
(ii) Borrowing costs have been capitalised using an average rate of 8.39% (2022: 5.57%). The capitalised borrowing costs in 2022 relate entirely to the Norwegian assets
(iii)
held for sale, and subsequently disposed of.
Investment income has increased significantly during 2023, and as a result we have amended our Group Income Statement presentation to disclose investment income
and financing costs separately.
156
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
Current tax
UK corporation tax
UK energy profits levy
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 energy profits levy
Change in UK tax rate
UK petroleum revenue tax
Origination and reversal of temporary differences – non-UK
Adjustments in respect of prior years – UK
Adjustments in respect of prior years – non-UK
Total deferred tax
Total UK tax
Total non-UK tax
Total taxation on profit/(loss) for the year (i)
2023
Exceptional
items and
certain re-
measurements
£m
Business
performance
£m
Results for
the year
£m
Business
performance
£m
2022
Exceptional
items and
certain re-
measurements
£m
Results for
the year
£m
(535)
(160)
1
(100)
3
2
(789)
(92)
34
(2)
—
4
7
—
(49)
(744)
(94)
(838)
105
11
—
—
(26)
—
90
(430)
(149)
1
(100)
(23)
2
(699)
(331)
(54)
2
(477)
(47)
(8)
(915)
(262)
21
—
32
24
—
(593)
(33)
2
(445)
(23)
(8)
(185)
(1,100)
(1,312)
(1,404)
(128)
(376)
(342)
(3)
52
(20)
(26)
—
(5)
52
(16)
(19)
—
(1,685)
(1,575)
(20)
(1,734)
(2,319)
(114)
23
(7)
6
(89)
49
15
(131)
(487)
(559)
(1,595)
(2,433)
(1,046)
840
(85)
242
(19)
32
(27)
(5)
978
734
59
793
712
(62)
235
(13)
(57)
22
10
847
247
(500)
(253)
(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 23.5% (2022: 19%). Upstream gas production activities
are taxed at a rate of 30% (2022: 30%), a supplementary charge of 10% (2022: 10%), plus the energy profits levy of 35% (2022: 25%) to
give an overall tax rate of 75% (2022: 65%). Certain upstream gas production assets in the UK are subject to the UK petroleum revenue
tax (PRT) regime at the current tax rate of 0% (2022: 0%).
The UK corporation tax rate increased to 25% effective 1 April 2023, giving an overall rate of 23.5% for the year (being the average of 19%
in the period to 31 March 2023 and 25% thereafter).
Non-UK tax rates
Taxation in non-UK jurisdictions, where the Group has a substantial presence, is calculated at the rate prevailing in those respective
jurisdictions.
The main non-UK rates of corporation tax are 12.5% (2022: 12.5%) in the Republic of Ireland, 22% (2022: 22%) in Denmark and 17%
(2022: 17%) in Singapore.
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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
157
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
(Deduct)/add back share of (profits)/losses of joint ventures
and associates, net of interest and taxation
Tax on profit/(loss) at standard UK corporation tax rate of
23.5% (2022: 19%)
Effects of:
Depreciation/impairment on non-qualifying assets
Other permanent differences
Electricity Generator Levy
Higher rates applicable to Upstream profits/losses
Energy profits levy charge for the year
Energy profits levy re-measurement of deferred tax
balances
Upstream investment incentives
Petroleum revenue tax
Non-UK tax rates (excluding Upstream)
Movements in uncertain tax provisions
(Impairment)/write-back of deferred tax assets relating to
Upstream losses and decommissioning
Changes in UK tax rate
Disposal of Norway business
Prior year adjustment
Other (non-tax deductible)/non-taxable items
Taxation on profit/(loss)
Less: movement in deferred tax
Total current tax
2023
Exceptional
items
and certain
re-measurements
£m
Business
performance
£m
Results for
the year
£m
Business
performance
£m
2022
Exceptional
items
and certain
re-measurements
£m
Results for
the year
£m
2,713
3,760
6,473
3,165
(3,548)
(383)
(209)
2,504
1
(208)
3,761
6,265
(92)
3,073
(1)
(3,549)
(93)
(476)
(588)
(884)
(1,472)
(584)
674
(1)
(16)
(67)
(44)
(133)
7
—
—
6
(1)
—
(2)
—
12
(11)
(838)
49
(789)
(129)
1
—
(180)
(395)
30
—
52
17
—
(55)
(3)
—
(52)
3
(130)
(15)
(67)
(224)
(528)
37
—
52
23
(1)
(55)
(5)
—
(40)
(8)
1
—
—
(429)
(31)
—
32
1
(28)
(13)
(1)
(7)
—
9
4
(1,595)
(2,433)
(1,046)
1,685
1,734
90
(699)
131
(915)
37
—
—
(112)
(212)
148
—
—
(32)
—
121
242
(69)
(8)
4
793
(978)
(185)
90
38
—
—
(541)
(243)
148
32
1
(60)
(13)
120
235
(69)
1
8
(253)
(847)
(1,100)
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 Group’s uncertain tax provision relates to differences in the interpretation of tax legislation in the UK and Canada. Due to the
uncertainty associated with such tax items, there is a possibility that, on conclusion of open tax matters at a future date, the final outcome
may differ. The uncertain tax provision represents management’s assessment of the likely outcome of each issue.
At 31 December 2023 the provision for uncertain tax items was £43 million (2022: £42 million). The Group provided an indemnity to Sval
Energi following the sale of Spirit Energy’s Norwegian business and the transfer of the legal liabilities in respect of open tax disputes. Any
movement in the underlying indemnity (excluding movements attributable to foreign exchange rates) will be recorded through the profit
before tax of the Group. As at 31 December 2023 the indemnity in respect of the tax disputes was £123 million (2022: £129 million).
158
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 profitability across the territories in which it operates.
Effective tax rates may also fluctuate where profits and losses cannot be offset for tax purposes. For example, losses arising in one
territory cannot be offset against profits in another.
The Group’s effective tax rate is dependent on the proportion of Group profits and losses arising from its UK upstream and nuclear
activities relative to lower taxed UK and other jurisdictions’ profits and losses.
The headline rate of tax on ring fence profits from gas production in the UK was 75% (consisting of ring fence corporation tax of 30%,
supplementary charge of 10%, and the Energy Profits Levy of 35%) versus 23.5% UK statutory corporation tax rate.
The Energy Profits Levy is a temporary measure and will apply to gas production profits until 31 March 2028. However, on 9 June 2023
the UK Government announced the Energy Security Investment Mechanism. As a result, the Energy Profits Levy will cease to apply if
average oil and gas prices fall to historically normal levels for two consecutive quarters. Based on 20-year averages, normal levels would
be achieved where both average oil and gas prices fall to, or below, US$71.40 per barrel for oil and £0.54 per therm for gas. If the Energy
Profits Levy ceases to apply, the headline rate on ring fence profits will reduce to 40%. Based on the independent Office for Budget
Responsibility’s forecast, the Energy Security Investment Mechanism is not expected to be triggered before the planned end date for
Energy Profits Levy of 31 March 2028.
PRT is set at 0% but may still give rise to historic refunds from the carry-back of excess reliefs (for example, from decommissioning).
The Electricity Generator Levy applies from 1 January 2023 to 31 March 2028 at the tax rate of 45% to electricity generation revenues,
which will be determined by reference to revenue from sales exceeding a benchmark price of £75/MWh. The benchmark price is indexed
on 1 April each year by reference to Consumer Price Index for the previous December.
The Electricity Generator Levy is not an income tax for accounting purposes and therefore is included in the Group’s cost of sales and our
share of the results of joint ventures and associates operating profits and is not deductible for the purposes of UK corporation tax. The
Electricity Generator Levy is a wholly new type of levy and there remains some uncertainty over how the provisions are to be applied and
consequently the amount of levy payable. See note 1(b) for details of the uncertainties regarding the application of the Electricity Generator
Levy to the Group’s revenues.
The Group monitors income tax developments in all the jurisdictions in which the Group operates, including the OECD Base Erosion and
Profit Shifting (BEPS) initiative (Pillar 2), which may affect the Group’s tax liabilities. On 8 October 2022, more than 135 countries of the
OECD Inclusive Framework on BEPS committed to fundamental changes to the international corporate tax system. This includes a
proposed global minimum corporation tax rate set at 15% for financial years beginning in 2024. Steps to introduce a global minimum
corporation tax have been enacted in 2023 in the jurisdictions in which the Group operates.
The Group does not expect its tax liabilities to be materially increased as a result of the implementation of the Pillar 2 rules. The Group is
currently assessing their detailed impact, but the Republic of Ireland is the only jurisdiction that is likely to be affected. The Republic of
Ireland has enacted a minimum corporate tax rate of 15% with effect from 1 January 2024, increasing the rate from its current 12.5%. The
impact on the Group’s effective tax rate based on 2023 profits is less than 1%.
(d) Relationship between current tax charge and taxes paid
Year ended 31 December
Current tax charge/(credit):
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
Taxes paid/(refunded):
Corporation tax
Petroleum revenue tax
2023
2022
UK
£m
Non-UK
£m
Total
£m
UK
£m
Non-UK
£m
Total
£m
602
(1)
601
(29)
572
690
(3)
687
98
—
98
—
98
116
—
116
700
(1)
699
(29)
670
806
(3)
803
803
649
(2)
647
(29)
618
261
(18)
243
453
—
453
—
453
331
—
331
1,102
(2)
1,100
(29)
1,071
592
(18)
574
574
Included in the following lines of the Group Cash Flow Statement:
Taxes paid in net cash flows
(i) Current tax movements relating to pension deficit payments are reported in other comprehensive income.
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.
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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
159
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
£3,929 million (2022: loss of £782 million) by the weighted average number of ordinary shares in issue during the year of 5,569 million
(2022: 5,869 million). The number of shares excludes 339 million ordinary shares (2022: 32 million), being the weighted average number of
the Company’s own shares held in the employee share trust and treasury shares repurchased during the year by the Group as part of the
share buyback programme. These 339 million shares do not include shares expected to be repurchased as part of the Group’s share
buyback programme during 2024. See note S4.
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 ordinary shares
as adjusted for 91 million (2022: 68 million) potentially dilutive ordinary shares as the denominator, unless it has the effect of increasing the
profit or decreasing the loss attributable to each ordinary share.
Basic to basic adjusted earnings per ordinary share reconciliation
Year ended 31 December
Earnings – basic
Net exceptional items after taxation (notes 2 and 7) (i)
Certain re-measurement (gains)/losses after taxation (notes 2 and 7) (i)
Earnings – adjusted basic
Earnings – diluted (ii)
Earnings – adjusted diluted
2023
Pence per
ordinary share
£m
3,929
600
(2,670)
1,859
70.6
10.8
(48.0)
33.4
2022
£m
(782)
279
2,553
2,050
Pence per
ordinary share
(13.3)
4.8
43.4
34.9
3,929
69.4
(782)
(13.3)
1,859
32.8
2,050
34.5
(i) Net exceptional items after taxation and certain re-measurement losses 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.
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 buyback programmes.
Prior year final dividend
Interim dividend
2023
Pence per
ordinary share
£m
Date of
payment
113
73
186
2.00 20 Jul 2023
1.33 16 Nov 2023
2022
Pence per
ordinary share
—
Date of
payment
—
1.00 17 Nov 2022
£m
—
59
59
The Directors propose a final dividend of 2.67 pence per ordinary share for the year ended 31 December 2023 (which would total £144
million based on shareholding at that date). The dividend will be paid on 11 July 2024 to those shareholders registered on 31 May 2024.
The Company 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 230. At 31 December 2023,
Centrica plc’s Company-only distributable reserves were c.£4.5 billion (2022: c.£2.9 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.
160
Financial Statements | Centrica plc Annual Report and Accounts 2023
12. ACQUISITIONS AND DISPOSALS
This section details business combinations, asset acquisitions and disposals made by the Group.
During the year, Centrica Business Solutions acquired a number of companies with existing grid connections for the purpose of building
power assets in line with the Group’s strategy of being a flexible energy provider. The total consideration was £34 million with one
transaction being accounted for as a business combination and the remainder as asset acquisitions. There have been no other material
acquisitions or disposals either individually or in aggregate. There have been no material updates to the fair value of assets and liabilities
recognised for businesses acquired in 2022.
During the year, the Group increased its equity holding in Greener Ideas Limited from 50% to 80% for consideration of £nil at which point it
obtained control and started acquisition accounting. Property, plant and equipment of £44 million was acquired as part of this acquisition
alongside debt which meant that no goodwill arose.
During the period, deferred consideration of £55 million was received in respect of the Spirit Norway disposal in 2022 and £17 million was
distributed to SWM Bayerische E&P Beteiligungsgesellschaft mbH.
Financial Statements | Centrica plc Annual Report and Accounts 2023
161
13. PROPERTY, PLANT AND EQUIPMENT
PP&E includes significant investment in power generating assets, storage assets and gas and liquid production assets.
Once operational, all assets are depreciated over their useful lives.
(a) Carrying amounts
Cost
1 January
Acquisitions (i)
Additions and capitalised
borrowing costs
Disposals/retirements
Write-downs
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 (ii)
Impairments/(write-backs)
Disposals/retirements
Exchange adjustments
31 December
NBV at 31 December
2023
Plant,
equipment
and
vehicles
£m
Land and
buildings
£m
Gas
production
and
storage
£m
Power
generation
£m
Plant,
equipment
and
vehicles
£m
2022
Power
generation
£m
Gas
production
and
storage
£m
Total
£m
Total
£m
Land and
buildings
£m
235
691
199 11,517 12,642
1
7
70
—
78
259
—
575
—
205 11,339 12,378
—
—
—
53
123
108
89
373
—
117
12
123
252
(8)
—
(33)
—
(3)
—
—
—
(44)
—
(33)
—
(21)
—
(27)
—
(29)
(64)
(110)
(64)
4
—
2
92
98
1
—
—
67
68
12
50
(3)
294
(13)
825
—
(4)
8
70
—
(7)
(32)
(52)
372 11,674 13,165
8
235
27
691
—
9
—
(7)
81
125
199 11,517 12,642
131
24
3
(8)
(1)
149
145
396
45 10,322 10,894
131
329
85
18
(32)
(3)
464
361
12
274
2
(3)
(1)
82
—
(27)
395
105
(43)
(32)
55 10,651 11,319
317
1,023
1,846
22
4
(28)
2
131
104
81
(2)
(19)
7
396
295
63
15
(10)
(25)
2
9,870 10,393
392
20
(29)
69
510
12
(101)
80
45 10,322 10,894
154
1,195
1,748
(i) Acquisitions includes £44 million relating to the step-up of the investment in Greener Ideas Limited from joint venture to subsidiary during the year. See note 12 for further
details.
(ii) Depreciation of £324 million (2022: £441 million) has been recognised in cost of sales, and £71 million (2022: £69 million) in operating costs before exceptional items.
162
Financial Statements | Centrica plc Annual Report and Accounts 2023
13. PROPERTY, PLANT AND EQUIPMENT
(b) Assets in the course of construction included in above carrying amounts
31 December
Plant, equipment and vehicles
Gas production and storage
Power generation
2023
£m
99
29
166
(c) Additional information relating to right-of-use assets included in the above
2023
2022
Plant,
equipment
and
vehicles
£m
Land and
buildings
£m
Power
generation
£m
Gas
production
and
storage
£m
47
(23)
41
(65)
123
223
—
—
—
—
(10)
14
Plant,
equipment
and
vehicles
£m
Land and
buildings
£m
Power
generation
£m
Gas
production
and
storage
£m
—
(21)
86
54
(66)
207
—
—
—
—
(12)
16
Total
£m
88
(98)
360
Additions
Depreciation charge for the year
NBV at 31 December
Further information on the Group’s leasing arrangements is provided in note 23.
2022
£m
33
61
27
Total
£m
54
(99)
309
Financial Statements | Centrica plc Annual Report and Accounts 2023
163
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 UK nuclear power station fleet.
(a)
Interests in joint ventures and associates
2023
2022
Investments in
joint ventures
and associates
£m
Investments in
joint ventures
and associates
£m
1,580
1,628
9
(549)
208
(95)
(220)
(28)
(2)
903
Total
£m
3,888
780
4,668
(270)
(2,449)
(2,719)
(1,046)
903
18
195
93
(293)
(60)
—
(1)
1,580
2022
Total
£m
4,196
842
5,038
(348)
(2,613)
(2,961)
(497)
1,580
1 January
Additions (i)
(Impairments)/write-backs (ii)
Share of profit for the year
Share of other comprehensive loss (iii)
Dividends
Disposals (iv)
Other movements
31 December
(i) The £9 million in 2023 relates to cash injections into Greener Ideas Limited.
(ii) The £549 million in 2023 relates to nuclear investment impairment (2022: £195 million write-back). See note 7 for further details.
(iii) Share of other comprehensive loss mainly relates to actuarial changes on pension schemes within the nuclear investment.
(iv) In 2023, the Group increased its equity interest in Greener Ideas Limited and obtained control of the entity from that point.
(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
Associates
Nuclear
£m
2023
Other
£m
3,888
780
4,668
(270)
(2,449)
(2,719)
(1,046)
903
—
—
—
—
—
—
—
—
Net cash included in share of net assets
99
—
99
112
Further information on the Group’s investments in joint ventures and associates is provided in notes 6 and S10.
164
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
2023
Customer
relationships
and brands
£m
Application
software
(i)(ii)
£m
EUA/
ROC/
REC (iii)
£m
Exploration
and
evaluation
expenditure
£m
Goodwill
£m
Total
£m
Customer
relationships
and brands
£m
Application
software
(i)(ii)
£m
2022
Exploration
and
evaluation
expenditure
£m
EUA/
ROC/
REC
£m
Goodwill
£m
Total
£m
208
1,510
280
121
680 2,799
201
1,584
213
121
665 2,784
—
4
49
780
—
— 829
— —
—
—
4
—
11
44
799
— —
843
—
—
— —
11
(46)
(38)
(767)
(121)
—
(972)
(9)
(129)
(732)
— —
(870)
Cost
1 January
Additions and capitalised
borrowing costs
Acquisitions
Disposals/retirements
and surrenders
Exchange adjustments
(2)
(6) —
31 December
164
1,515
293
—
—
(7)
(15)
5
11
—
—
15
31
673 2,645
208
1,510
280
121
680 2,799
Accumulated
amortisation and
impairment
1 January
Amortisation (iv)
Disposals/retirements
and surrenders
Impairments
Exchange adjustments
31 December
NBV at 31 December
111
1,180 —
121
271 1,683
16
107 —
—
— 123
95
17
1,143
142
—
—
121
264 1,623
— —
159
(46)
(38) —
(121)
—
(205)
(9)
(129)
—
— —
(138)
5
(2)
84
80
10 —
(4) —
1,255 —
260
293
—
—
—
—
—
(3)
15
(9)
268 1,607
405 1,038
5
3
15
9
111
1,180
—
—
—
— —
—
7
20
19
121
271 1,683
97
330
280
—
409 1,116
(i) Application software includes assets under construction with a cost of £110 million (2022: £83 million).
(ii) The remaining amortisation period of individually material application software assets, which had a carrying value of £65 million (2022: £100 million), is between 0 and
5 years. Additionally, there is £82 million (2022: £61 million) of individually material software assets under construction.
(iii) The Group has assessed the expected submission dates of EUA/ROC/RECs currently held and where they are expected to be surrendered within a year of purchase, they
are presented within current assets, otherwise as non-current. At 31 December 2023, £293 million is presented within current assets. See note 1 for further details.
(iv) Amortisation of £123 million (2022: £159 million) has been recognised in operating costs before exceptional items.
Financial Statements | Centrica plc Annual Report and Accounts 2023
165
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. See note S2 for further details on impairment assumptions.
Principal acquisitions to which
goodwill and intangibles with
indefinite useful lives relate
Carrying
amount of
goodwill
£m
Carrying amount of
indefinite-lived
intangible assets (i)
£m
Carrying
amount of
goodwill
£m
Carrying amount of
indefinite-lived
intangible assets (i)
£m
Total
£m
2023
2022
31 December
CGUs
British Gas Services & Solutions AlertMe/Dyno-Rod
British Gas Energy
Enron Direct/Electricity Direct
Centrica Business Solutions
– Energy supply
Bord Gáis Energy
Centrica Energy
Enron Direct/Electricity Direct
Bord Gáis Energy
Neas Energy
63
121
60
16
145
405
57
—
—
—
—
57
120
121
60
16
145
462
63
121
60
16
149
409
57
—
—
—
—
57
(i) 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. See note 3(c).
Total
£m
120
121
60
16
149
466
166
Financial Statements | Centrica plc Annual Report and Accounts 2023
16. DEFERRED TAX LIABILITIES AND ASSETS
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.
Accelerated tax
depreciation
(corporation tax)
£m
Net
decommissioning (i)
£m
Losses
carried
forward (ii)
£m
Other timing
differences
£m
Marked-to-
market
positions
£m
Net deferred
PRT (iii)
£m
Retirement
benefit
obligation and
other
provisions
£m
1 January 2022
(Charge)/credit to income
Credit/(charge) to equity
Transferred within held for sale
Exchange and other adjustments
31 December 2022
Credit/(charge) to income
Credit to equity
Exchange and other adjustments
31 December 2023
(458)
(136)
—
—
(1)
(595)
115
—
—
(480)
556
(101)
—
—
—
455
(13)
—
—
442
187
29
—
—
—
216
(122)
—
—
94
31
(93)
—
70
(4)
4
(6)
6
(5)
(1)
545
1,160
8
—
—
1,713
(1,738)
—
—
(25)
42
(13)
—
—
—
29
52
—
—
81
Total
£m
787
847
2
70
(5)
(116)
1
(6)
—
—
(121)
1,701
(22)
(1,734)
64
—
(79)
70
(5)
32
(i) Net decommissioning includes deferred tax assets of £617 million (2022: £596 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) 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)
2023
Assets
£m
1,007
(551)
456
Liabilities
£m
(975)
551
(424)
2022
Assets
£m
2,481
(772)
1,709
Liabilities
£m
(780)
772
(8)
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 production provide assurance that deferred tax assets
relating to decommissioning costs and certain trading losses will be utilised.
The UK upstream deferred tax assets and liabilities were measured at the headline rate of tax of 75% applicable to the UK gas profits,
consisting of 30% ring fence corporation tax, 10% supplementary charge and 35% energy profits levy.
At the balance sheet date, the Group had £1,402 million (2022 revised: £939 million) unrecognised deductible temporary differences
related to carried forward tax losses and other temporary differences available for utilisation against future taxable profits.
At the balance sheet date, no taxable temporary differences existed in respect of the Group’s overseas investments (2022: £nil).
We have applied the mandatory exception to recognising and disclosing information about the deferred tax assets and liabilities related to
Pillar 2 income taxes in accordance with the amendments to IAS 12 adopted by the UK Endorsement Board on 19 July 2023.
Financial Statements | Centrica plc Annual Report and Accounts 2023
167
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 expected credit losses. 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 income
Cash collateral posted
Supplier of Last Resort receivables
Government scheme receivables
Other receivables (including contract assets)
Less: provision for credit losses
Non-financial assets: prepayments, other receivables and costs to obtain a contract with a
customer (ii)
2023
2022
Current
£m
Non-current
£m
Current
£m
Non-current
£m
2,991
1,065
1,782
76
260
45
—
176
6,395
(1,309)
5,086
323
5,409
—
—
—
—
—
3
—
101
104
—
104
106
210
2,207
1,281
3,179
324
1,154
253
284
346
9,028
(872)
8,156
294
8,450
—
—
—
—
—
22
—
24
46
—
46
83
129
(i) Trading and energy procurement counterparty receivables are typically with customers with external, published credit ratings. Such receivables have typically much lower
(ii)
credit risk than downstream counterparties, are settled in a short period of time and expected credit losses are not significant.
Includes costs of £10 million (2022: £14 million) incurred to obtain contracts with customers in the British Gas Energy and British Gas Services & Solutions segments.
Costs are amortised over the expected tenure of the customer contract. See note S2.
The amounts above include gross amounts receivable arising from the Group’s IFRS 15 contracts with customers of £2,782 million
(2022: £2,325 million). Additionally, accrued income of £1,115 million (2022: £1,371 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 business type:
Residential customers (i)
Business customers
Treasury, trading and energy procurement counterparties
Less: provision for credit losses
2023
2022
Current
£m
Non-current
£m
Current
£m
Non-current
£m
2,725
1,516
2,154
6,395
(1,309)
5,086
3
98
3
104
—
104
2,755
1,750
4,523
9,028
(872)
8,156
22
22
2
46
—
46
(i) Residential customers include current other receivables of £45 million (2022: £253 million) and non-current other receivables of £3 million (2022: £22 million) in relation to
SoLR claims, see note 3(a) for further details.
168
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 and business customers in the UK. Movements in the provision for credit losses by
business type are as follows:
2023
2022
Residential
customers
£m
Business
customers
£m
Treasury,
trading
and energy
procurement
counterparties
£m
Total
£m
Residential
customers
£m
Business
customers
£m
Treasury,
trading
and energy
procurement
counterparties
£m
Total
£m
1 January
(567)
(305)
—
(872)
(426)
(207)
—
(633)
Increase in impairment of trade receivables
(predominantly related to credit impaired trade
receivables) (i) (ii) (iii)
Receivables written off (iv)
31 December
(396)
113
(850)
(198)
60
(443)
(16)
—
(610)
173
(234)
(124)
93
26
(16)
(1,309)
(567)
(305)
—
—
—
(358)
119
(872)
Includes £587 million (2022: £348 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 £8 million (2022: £7 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. The gross carrying value of write-offs related to trade receivables where
enforcement activity is ongoing was £142 million (2022: £105 million).
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)
2023
£m
(610)
8
(602)
2022
£m
(358)
7
(351)
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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
169
17. TRADE AND OTHER RECEIVABLES AND CONTRACT-RELATED ASSETS
Credit loss charge 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)
2023
£m
4,403
1,992
6,395
2022
£m
7,414
1,614
9,028
(i) The majority of balances that are past due relate to residential and business customers, ageing of these receivables is included in the credit risk tables in the
sections below.
The IFRS 9 impairment model is applicable to the Group’s financial assets including trade receivables, contract assets and other financial
assets using the simplified approach 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 continues to recover amounts receivable under the Last Resort Supplier Payment mechanism which was triggered when the
Group was appointed as a Supplier of Last Resort to a number of energy suppliers who ceased to trade during 2021 and 2022. In
accordance with Ofgem licence conditions, the Group submitted two claims for incremental costs reasonably incurred to supply affected
customers. The first of these claims has now been settled, and the second is being settled in twelve monthly payments ending in April
2024. A further smaller claim is in process and expected to be settled by April 2025. The receivable outstanding at 31 December 2023 is
£48 million (31 December 2022: £275 million). The claims are settled by network operators, to whom the Group separately pays
transmission and distribution charges. The risk of default is considered low. In addition, Ofgem has the power under licensing conditions
to take enforcement action against default in accordance with its statutory duties and its enforcement guidelines.
The Group’s cash collateral balance has decreased to £260 million in 2023 (2022: £1,154 million) as a result of lower commodity prices.
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. See note S3.
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 and wider macroeconomic information. The disclosures below reflect the information that is reported internally for credit
risk management purposes in these segments.
170
Financial Statements | Centrica plc Annual Report and Accounts 2023
17. TRADE AND OTHER RECEIVABLES AND CONTRACT-RELATED ASSETS
British Gas Energy credit risk
Of the Group total of £2,991 million (2022: £2,207 million) billed trade receivables, the British Gas Energy reporting segment contributes
£2,380 million (2022: £1,531 million). British Gas Energy includes small business customers 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 £1,651 million (2022: £992 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
Total net British Gas
residential energy
customers trade
receivables
<30 days
£m
30-90 days
£m
2023
>90 days
£m
Total
£m
Percentage
of credit risk
<30 days
£m
30-90 days
£m
2022
>90 days
£m
Total
£m
Percentage
of credit risk
310
—
310
114
(4)
110
21
(4)
17
55
—
55
71
(9)
62
27
(12)
15
171
(7)
164
650
(412)
238
232
(199)
33
536
(7)
529
835
(425)
410
280
(215)
65
1%
51%
77%
216
—
216
118
(4)
114
12
(3)
9
51
—
51
54
(7)
47
13
(6)
7
66
(23)
43
286
(180)
106
176
(140)
36
333
(23)
310
458
(191)
267
201
(149)
52
7%
42%
74%
437
132
435
1,004
39%
339
105
185
629
37%
(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 2023 are £154 million (2022: £203 million), against which a provision of
£117 million is held (2022: £138 million).
(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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
171
17. TRADE AND OTHER RECEIVABLES AND CONTRACT-RELATED ASSETS
Gross receivables from British Gas Energy small business customers amount to £575 million (2022: £336 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
<30 days
£m
30-90 days
£m
2023
>90 days
£m
Total
£m
Percentage
of credit risk
<30 days
£m
30-90 days
£m
2022
>90 days
£m
Total
£m
Percentage
of credit risk
115
(3)
53
407
(8)
(302)
575
(313)
64
(1)
21
251
(2)
(191)
336
(194)
112
45
105
262
54%
63
19
60
142
58%
(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. Standard credit terms for small business customers are ten working days.
Unbilled downstream energy income at 31 December 2023 includes gross balances of £693 million in respect of British Gas energy
customers (2022: £880 million), against which a provision of £56 million is held (2022: £36 million).
Centrica Business Solutions energy credit risk
Of the Group total of £2,991 million (2022: £2,207 million) billed trade receivables, the Centrica Business Solutions reporting segment
contributes £313 million (2022: £390 million). As described above, credit risk is concentrated in receivables from business energy
customers who pay in arrears, the remaining balances being immaterial in disaggregation. Gross receivables from these customers
amount to £269 million (2022: £346 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
Gross receivables
Provision
Net
Total net Centrica
Business Solutions
business energy
customers trade
receivables
<30 days
£m
30-90 days
£m
2023
>90 days
£m
Total
£m
Percentage
of credit risk
<30 days
£m
30-90 days
£m
2022
>90 days
£m
Total
£m
Percentage
of credit risk
75
—
75
50
—
50
9
—
9
19
(1)
18
26
(13)
13
90
(57)
33
110
(13)
97
159
(58)
101
12%
36%
170
—
170
47
—
47
9
—
9
15
—
15
31
(15)
16
74
(49)
25
210
(15)
195
136
(49)
87
7%
36%
125
27
46
198
26%
217
24
41
282
18%
(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. Standard credit terms for medium-sized entity 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 2023 includes gross balances of £239 million in respect of Centrica Business
Solutions business energy customers (2022: £349 million), against which a provision of £14 million is held (2022: £14 million).
The remaining reporting segments which are not shown above are not considered to have material credit risk.
172
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 and high wholesale gas and electricity costs 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.
Customers are facing increases in their cost of living, including increased energy bills, higher inflation and higher interest rates. The Group
has considered macroeconomic forecasts and sensitivities, as well as disposable income analysis from a credit rating agency, to model
and determine the level of provisions for credit losses.
During 2023 the Group recognised credit losses of £602 million (2022: £351 million) in respect of financial assets, representing 2.3%
of total Group revenue (2022: 1.5%) and 1.8% of total Group revenue from business performance (2022: 1.0%). 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
Solutions. Credit losses in respect of these assets amounted to £554 million (2022: £331 million). This represents 2.6% (2022: 2.1%)
of total UK downstream energy supply revenue from these segments of £21,046 million (2022: £15,814 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
Trade receivables (i)
Provision
Net balance
Provision coverage
Sensitivity
Impact on billed receivables/operating profit from 1 percentage point (increase)/decrease in provision coverage (ii)
31 December
2023
£m
31 December
2022
£m
2,991
(1,240)
1,751
2,207
(822)
1,385
31 December
2023
%
31 December
2022
%
41
£m
37
£m
(30)/30
(22)/22
(i) Excludes the Government receivables under the Energy Price Guarantee (EPG) and Energy Bill Relief Scheme (EBRS) schemes of £nil (2022: £284 million) which are not
provided for.
(ii) Credit risk in the Group is impacted by a large number of interacting factors.
Financial Statements | Centrica plc Annual Report and Accounts 2023
173
17. TRADE AND OTHER RECEIVABLES AND CONTRACT-RELATED ASSETS
Overall billed debt levels have increased significantly. Credit provisions have accordingly increased, primarily caused by the declining levels
of cash collection performance. This has resulted in decreased recovery rates and increased provision rates for customers in the Group’s
downstream operations. Within this portfolio, the continued deterioration seen in the payment on receipt of bill collections performance,
coupled with a change in the mix of debt within the portfolio, has particularly driven the increase in provision rates.
The macroeconomic environment remains challenging with higher inflation, higher interest rates, lower growth projections and more limited
government support measures. The collection performance in relation to customers who pay on receipt of bill has declined steadily, with
more customers being unable to pay their energy bills due to the cost of living crisis. The impact has been further exacerbated by the
suspension of all field activity since January 2023, following the investigation into certain prepayment meter installation activity.
There remains significant uncertainty around the persistent impact of these factors on bad debt. Leading debt indicators including the
number of customers going into debt, insolvency volumes in business and direct debit cancellation rates in residential have continued to
deteriorate during 2023. High commodity prices and the delayed impact on customer payments have not yet been fully reflected in the
underlying matrix output model used to record provision coverage, partly due to the continued inclusion of Government support measures
which only ended in June 2023. Therefore, as part of management’s assessment of adequacy of bad debt provisions, a £50 million
increase to the macroeconomic provision has been recorded, the provision now totals £175 million across billed and unbilled debt and is
included in the tables both above and below (2022: £125 million). Management considers the impact of specific cohorts of customers
referenced in the previous tables when making this assessment, recognising the different credit terms and different risk profiles that exist.
This assessment also utilises a range of factors, both internal and external, historic and forward-looking, and considers the sensitivities of
these to help management estimate the likely recovery of debt.
It remains uncertain as to when and how these factors will reduce the collectability of debt and at what scale. The impact of future
changes in commodity prices may also impact this. The table above and the unbilled section below provide details of the sensitivity of
moving the 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 2023, taking
into account cash collection cycles in those areas of the Group and credit rating information (see note S3).
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
2023
£m
31 December
2022
£m
1,065
1,281
(69)
996
(50)
1,231
31 December
2023
%
31 December
2022
%
6
£m
4
£m
(11)/11
(13)/13
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 in storage and transportation (i)
Other raw materials and consumables
Finished goods and goods for resale
2023
£m
824
120
135
2022
£m
1,076
114
79
1,079
1,269
(i) Includes gas in storage held at fair value of £263 million (2022: £539 million).
The Group consumed £1,912 million of inventories (2022: £3,508 million) during the year. Write-downs amounting to £5 million
(2022: £6 million) were charged to the Group Income Statement in the year. Reversals of write-downs amounted to £nil (2022: £9 million)
during the year.
174
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 uses derivatives to hedge exchange risk.
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 or a cash flow 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.
Held for trading and fair
value hedges.
Changes in fair value recognised in the Group’s business performance results for the
year.
Treasury management.
Cash flow hedges.
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
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
2023
2022
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
1,733
1,418
85
(1,715)
(993)
(144)
1,723
5,355
275
(5,400)
(4,256)
(268)
—
36
(136)
(18)
37
37
(221)
(6)
3,272
(3,006)
7,427
(10,151)
2,373
(2,391)
899
(615)
6,034
1,393
(8,841)
(1,310)
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
Other derivative contracts including structured gas sale and purchase arrangements
Net total
Net gains/(losses) on derivative financial instruments due to change in fair value
31 December
Financial assets and liabilities measured at fair value:
Derivative financial instruments – held for trading
Derivative financial instruments in hedge accounting relationships
2023
£m
2022
£m
1,163
(720)
443
(214)
(2,364)
(2,578)
2023
Income
Statement
£m
3,024
48
3,072
Equity
£m
—
(13)
(13)
2022
Income
Statement
£m
(4,568)
(228)
(4,796)
Equity
£m
—
(10)
(10)
Financial Statements | Centrica plc Annual Report and Accounts 2023
175
20. TRADE AND OTHER PAYABLES AND CONTRACT LIABILITIES
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 (ii)
Accruals:
Commodity costs
Transportation, distribution and metering costs
Operating and other accruals
Non-financial liabilities:
Other payables and accruals (iii)
Contract liabilities
Deferred income (iv)
2023
2022
Current
£m
Non-current
£m
Current
£m
Non-current
£m
(474)
(1,178)
(152)
(184)
(389)
(2,464)
(319)
(942)
(3,725)
(6,102)
(761)
(30)
(107)
(4)
—
—
—
(197)
—
—
—
—
(201)
—
(3)
(3)
(481)
(538)
(158)
(601)
(479)
(5,371)
(377)
(765)
(6,513)
(8,770)
(701)
(37)
(508)
(4)
—
—
—
(150)
—
—
—
—
(154)
(1)
(7)
(3)
(7,000)
(207)
(10,016)
(165)
(i)
Includes downstream customer credit balances for amounts billed in advance of energy supply. The amount naturally peaks over summer as customers consume less
and will unwind as consumption of gas and electricity increases over winter.
(ii) Other payables includes share buyback liability of £94 million (2022: £207 million). See note S4 for further details.
(iii) Other non-financial payables and accruals includes ROCs creditors of £600 million (2022: £588 million).
(iv) Deferred income includes £nil (2022: £440 million) from the Energy Bill Support Scheme which finished in 2023.
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
2023
£m
2022
£m
(5,653)
(8,383)
(194)
(255)
(217)
(170)
(6,102)
(8,770)
176
Financial Statements | Centrica plc Annual Report and Accounts 2023
21. PROVISIONS FOR 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, along with onerous supply contracts. Further provisions
relate to restructuring costs, and legal and regulatory matters.
1 January 2023
£m
Charged in the
year
£m
Notional
interest
£m
Unused and
reversed in
the year
£m
Utilised
£m
Revisions and
additions
£m
Transfers (v)
£m
Exchange
adjustments
£m
31 December
2023
£m
Current
Restructuring costs
Decommissioning
costs (i) (ii)
Onerous contracts
provision (iii)
Other (iv)
Total
(15)
(216)
(937)
(45)
(6)
—
(19)
(89)
(1,213)
(114)
—
—
—
—
—
6
3
—
173
359
7
372
568
26
770
—
—
—
—
—
(1)
2
(11)
(89)
—
(132)
—
(4)
(94)
(1)
(1)
—
(30)
(106)
(279)
1 January 2023
£m
Charged in the
year
£m
Notional
interest
£m
Unused and
reversed in
the year
£m
Revisions and
additions
£m
Transfers (v)
£m
Exchange
adjustments
£m
31 December
2023
£m
Non-current
Restructuring costs
Decommissioning costs (i) (ii)
Onerous contracts provision (iii)
Other (iv)
Total
(5)
(1,298)
(99)
(44)
(1,446)
—
(80)
(2)
(7)
(89)
—
(21)
—
—
(21)
—
7
75
5
87
—
(94)
—
(4)
(98)
1
89
—
4
94
—
2
1
1
4
(4)
(1,395)
(25)
(45)
(1,469)
Included within the above liabilities are the following financial liabilities:
31 December
Restructuring costs
Provisions other than restructuring costs
Maturity profile of decommissioning provisions
31 December
2024-2028
2029-2033
2034-2038
2039-2043
2044-2048
2049-2053
2023
2022
Current
£m
Non-current
£m
Current
£m
Non-current
£m
(11)
(123)
(134)
(4)
(60)
(64)
(15)
(973)
(988)
(5)
(132)
(137)
2023
£m
(445)
(908)
(162)
(10)
(1)
(1)
(1,527)
(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 above. The rate used to discount
decommissioning provisions is 1% (2022: 1%). See note 3.
Included in the provision balance as at 31 December 2023 is £1,191 million held in Spirit Energy, £319 million in relation to the Rough field, and £17 million in the
remainder of the business.
(ii)
(iii) The provision balance at 31 December 2022 primarily comprised the onerous supply contract provision of £999 million. This provision has been fully unwound during
2023, see note 3(b).
(iv) Other provisions have been made for dilapidations, insurance, legal, warranty and various other claims.
(v) Relates to amounts transferred between current and non-current provisions.
Financial Statements | Centrica plc Annual Report and Accounts 2023
177
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
Type of benefit
Status
Country
Centrica Engineers Pension
Scheme
Defined benefit final salary pension
Closed to new members in 2006 UK
Defined benefit career average pension Closed to new members in 2022 UK
Centrica Pension Plan
Defined benefit final salary pension
Closed to new members in 2003 UK
Centrica Pension Scheme
Defined benefit final salary pension
Closed to new members in 2003 UK
Defined benefit career average pension Closed to new members in 2008 UK
Defined contribution pension
Open to new members
Bord Gáis Energy Company
Defined Benefit Pension Scheme
Defined benefit final salary pension
Closed to new members in 2014
Bord Gáis Energy Company
Defined Contribution Pension Plan Defined contribution pension
Open to new members
UK
Republic
of Ireland
Republic
of Ireland
Number of
active
members
as at
31 December
2023
Total
membership
as at
31 December
2023
1,483
2,761
1,400
8,402
7,179
8,408
1
10,120
734
4,191
11,409
22,848
89
169
317
455
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 2021 and the Bord Gáis Energy Company Defined Benefit Pension Scheme at 1 January 2023. These
valuations have been updated to 31 December 2023 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 seven directors: two
independent directors (including the Chair), two directors appointed by Centrica plc 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 2021
valuation.
178
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 tolerance to scheme valuation risk in 2019, increasing inflation and interest rate hedges from one
third to two thirds, and further de-risked thereafter such that there was an 85% hedge level (in relation to assets) at 2021 year-end. This
de-risking included the use of collateralised gilt holdings in the Schemes’ Liability-Driven Investment (LDI) portfolio (shown in the Pension
scheme asset table in section (f) of this note within Liability matching assets).
Throughout 2022 and in particular during September, there were significant increases and volatility in gilt yields. This led to a significant fall
in the value of assets invested in the UK Registered Pension Schemes’ LDI funds, thereby driving collateral calls and temporarily reducing
the hedge position. All liquid credit mandates were placed into redemption with proceeds directed to the LDI portfolio to increase collateral
and reduce leverage.
In October 2022, the Group agreed to provide the Schemes with a £400 million two-year revolving, unsecured, interest-bearing credit
facility, and a short-term £150 million loan. This money was immediately drawn down to purchase physical gilts to reduce the extent of
interest rate and inflation risk. The short-term loan was repaid in December 2022 and the remaining £400 million credit facility is scheduled
for repayment in October 2024. At the 2023 year-end, the £400 million loan (together with unpaid interest) is recorded in Securities from a
Centrica plc Group perspective and as a reduction to scheme assets for the UK Registered Pension Schemes. The Securities balance is
included within the Group’s Adjusted net cash/(debt). See note 24(c).
The above events resulted in a reduction of both return-seeking and liquid assets within the portfolio, as well as a higher weighting to
assets that are expected to better manage downside risk. At the 2023 year-end, the LDI and gilts portfolio provides a level of hedging
against movements in long-term interest rates and inflation expectations at around 80% as a proportion of scheme assets. The schemes
also benefit from further hedging arising from the other long-dated income unquoted asset portfolio.
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. Inflation risk is reduced
via the hedging referred to in the Asset volatility section.
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.
High Court ruling
In June 2023, the UK High Court issued a ruling in the case of Virgin Media Limited v NTL Pension Trustees II Limited and others relating
to the validity of certain historical pension changes. This case may have implications for other defined benefit schemes in the UK, although
is subject to possible appeal in 2024. The Group is aware of this legal ruling and is assessing whether there is any potential impact upon
the Group, although currently no conclusion has been reached therefore no quantification of any potential impact has been determined.
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 2023.
Financial Statements | Centrica plc Annual Report and Accounts 2023
179
22. POST-RETIREMENT BENEFITS
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
(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
2023
%
11
5
4
38
42
100
2023
%
2022
%
1.6
2.6
3.0
2.3
2.9
4.6
1.5
2.9
3.3
2.5
3.0
4.7
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
2023
Male
Years
22.0
23.2
Female
Years
23.5
24.6
2022
Male
Years
22.4
23.6
Female
Years
23.9
25.0
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
2023
2022
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
Increase/
decrease in
assumption
1.00%
1.00%
1.00%
1.00%
1 year
Indicative
effect on
scheme
liabilities %
+/-1
+15/-12
-16/+20
+15/-12
+/-3
Increase/
decrease in
assumption
1.00%
1.00%
1.00%
1.00%
1 year
Indicative
effect on
scheme
liabilities %
+1/-2
+14/-12
-15/+19
+15/-12
+/-2
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.
180
Financial Statements | Centrica plc Annual Report and Accounts 2023
22. POST-RETIREMENT BENEFITS
(d) Amounts included in the Group Balance Sheet
31 December
Fair value of plan assets
Present value of defined benefit obligation
Recognised in the Group Balance Sheet
Presented in the Group Balance Sheet as:
Retirement benefit assets
Retirement benefit liabilities
2023
£m
6,143
(6,260)
(117)
2022
£m
6,312
(6,272)
40
64
(181)
150
(110)
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. The Trustees do not have the unilateral right to wind-up the schemes and cannot unilaterally enhance
member benefits. The Group has not recognised any liability in relation to future contributions under its minimum funding agreement with
the Trustees. No asset ceiling restrictions have been applied in the consolidated Financial Statements.
(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
Interest (expense)/income
Termination benefit
Items included in the Group Statement of Comprehensive Income:
Returns on plan assets, excluding interest income
Actuarial gain from changes to demographic assumptions
Actuarial (loss)/gain 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
31 December
2023
2022
Pension
liabilities
£m
(6,272)
Pension
assets
£m
6,312
Pension
liabilities
£m
(10,666)
Pension
assets
£m
10,666
(22)
(24)
(46)
(291)
1
—
357
(49)
(215)
—
—
—
—
—
300
—
(474)
—
—
—
236
24
257
(2)
(6,260)
(257)
2
6,143
(84)
(21)
(105)
(193)
4
—
34
4,803
(425)
—
—
278
(2)
(6,272)
—
—
—
196
—
(4,559)
—
—
—
264
21
(278)
2
6,312
(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 £72 million (2022: £66 million)
to operating profit in respect of defined contribution pension schemes. This included contributions of £25 million (2022: £20 million) paid
via a salary sacrifice arrangement.
Financial Statements | Centrica plc Annual Report and Accounts 2023
181
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
Other long-dated income assets
Property
Cash pending investment
Loan and interest
Quoted
£m
23
6
18
2,860
—
—
391
—
3,298
2023
Unquoted
£m
503
—
1,238
—
1,204
305
—
(405)
2,845
Total
£m
526
6
1,256
2,860
1,204
305
391
(405)
6,143
Quoted
£m
19
24
106
2,835
—
—
205
—
2022
Unquoted
£m
486
—
1,331
—
1,343
366
—
(403)
3,189
3,123
Total
£m
505
24
1,437
2,835
1,343
366
205
(403)
6,312
Unquoted private equity, other long-dated income assets 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 and receive greater scrutiny now that unquoted assets make up a greater proportion of the scheme portfolio. Included within equities
are £nil of ordinary shares of Centrica plc (2022: £nil) via pooled funds that include a benchmark allocation to UK equities. Included within
corporate bonds are £nil (2022: £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.
The liability matching assets in the table above relate to the quoted LDI and gilts portfolio used to hedge against movements in interest
rates and inflation. The other long-dated income assets are unquoted investments in infrastructure and similar assets.
At 31 December 2023, the aggregate LDI and gilts portfolio was approximately 1.4 times leveraged (1 times being unleveraged) (2022: 1.3
times leveraged).
Included within the Group Balance Sheet within non-current securities are £104 million (2022: £95 million) of investments, held in trust on
behalf of the Group, as security in respect of the Centrica Unapproved Pension Scheme. Of the pension scheme liabilities above, £49
million (2022: £49 million) relate to this scheme. More information on the Centrica Unapproved Pension Scheme is included in the
Remuneration Report on pages 84 to 109.
(g) Pension scheme contributions
The Group estimates that it will pay £53 million of ordinary employer contributions during 2024 for its defined benefit schemes, at an
average rate of 21% of pensionable pay, together with £27 million of contributions paid via a salary sacrifice arrangement.
For the Registered Pension Schemes the last actuarial valuation was as at 31 March 2021. As at that date, the weighted average duration
of the liabilities of the Registered Pension Schemes was 22 years and the technical provisions deficit (funding basis) was £944 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 £175 million in 2021 (of which £99 million was after 31 March
2021), £204 million in 2022, £175 million in 2023; and will amount to £175 million per annum in 2024 and 2025, with a balancing payment
of £116 million in 2026. Separately, a pension strain payment of £5 million associated with employee redundancies was also contributed in
2023 (2022: £10 million).
On a pure roll-forward basis, from 31 March 2021, using the same methodology and consequent assumptions, the technical provisions
deficit (funding basis) would be around £900 million on 31 December 2023. Note that the valuation methodology and assumptions used
for future assessments may differ from those previously used.
At the beginning of 2022, the Group had provided security of £745 million of letters of credit and £250 million cash in escrow to the
Registered Pension Schemes. In October 2022, as part of the £400 million loan arrangement from Centrica plc to the Registered Pension
Schemes (described in part (b) above), this security was reduced by £545 million, so that only £450 million of letters of credit remained.
When this loan is repaid, currently due in October 2024, replacement security may be required (dependent on the funding position) and
the form of security will be at the Group’s discretion.
182
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 £3.4 billion (included in ‘LNG capacity’ below) between 2023 and 2039. It also
allows the Group to make up to £4.9 billion of commodity purchases based on market gas prices and foreign exchange rates as at the
reporting 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 £7.9 billion based
on market gas and oil prices at the reporting date.
During 2023, the Group signed a 15-year agreement to purchase LNG volumes from Delfin LNG. The provisional commencement date is
2029 and under this agreement the Group is committed to make commodity purchases expected to amount to £4.2 billion based on
market gas 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 but due to their duration are exposed over a long period of time to the impact of governmental policy
decisions in relation to climate change.
The Group has numerous renewable power purchase arrangements where renewable obligation certificates are purchased as power is
produced. This gives rise to the commitments below.
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 (i)
(i) 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:
2023
£m
56
2022
£m
75
3,369
323
3,642
194
40,908
69,824
4,230
3,894
266
414
320
459
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
2023
£bn
5.9
1.3
0.2
0.2
—
0.1
7.7
2022
£bn
13.0
2.3
0.9
0.1
—
0.1
16.4
2023
£bn
6.3
5.0
1.9
1.6
1.2
17.2
33.2
2022
£bn
15.4
10.9
7.5
2.3
1.8
15.5
53.4
Financial Statements | Centrica plc Annual Report and Accounts 2023
183
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 £105 million (2022: £107 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
2023
£m
71
9
2022
£m
82
9
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 £31 million of operating 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 2023, £279 million (2022: £84 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.
184
Financial Statements | Centrica plc Annual Report and Accounts 2023
24. SOURCES OF FINANCE
(a) Capital structure
The Group seeks to maintain an efficient capital structure with a balance of debt and equity as shown in the table below:
31 December
Gross debt
Shareholders’ equity
Capital
2023
£m
3,408
3,877
7,285
2022
£m
3,570
1,017
4,587
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 shareholder’s equity. 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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
185
24. SOURCES OF FINANCE
(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 twelve 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 2025. It is the Group’s policy to maintain
committed facilities and/or available surplus cash resources of at least £1,500 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 2023 the Group had undrawn committed credit facilities of £3,784 million (2022: £3,951 million) and £5,525 million
(2022: £3,687 million) of unrestricted cash and cash equivalents, net of outstanding overdrafts. 80% (2022: 82%) 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 10.5 years
(2022: 9.9 years).
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. Margin/collateral is generally 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. Cash is generally returned to the Group or by the Group within two days of trade settlement.
At 31 December 2023 the collateral position was as follows:
31 December
Collateral (received)/posted included within:
Trade and other payables
Trade and other receivables
Collateral posted extinguishing:
Net derivative liabilities (i)
Net collateral posted (ii)
2023
£m
2022
£m
(184)
260
164
240
(601)
1,154
270
823
(i) Variation margin on daily settled derivatives results in the extinguishment of the net derivative asset/liability. These contracts remain outstanding until a future delivery
date, and therefore the cumulative daily settlement is considered collateral until that fulfilment date.
In-year movements of net collateral posted include exchange adjustments of £2 million (2022: £61 million).
(ii)
The Group utilises initial margin waiver facilities to help manage its liquidity and working capital position in relation to derivative trading. For
certain types of trade, initial margin is a requirement before entering into a transaction, as it provides credit assurance for the exchange. As
initial margin is not a liability of the Group and is refundable, it is reflected as a margin asset on the Group’s balance sheet. Accordingly,
where counterparties waive any requirement to post initial margin, the Group has no liability.
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 112.
186
Financial Statements | Centrica plc Annual Report and Accounts 2023
24. SOURCES OF FINANCE
(c)
Adjusted net cash/(debt) summary
Adjusted net cash/(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.
Group adjusted net (debt)/cash at 1 January 2022
Disposal of business
Cash outflow from settlement and purchase of securities
Cash outflow for payment of capital element of leases
Cash outflow for repayment of borrowings (vi)
Cash inflow from short-term borrowings (vi)
Remaining cash inflow
Revaluation/interest receivable on securities
Financing interest paid
Increase in interest payable and amortisation of borrowings
New lease agreements and re-measurement of existing
lease liabilities
Exchange adjustments
Group adjusted net (debt)/cash at 31 December 2022
Transfer of other investments from net debt (iv)
Acquisition of businesses (v)
Cash outflow from net purchase of securities
Cash outflow for payment of capital element of leases
Cash outflow for repayment of borrowings (vi)
Cash inflow from borrowings (vi)
Cash inflow from operating activities
Cash inflow from other investing activities (vii)
Cash outflow from other financing activities (viii)
Revaluation
Interest receivable on securities
Interest received on securities
Financing interest paid
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
Current and
non-current
securities (iii)
£m
Sub-lease
assets
£m
Adjusted
net (debt)/
cash
£m
Other assets and liabilities
(3,899)
6
—
103
1,482
(1,220)
—
240
179
(181)
(42)
(85)
93
—
—
—
—
—
—
(238)
(8)
—
—
—
(3,806)
4,328
6
—
103
1,482
(1,220)
—
2
171
(181)
(42)
(85)
(30)
(398)
(103)
(1,482)
1,220
796
—
(172)
—
—
83
(3,417)
(153)
(3,570)
4,242
—
(13)
—
93
1,155
(930)
—
—
—
(59)
—
—
177
—
—
—
—
—
—
—
—
—
44
—
—
41
—
(13)
—
93
—
—
(12)
(93)
1,155
(1,155)
(930)
—
—
—
(15)
—
—
218
930
2,752
106
(810)
—
—
21
(286)
156
(21)
398
—
—
—
—
(11)
—
—
—
3
525
(27)
—
12
—
—
—
—
—
—
9
23
(21)
—
2
—
—
—
—
—
—
—
—
—
—
—
680
(45)
—
—
—
—
796
(9)
(1)
(181)
(42)
1
2
1,199
—
—
—
—
—
—
—
—
—
—
—
—
—
(27)
(13)
—
—
—
—
2,752
106
(810)
(6)
23
—
(68)
Increase in interest payable and amortisation of borrowings,
and impact of associated interest rate swaps
New lease agreements and re-measurement of existing lease
liabilities
Exchange adjustments
(186)
(51)
(237)
—
—
—
(237)
(158)
49
—
—
(158)
49
—
(66)
—
—
—
—
(158)
(17)
Group adjusted net (debt)/cash at 31 December 2023
(3,289)
(119)
(3,408)
5,629
521
2
2,744
(i) Cash and cash equivalents includes £104 million (2022: £555 million) of restricted cash, of which £nil (2022: £440 million) relates to cash received from the Energy Bill
Support Scheme, this scheme concluded in 2023. This includes cash totalling £2 million (2022: £6 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 £814 million bank overdrafts (2022: £600 million).
(iii) Securities balances includes £405 million (2022: £403 million) of loans to the pension schemes and £12 million (2022: £nil) of other loans receivable, both measured at
amortised cost, as well as £72 million (2022: £67 million) other debt instruments and £32 million (2022: £55 million) equity instruments, both measured at fair value. See
note 22 for further details on pension loans provided.
(iv) Transfer of other investments represents the reclassification of certain minority investments to Other investments from Securities in the Group Balance Sheet. Cash
outflows from these securities in 2022 were £2 million. See note S2.
(v) Acquisition of business relates to the recognition of a £12 million external loan due to the step-up of the investment in Greener Ideas Limited from joint venture to
subsidiary during the year, and the recognition of a £1 million lease liability acquired by Centrica Business Solutions during the year.
(vi) Repayment of borrowings comprises the repayment of £20 million short-term borrowing obtained during December 2022, £886 million repayment of commercial paper
taken out during the period and a scheduled £249 million repayment of a 4.00% USD bond repaid on 16 October 2023. During the year other borrowings of £44 million
were obtained. Bond repayment in 2022 comprises £36 million repayment of a 3.68% HKD bond repaid on 22 February 2022, and £246 million repayment of a 6.375%
GBP bond repaid on 10 March 2022. In August 2022 the Group borrowed £1,200 million, which was repaid in September 2022.
(vii) Cash inflow from other investing activities excludes purchase of securities of £12 million, and interest received on securities of £21 million during the year.
(viii)Cash outflows from other financing activities comprise £17 million (2022: £273 million) of distributions to non-controlling interests (see note 12), proceeds of £6 million
from exercise of share options (2022: £5 million payments for own shares), cash outflow of £186 million (2022: £59 million) for equity dividends and cash outflow of £613
million (2022: £43 million) related to the share buyback programme. There is a liability of £94 million (2022: £207 million) recognised at 31 December 2023 related to this
programme. See note S4 for further details on the share buyback programme.
Financial Statements | Centrica plc Annual Report and Accounts 2023
187
24. SOURCES OF FINANCE
(d) Borrowings, leases and interest accruals summary
31 December
Bank overdrafts
Bank loans (> 5 year maturity)
Other borrowings
Bonds (by maturity date):
16 October 2023
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)
Coupon rate
%
Principal
m
Current
£m
Non-current
£m
2023
(814)
—
(37)
—
—
—
—
—
—
—
—
—
—
—
4.000
6.400
5.900
4.375
Zero
7.000
5.375
4.250
5.250
5.250
US$302
£52
US$70
£552
€50
£770
US$367
£550
US$50
£450
—
(130)
(20)
—
(50)
(55)
(497)
(71)
(703)
(284)
(539)
(38)
(428)
Total
£m
(814)
(130)
(57)
—
(50)
(55)
(497)
(71)
(703)
(284)
(539)
(38)
(428)
2022
Current
£m
Non-current
£m
(600)
—
(20)
(246)
—
—
—
—
—
—
—
—
—
—
(143)
—
—
(49)
(58)
(471)
(69)
(684)
(299)
(539)
(41)
(418)
Total
£m
(600)
(143)
(20)
(246)
(49)
(58)
(471)
(69)
(684)
(299)
(539)
(41)
(418)
(2,665)
(2,665)
(246)
(2,628)
(2,874)
Obligations under lease arrangements
Interest accruals
(98)
(53)
(286)
—
(384)
(53)
(88)
(55)
(237)
—
(325)
(55)
(1,002)
(3,101)
(4,103)
(1,009)
(3,008)
(4,017)
(i) Bonds or portions of bonds maturing in 2026, 2029, 2033 and 2075 have been designated in a fair value hedge relationship. See note S5 for details of hedge
relationships.
(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.
188
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
buyback programmes.
Allotted and fully paid share capital of the Company
31 December
5,907,846,138 ordinary shares of 614/81 pence each (2022: 5,907,846,138)
2023
£m
365
2022
£m
365
The closing price of one Centrica ordinary share on 31 December 2023 was 140.7 pence (2022: 96.5 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
Shares issued and placed into trust
Shares transferred from treasury and placed into trust
Shares released to employees on vesting
Share buyback programme (ii)
31 December (i)
Own shares (i)
Treasury shares (i)
2023
million shares
2022
million shares
2023
million shares
2022
million shares
30.4
1.4
—
34.3
(19.3)
—
46.8
33.8
6.5
8.4
—
(18.3)
—
30.4
45.7
—
—
(34.3)
(31.7)
512.3
492.0
—
—
—
—
—
45.7
45.7
(i) Own shares are shares held in trusts to meet employee share awards. Treasury shares are shares that have been purchased from the open market and have not been
cancelled. The closing balance in the treasury and own shares reserves of own shares was £44 million (2022: £20 million) and treasury shares was £606 million (2022: £43
million), these are both held at weighted average cost.
(ii) See note S4 for further details of the share buyback programme.
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 2023 and the date of this report.
The Directors propose a final dividend of 2.67 pence per ordinary share for the year ended 31 December 2023 (which would total £144
million based on shareholding at that date). The dividend will be submitted for formal approval at the Annual General Meeting to be held on
5 June 2024 and, subject to approval, will be paid on 11 July 2024 to those shareholders registered on 31 May 2024.
Financial Statements | Centrica plc Annual Report and Accounts 2023
189
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 55.
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.
190
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S2. SUMMARY OF MATERIAL ACCOUNTING POLICIES
This section sets out the Group’s material 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.
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191
S2. SUMMARY OF MATERIAL 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.
Costs to obtain or fulfil a contract
Under IFRS 15 ‘Revenue from contracts with customers’, the incremental costs of obtaining a contract are recognised as an asset if they
are expected to be recovered. These costs include expenditures that would not have been incurred if the contract had not been secured
and typically relate to sales commissions payable in relation to both Energy supply and Energy service contracts.
Costs to fulfil a contract are recognised as an asset where they are directly related to a contract and where they generate or enhance
resources of the entity that will be used in satisfying the performance obligations. Costs must be expected to be recoverable. Assets
relating to costs to obtain or fulfil a contract are amortised over the period of the contract. See note 17.
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.
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.
Energy sales to trading and energy procurement counterparties
Revenue arising from the sale of energy procured from generation asset owners to trading and energy procurement counterparties is also
recognised in a manner consistent with energy supply contracts. There is a single performance obligation being the supply of energy over
the contractual term at spot prices and revenue is recognised at the point at which energy is supplied to the counterparty in accordance
with the contractual terms.
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 under IFRS 9 where contracts to supply power are measured at fair value.
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 production includes depreciation of assets used in production of gas, 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.
192
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S2. SUMMARY OF MATERIAL 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 dates 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
2023
1.27
1.68
1.15
12.90
8.59
2022
1.20
1.63
1.14
11.89
8.51
2023
1.24
1.68
1.15
13.14
8.58
2022
1.24
1.61
1.17
11.84
8.73
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.
Employee share schemes
The Group operates a number of employee share schemes, detailed in the Remuneration Report on pages 84 to 86, 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 Annual 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 84 to 86.
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193
S2. SUMMARY OF MATERIAL 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 material 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.
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S2. SUMMARY OF MATERIAL 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. No amortisation is charged up to the date of surrender as the cost and residual value
of the intangible asset are deemed to be the same with no consumption of economic benefit.
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 its 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) scheme.
Purchased renewable certificates are recognised initially at cost within intangible assets as an indefinite life asset. 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, is 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 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 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.
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195
S2. SUMMARY OF MATERIAL 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 material 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 at 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.
2023
Growth rate to perpetuity (including inflation)
Pre-tax discount rate
2022
Growth rate to perpetuity (including inflation)
Pre-tax discount rate
British Gas
Services &
Solutions
%
British Gas
Energy
%
2.1
10.0
2.1
10.7
British Gas
Services &
Solutions
%
2.0
9.3
British Gas
Energy
%
2.0
10.0
Centrica
Business
Solutions
Energy
Supply
%
2.1
12.0
Centrica
Business
Solutions
Energy
Supply
%
2.0
11.3
Centrica
Business
Solutions
(turbines/
engines/
battery/solar) (i)
%
Bord Gáis
Energy
%
1.6
10.7
N/A
10.0/8.0 (ii)
Centrica
Business
Solutions
(turbines/
engines/
battery/solar) (i)
%
Bord Gáis
Energy
%
Centrica Energy
%
1.9
8.1
N/A
9.3/8.0 (ii)
2.0
11.3
Nuclear (i)
%
N/A
24.8
Centrica
Energy
%
2.1
12.0
Nuclear (i)
%
N/A
17.3
(i) 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.
(ii) Flexible assets (turbines, engines, battery) and solar discount rates respectively.
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S2. SUMMARY OF MATERIAL 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 1.6% to 7.5%.
(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:
Gross margin
Revenues
Operating costs
CGU
All – base
assumptions
Centrica Energy
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 and new markets:
management’s estimate of future
trading performance.
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.
As above.
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.
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.
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.
Overlift and underlift
Off-take arrangements for gas 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.
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S2. SUMMARY OF MATERIAL 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 property and equipment. 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;
and
¢ 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.
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S2. SUMMARY OF MATERIAL 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 held for the purpose of the Group’s own use is measured on a weighted-average cost basis, whilst gas used
for trading purposes is measured at fair value less any costs to sell. Changes in fair value less costs to sell are recognised in the Group
Income Statement.
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 2022 and 2023 the Group recognised a Supplier of Last Resort (SoLR) receivable in relation to amounts recoverable under the Last
Resort Supplier Payment (LRSP) mechanism administered by Ofgem, a government body, which is detailed in note 3. 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 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.
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 is 1% 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.
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 benefitting 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.
In 2022 the Group provided a loan facility to the Group’s three defined benefit pension schemes. The Group recognised the loan as a
financial asset under IFRS 9 ‘Financial instruments’ measured at amortised cost and classified as a receivable within Securities on the
Group’s balance sheet. The loan liability has been deducted from plan assets on the basis that the loan does not relate to employee
benefits in accordance with IAS 19.
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S2. SUMMARY OF MATERIAL 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. Since 2021, the Group recognises a
material onerous supply contract provision where the future costs to fulfil customer contracts on a current market price basis 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 note 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.
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S2. SUMMARY OF MATERIAL 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 a value based on their transaction price, 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. Money market funds are also included in cash and cash equivalents, and are required to be measured at
fair value through profit or loss under IFRS 9, as noted in section (g) below. 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. Dividends arising on these financial assets are recognised in the Group Income Statement.
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. 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.
(h) Securities
The Group holds debt and equity securities predominantly in respect of the Centrica Unapproved Pension Scheme (see note 22). Debt
securities are required to be measured at fair value through profit or loss under IFRS 9, as the contractual terms of these assets do not
give rise to cash flows that are solely payments of principal and interest on the principal amounts outstanding. The Group has elected to
recognise the changes in fair value of the equity securities in other comprehensive income.
The Group classifies the loan facility provided to the Group’s defined benefit pension schemes within Securities. It is recognised as a
financial asset under IFRS 9 ‘Financial instruments’ and measured at amortised cost. Correspondingly, the loan liability is deducted from
plan assets on the basis the loan does not relate to employee benefits (scheme liabilities) in accordance with IAS 19.
Securities also includes a loan made to the minority shareholder in the Group’s Greener Ideas Limited subsidiary which is similarly
recognised as a financial asset under IFRS 9 and measured at amortised cost.
(i) Other investments
Other investments include minority interest equity investments which the Group accounts for under IFRS 9, because it does not have the
ability to control, or significantly influence the investment. According to the requirements of IFRS 9, the Group may either measure these
investments at fair value with value changes recognised in profit or loss, or it may elect to recognise those value changes in other
comprehensive income. For the majority of the Group’s other investments, fair value movements are recognised in other comprehensive
income; this election is made separately for each investment made.
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S2. SUMMARY OF MATERIAL ACCOUNTING POLICIES
(j) Derivative financial instruments
The Group routinely enters into sale and purchase transactions for physical delivery of gas and power. 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 and power 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 2023 or 2022. 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 28 to 34 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 disclosure of current and non-current derivative assets and liabilities is
determined by the settlement date of the derivative.
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.
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S2. SUMMARY OF MATERIAL ACCOUNTING POLICIES
(k) 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 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.
(l) Financial guarantees
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because
a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. The Group accounts for financial
guarantee contracts under IFRS 9.
(m) 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 to
investments in debt instruments measured at 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 32 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.
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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 28 to 34.
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 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.
204
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 benefitting 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 2023 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, Danish krone in
Denmark, euros in the Netherlands and the Republic of Ireland and US dollars in the Group’s LNG business. 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 2023, there were no material unhedged non-functional currency monetary assets or liabilities,
firm commitments or probable forecast transactions (2022: £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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
205
S3. FINANCIAL RISK MANAGEMENT
(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 2023, assuming that a reasonably possible change in the relevant risk variable had occurred at 31 December
2023, 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.
The sensitivity analysis has been prepared based on 31 December 2023 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 2023 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.
2023
Impact on
profit
£m
102/(54)
(56)/128
2022
Impact
on profit
£m
139/(180)
36/(38)
(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 (€/MWh)
UK power (£/MWh)
UK emissions (€/tonne)
UK oil (US$/bbl)
North American gas (US cents/therm)
Japan Korea Marker (JKM) gas price (US$/MMBtu)
2023
2022
Reasonably
possible
change in
variable (ii)
%
+/-54
+/-54
+/-13
+/-7
+/-10
+/-11
+/-9
Base price (i)
86
33
85
80
73
34
12
Reasonably
possible
change in
variable (ii)
%
+/-47
+/-47
+/-26
+/-7
+/-19
+/-25
+/-10
Base price (i)
184
71
189
86
84
44
21
206
Financial Statements | Centrica plc Annual Report and Accounts 2023
S3. FINANCIAL RISK MANAGEMENT
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)
North American energy prices (combined) – increase/(decrease)
JKM gas price – increase/(decrease)
2023
Impact on
profit (ii)
£m
2022
Impact on
profit (ii)
£m
218/(218)
365/(374)
84/(83)
(167)/167
(2)/2
540/(544)
(171)/171
(32)/32
133/(132)
702/(715)
35/(35)
60/(60)
60/(60)
294/(294)
(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.
(iv) Commodity price risk – proprietary trades
As at 31 December 2023 the VaR associated with proprietary trading was £4 million (2022: £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. Intra-day trading positions are monitored using a live time risk management system.
The impacts of reasonably possible changes using probability-based high and low price curves applied to level 3 proprietary trades are
as follows:
Incremental profit/(loss)
Level 3 proprietary trades – increase/(decrease) (ii)
2023
Impact on
profit (i)
£m
2022
Impact on
profit (i)
£m
24/(24)
891/(877)
(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, see note 7(c) for
detail on market curves.
(ii) The level 3 proprietary financial instruments’ sensitivity has been valued in Secure Environment and excludes associated hedges which would mitigate this impact.
Financial Statements | Centrica plc Annual Report and Accounts 2023
207
S3. FINANCIAL RISK MANAGEMENT
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.
Financial assets at
amortised cost
Financial assets at fair value
2023
31 December
AAA to AA
AA- to A-
BBB+ to BBB-
BB+ to BB-
B+ or lower
Unrated (iii)
31 December
AAA to AA
AA- to A-
BBB+ to BBB-
BB+ to BB-
B+ or lower
Unrated (iii)
Receivables
including
treasury, trading
and energy
procurement
counterparties (i)
£m
65
605
1,054
164
58
4,553
6,499
Receivables
including
treasury,
trading and
energy
procurement
counterparties
£m (i)
245
914
2,727
542
112
4,534
9,074
Securities (ii)
£m
Cash and cash
equivalents
£m
Cash and cash
equivalents
£m
Derivative
financial
instruments with
positive
fair values
£m
—
1,459
41
5
8
71
4,859
—
—
—
—
—
—
819
1,646
438
45
324
Securities
£m
104
—
—
—
—
—
Other
investments
£m
—
—
—
—
—
61
61
1,584
4,859
3,272
104
Financial assets at
amortised cost
Financial assets at fair value
2022
Securities (ii)
£m
Cash and cash
equivalents (iv)
£m
Cash and cash
equivalents
£m
Securities
£m
Other investments
£m
Derivative
financial
instruments
with positive
fair values
£m
19
1,271
4,459
724
235
719
—
1,844
20
—
—
—
2,800
178
—
—
—
—
95
—
—
—
—
27
—
—
—
—
—
—
—
—
—
—
—
—
417
417
—
—
—
—
—
403
403
1,864
2,978
7,427
122
(i) The Group holds a provision of £1,309 million (2022: £872 million) against receivables. 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.
(ii) Securities held at amortised cost consist of loans to the pension schemes of £405 million (2022: £403 million) and other loans receivable of £12 million (2022: £nil) – see
note 24.
(iii) The unrated counterparty receivables primarily comprise amounts due from downstream customers, subsidiaries of rated entities, exchanges or clearing houses.
(iv) Cash and cash equivalents measured at amortised cost in 2022 have been restated following re-analysis of counterparty credit rating.
208
Financial Statements | Centrica plc Annual Report and Accounts 2023
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 debt instruments that are carried at fair value through other comprehensive
income (FVOCI). Debt 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 £2,155 million (2022:
£4,525 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 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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
209
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 2023
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
Foreign exchange derivatives that will be settled on a gross
basis:
Outflow
Inflow
Trade and other payables and contract liabilities
Borrowings (bank loans, bonds, overdrafts and interest)
Leases: (ii)
Minimum lease payments
Capital elements of leases
Due for payment 2022
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
Foreign exchange derivatives that will be settled on a gross
basis:
Outflow
Inflow
Trade and other payables and contract liabilities
Borrowings (bank loans, bonds, overdrafts and interest)
Leases: (ii)
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
(300)
(80)
(30)
(21)
(17)
(4,541)
(2,423)
(78)
(35)
(32)
(7,783)
(1,367)
7,732
(6,267)
(924)
1,360
(130)
(593)
(12,083)
(3,233)
(99)
(98)
<1
year
£m
(91)
(80)
1 to 2
years
£m
(570)
570
(41)
(183)
(332)
(78)
(68)
2 to 3
years
£m
(298)
296
(20)
(182)
(260)
(44)
(38)
3 to 4
years
£m
—
—
(2)
(125)
(176)
(25)
(21)
4 to 5
years
£m
(47)
(82)
—
—
(8)
(3,397)
(3,534)
(99)
(79)
>5
years
£m
(1,159)
(146)
(47)
(28)
(18)
(80)
(10,490)
(8,525)
(4,580)
(67)
(47)
(116)
(7,748)
8,027
(8,930)
(1,016)
(1,244)
1,207
(113)
(157)
(73)
239
(24)
(595)
(21,316)
(8,978)
(5,080)
(89)
(88)
(79)
(69)
(70)
(67)
—
20
(17)
(185)
(277)
(55)
(51)
—
1
—
(186)
(250)
(26)
(24)
—
—
—
(3,575)
(3,771)
(29)
(26)
(i) 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.
(ii) The difference between the total minimum lease payments and the total capital elements of leases is due to future finance charges.
210
Financial Statements | Centrica plc Annual Report and Accounts 2023
S4. OTHER EQUITY
This section summarises the Group’s other equity reserve movements.
1 January 2022
Actuarial loss
Employee share schemes:
Exercise of awards
Value of services provided
Purchase of own shares
Issue of shares
Share buyback programme:
Purchase of Treasury shares
Accrual for committed share purchases
Impact of cash flow hedging
Taxation on above items
Share of other comprehensive loss of joint ventures
and associates, net of taxation
Exchange differences on translation of foreign
operations
Exchange differences reclassified to Group Income
Statement on disposal
31 December 2022
Actuarial loss
Employee share schemes:
Exercise of awards
Value of services provided
Proceeds from exercise of share options
Share buyback programme:
Purchase of Treasury shares
Movement on accrual for committed share
purchases
Impact of cash flow hedging
Share of other comprehensive loss of joint ventures
and associates, net of taxation
Exchange differences on translation of foreign
operations
Revaluation of FVOCI securities
Taxation on above items
31 December 2023
Cash flow
hedging
reserve
£m
Foreign
currency
translation
reserve
£m
Actuarial
gains and
losses
reserve
£m
Financial
asset at
FVOCI
reserve
£m
Treasury
and own
shares
reserve
£m
Share-
based
payments
reserve
£m
Merger,
capital
redemption
and other
reserves
£m
10
—
—
—
—
—
—
—
(28)
8
(304)
(1,012)
—
(147)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
23
3
—
—
—
—
—
—
—
—
—
(18)
—
10
—
(5)
(7)
(43)
—
—
—
42
—
(22)
10
—
—
—
—
—
—
527
—
—
—
—
—
—
(207)
—
—
Total
£m
(752)
(147)
(12)
10
(5)
(7)
(43)
(207)
(28)
31
—
—
(293)
—
—
—
—
(293)
—
(95)
—
—
—
—
—
(95)
—
(10)
—
—
—
—
272
—
(127)
(1,429)
—
(381)
—
—
—
—
—
—
—
3
—
—
—
—
—
(63)
—
22
—
6
—
30
—
(20)
31
—
—
272
320
(1,276)
—
(381)
—
—
—
2
31
6
—
—
—
—
(615)
—
—
(615)
—
(3)
—
—
—
—
—
—
—
—
—
—
115
—
115
(3)
—
—
(95)
—
—
—
—
(95)
—
—
1
(43)
—
—
—
—
93
(12)
(170)
(1,812)
—
4
(1)
6
—
—
—
(650)
—
—
6
47
—
—
—
(43)
4
99
435
(2,156)
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. As at 31 December 2023 the cumulative nominal value of shares repurchased
and subsequently cancelled was £28 million (2022: £28 million).
At the year-end, the Group has recognised a financial liability of £94 million relating to the share buyback programme. See Treasury and
own shares reserve section for more details.
Financial Statements | Centrica plc Annual Report and Accounts 2023
211
S4. OTHER EQUITY
Treasury and own shares reserve
The own shares reserve reflects the cost of shares in the Group held in the Centrica employee share ownership trusts to meet the future
requirements of the Group’s share-based payment plans.
Treasury shares are acquired equity instruments of the Company.
On 10 November 2022, the Group announced an intention to undertake a share buyback of £250 million and the Group entered into
contracts with third parties to undertake this repurchase programme which has now completed. During 2023, the Group firstly increased
the share buyback by an additional £300 million which completed during the second half of the year.
Subsequently, in July 2023, the Group announced a further £450 million extension to the share buyback programme and as a result, the
Group signed an agreement with a third party to undertake the repurchase of £200 million of shares which is expected to complete by
March 2024. The repurchase of the remaining £250 million of shares is expected to commence in the first half of 2024. See note 3 for
further details.
During the year ended 31 December 2023, the Group purchased 512 million ordinary shares, representing approximately 8.7% of the
issued ordinary share capital at an average price of 120.1 pence per share, and an aggregate cost of £615 million under the share
buyback programme. Of this £615 million, £613 million has been paid and £2 million relates to shares committed to being purchased at
31 December 2023 but not yet settled.
A financial liability of £94 million was recognised at 31 December 2023, representing the difference between purchases paid for to date
under the current tranche, and the maximum potential repurchase under the contract of £200 million.
The monthly breakdown of all shares purchased and the average price paid per share (excluding expenses) in relation to the financial
liability of £207 million recognised at 31 December 2022 were as follows:
Period
January 2023
February 2023
March 2023
Total
Number
of shares
purchased under
share buyback
programme
44,926,039
51,825,628
108,017,252
204,768,919
Average price paid
Pence
Total cost
£m
95.4
100.7
103.7
101.1
43
52
112
207
Authorised
purchases
unutilised at
month end
£m
164
112
—
—
The monthly breakdown of all shares purchased and the average price paid per share (excluding expenses) in relation to the additional
£300 million programme for the year ended 31 December 2023 were as follows:
Period
April 2023
May 2023
June 2023
July 2023
August 2023
September 2023
October 2023
Total
Number
of shares
purchased under
share buyback
programme
43,184,077
29,309,742
42,623,172
54,532,501
22,378,746
30,685,854
12,740,987
235,455,079
Average price paid
Pence
Total cost
£m
112.7
116.5
118.4
119.7
142.3
163.6
153.1
127.4
49
34
50
65
32
50
20
300
Authorised
purchases
unutilised at
month end
£m
251
217
167
102
70
20
—
—
The monthly breakdown of all shares purchased and the average price paid per share (excluding expenses) in relation to the further £200
million programme for the year ended 31 December 2023 were as follows. This includes £2 million relating to shares committed to being
purchased at 31 December 2023 but not yet settled.
Period
October 2023
November 2023
December 2023
Total
Number
of shares
purchased under
share buyback
programme
17,642,000
27,672,575
26,734,872
72,049,447
Average price paid
Pence
Total cost
£m
155.8
151.5
145.4
150.6
27
42
39
108
Authorised
purchases
unutilised at
month end
£m
173
131
92
92
212
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
2023
2022
Assets
£m
Liabilities
£m
—
36
(136)
(18)
Change in
fair value
£m
48
(13)
Assets
£m
Liabilities
£m
37
37
(221)
(6)
Change in
fair value
£m
(228)
(10)
Cumulative
amount of
fair value
hedge
adjustments
on hedged
item
£m
Accumulated
(losses)/gains
in equity (i)
£m
Change in
fair value
of hedged item
in year
£m
(59)
138
N/A
Hedged item
Bonds (ii)
2023
Interest rate risk
Hedge
Fair value
Timing of
nominal
amount
2025-2033
Foreign exchange risk
Cash flow hedge
2032
Cash flow hedge
2036-2038
Average rate Nominal value
£50 million-
£550 million
Fixed to
floating
at Fallback
LIBOR +
2%-5%
GBP to euro
at 1.171
GBP to yen
at 158.87
€50 million Euro bonds
¥20 billion
Yen bank
loans
(1)
7
N/A
3
N/A
(21)
2022
Interest rate risk
Hedge
Fair value
Timing of
nominal
amount
Average rate
Nominal value
2022-2033 Fixed to floating
at LIBOR/US
IBOR + 1%-5%
£50 million-
£550 million,
$250 million
Hedged item
Bonds (ii)
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
228
158
N/A
Foreign exchange risk
Cash flow hedge
2032
Cash flow hedge
2036-2038
GBP to euro
at 1.171
GBP to yen
at 157.33
€50 million
Euro bonds
¥20 billion
Yen bank
loans
7
3
N/A
N/A
26
(23)
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.
The Group’s accounting policies in relation to derivatives qualifying for hedge accounting under IAS 39 are described below.
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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
213
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 Group does not have any material sources of ineffectiveness. 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. 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.
214
Financial Statements | Centrica plc Annual Report and Accounts 2023
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.
31 December
Financial assets
Derivative financial instruments:
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Debt instruments
Equity instruments
Contingent consideration receivable
Cash and cash equivalents
Total financial assets at fair value
Financial liabilities
Derivative financial instruments:
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Contingent consideration payable
Total financial liabilities at fair value
2023
2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
2,995
156
3,151
—
—
—
72
32
—
—
—
121
—
—
—
4,859
—
—
1
60
—
—
104
7,975
217
—
121
73
92
—
4,859
8,296
—
—
—
—
—
(2,436)
(272)
(2,708)
(136)
(162)
—
—
—
(123)
(136)
(162)
(123)
(2,734)
(395)
(3,129)
—
—
—
66
29
—
—
95
—
—
—
—
—
6,486
592
7,078
37
312
—
9
26
2,978
9,848
—
—
1
17
—
—
37
312
67
55
26
2,978
610
10,553
(8,806)
(850)
(9,656)
(221)
(274)
—
—
—
(96)
(221)
(274)
(96)
(9,301)
(946)
(10,247)
The reconciliation of the Level 3 fair value measurements during the year is as follows:
Level 3 financial instruments
1 January
Total realised and unrealised (losses)/gains:
Recognised in Group Income Statement
Recognised in Other Comprehensive Income
Net movement in contingent consideration liability
Purchases, sales, issuances and settlements (net)
Transfers between Level 3 and Level 2 (i)
Foreign exchange movements
31 December
Total (losses)/gains for the year for Level 3 financial instruments
held at the end of the reporting period
(i) Transfers between levels are deemed to occur at the beginning of the reporting year.
2023
Financial
assets
£m
Financial
liabilities
£m
2022
Financial
assets
£m
Financial
liabilities
£m
610
(946)
501
(290)
(297)
(1)
—
2
(96)
(1)
217
252
—
(27)
194
131
1
(395)
10
—
—
(4)
101
2
610
(784)
—
(96)
—
224
—
(946)
(297)
252
10
(784)
(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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
215
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 5% per annum (2022: average discount rate of 5% 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 5% (Europe) and 5% (North America) per annum (2022: average discount rate of
5% (Europe) and 5% (North America) per annum).
Active period of markets
UK (years)
Gas
4
Power
4
Coal
Emissions
3
3
Oil
3
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. The Group adjusts the market value of derivative instruments to account for counterparty credit risk and
corresponding possibility of a counterparty default preventing full realisation of the risk-free market value of the derivative. The Group
estimates Credit Valuation Adjustments by computing an expected evolution of the market value of a counterpart’s derivatives portfolio
over the life of the contracts weighted by the probability of a default and an assumption of the market value recoverable in the event of
a default. The default probability is calibrated to the price of Credit Default Swaps – a debt instrument reflecting the insurance premium
payable to protect against a debtor’s default. Debit valuation adjustments are the amount added back to the derivative value to account
for the expected gain from the Group’s own default and are calculated using a similar methodology with reference to the Group’s own
probability of default.
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
Net gains deferred on transactions in the year
Net amounts recognised in Group Income Statement
Exchange differences
31 December
2023
£m
304
98
(254)
(6)
142
2022
£m
90
401
(195)
8
304
(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
Bonds
Level 1
Level 2
Notes
Carrying value
£m
2023
Fair value
£m
Fair value
hierarchy
Carrying value
£m
2022
Fair value
£m
24
24
(2,594)
(2,769)
(71)
(79)
Level 1
Level 2
(2,805)
(2,840)
(69)
(79)
Fair value
hierarchy
Level 1
Level 2
Bank 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 have been determined by discounting cash flows with reference to relevant market rates of interest. The fair values of
overdrafts and bank loans are assumed to materially equal their carrying values.
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, other borrowings and securities held at amortised cost are estimated to approximate their carrying values.
216
Financial Statements | Centrica plc Annual Report and Accounts 2023
S6. FAIR VALUE OF FINANCIAL INSTRUMENTS
(d) Financial assets and liabilities subject to offsetting, master netting arrangements and similar
arrangements
31 December 2023
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
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
9,883
(9,617)
(6,611)
6,611
3,272
(3,006)
266
(77)
77
(184)
260
7,067
(6,684)
6,443
(944)
(4,220)
4,220
2,847
(2,464)
(2)
2
—
—
6,443
(944)
(814)
814
—
—
—
—
3,011
(2,669)
342
2,845
(2,462)
5,629
(130)
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
28,019
(30,743)
(20,592)
7,427
20,592
(10,151)
(956)
956
(601)
1,154
(2,724)
31 December 2022
Derivative financial assets
Derivative financial liabilities
5,870
(8,041)
(2,171)
4,072
(4,749)
4,242
(143)
Balances arising from commodity contracts:
Accrued and unbilled downstream and energy income
12,751
Accruals for commodity costs
Cash and financing arrangements:
Cash and cash equivalents
Bank loans and overdrafts
(13,428)
4,842
(743)
(8,057)
8,057
4,694
(5,371)
—
—
4,842
(743)
(622)
622
(600)
600
—
—
—
—
(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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
217
S7. FIXED-FEE SERVICE AND INSURANCE CONTRACTS
This section includes fixed-fee service (FFS) and insurance contract disclosures for services related to British Gas.
FFS non-insurance contracts in the UK are entered into with home services customers by British Gas Services Limited. FFS insurance
contracts in the UK are entered into with home services customers by British Gas Insurance Limited, authorised by the PRA and regulated
by the FCA and the PRA.
Product offerings include central heating, boiler and controls, plumbing and drains and electrical appliance insurance cover. 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.
IFRS 17 ‘Insurance contracts’ became effective on 1 January 2023 and replaced the existing insurance standard, IFRS 4. FFS insurance
contracts 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, this captures materially all the Group’s insurance contracts. The Group applies 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. The implementation of IFRS 17 has not caused any material accounting changes to the Group, see note 1.
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 a twelve month period) 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 twelve month period in accordance with the premium allocation
approach required by IFRS 17, with adjustments made to reflect the seasonality of workload over a given year. 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.
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 insurance claims was £nil (2022: £2 million) and revenue earned from FFS insurance contracts in the scope of IFRS15
was £nil (2022: £5 million). The cost of insurance claims incurred during the year was £240 million (2022: £290 million) and is included in
the table below in ‘Insurance services cost of sales’. Due to the short average lead time between claims occurrence and settlement, no
material provisions were outstanding at the balance sheet date in 2023 or 2022.
31 December
Insurance services revenue
Insurance services cost of sales
Insurance services operating costs
Insurance contract liabilities:
Liabilities for incurred claims (LIC)
Liability for remaining coverage (LRC)
2023
£m
813
(475)
(294)
(126)
(39)
2022
£m
852
(582)
(264)
(124)
(36)
218
Financial Statements | Centrica plc Annual Report and Accounts 2023
S8. RELATED PARTY TRANSACTIONS
The Group’s principal related party is its investment in Lake Acquisitions Limited, which owns the existing 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
2023
2022
Purchase of
goods and
services
£m
Amounts
owed to
£m
Purchase of
goods and
services
£m
Amounts
owed to
£m
(655)
(1)
(656)
(94)
—
(94)
(564)
—
(564)
(102)
—
(102)
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 (2022: £120 million),
although nothing has been drawn at 31 December 2023.
Remuneration of key management personnel
Year ended 31 December
Short-term benefits
Post-employment benefits
Share-based payments
2023
£m
5.0
0.2
4.6
9.8
2022
£m
4.4
0.1
4.1
8.6
Key management personnel comprise members of the Board and Executive Committee, a total of 14 individuals at 31 December 2023
(2022: 11).
Remuneration of the Directors of Centrica plc
Year ended 31 December
Total emoluments (i)
Amounts receivable under long-term incentive schemes
Contributions into pension schemes
2023
£m
4.6
7.7
0.1
12.4
2022
£m
3.2
2.3
—
5.5
(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 84 to 109.
Financial Statements | Centrica plc Annual Report and Accounts 2023
219
S9. AUDITORS’ REMUNERATION
Year ended 31 December
Fees payable to the Company’s auditors for:
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)
Total fees
Fees in respect of pension scheme audits (ii)
(i) Predominantly relates to the review of the condensed interim Financial Statements.
(ii) The pension scheme audit continues to be performed by PricewaterhouseCoopers LLP.
2023
£m
2022
£m
5.8
2.0
7.8
0.7
8.5
0.1
4.8
1.7
6.5
0.9
7.4
0.1
220
Financial Statements | Centrica plc Annual Report and Accounts 2023
S10. RELATED UNDERTAKINGS
The Group has a large number of related undertakings principally in the UK, US, 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 2023
Centrica Beta Holdings Limited
Centrica Ireland Holdings Limited
CH4 Energy Limited (ii)
Rhodes Holdings HK Limited
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Holding company
United Kingdom A
Ordinary shares
Holding company Republic of Ireland
B
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Non-trading
Hong Kong
C
Ordinary shares
Investments held indirectly by Centrica plc with 100% voting rights
31 December 2023
Accord Energy (Trading) Limited (ii)
Alertme.com GmbH
Astrum Solar, Inc.
Blandford Hill Eco Hub Limited (iii)
Bord Gáis Energy Limited
Bord Gáis Energy Trustees DAC
British Gas Finance Limited
British Gas Insurance Limited
British Gas Limited
British Gas New Heating Limited
British Gas Services (Commercial) Limited
British Gas Services Limited
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Dormant
United Kingdom A
Ordinary shares
In liquidation
Germany
Home and/or commercial services
United States
D
E
Ordinary shares
Ordinary shares
Building solar farm & connecting to grid
United Kingdom A
Ordinary shares
Energy supply and power generation Republic of Ireland
Pension trustee company Republic of Ireland
B
B
Ordinary shares
Ordinary shares
Vehicle leasing
United Kingdom A
Ordinary shares
Insurance provision
United Kingdom A
Ordinary shares
Energy supply
United Kingdom A
Ordinary shares
Electrical and gas installations
United Kingdom A
Ordinary shares
Non-trading
United Kingdom A
Ordinary shares
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 Trading Limited
British Gas X Limited
Caythorpe Gas Storage Limited
CBS Energy Assets Belgium B.V.
CBS Energy Storage Assets UK Limited (iv)
CBS Services Holdings Limited (iv)
CBS Solar Assets UK Limited
CEA SLH Limited (iii) (iv)
Centrica (Lincs) Wind Farm Limited
Centrica Barry Limited
Centrica Business Holdings Inc.
Energy supply
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Gas storage
United Kingdom F
Ordinary shares
Construction of battery storage
Belgium G
Ordinary shares
Construction of battery storage
United Kingdom A
Ordinary shares
Holding company
United Kingdom A
Ordinary shares
Building solar farm & connecting to grid
United Kingdom A
Ordinary shares
Construction of gas peaker
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Power generation
United Kingdom A
Ordinary shares
Holding company
United States
H
Ordinary shares
Centrica Business Solutions (Generation) Limited
Power generation
United Kingdom A
Ordinary shares
Centrica Business Solutions B.V.
Energy management products and services
Netherlands
I
Ordinary shares
Centrica Business Solutions Belgium NV
Demand response aggregation
Belgium G
Ordinary shares
Centrica Business Solutions Canada Inc.
Energy management products and services
Centrica Business Solutions Deutschland GmbH
Centrica Business Solutions France SASU
Centrica Business Solutions International Limited
Demand response aggregation
Demand response aggregation
Canada
Germany
France
J
K
L
Ordinary shares
Ordinary shares
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Centrica Business Solutions Ireland Limited
Energy management products and services Republic of Ireland
B
Ordinary shares
Centrica Business Solutions Italia Srl
Energy management products and services
Italy M
Ordinary shares
Centrica Business Solutions Management Limited
Holding company
United Kingdom A
Ordinary shares
Financial Statements | Centrica plc Annual Report and Accounts 2023
221
S10. RELATED UNDERTAKINGS
31 December 2023
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Centrica Business Solutions Romania Srl
Energy management products and services
Romania
N
Ordinary shares
Centrica Business Solutions Services, Inc.
Energy management products and services
United States O
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 O
Ordinary shares
Centrica Business Solutions Zrt
Energy management products and services
Hungary
P
Ordinary shares
Centrica Combined Common Investment Fund
Limited
Centrica Directors Limited
Centrica Distributed Generation Limited
Centrica Energy Assets Holdings Limited (iv)
Centrica Energy Limited
Centrica Energy Marketing Limited
Centrica Energy Renewable Investments Limited (ii)
Centrica Energy Storage Limited (iv)
Centrica Energy Trading A/S
Dormant
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Power generation
United Kingdom A
Ordinary shares
Power generation
United Kingdom A
Ordinary shares
Wholesale energy trading
United Kingdom A
Ordinary shares
Wholesale energy trading
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Gas production and processing
United Kingdom F
Ordinary shares
Energy services and wholesale energy trading
Denmark Q
Ordinary shares
Centrica Energy Trading GmbH
Centrica Energy Trading Pte. Ltd
Energy services and wholesale energy trading
Energy services and wholesale energy trading
Germany
Singapore
R
S
Ordinary shares
Ordinary shares
Centrica Engineers Pension Trustees Limited
Dormant
United Kingdom A
Ordinary shares
Centrica Finance (Scotland) Limited
Centrica Finance Investments Limited
Centrica Finance Norway Limited
Centrica Gamma Holdings Limited
Centrica Hive Limited
Centrica Hive Srl
Centrica Holdings Limited (v)
Centrica Ignite GP Limited
Centrica Ignite LP Limited
Centrica India Offshore Private Limited
Centrica Innovations UK Limited
Centrica Innovations US, Inc.
Centrica Insurance Company Limited
Centrica Lake Limited
Centrica LNG Company Limited
Centrica LNG UK Limited
Centrica Nederland B.V.
Centrica Nigeria Limited
Centrica Nominees No.1 Limited (ii)
Centrica Offshore UK Limited
Centrica Onshore Processing UK Limited (ii)
Centrica Overseas Holdings Limited
Centrica Pension Plan Trustees Limited
Centrica Pension Trustees Limited
Centrica Production Limited
Centrica Resources (Nigeria) Limited
Centrica Secretaries Limited
Centrica Services Limited
Centrica Smart Meter Assets Limited (iii)
Holding company
United Kingdom T
Ordinary shares
Holding company
United Kingdom A
Ordinary shares
Dormant
Jersey
U
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
V
Ordinary shares
Holding company
United Kingdom A
Ordinary shares
Investment company
United Kingdom A
Ordinary shares
Investment company
United Kingdom A
Ordinary shares
Business services
India W
Ordinary shares
Investment company
United Kingdom A
Ordinary shares
Investment company
United States O
Ordinary shares
Insurance provision
Isle of Man
X
Ordinary and
preference shares
Holding company
United Kingdom A
Ordinary shares
LNG trading
United Kingdom A
Ordinary shares
LNG trading
United Kingdom A
Ordinary shares
Holding company
Netherlands
I
Ordinary shares
Holding company
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Gas and/or liquid exploration and production
United Kingdom F
Ordinary shares
Dormant
United Kingdom F
Ordinary shares
Holding company
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Limited by guarantee
Dormant
United Kingdom A
Ordinary shares
Dormant
United Kingdom T
Ordinary shares
Non-trading
Nigeria
Y
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Business services
United Kingdom A
Ordinary shares
Metering assets and services
United Kingdom A
Ordinary shares
222
Financial Statements | Centrica plc Annual Report and Accounts 2023
S10. RELATED UNDERTAKINGS
31 December 2023
Centrica Storage Holdings Limited
Centrica Titan Limited
Centrica Trading Limited
Centrica Trinidad and Tobago Limited
Centrica Trust (No.1) Limited
DEML Investments Limited
DER Development No.10 Ltd.
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Holding company
United Kingdom F
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Business services
Trinidad and
Tobago
Z
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Holding company
Holding company
Canada
Canada
J
J
Ordinary shares
Ordinary shares
Distributed Energy Customer Solutions Limited
Energy management products and services
United Kingdom A
Ordinary shares
Dyno-Rod Limited
ECL Contracts Limited
ECL Investments Limited
Electricity Direct (UK) Limited (ii)
ENER-G Nagykanizsa Kft
ENER-G Rudox, LLC
Energy For Tomorrow
GB Gas Holdings Limited
Generation Green Solar Limited
GF One Limited (vi)
GF Two Limited (vi)
Goldbrand Development Limited (ii)
Greener Ideas Limited (vii)
Home Assistance UK Limited
Leicestershire Solar 1 Limited (iii)
Neas Energy Limited
Neas Invest A/S
P.H Jones Group Limited
P&M Energy Ltd (iii)
Panoramic Power Ltd.
Pioneer Shipping Limited
SN12 6EF Limited (iii)
South Energy Investments, LLC
Vista Solar, Inc.
Operation of a franchise network
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Energy management products and services
Hungary
P
Ordinary shares
Energy management products and services
United States O Membership interest
Not-for-profit energy services
United Kingdom A
Limited by guarantee
Holding company
United Kingdom A
Ordinary shares
Dormant community benefit society
United Kingdom A
Ordinary shares
In liquidation
United Kingdom AA
Ordinary shares
In liquidation
United Kingdom AA
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Development of flexible power generation
sites
Republic of Ireland
B
Ordinary shares
Dormant
United Kingdom A
Ordinary shares
Building solar farm and connecting to grid
United Kingdom A
Ordinary shares
Energy services and wholesale energy trading
United Kingdom A
Ordinary shares
Dormant
Denmark Q
Ordinary shares
Holding company
United Kingdom A
Ordinary shares
Construction of battery storage
United Kingdom T
Ordinary shares
Energy management products and services
Israel AB
Ordinary shares
LNG vessel chartering
United Kingdom A
Ordinary shares
Power generation
United Kingdom A
Ordinary shares
Investment company
United States AC Membership interest
Distributed energy and power
United States AD
Ordinary shares
Financial Statements | Centrica plc Annual Report and Accounts 2023
223
S10. RELATED UNDERTAKINGS
Investments held indirectly by Centrica plc with 69% voting rights
31 December 2023
Principal activity
Country of incorporation/
registered address key (i)
Bowland Resources Limited
Gas and/or liquid exploration and production
United Kingdom
Bowland Resources (No.2) Limited
Gas and/or liquid exploration and production
United Kingdom
Gas and/or liquid exploration and production
United Kingdom
Class of shares held
Ordinary shares
Ordinary shares
Ordinary shares
A
A
A
Elswick Energy Limited
Spirit Energy Hedging Holding Limited (viii)
Spirit Energy Hedging Limited (viii)
Spirit Energy Limited
Dormant
Dormant
United Kingdom AE
Ordinary shares
United Kingdom AE
Ordinary shares
Holding company
United Kingdom
A
Ordinary and
deferred shares
Spirit Energy Nederland B.V.
Gas and/or liquid exploration and production
Netherlands
Spirit Energy North Sea Limited
Gas and/or liquid exploration and production
United Kingdom
AF
A
Ordinary Shares
Ordinary shares
Spirit Energy North Sea Oil Limited
Gas and/or liquid exploration and production
United Kingdom AG
Ordinary shares
Spirit Energy Norway AS
Gas and/or liquid exploration and production
Norway
AH
Ordinary shares
Spirit Energy Production UK Limited
Gas and/or liquid exploration and production
United Kingdom
Spirit Energy Resources Limited
Gas and/or liquid exploration and production
United Kingdom
Spirit Energy Southern North Sea Limited
Gas and/or liquid exploration and production
United Kingdom
Spirit Energy Treasury Limited
Spirit Europe Limited
Spirit Infrastructure B.V.
Spirit North Sea Gas Limited
Spirit Norway Holdings AS
Spirit Norway Limited
Finance company
United Kingdom
Holding company
United Kingdom
Construction, ownership and exploitation of
infrastructure
Netherlands
AF
Ordinary shares
Gas and/or liquid exploration and production
United Kingdom AG
Ordinary shares
Gas and/or liquid exploration and production
United Kingdom
Dormant
Norway
AI
A
Ordinary shares
Ordinary shares
A
A
A
A
A
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Spirit Production (Services) Limited
Business services
United Kingdom AG
Ordinary shares
Spirit Resources (Armada) Limited
Gas and/or liquid exploration and production
United Kingdom
A
Ordinary shares
For list of registered addresses, refer to note S10(d).
Active proposal to strike off.
Incorporated or acquired in 2023.
(i)
(ii)
(iii)
(iv) The following name changes were made during the year:
– Centrica Brigg Limited to CBS Energy Storage Assets UK Limited
– ENER-G Cogen International Limited to CBS Services Holdings Limited
– EL (SLH CM) Limited to CEA SLH Limited
– Centrica KPS Limited to Centrica Energy Assets Holdings Limited
– Centrica Storage Limited to Centrica Energy Storage Limited
Centrica Holdings Limited moved from being a direct to indirect subsidiary during the year.
(v)
(vi) GF One Limited and GF Two Limited are 75% indirectly owned by Centrica plc.
(vii) During 2023, the voting rights for Greener Ideas Limited increased to 80%.
(viii) Dissolved in January 2024.
224
Financial Statements | Centrica plc Annual Report and Accounts 2023
S10. RELATED UNDERTAKINGS
(b)
Subsidiary undertakings – partnerships held indirectly by Centrica plc with 100% voting rights
31 December 2023
CF 2016 LLP
CFCEPS LLP
Direct Energy Resources Partnership
Finance Scotland 2016 Limited Partnership
Finance Scotland CEPS 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
Holding entity
Canada AJ
Membership interest
Group financing
United Kingdom T
Membership interest
Group financing
United Kingdom T
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; and
¢ Ignite Social Enterprise LP.
(c)
Joint arrangements and associates
Indirect
interest
and voting
rights (%)
40.0%
50.0%
50.0%
40.0%
40.0%
40.0%
50.0%
31 December 2023
Joint ventures (ii)
Allegheny Solar 1, LLC
C2 Centrica MT, LLC
Principal activity
Country of incorporation/
registered address key (i)
Class of shares held
Energy supply and/or services
United States AK
Membership interest
Energy supply and/or services
United States AL
Membership interest
Eurowind Polska VI Sp z.o.o.
Operation of an onshore windfarm
Poland AM
Ordinary shares
Energy supply and/or services
United States AK
Membership interest
Energy supply and/or services
United States AK
Membership interest
Energy supply and/or services
United States AK
Membership interest
Operation of an onshore windfarm
Denmark AN
Ordinary shares
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 AO
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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
225
S10. RELATED UNDERTAKINGS
(d)
List of registered addresses
Registered
address key
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
Address
Millstream, Maidenhead Road, Windsor, SL4 5GD, United Kingdom (i)
1 Warrington Place, Dublin 2, Republic of Ireland
5/F, Manulife Place, 348 Kwun Tong Road, Kowloon, Hong Kong (ii)
Thomas-Wimmer-Ring 1-3, 80539, Munich, Germany
2 Wisconsin Circle #700, Chevy Chase, MD 20815, United States
Woodland House, Woodland Park, Hessle, HU13 0FA, United Kingdom
Roderveldlaan 2 bus 2, 2600 Antwerp, Belgium
3411 Silverside Road, Rodney Building #104, Wilmington, DE 19810, United States
Wiegerbruinlaan 2A, 1422 CB Uithoorn, Netherlands
550 Burrard Street, Suite 2900, Vancouver BC V6C 0A3, Canada
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
Strada Martir Colonel loan Uţă nr.28 camera 1, Municipiul Timisoara judet Timis, Romania
3411 Silverside Road, Suite 104, Tatnall Building, Wilmington, DE 19810, United States
H-1106 Budapest Jászberényi út 24-36, Hungary
Skelagervej 1, 9000 Aalborg, Denmark
Esplanade 40, 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, 110019, India
3rd floor, St George's Court, Upper Church Street, Douglas, IM1 1EE, Isle of Man
Sterling Towers, 20 Marina, 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
1st floor, 20 Kingston Road, Staines-upon-Thames, TW18 4LG, United Kingdom
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
Lilleakerveien 8, 0283 Oslo, 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) The following entities changed their registered address during the year from 1st floor, 20 Kingston Road, Staines-upon-Thames, TW18 4LG, United Kingdom to the address
listed above.
Bowland Resources Limited
Bowland Resources (No.2) Limited
Elswick Energy Limited
Spirit Energy Limited
Spirit Energy North Sea Limited
Spirit Energy Production UK Limited
Spirit Energy Resources Limited
Spirit Energy Southern North Sea Limited
Spirit Energy Treasury Limited
Spirit Europe Limited
Spirit Norway Limited
Spirit Resources (Armada) Limited
(ii) Rhodes Holdings HK Limited changed its registered address during the year from Level 54, Hopewell Centre, 183 Queens Road East, Hong Kong to the address listed
above.
226
Financial Statements | Centrica plc Annual Report and Accounts 2023
S10. RELATED UNDERTAKINGS
(e)
Summarised financial information
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 profit/(loss) before
interest and tax
2023
2022
Associate
information
reported to
Group
£m
Unadjusted
20% share
£m
Fair value
and other
adjustments
£m
3,398
680
—
Associate
information
reported to
Group
£m
Unadjusted
20% share
£m
Fair value
and other
adjustments
£m
2,960
592
—
Group
share
£m
680
Group
share
£m
592
1,671
334
(52)
282
737
147
(26)
121
Profit/(loss) for the year
Other comprehensive (loss)/income
Total comprehensive income/(loss)
1,242
(477)
765
248
(95)
153
(40)
—
(40)
208
(95)
113
542
(1,467)
(925)
108
(293)
(185)
(15)
—
(15)
93
(293)
(200)
Summarised balance sheet
31 December
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
2023
2022
Associate
information
reported to
Group
£m
Unadjusted
20% share
£m
Fair value
and other
adjustments (i)
£m
Group
share
£m
Associate
information
reported to
Group
£m
Unadjusted
20% share
£m
Fair value
and other
adjustments (i)
£m
Group
share
£m
15,970
3,194
694
3,888
17,121
3,424
751
4,175
3,901
(1,350)
780
(270)
—
—
780
(270)
4,212
(1,742)
842
(348)
—
—
842
(348)
(11,675)
(2,335)
(114)
(2,449)
(12,405)
(2,481)
(131)
(2,612)
6,846
1,369
580
1,949
7,186
1,437
620
2,057
(i) Before cumulative impairments of £1,046 million (2022: £497 million) of the Group’s associate investment.
During the year, dividends of £220 million (2022: £60 million) were paid by the associate to the Group.
Joint operations - fields/assets
31 December 2023
Cygnus
Location
Percentage holding
UK North Sea
61%
Financial Statements | Centrica plc Annual Report and Accounts 2023
227
S11. NON-CONTROLLING INTERESTS
The Group has one subsidiary undertaking with a material non-controlling interest: Spirit Energy Limited, through which the Group carries
out the majority of its exploration and production activities.
2023
2022
Non-
controlling
interests
%
Profit for
the year
£m
Total
comprehensive
income
£m
Distributions
to non-
controlling
interests
£m
Total
equity
£m
Non-
controlling
interests
%
Profit for
the year
£m
Total
comprehensive
income
£m
Distributions
to non-
controlling
interests
£m
Total
equity
£m
31
111
110
356
(17)
31
146
151
263
(273)
Year ended 31 December
Spirit Energy Limited
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
Profit for the year (i)
Other comprehensive (loss)/income (i)
Total comprehensive income
2023
£m
974
357
(1)
356
(i) 2023 includes £nil exchange differences reclassified to the income statement on disposal not attributable to non-controlling interests (2022: £101 million).
Summarised balance sheet
31 December
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Summarised cash flow
Year ended 31 December
Net decrease in cash and cash equivalents
2023
£m
1,028
2,099
(481)
(1,498)
1,148
2023
£m
(13)
2022
£m
1,667
371
116
487
2022
£m
1,683
1,451
(1,183)
(1,104)
847
2022
£m
(73)
228
Financial Statements | Centrica plc Annual Report and Accounts 2023
COMPANY STATEMENT OF CHANGES IN EQUITY
1 January 2022
Profit for the year (i)
Other comprehensive loss
Total comprehensive income/(loss)
Employee share schemes and other share transactions (ii)
Share buyback programme (iii)
Dividends paid to equity holders
31 December 2022
Profit for the year (i)
Other comprehensive loss
Total comprehensive income/(loss)
Employee share schemes and other share transactions (ii)
Share buyback programme (iii)
Dividends paid to equity holders
31 December 2023
Share
capital
£m
Share
premium
£m
Retained
earnings
£m
363
2,377
2,590
—
—
—
2
—
—
—
—
—
17
—
—
365
2,394
—
—
—
—
—
—
—
—
—
—
—
—
365
2,394
719
—
719
(2)
—
(59)
3,248
2,258
—
2,258
(3)
—
(186)
5,317
Other
equity
(note II)
£m
(19)
—
(51)
(51)
(14)
(250)
—
(334)
—
(35)
(35)
39
(500)
—
(830)
Total
equity
£m
5,311
719
(51)
668
3
(250)
(59)
5,673
2,258
(35)
2,223
36
(500)
(186)
7,246
Includes inter-company dividend income of £2,635 million (2022: £1,500 million).
Includes taxation on employee share schemes and other share transactions attributable to the Company only.
(i)
(ii)
(iii) See note I and note S4 of the Group consolidated Financial Statements for further details of the share buyback programme.
As permitted by section 408(3) of the Companies Act 2006 no Income Statement or Statement of Comprehensive Income is presented.
The Directors propose a final dividend of 2.67 pence per ordinary share for the year ended 31 December 2023 (which would total £144
million based on shareholding at that date). The dividend will be paid on 11 July 2024 to those shareholders registered on 31 May 2024.
Details of the interim and final dividends are provided in note 11 to the Group consolidated Financial Statements.
Details of the Company’s share capital are provided in the Group Statement of Changes in Equity and note 25 to the Group consolidated
Financial Statements.
The notes on pages 231 to 240 form part of these Financial Statements, along with note 25 to the Group consolidated Financial
Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2023
229
COMPANY BALANCE SHEET
31 December
Non-current assets
Property, plant and equipment
Investments
Deferred tax assets
Trade and other receivables
Derivative financial instruments
Retirement benefit assets
Securities
Current assets
Trade and other receivables
Derivative financial instruments
Securities
Cash and cash equivalents
Total assets
Current liabilities
Derivative financial instruments
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 obligations
Bank loans and other borrowings
Total liabilities
Net assets
Share capital
Share premium
Retained earnings (i)
Other equity
Total shareholders’ equity
Notes
2023
£m
2022
£m
11
949
1
11
94
11
14,274
13,089
39
28
104
101
56
498
14,561
14,705
590
66
405
5,482
6,543
1,500
217
—
3,395
5,112
21,104
19,817
(116)
(211)
(9,925)
(9,883)
(2)
(789)
(1)
(905)
(10,832)
(11,000)
(3)
(170)
(3)
(1)
(49)
—
(271)
(45)
(1)
(49)
(2,800)
(3,026)
(2,778)
(3,144)
(13,858)
(14,144)
7,246
365
2,394
5,317
(830)
7,246
5,673
365
2,394
3,248
(334)
5,673
IV
V
XII
VI
VII
XIV
IX
VI
VII
IX
VII
XI
XIII
XII
VII
XI
XIV
XIII
II
(i) Retained earnings includes a net profit after taxation of £2,258 million (2022: £719 million) which includes inter-company dividend income of £2,635 million (2022: £1,500
million).
The Financial Statements on pages 229 to 240, of which the notes on pages 231 to 240 form part, along with note 25 to the Group
consolidated Financial Statements, were approved and authorised for issue by the Board of Directors on 14 February 2024 and were
signed on its behalf by:
Chris O’Shea
Group Chief Executive
Russell O’Brien
Group Chief Financial Officer
Centrica plc Registered No: 03033654
230
Financial Statements | Centrica plc Annual Report and Accounts 2023
NOTES TO THE COMPANY FINANCIAL STATEMENTS
I. GENERAL INFORMATION AND MATERIAL 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 which is the functional currency of the Company.
(a) Basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the
definition of a qualifying entity under FRS 100 ‘Application of Financial Reporting Requirements’ issued by the FRC. Accordingly, these
financial statements are prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’.
(b) New accounting policies, standards, amendments and interpretations effective or adopted in 2023
From 1 January 2023, the following standards and amendments are effective in the Company’s Financial Statements:
¢ IFRS 17 ‘Insurance Contracts’;
¢ Amendments to IAS 8 ‘Accounting policies, Changes in Accounting Estimates and Errors’, distinguishing changes in accounting
estimates from changes in accounting policies;
¢ Amendments to IAS 1 ‘Presentation of Financial Statements’, disclosure of accounting policies and materiality judgements;
¢ Amendments to IAS 12 ‘Income Taxes’:
– Deferred tax related to these assets and liabilities arising from a single transaction; and
– International tax reform, pillar 2 model rules.
There has been no material impact on the Company’s Financial Statements from any standards and amendments effective during
the year.
Pension Scheme Loan Arrangement
In October 2022, the Company agreed to provide the Schemes with a £400 million two-year revolving, unsecured, interest bearing credit
facility, and a short-term £150 million loan. This money was immediately drawn down to purchase physical gilts to reduce the extent of
interest rate and inflation risk. The short-term loan was repaid in December 2022 and the remaining £400 million credit facility is scheduled
for repayment in October 2024. See note 22 of the Group consolidated Financial Statements for further details. At the 2023 year-end, the
£400 million loan (together with unpaid interest) is recorded in note IX Securities on the Company’s balance sheet and as a reduction to
scheme assets for the UK Registered Pension Schemes.
(c) Standards and amendments that are issued but not yet applied by the Company
At the date of authorisation of these Company Financial Statements, the Company has not applied the following new and revised
standards and amendments that have been issued but are not yet effective:
¢ Amendments to IAS 1 ‘Presentation of Financial Statements’:
– Classification of liabilities as current or non-current, effective 1 January 2024; and
– Non-current liabilities with covenants, effective 1 January 2024.
¢ Amendments to IFRS 16 ‘Leases’; effective from 1 January 2024;
– Lease liability in a sale and leaseback;
¢ Amendments to IAS 7 ‘Statement of Cash Flows’ and IFRS 7 ‘Financial Instruments : Disclosures’; effective from 1 January 2024:
– Supplier finance arrangements; and
¢ Amendments to IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’.
Management does not expect other issued but not effective amendments or standards, or standards not discussed above to have
a material impact on the Company’s Financial Statements.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to:
¢ The requirements of IAS 7 ‘Statement of Cash Flows’;
¢ The statement of compliance with Adopted 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;
¢ Disclosures in respect of capital management; and
¢ The requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 ‘Share-based Payment’.
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.
The Company has also taken the advantage of the exemption in respect of disclosures for Pillar 2 tax, as required by paragraphs 88C and
88D of IAS 12 ‘Income Taxes’, as the equivalent disclosures are available in the notes 9(c) and 16 of the Group consolidated Financial
Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2023
231
I. GENERAL INFORMATION AND MATERIAL ACCOUNTING POLICIES OF THE COMPANY
Measurement convention
The Company Financial Statements have been prepared on the historical cost basis except for: investments in subsidiaries that have been
recognised at deemed cost on transition to FRS 101; derivative financial instruments, financial instruments required to be measured at fair
value through profit or loss or other comprehensive income, and those financial assets so designated at initial recognition, and the assets
of the defined benefit pension schemes that have been measured at fair value; the liabilities of the defined benefit pension schemes that
have been measured using the projected unit credit valuation method; and the carrying values of recognised assets and liabilities qualifying
as hedged items in fair value hedges that have been adjusted from cost by the changes in the fair values attributable to the risks that are
being hedged.
Going concern
The accounts have been prepared on a going concern basis, as described in the Directors’ Report and note 24(b) of the Group
consolidated Financial Statements.
Critical accounting judgements – share buyback programme
On 10 November 2022, the Group announced an intention to undertake a share buyback of £250 million and the Company entered into
contracts with third parties to undertake this repurchase programme which has now completed. During 2023, the Company firstly
increased the share buyback by an additional £300 million which completed during the second half of the year.
Subsequently, in July 2023, the Group announced a further £450 million extension to the share buyback programme and as a result, the
Company signed an agreement with a third party to undertake the repurchase of £200 million shares which is expected to complete by
March 2024. The repurchase of the remaining £250 million shares is expected to commence in the first half of 2024.
The Company judges that the terms and conditions of the contracts mean that, at 31 December 2023, it was unable to cancel the
obligation arising under the contract signed in the second half of 2023. Accordingly, the Company has recorded a financial liability at
31 December 2023 of £94 million (31 December 2022: £207 million) for this obligation in accordance with IAS 32 ‘Financial instruments:
Presentation’ that is subsequently measured in accordance with IFRS 9 ‘Financial instruments’. This liability is included within other
payables, with the corresponding debit presented in the other equity reserve.
The Company has not recognised a liability relating to the further £250 million announced during 2023, as no contract has been signed
and therefore no financial liability has yet arisen. The monthly breakdown of all shares purchased and the average price paid (excluding
expenses) in relation to the financial liability recognised at 31 December 2023 are detailed in note S4 of the Group consolidated Financial
Statements.
Material accounting policies
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Company
Financial Statements.
Employee share schemes
The Group has a number of employee share schemes under which it makes equity-settled share-based payments as detailed in the
Remuneration Report on pages 84 to 86 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.
232
Financial Statements | Centrica plc Annual Report and Accounts 2023
I. GENERAL INFORMATION AND MATERIAL ACCOUNTING POLICIES OF THE COMPANY
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.
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 cost of
disposal. In assessing a recoverable amount, the market capitalisation of the Company is taken and, following relevant adjustments,
allocated to specific holding company investments. Separately, an average of third-party analysts’ ‘sum of the parts’ valuations for the
Group’s business units, allocated to specific investments and assessed relative to internal forecasts, is also considered. An appropriate
recoverable amount is then determined from this work and compared with the investment carrying value and net intercompany receivable
held on the Company’s balance sheet.
Refer to note V for more details on the impairment charge and reduction in the cost of investments in subsidiaries recognised during
the year.
Impairment of other financial assets and credit losses for financial guarantee contracts
The Company’s impairment policies in relation to financial assets are consistent with those of the Group, with additional consideration
given to amounts owed by Group undertakings. Except for certain loans due in greater than one year, all outstanding receivable balances
are repayable on demand and arise from funding provided by the Company to its subsidiaries. Where net receivers of funding are unable
to repay loan balances 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,
this is considered a significant risk of causing material adjustment to the carrying amounts of financial assets within the next financial year.
A detailed review of the amounts owed by Group undertakings for the expected credit loss provision is carried out on an annual basis.
The model considers whether the receivable is repayable on demand within a 12-month period and the probability of default by the
counterparty. As at 31 December 2023, there was a release of cumulative provision for expected credit losses on current financial assets
of £15 million (2022: £15 million expected credit losses charge) as disclosed in note VI (i) and on non-current financial assets of £217
million (2022: £872 million expected credit losses charge) as disclosed in note VI (ii). This was either due to the settlement of the loan
receivable during the year or a fall in the estimate of the credit loss of the financial instrument when measured in accordance with IFRS 9
‘Financial instruments’.
The Company has applied the impairment requirements of IFRS 9 to financial guarantees issued to its subsidiary undertakings. A financial
guarantee contract is measured at fair value at the reporting date and where the expected credit loss is higher than calculated on
recognition, an additional liability is recognised. Expected credit losses which arise on such arrangements have been calculated according
to the nature of the guarantee and the Company’s estimate of potential exposure at the balance sheet date. As at 31 December 2023,
there was a release of net provision for expected credit losses on financial guarantees contracts of £126 million (2022: £55 million
expected credit loss provision charge) as disclosed in note XI (iii). The significant decrease in the expected credit loss provision is due to
the reduced short-term derivative liabilities in the market-facing entities which actively trade and are exposed to the risk of market price
volatility during the year.
Pensions and other post-employment benefits
The Company’s employees participate in a number of the Group’s defined benefit pension schemes. The total Group cost of providing
benefits under defined benefit schemes is determined separately for each of the Group’s schemes under the projected unit credit actuarial
valuation method. Actuarial gains and losses are recognised in full in the period in which they occur. The key assumptions used for the
actuarial valuation are based on the Group’s best estimate of the variables that will determine the ultimate cost of providing post-
employment benefits, on which further detail is provided in notes 3(b) and 22 to the Group consolidated Financial Statements.
The Company’s share of the total Group surplus or deficit at the end of the reporting period for each scheme is calculated in proportion to
the Company’s share of ordinary employer contributions to that scheme during the year; ordinary employer contributions are determined
by the pensionable pay of the Company’s employees within the scheme and the cash contribution rates set by the scheme trustees. Note
that as a participant in these multi-employer schemes, the Company could be liable for other entities’ obligations (for example under
section 75 of the Pensions Act). See note 22 of the Group consolidated Financial Statements for details of the overall scheme obligations.
Current service cost 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.
Financial Statements | Centrica plc Annual Report and Accounts 2023
233
I. GENERAL INFORMATION AND MATERIAL 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 28 to 34 and in note S3 to the Group consolidated
Financial Statements.
Financial guarantees
Financial guarantees are contracts that require the Company to make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. The Company accounts
for financial guarantee contracts under IFRS 9.
Presentation of derivative financial instruments
In line with the Group’s accounting policy for derivative financial instruments, the Company has classified those derivatives held for the
purpose of treasury management as current or non-current, based on expected settlement dates.
234
Financial Statements | Centrica plc Annual Report and Accounts 2023
II. OTHER EQUITY
1 January 2022
Actuarial losses
Employee share schemes:
Exercise of awards
Value of services provided
Purchase of own shares
Issue of shares
Share buyback programme: (i)
Purchase of Treasury shares
Accrual for committed share purchases
Impact of cash flow hedging
Taxation on above items (ii)
31 December 2022
Gains on revaluation of equity investments
measured at fair value through other
comprehensive income
Actuarial losses
Employee Share Schemes:
Exercise of awards
Value of services provided
Net proceeds from exercise of share options
Share buyback programme: (i)
Purchase of Treasury shares
Movement on committed share purchases
Impact of cash flow hedging
Taxation on above items (ii)
31 December 2023
Cash flow
hedging
reserve
£m
Actuarial gains
and losses
reserve
£m
Financial asset
at FVOCI
reserve
£m
Treasury and
own shares
reserve
£m
Share-based
payments
reserve
£m
Capital
redemption
reserve
£m
5
—
—
—
—
—
—
—
(26)
8
(13)
—
—
—
—
—
—
—
(3)
1
(87)
(44)
—
—
—
—
—
—
—
11
(120)
—
(48)
—
—
—
—
—
—
12
(15)
(156)
11
—
—
—
—
—
—
—
—
—
11
3
—
—
—
—
—
—
—
(1)
13
(18)
—
10
—
(5)
(7)
(43)
—
—
—
(63)
—
—
22
—
6
(615)
—
—
—
(650)
42
—
(22)
10
—
—
—
—
—
—
30
—
—
(20)
31
—
—
—
—
1
42
28
—
—
—
—
—
—
(207)
—
—
(179)
—
—
—
—
—
—
115
—
—
(64)
Total
£m
(19)
(44)
(12)
10
(5)
(7)
(43)
(207)
(26)
19
(334)
3
(48)
2
31
6
(615)
115
(3)
13
(830)
(i) See note I and note S4 of the Group consolidated Financial Statements for further details of the share buyback programme.
(ii)
Includes current and deferred taxation on above items attributable to the Company only.
III. DIRECTORS AND EMPLOYEES
(a) Employee costs
Year ended 31 December
Wages and salaries
Other
(b) Average number of employees during the year
Year ended 31 December
Administration
Power
2023
£m
(12)
(8)
(20)
2022
£m
(7)
(8)
(15)
2023
Number
2022
Number
171
11
182
138
8
146
Financial Statements | Centrica plc Annual Report and Accounts 2023
235
IV. PROPERTY, PLANT AND EQUIPMENT
Cost
1 January
Additions
31 December
Accumulated depreciation
1 January
Charge for the year
31 December
NBV at 31 December (i)
Plant,
equipment &
vehicles
2023
£m
12
4
16
(1)
(4)
(5)
11
(i)
Included within the above are right-of-use assets of £6 million relating to infrastructure services (2022: £9 million), and £5 million of staff salary sacrifice electric vehicles
(2022: £2 million).
V. INVESTMENTS IN SUBSIDIARIES
Cost
1 January
Additions (ii)
Write-downs (iii)
Disposals (iv)
Employee share scheme net capital movement (v)
31 December
Provision
1 January
Impairment provided in the year (vi)
Disposals (iv)
31 December
NBV at 31 December
2023 (i)
£m
2022 (i)
£m
2,262
2,273
—
(863)
(1,313)
8
94
—
—
—
(11)
2,262
(1,313)
(1,173)
—
1,313
—
94
(140)
—
(1,313)
949
(i) Direct investments are held in CH4 Energy Limited (formerly Centrica Trading Limited) and Centrica Beta Holdings Limited, both of which are incorporated in England, and
Rhodes Holdings HK Limited, which was incorporated in Hong Kong and Centrica Ireland Holdings Limited, which was incorporated in Ireland. The prior year direct
investment held in Centrica Holdings Limited, which was incorporated in England, has become an indirect investment after a share transfer with Centrica Ireland Holdings
Limited in January 2023. Related undertakings are listed in note S10 to the Group consolidated Financial Statements.
(ii) The Company acquired 100% share capital of £0.02 million in Centrica Ireland Holdings Limited.
(iii)
Investments in CH4 Energy Limited, and Centrica Beta Holdings Limited were largely written down as deemed irrecoverable after the dividend payment of £686 million
(2022: £nil) and £1.7 billion (2022: £nil) from these companies in November 2023 and December 2023 respectively.
(iv) Disposals predominantly relate to Centrica Holdings Limited, following a share for share exchange transaction, swapping the previous investment in Centrica Holdings
Limited for shares in Centrica Ireland Holdings Limited.
(v) Employee share scheme movement is the net change in shares to be awarded under employee share schemes to employees of Group undertakings.
(vi) 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 and other receivables
2023
2022
Current (i)
£m
Non-current (ii)
£m
Current (i)
£m
Non-current (ii)
£m
582
8
590
14,262
12
1,496
13,085
4
4
14,274
1,500
13,089
(i) The amounts receivable by the Company includes a gross balance of £480 million (2022: £1,424 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 2.1% and 5.7% per annum during 2023 (2022: 0% and 4.1%). The other amounts
receivable from Group undertakings are interest free. All amounts receivable from Group undertakings are unsecured and repayable on demand. Amounts receivable by
the Company are stated net of credit loss provision of £nil (2022: £15 million).
(ii) The amounts receivable by the Company includes a gross balance of £15,082 million (2022: £14,206 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 2.1% and 5.7% per annum during 2023 (2022: 0% and
4.1%). The other amounts receivable from Group undertakings are interest-free. All amounts receivable from Group undertakings are unsecured and not expected to be
repayable within 12 months from the reporting date. Amounts receivable by the Company are stated net of credit loss provisions of £655 million (2022: £872 million).
236
Financial Statements | Centrica plc Annual Report and Accounts 2023
VII. DERIVATIVE FINANCIAL INSTRUMENTS
31 December
Derivative financial assets
Derivative financial liabilities
VIII. FINANCIAL INSTRUMENTS
(a) Determination of fair values
2023
Current
£m
Non-current
£m
66
(116)
39
(170)
Total
£m
105
(286)
2022
Current
£m
Non-current
£m
217
(211)
101
(271)
Total
£m
318
(482)
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 (i)
Derivative financial assets in hedge accounting relationships:
Interest rate derivatives
Foreign exchange derivatives
Debt instruments
Equity instruments
Cash and cash equivalents (ii)
Total financial assets at fair value
Financial liabilities
Level 1
£m
Level 2
£m
2023
Total
£m
Level 1
£m
Level 2
£m
2022
Total
£m
—
69
69
—
243
243
—
—
72
32
—
104
—
36
—
—
—
36
72
32
4,673
4,778
4,673
4,882
—
—
66
29
—
95
37
38
—
—
37
38
66
29
2,809
3,127
2,809
3,222
Derivative financial liabilities held for trading:
Foreign exchange derivatives (i)
Derivative financial liabilities in hedge accounting relationships:
Interest rate derivatives
Foreign exchange derivatives
Total financial liabilities at fair value
—
(134)
(134)
—
(257)
(257)
—
—
—
(136)
(16)
(286)
(136)
(16)
(286)
—
—
—
(221)
(4)
(482)
(221)
(4)
(482)
(i) In addition to the derivatives included in the table above, the Company also has internal derivative assets with a fair value of £133 million (2022: £257 million) entered into
on behalf of its subsidiaries and are included within Trade receivables in note VI, and internal derivative liabilities with a fair value of £66 million (2022: £242 million) included
within Trade payables in note XI.
(ii) Included within cash and cash equivalents are money market funds amounting to £4,673 million (2022: £2,809 million).
IX. SECURITIES
31 December
Debt instruments
Equity instruments
Other
2023
2022
Current
Non-current
Current
Non-current
£m
—
—
405
405
£m
72
32
—
104
£m
—
—
—
—
£m
66
29
403
498
Within Non-current securities, £104 million (2022: £95 million) of investments were held in trust, on behalf of the Company, as security in
respect of the Centrica Unapproved Pension Scheme (refer to note XIV (c)).
Other Current securities represents the pension scheme loan arrangement (including interest) of £405 million (2022: £403 million within
Non-current securities) as disclosed in note I(b), note XIV(f) and in note 22(b) to the Group consolidated Financial Statements.
Financial Statements | Centrica plc Annual Report and Accounts 2023
237
X. LEASE LIABILITIES MATURITY ANALYSIS
A maturity analysis of lease liabilities based on undiscounted gross cash flow is reported in the table below:
Less than one year
2 years
3 years
Total lease liabilities (undiscounted)
Future finance charges are expected to be £1 million (2022: £1 million).
Analysed as:
Non-current
Current
XI. TRADE AND OTHER PAYABLES
31 December
Amounts owed to Group undertakings
Loss on financial guarantee contracts (iii)
Accruals and other creditors (iv)
Taxation and social security (v)
2023
£m
5
4
1
10
2023
£m
5
5
10
2022
£m
4
4
3
11
2022
£m
7
4
11
2023
2022
Current (i)
£m
Non-current (ii)
£m
Current (i)
£m
Non-current (ii)
£m
(9,749)
(33)
(107)
(36)
(9,925)
(3)
—
—
—
(3)
(9,503)
(159)
(221)
—
(9,883)
(45)
—
—
—
(45)
(i) The amounts payable by the Company includes £9,582 million (2022: £8,577 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 2.1% and 5.7% per annum during 2023 (2022: 0% and 4.1%). Other amounts payable by the Company are
interest free, unsecured and repayable on demand. Refer to note I for further details.
(ii) These other amounts payable by the Company are interest free and unsecured.
(iii) During the year, the Company has released £126 million (2022: £55 million expected credit loss provision charge) of expected credit loss provision on financial guarantee
contracts. See note I for further details.
(iv) During the year, the Company recognised a financial liability of £94 million (2022: £207 million) relating to the share buyback programme. See note I and ‘Own and
treasury shares reserve’ section in note S4 of the Group consolidated Financial Statements for more details.
Includes group relief creditor of £36 million in 2023 (2022: £nil).
(v)
XII. DEFERRED TAX LIABILITIES AND ASSETS
1 January 2022
(Charge)/credit to income
Credit to equity
Deferred tax assets/(liabilities) at 31 December 2022
(Charge)/credit to income
Credit to equity
Deferred tax assets at 31 December 2023
Retirement
benefit
obligation
£m
(2)
(6)
11
3
(5)
9
7
Other
£m
(12)
2
8
(2)
2
1
1
Total
£m
(14)
(4)
19
1
(3)
10
8
Other deferred tax assets primarily relate to other temporary differences. All deferred tax crystallises in over one year.
XIII. BANK OVERDRAFTS, LOANS AND OTHER BORROWINGS
31 December
Bank loans and overdrafts
Bonds
Interest accruals
Lease obligations
2023
2022
Current
£m
(731)
Non-current
£m
(130)
Current
£m
(600)
Non-current
£m
(143)
—
(53)
(5)
(789)
(2,665)
—
(5)
(2,800)
(246)
(55)
(4)
(905)
(2,628)
—
(7)
(2,778)
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.
238
Financial Statements | Centrica plc Annual Report and Accounts 2023
XIV. PENSIONS
(a) Summary of main schemes
The Company’s employees participate in the following Group defined benefit pension schemes: Centrica Pension Plan (CPP), Centrica
Pension Scheme (CPS) and Centrica Unapproved 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
2023
2022
Pension liabilities
£m
Pension assets
£m
Pension liabilities
£m
Pension assets
£m
(731)
738
(1,328)
1,364
1 January
Items included in the Company Income Statement:
Current service cost
Contributions by employer in respect of employee salary
sacrifice arrangements (i)
Total current service cost
Interest (expense)/income on scheme liabilities/assets
Termination benefit
Items included in the Company Statement of Comprehensive
Income:
Returns on plan assets, excluding interest income
Actuarial (loss)/gain from changes to demographic
assumptions
Actuarial (loss)/gain from changes in financial assumptions
Actuarial loss from experience adjustments
Other movements:
Employer contributions
Contributions by employer in respect of employee salary
sacrifice arrangements
Benefits paid from schemes
31 December
(2)
(2)
(4)
(40)
—
—
(97)
(60)
(35)
—
—
38
(929)
—
—
—
41
—
144
—
—
—
21
2
(38)
908
(6)
(2)
(8)
(24)
1
—
4
621
(36)
—
—
39
(731)
(i) A salary sacrifice arrangement was introduced on 1 April 2013 for pension scheme members. The contributions paid via the salary sacrifice arrangement have been
treated as employer contributions and included within the current service cost, with a corresponding reduction in salary costs.
Presented in the Company Balance Sheet as:
31 December
Retirement benefit pension assets
Retirement benefit pension liabilities
The pension scheme liabilities relate to the Centrica Unapproved Pension Scheme.
2023
£m
28
(49)
—
—
—
27
—
(633)
—
—
—
17
2
(39)
738
2022
£m
56
(49)
Financial Statements | Centrica plc Annual Report and Accounts 2023
239
XIV. PENSIONS
(d)
Analysis of the actuarial losses recognised in reserves
Year ended 31 December
Actuarial gain/(loss) (actual return less expected return on pension scheme assets)
Experience loss arising on the scheme liabilities
Changes in assumptions underlying the present value of the schemes’ liabilities
Actuarial 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
2023
£m
144
(35)
(157)
(48)
(196)
(244)
2022
£m
(633)
(36)
625
(44)
(152)
(196)
(e) Defined benefit pension scheme contributions
Note 22 to the Group consolidated Financial Statements provides details of the triennial review carried out at 31 March 2021 in respect of
the UK Registered Pension Schemes and the future pension scheme contributions, including asset-backed arrangements, agreed as part
of this review. Under 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 £4 million of employer contributions during 2024 for its defined benefit schemes, at an average rate
of 22% of pensionable pay, together with contributions via the salary sacrifice arrangement of £2 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
Other long-dated income assets
Property
Cash pending investment
Loan and interest
Asset-backed contribution assets
Group pension scheme assets (i)
Company share of the above
Quoted
£m
23
6
18
2,860
—
—
391
—
—
2023
Unquoted
£m
503
—
1,238
—
1,204
305
—
(405)
469
Total
£m
526
6
1,256
2,860
1,204
305
391
(405)
469
Quoted
£m
19
24
106
2,835
—
—
205
—
—
2022
Unquoted
£m
486
—
1,331
—
1,343
366
—
(403)
527
Total
£m
505
24
1,437
2,835
1,343
366
205
(403)
527
3,298
3,314
6,612
3,189
3,650
6,839
2023
£m
908
2022
£m
738
(i) Total pension scheme assets, including asset-backed contribution assets not recognised in the Group consolidated Financial Statements.
XV. COMMITMENTS
At 31 December 2023, the Company had commitments of £93 million (2022: £66 million) relating to contracts for outsourced services,
£129 million (2022: £177 million) relating to the contracts for centralised information services and £5 million (2022: £5 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 2023, the Group has derivative liabilities of £3,006 million (2022: £10,151 million), and decommissioning liabilities of
£1,527 million (2022: £1,514 million). See notes 19 and 21 to the Group consolidated Financial Statements for further information on
these balances.
XVI. RELATED PARTIES
During the year the Company accepted cash deposits on behalf of the Spirit Energy group of companies giving rise to a Trade and other
payables balance of £1,356 million (2022: £1,091 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.
240
Financial Statements | Centrica plc Annual Report and Accounts 2023
GAS AND LIQUIDS RESERVES (UNAUDITED)
The Group’s estimates of reserves of gas and liquids are reviewed as part of the full year reporting process and updated accordingly.
A number of factors affect the volumes of gas and liquids reserves, including the available reservoir data, commodity prices and future
costs. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of reserves are subject to change as additional
information becomes available.
The Group discloses 2P gas and liquids reserves, representing the central estimate of future hydrocarbon recovery. Reserves for Centrica
operated fields are estimated by in-house technical teams composed of geoscientists and reservoir engineers. Reserves for non-operated
fields are estimated by the operator but are subject to internal review and challenge.
As part of the internal control process related to reserves estimation, an assessment of the reserves, including the application of the
reserves definitions, is undertaken by an independent technical auditor. An annual reserves assessment has been carried out by DeGolyer
& McNaughton for the Group’s global reserves. Reserves are estimated in accordance with a formal policy and procedure standard.
The Group has estimated 2P gas and liquids reserves in Europe.
The principal retained fields in Spirit Energy are Cygnus, Morecambe Hub, Rhyl and Chiswick. The principal non-Spirit Energy field is
Rough. The European reserves estimates are consistent with the guidelines and definitions of the Society of Petroleum Engineers, the
Society of Petroleum Evaluation Engineers and the World Petroleum Council’s Petroleum Resources Management System using accepted
principles.
Estimated net 2P reserves of gas
(billion cubic feet)
1 January 2023
Revisions of previous estimates (ii)
Production (iii)
31 December 2023
Estimated net 2P reserves of liquids
(million barrels)
1 January 2023
Revisions of previous estimates (ii)
Production (iii)
31 December 2023
Estimated net 2P reserves
(million barrels of oil equivalent)
31 December 2023 (iv)
(i) The movements represent Centrica’s 69% interest in Spirit Energy.
(ii) Revision of previous estimates include those associated with Morecambe Hub, Chiswick and Cygnus.
(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 2023 in million barrels of oil equivalent.
Liquids reserves include oil, condensate and natural gas liquids.
Spirit Energy (i)
Rough
261
40
(59)
242
16
—
(1)
15
Total
277
40
(60)
257
Spirit Energy (i)
Rough
Total
1
1
(1)
1
—
—
—
—
1
1
(1)
1
Spirit Energy (i)
Rough
42
3
Total
45
Financial Statements | Centrica plc Annual Report and Accounts 2023
241
FIVE YEAR SUMMARY (UNAUDITED)
Year ended 31 December
Total Group revenue from continuing operations included in business
performance
Operating profit/(loss) from continuing operations before exceptional items and
certain re-measurements:
2019 (restated) (i)
£m
2020 (restated) (i)
£m
2021
£m
2022
£m
2023
£m
15,958
14,949
18,300
33,637
33,374
British Gas Services & Solutions (i)
British Gas Energy (i)
Bord Gáis Energy (i)
Centrica Business Solutions (i)
Centrica Energy (i)
Upstream (i)
Colleague profit share
Operating profit from discontinued operations before exceptional items and
certain re-measurements (i)
Exceptional items and certain re-measurements after taxation
(Loss)/profit attributable to equity holders of the parent
Earnings per ordinary share
Adjusted earnings per ordinary share
Dividend per ordinary share in respect of the year
ASSETS AND LIABILITIES
31 December (restated) (ii)
Goodwill and other non-current intangible assets
Other non-current assets
Net current (liabilities)/assets
Non-current liabilities
Net assets of disposal groups held for sale
Net assets
Adjusted net (debt)/cash (ii) (note 24)
CASH FLOWS
Year ended 31 December (restated) (ii)
187
117
50
(20)
138
178
—
650
251
(1,531)
(1,023)
Pence
(17.8)
7.3
1.5
2019
£m
4,033
5,826
(696)
191
82
42
(132)
174
90
—
447
252
(520)
121
118
28
(52)
70
663
—
948
—
866
41
1,210
Pence
0.7
6.5
—
Pence
20.7
4.1
—
(9)
72
31
44
1,400
1,793
(23)
47
751
1
104
774
1,083
(8)
3,308
2,752
—
(2,755)
(782)
Pence
(13.3)
34.9
3.0
—
2,165
3,929
Pence
70.6
33.4
4.0
2023
£m
745
4,555
4,930
2020
£m
1,940
4,767
622
2021
£m
1,161
6,040
1,465
2022
£m
1,116
7,234
(1,023)
(7,474)
(8,072)
(6,360)
(6,047)
(5,997)
106
1,795
(3,507)
2,125
1,382
(2,998)
444
2,750
680
—
1,280
1,199
—
4,233
2,744
2019
£m
2020
£m
2021
£m
2022
£m
2023
£m
Cash flow from operating activities before exceptional payments
1,548
1,532
1,687
1,338
2,758
Payments relating to exceptional charges in operating costs
Net cash flow from investing activities
Cash flow before cash flow from financing activities
(298)
(503)
747
(132)
(285)
1,115
(76)
2,263
3,874
(24)
(566)
748
(6)
115
2,867
(i) Results have been restated to reflect the new operating structure of the Group, effective during 2021.
(ii) Results have been restated to reflect the change in definition of adjusted net cash/debt in 2021.
242
Financial Statements | Centrica plc Annual Report and Accounts 2023
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
Telephone: 0371 384 2985*
Outside the UK: +44 (0)371 384 2985
Contact: help.shareview.co.uk
Website: equiniti.com
You can also contact Equiniti using the Relay UK website
at relayuk.bt.com
* Calls to an 03 number cost no more than a national rate call to an 01 or
02 number. Lines open 8.30am to 5.30pm, 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.
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.
DIVIDEND
As communicated previously, dividends are now paid only by direct
transfer to your bank or building society account, rather than by
cheque. This is faster, more secure and better for the environment.
If you have not already done so, please therefore provide Equiniti
with your bank or building society account details. You can do
this online at www.shareview.co.uk or by telephoning Equiniti
on +44 (0)371 384 2985.
AMERICAN DEPOSITARY RECEIPT (ADR)
We have an ADR programme, trading under the symbol CPYYY.
Centrica’s ratio is one ADR being equivalent to four ordinary
shares. Further information is available on our website or
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.
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;
¢ update your personal details and your bank account 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/ar23.
SHAREGIFT
If you have a small number of shares and the dealing costs or the
minimum fee make it uneconomical to sell them, it is possible to
donate them to ShareGift, a registered charity, which provides a
free service to enable you to dispose charitably of such shares.
More information on this service can be found at sharegift.org or by
calling +44 (0)20 7930 3737.
FINANCIAL CALENDAR
Ex-dividend date for 2023 final dividend
30 May 2024
Record date for 2023 final dividend
Annual General Meeting (AGM)
Payment of 2023 final dividend
31 May 2024
5 June 2024
11 July 2024
For more information on Centrica’s financial calendar please
visit centrica.com/investors/financial-calendar
Other Information | Centrica plc Annual Report and Accounts 2023
243
ADDITIONAL INFORMATION – EXPLANATORY NOTES (UNAUDITED)
Definitions and reconciliation of adjusted performance measures
Centrica’s 2023 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 these Financial Statements to help explain the performance of the Group and these are defined
and reconciled below. Further information has been provided to help readers when reconciling between different parts of the consolidated
Group Financial Statements, and when reconciling cash flow measures to the Group Cash Flow Statement.
Adjusted EBITDA
Adjusted EBITDA is a business performance measure of operating profit, after adjusting for depreciation and amortisation. It provides
a performance measure in its own right, and provides a bridge between the Income Statement and the Group’s key cash metrics. Further,
a reconciliation excluding Spirit Energy disposed assets is provided.
Year ended 31 December
Group operating profit/(loss)
Exceptional items included within Group operating profit/loss and certain re-measurements
before taxation
Certain re-measurements before taxation
Share of 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)
Group total adjusted EBITDA
(i) These line items relate to business performance only.
Change
Notes
2023
£m
I/S
6,512
7
7
I/S
4
4
645
(4,405)
(209)
404
138
2022
£m
(240)
155
3,393
(92)
598
179
3,085
3,993
(23) %
Adjusted EBITDA excluding Spirit Energy disposed assets
Year ended 31 December
Group total adjusted EBITDA
Less: disposed assets adjusted EBITDA (including associated hedges)
Adjusted EBITDA excluding Spirit Energy disposed assets
Adjusted operating profit excluding Spirit Energy disposed assets
Year ended 31 December
Group total adjusted operating profit
Less: disposed assets adjusted operating profit (including associated hedges)
Adjusted operating profit excluding Spirit Energy disposed assets
Notes
2023
£m
3,085
—
3,085
Notes
2023
£m
I/S
2,752
—
2,752
2022
£m
3,993
(485)
3,508
2022
£m
3,308
(485)
2,823
Change
(12) %
Change
(3) %
244
Other Information | Centrica plc Annual Report and Accounts 2023
The below table shows how adjusted EBITDA reconciles to free cash flow:
Year ended 31 December
Adjusted EBITDA
Notes
2023
£m
2022
£m
3,085
3,993
Group operating profit/(loss) including share of joint ventures and associates, from exceptional items and certain
re-measurements
I/S
3,760
(3,548)
Share of losses/(profits) 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
Decrease in provisions
Cash contributions to defined benefit schemes in excess of service cost income statement charge
Employee share scheme costs
Unrealised (gains)/losses arising from re-measurement of energy contracts
Net movement in working capital
Taxes paid
Operating interest paid
Payments relating to exceptional charges in operating profit
Net cash flow from operating activities
Purchase of businesses, net of cash acquired
Sale of businesses, including receipt of deferred consideration
Purchase of property, plant and equipment and intangible assets
Sale of property, plant and equipment and intangible assets
Investments in joint ventures and associates
Dividends received from joint ventures and associates
Net purchase of other investments
UK pension deficit payments
Movements in variation margin and collateral
Group total free cash flow
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
1
(1)
645
—
(207)
343
(1,021)
(1,903)
(215)
31
(184)
10
(2,949)
4,095
244
(803)
(20)
(6)
(656)
(574)
(30)
(24)
2,752
1,314
(34)
55
(335)
—
(9)
220
(37)
180
(585)
2,207
12
92
(371)
11
(18)
60
—
214
1,173
2,487
Adjusted earnings attributable to shareholders excluding Spirit Energy disposed assets
Year ended 31 December
Adjusted earnings attributable to shareholders
Notes
2023
£m
2022
£m
Change
I/S
1,859
2,050
Less: disposed assets adjusted earnings attributable to shareholders (including associated hedges)
—
(45)
Adjusted earnings attributable to shareholders excluding Spirit Energy disposed assets
1,859
2,005
(7) %
Adjusted basic earnings per share excluding Spirit Energy disposed assets
Year ended 31 December
Adjusted earnings attributable to shareholders excluding Spirit Energy disposed assets (£m)
Weighted average of ordinary shares in issue during the period (million shares)
Adjusted basic earnings per share excluding Spirit Energy disposed assets
Notes
10
2023
1,859
5,569
33.4p
2022
2,005
5,869
34.2p
Change
(2) %
Other Information | Centrica plc Annual Report and Accounts 2023
245
Definitions and reconciliation of adjusted performance measures
Gain on disposals
Year ended 31 December
Loss on disposals
Less: exceptional loss on disposals
Gain on disposals relating to business performance
Notes
C/F
7
2023
£m
—
—
—
2022
£m
343
(362)
(19)
Group net investment
With an increased focus on cash generation, capital discipline and managing adjusted net cash/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
Interest received
Net purchase of securities
Net cash flow from investing activities
Notes
C/F
C/F
C/F
C/F
2023
£m
415
(55)
360
(220)
(267)
12
(115)
2022
£m
377
(103)
274
(60)
(46)
398
566
Change
31%
(120) %
(i) Capital expenditure is the net cash flow on capital expenditure, purchases of businesses and other investments, and investments in joint ventures and associates (less
than £100 million). See table (a).
(ii) Net disposals is the net cash flow from sales of businesses, and property, plant and equipment and intangible assets. 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
Investment in joint ventures and associates
Net purchase of other investments
Less: material acquisitions (>£100 million)
Capital expenditure (including small acquisitions)
(b) Net disposals
Year ended 31 December
Sale of businesses, including receipt of deferred consideration
Sale of property, plant and equipment and intangible assets
Net disposals
Notes
C/F
C/F
C/F
C/F
Notes
C/F
C/F
2023
£m
335
34
9
37
—
415
2023
£m
(55)
—
(55)
2022
£m
371
(12)
18
—
—
377
2022
£m
(92)
(11)
(103)
Change
10%
Change
(47) %
246
Other Information | Centrica plc Annual Report and Accounts 2023
Definitions and reconciliation of adjusted performance measures
The following tables provide additional information to help readers when reconciling between different parts of the consolidated Group
Financial Statements, and the Group Cash Flow Statement.
Reconciliation from free cash flow to change in adjusted net cash
Year ended 31 December
Group total free cash flow
Financing interest paid
Interest received
UK pension deficit payments
Proceeds from exercise of share options
Payments for own shares
Share buyback programme
Distributions to non-controlling interests
Equity dividends paid
Movements in variation margin and collateral
Cash flows affecting adjusted net cash
Non-cash movements in adjusted net cash
Change in adjusted net cash
Opening adjusted net cash
Closing adjusted net cash
Notes
4
C/F
C/F
4
C/F
C/F
C/F
C/F
C/F
4
24
24
2023
£m
2022
£m
2,207
2,487
(286)
267
(180)
6
—
(613)
(17)
(186)
585
1,783
(238)
1,545
1,199
2,744
(172)
46
(214)
—
(5)
(43)
(273)
(59)
(1,173)
594
(75)
519
680
1,199
Reconciliation of adjusted net cash to unadjusted net cash
Adjusted net cash is a business performance measure used by management to assess the underlying indebtedness of the business.
Year ended 31 December
Adjusted net cash
Less: current and non-current securities
Less: sub-lease assets
Unadjusted net cash
Payments relating to exceptional charges in operating costs
Year ended 31 December
Utilisation of prior year restructuring liabilities
Payments relating to exceptional charges in operating costs
Notes
24
24
24
Notes
C/F
2023
£m
2,744
(521)
(2)
2,221
2023
£m
6
6
2022
£m
1,199
(525)
(2)
672
2022
£m
24
24
Other Information | Centrica plc Annual Report and Accounts 2023
247
Definitions and reconciliation of adjusted performance measures
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 included in the Group Cash Flow Statement
Made up of:
Impairment/(write-back) of power assets
Impairment of gas storage asset
Movement from depreciation, amortisation, write-downs, impairments and write-backs, from business
performance 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
Notes
2023
£m
2022
£m
7
7
7
4
4
4
4
645
(207)
563
82
(207)
—
542
777
395
9
123
15
510
88
159
20
Movement from depreciation, amortisation, write-downs, impairments and write-backs included in the
Group Cash Flow Statement
1,187
570
Reconciliation of receivables and payables to Group Cash Flow Statement
Year ended 31 December
Receivables opening balance
Less: receivables closing balance
Payables (incl. insurance contract liabilities) opening balance
Less: payables (incl. insurance contract liabilities) closing balance
Net reduction in receivables and payables
Non-cash changes, and other reconciling items:
Movement in share buyback liability
Business disposals
Movement in capital creditors
Movement in ROCS and emission certificate intangible assets
Other movements (including foreign exchange movements)
Non-cash changes, and other reconciling items
Notes
B/S
B/S
B/S
B/S
2023
£m
8,579
(5,619)
(10,341)
2022
£m
6,114
(8,579)
(7,633)
7,372
10,341
(9)
243
113
(55)
8
(13)
14
67
(207)
(22)
6
(67)
(16)
(306)
Movement in trade and other receivables, trade and other payables and contract-related assets/liabilities relating
to business performance
C/F
58
(63)
Pensions
Year ended 31 December
Cash contributions to defined benefit schemes in excess of service cost income statement charge
Ordinary employer contributions
UK pension deficit payments
Contributions by employer in respect of employee salary sacrifice arrangements
Total current service cost
Termination benefit
Notes
C/F
22
22
22
22
22
2023
£m
(215)
(56)
(180)
(24)
46
(1)
2022
£m
(184)
(50)
(214)
(21)
105
(4)
248
Other Information | Centrica plc Annual Report and Accounts 2023
PEOPLE AND PLANET –
PERFORMANCE MEASURES
In 2023, 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 four KPIs that are identified with the
symbol ‘†’ and feature on pages 1, 53 and 251. It is important to read the responsible business information in the Annual Report and
Accounts 2023 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 41 TO 55
READ MORE ABOUT OUR WIDER NON-FINANCIAL
PERFORMANCE AT CENTRICA.COM/DATACENTRE
READ MORE ABOUT OUR SASB DISCLOSURE AT
CENTRICA.COM/PEOPLEANDPLANET
PROGRESS AGAINST OUR PEOPLE & PLANET PLAN
Key: Progress against goals On track l Behind l
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(i):
¢ 48% women
¢ 18% ethnically diverse
¢ 20% disability
¢ 3% LGBTQ+
¢ 4% ex-service
Milestone
By the end of 2025:
¢ 40% women
¢ 16% ethnically diverse
¢ 10% disability
¢ 3% LGBTQ+
¢ 3% ex-service
2023 Progress
All company: (ii)
¢ 30% women
– 41% excluding
Field engineers
¢ 15% ethnically diverse
¢ 3% disability
¢ 3% LGBTQ+
¢ 2% ex-service
Senior leaders: (ii)
¢ 32%women
– 32%excluding
Field engineers
¢ 9% ethnically diverse
¢ 2% disability
¢ 2% LGBTQ+
¢ 2% ex-service
1,198 apprentices
2022 Progress
All company: (ii)
l ¢ 30% women
l
– 41% excluding
Field engineers
l ¢ 14% ethnically diverse
l ¢ 3% disability
l ¢ 3% LGBTQ+
l ¢ 2% ex-service
Senior leaders: (ii)
l ¢ 33% women
l
– 32%excluding
Field engineers
l ¢ 9% ethnically diverse
l ¢ 3% disability
l ¢ 0% LGBTQ+
l ¢ 3% ex-service
l 1,033 apprentices
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
Recruit 3,500 apprentices and provide
career development opportunities for
under-represented groups by 2030
(base year 2021)
Inspire colleagues to give 100,000 days
to build inclusive communities by 2030
(base year 2019)
Help our customers be net zero by 2050 (iv)
(base year 2019)
Be a net zero business by 2045 (v)
(base year 2019)
2,000 apprentices by the end
of 2025
35,000 days by the end of 2025
20,383 days
l 13,155 days (iii)
28% greenhouse gas (GHG)
intensity reduction by the end
of 2030
40% GHG reduction by the end
of 2034
10% reduction
l 6% reduction
21% reduction
l 5% reduction (iii)(vi)
(i) Updated at the start of 2023 to align with newly released 2021 Census data for working populations.
(ii) Beyond gender, Centrica’s 2023 performance is based on colleague voluntary disclosure of 74% ethnic diversity, 45% disability, 51% LGBTQ+ and 3% ex-service. For
2022, this was 72% ethnic diversity, 40% disability, 47% LGBTQ+ and 2% ex-service. All company relates to everyone who works for Centrica. Senior leaders include
colleagues above general management and spans senior leaders, the Centrica Leadership Team and the Board.
(iii) Restated due to availability of improved data.
(iv) Net zero goal measures the greenhouse gas (GHG) intensity of our customers’ energy use including electricity and gas with a 2019 base year of 183gCO2e/kWh,
normalised to reflect acquisitions and divestments in line with changes in Group customer base. Target aligned to the Paris Agreement and based on science to limit
global warming, corresponding to a well below 2°C pathway initially and 1.5°C by mid-century.
(v) Net zero goal measures scope 1 (direct) and 2 (indirect) GHG emissions based on operator boundary. Comprises emissions from all operated assets and activities
including the shipping of Liquified Natural Gas (LNG) alongside the retained Spirit Energy assets in the UK and Netherlands. Non-operated nuclear emissions are
excluded. Target is normalised to reflect acquisitions and divestments in line with changes in Group structure against a 2019 base year of 2,132,680mtCO2e. It’s also
aligned to the Paris Agreement and based on science to limit global warming, corresponding to a well below 2°C pathway initially and 1.5°C by mid-century.
(vi) Previous figure included in DNV’s limited assurance scope for the Annual Report 2022 was 6%. See centrica.com/performanceandreporting for our 2022 Basis of
Reporting and DNV’s 2022 Assurance Statement.
Other Information | Centrica plc Annual Report and Accounts 2023
249
PROGRESS AGAINST OUR FOUNDATIONS
People
Metric
Customers
British Gas Services & Solutions –
Services Engineer Net Promoter
Score (NPS) (i)
British Gas Energy – Energy
Touchpoint NPS (ii)
Bord Gáis Energy – Journey NPS (iii)
Centrica Business Solutions – Energy
supply Touchpoint NPS (iv)
British Gas Services & Solutions –
Services complaints per customer (v)
British Gas Energy – Energy
complaints per customer (vi)
What’s next
Deliver energy, services and solutions that energise a greener, fairer
future for all
2023
+71
+17
+18
+32
2022
+64
+13
+19
+31
6.0%
7.0%
13.3%
14.4%
Maintain focus on driving down complaints by improving customer
experience
Bord Gáis Energy – Complaints per
customer (vii)
Centrica Business Solutions – Energy
supply complaints per customer (vii)
Customer support provided during
the energy crisis (cumulative) (viii)
Customer safety incident frequency
rate per 1,000,000 jobs completed
1.7%
12.2%
£140m
2.82
2.2%
9.1%
£53m
3.64
Ensure customers in vulnerable circumstances receive the help they
need with their energy bills during the energy crisis and beyond
Keep customers safe by following controls and encouraging customers
to maintain distance from work areas
(i) Measured independently, through individual questionnaires, the customer’s willingness to recommend British Gas following a gas engineer visit.
(ii) Measured independently, through individual questionnaires, the customer’s willingness to recommend British Gas Energy following contact.
(iii) Weighted NPS for the main customer interaction channels.
(iv) Measured independently, through individual questionnaires and the customer’s willingness to recommend.
(v)
Total complaints, measured as any expression of dissatisfaction where we identify material distress, inconvenience or financial loss, as a percentage of average
customers over the year.
(vi) Total complaints, measured as an expression of dissatisfaction in line with submissions made to Ofgem, as a percentage of average customers over the year.
(vii) Total complaints, measured as any oral or written expression of dissatisfaction, as a percentage of average customers over the year.
(viii) Forms part of our total community contributions in the Communities section on page 251.
Metric
Colleagues
Colleague engagement (i)
2023
7.7
2022
7.4
Gender pay gap (ii)
Gender bonus gap (iii)
Ethnicity pay gap (ii)(iv)
14% median
23% median
15% mean
15% mean
14% median
12% median
36% mean
30% mean
11% median
10% median
2% mean
3% mean
Ethnicity bonus gap (iii)(iv)
25% median
23% median
Retention
Absence (v)
4% mean
0% mean
90%
88%
10 days
10 days
Total recordable injury frequency rate
(TRIFR) per 200,000 hours worked
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
0.84
0.44
0.09
Significant process safety events (Tier 1) 1
Fatalities
1
1.12
0.67
0
0
1
What’s next
Strive to achieve top quartile performance by connecting colleagues
with our purpose and strategy, whilst supporting them to be their best
Reduce our pay gaps by building a diverse and inclusive team through
our People & Planet Plan and associated Diversity, Equity and Inclusion
Action Plans
Improve retention through our focus on talent development whilst
providing a supportive and inclusive culture
Reduce absence through good management practices alongside
proactive support and education via our health and wellbeing suite
of support
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
Return to zero fatalities
(i) Colleague engagement methodology has changed from percentage favourable to an average score out of 10, measuring how colleagues feel about the Company.
(ii) Based on hourly rates of pay for all employees at full pay (including bonus and allowances) at the snapshot dates of 5 April 2022 and 2023. Read our Gender and Ethnicity
Pay Statement to find out more at centrica.com/pay.
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.
(iii)
(iv) Based on 74% of colleagues in 2023 and 70% of colleagues in 2022, who confirmed whether they are from a Black, Asian or Mixed/Multiple ethnic group.
(v) Relates to absence from sickness rather than wider forms of absence such as bereavement.
250
Other Information | Centrica plc Annual Report and Accounts 2023
Metric
Communities
Total community
contributions
2023
2022
What’s next
£501.6 million (i)
£293.5 million (ii)
On the ground site audits
completed
Sites completing remote
worker surveys
Colleagues committed to
Our Code
20
13
96%
9
6
98%
Make a big difference in our local communities – from helping
people with their energy bills and energy efficiency, to
volunteering and fundraising for causes that colleagues care
passionately about
Continue to monitor and raise standards across our supply
chain to reduce risk and guard against modern slavery,
focusing on enhancing 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 £409.4 million in mandatory and £88.1 million in voluntary contributions to support vulnerable customers and colleagues, alongside £4.0 million in charitable
donations which includes £0.21million in contributions from third parties such as colleague fundraising. Sum of constituent parts is lower than total due to rounding.
Voluntary category extended to include colleagues following the introduction of our Colleague Support Foundation.
(ii) Restated due to availability of improved data. Comprises £243.8 million in mandatory and £45.1 million in voluntary contributions to support vulnerable customers,
alongside £4.5 million in charitable donations which includes £0.23 million in contributions from third parties such as colleague fundraising. Sum of constituent parts is
lower than total due to rounding.
Planet
Metric
Greenhouse gas (GHG)
and energy
Total GHG emissions
(scope 1 and 2) (i)
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions (x)
Total GHG intensity
by revenue (xi)
Total energy use
Water, waste and
non-compliance
Total water use
2023
2022
What’s next
1,681,475tCO2e (ii)†
2,009,885tCO2e (iii)(iv)(v)
1,674,829tCO2e (vi)†
6,647tCO2e (viii)†
21,180,922tCO2e
64tCO2e/£m (xii)
2,004,693tCO2e (iv)(v)(vii)
5,193tCO2e (iv)(v)(ix)
24,330,208tCO2e
85tCO2e/£m (xiii)
7,437,652,380kWh (xiv)†
9,047,097,047kWh (v)(xv)
Measure and reduce our emissions through our People &
Planet Plan by focusing on being a net zero business by 2045
and helping our customers be net zero by 2050
Analyse the impact of our strategy on decoupling GHG
emissions from value creation
Remain focused on energy efficiency as we strive to be a net
zero business by 2045
335,512m3
Total waste generated
15,161 tonnes
Environmental
non-compliance (xvi)
12
317,760m3
18,686 tonnes
22
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 249 or centrica.com/assurance for more.
Reporting is based on operator boundary which is the more commonly used approach for reporting environmental matters, and includes all emissions from our shipping
activities relating to LNG alongside the retained Spirit Energy assets in the UK and Netherlands. Non-operated nuclear emissions are excluded.
†
(i) Comprises scope 1 and scope 2 emissions as defined by the Greenhouse Gas Protocol.
(ii) Comprises UK 547,542tCO2e and non-UK 1,133,933tCO2e.
(iii) Comprises UK 726,891tCO2e and non-UK 1,282,994tCO2e.
(iv) Restated due to availability of improved data.
(v)
Included in DNV’s limited assurance scope for the Annual Report 2022. See centrica.com/performanceandreporting for our 2022 Basis of Reporting and DNV’s 2022
Assurance Statement. Previous figures included in DNV’s limited assurance scope include total GHG emissions 2,007,655tCO2e, scope 1 1,994,153tCO2e and scope 2
13,502tCO2e.
(vi) Comprises UK 542,244tCO2e and non-UK 1,132,585tCO2e.
(vii) Comprises UK 722,810tCO2e and non-UK 1,281,883tCO2e.
(viii) Market-based, comprises UK 5,299tCO2e and non-UK 1,348tCO2e. Location-based is 17,041tCO2e.
(ix) Market-based, comprises UK 4,082tCO2e and non-UK 1,111tCO2e. Location-based is 16,275tCO2e.
(x)
Includes emissions from the following scope 3 categories defined by the Greenhouse Gas Protocol: purchased goods and services, capital goods, fuel and energy-
related activities, waste generated in operations, business travel, employee commuting, upstream and downstream transportation and distribution, use of sold
product and investments. All emissions are calculated in line with the methodologies set out by the Greenhouse Gas Protocol’s technical guidance, apart from
working from home emissions which are based on methodology set out in EcoAct’s homeworking emissions whitepaper. Other categories spanning upstream leased
assets, processing of sold products, end-of-life treatment of sold product, downstream leased assets and franchises, are not included because they are not relevant
to our business.
(xi) 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.
(xii) Comprises UK 25tCO2e/£m and non-UK 267tCO2e/£m.
(xiii) Comprises UK 42tCO2e/£m and non-UK 203tCO2e/£m.
(xiv) Comprises UK & Offshore 1,654,616,311kWh and non-UK energy use 5,783,036,069kWh.
(xv) Comprises UK & Offshore 2,394,832,533kWh and non-UK energy use 6,652,264,514kWh.
(xvi) 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.
Other Information | Centrica plc Annual Report and Accounts 2023
251
GLOSSARY
$
Refers to US dollars unless specified otherwise
2P reserves
Proven and probable reserves
Acas
AGM
AIP
bcf
CFD
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
Climate-Related Financial Disclosure
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 Unapproved Pension Scheme defined benefit
Centrica Unapproved Pension Scheme defined contribution
The process of examining data sets to draw conclusions and
insights about the information they contain
EBITDA
Earnings before interest, tax, depreciation and amortisation
EBT
EP
EPS
ESG
Employee Benefit Trust
Economic profit
Earnings per share
Environmental, Social & Governance
Ethnically diverse Colleagues from a Black, Asian, Mixed or other ethnic background
EV
EU
FCA
FCF
FRS
GDPR
GHG
GM
GMB
Electric vehicle
European Union
Financial Conduct Authority
Free cash flow
Financial Reporting Standards
General Data Protection Regulation
Greenhouse gas emissions
Gross margin
Trade union
Green jobs
Jobs that have a direct positive impact on the planet
GW
GWh
IAS
IFRS
KPI
kWh
LGBTQ+
Gigawatt
Gigawatt hours
International Accounting Standards
International Financial Reporting Standards
Key performance indicators
Kilowatt hour
Lesbian, Gay, Bisexual, Trans and Queer/Questioning plus. The
‘plus’ is inclusive of other groups such as asexual, intersex and
questioning
LNG
LTIFR
mmboe
MThms
Net zero
NGO
NPS
Ofgem
Liquified natural gas
Lost time injury frequency rate
Million barrels of oil equivalent
Million therms
The point at which there is a balance between human-related
carbon dioxide (CO2) being emitted into the atmosphere and the
CO2 taken out
Non-governmental organisation
Net promoter score
The government regulator for gas and electricity markets in
Great Britain
Paris Agreement 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
Process safety
Property, Plant and Equipment
Percentage point
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
The Group
Centrica plc and all of its subsidiary entities
TRIFR
TSR
TWh
UAOCF
Total recordable injury frequency rate
Total shareholder return
Terawatt hour
Underlying adjusted operating cash flow
Under-
represented
groups
A person or group of people who are insufficiently or inadequately
represented in society such as women apprentices or those who
are ethnically diverse, have a disability, are LGBTQ+ or carers
VIU
WBCSD
WRI
Value in use
World Business Council for Sustainable Development
World Resources Institute
252
Other Information | Centrica plc Annual Report and Accounts 2023
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Disclaimer
This Annual Report and Accounts does not constitute an invitation to underwrite, subscribe
for, or otherwise acquire or dispose of any Centrica shares or other securities.
This Annual Report and Accounts contains certain forward-looking statements, forecasts and
projections that reflect the current intentions, beliefs or expectations of Centrica’s Management
with respect to, the Group’s financial condition, goals and commitments, prospects, growth,
strategies, results, operations and businesses of Centrica.
These statements only take into account information that was available up to and including
the date that this Annual Report and Accounts was approved and can be identified by the
use of terms such as ‘intend’, ‘aim’, ‘project’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’, ‘expect’,
‘forecasts’, ‘may’, ‘could’, ‘should’, ‘will’, ‘continue’ and other similar expressions of future
performance and results including any of their negatives.
Although we make such statements based on assumptions that we believe to be reasonable,
by their nature, readers are cautioned that these forward-looking statements are not
guarantees or predictions of the Group’s future performance and undue reliance should not
be placed on them when making investment decisions. Any reliance placed on this Annual
Report and Accounts or past performance is not indicative of future results and is done
entirely at the risk of the person placing such reliance.
There can be no assurance that the Group’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 that are beyond the
control of the Group and therefore cannot be precisely predicted. Such factors include, but
not limited to, those set out in the Principal Risks and Uncertainties section of the Strategic
Report in this Annual Report and Accounts. Other factors could also have an adverse effect
on our business performance and results.
At any time subsequent to the approval of this Annual Report and Accounts, neither Centrica
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.
Further when considering the information contained in, or referred to in this Annual Report
and Accounts, please note that profit and inventory from Rough operations are reported
under Centrica Energy Storage Limited for presentational purposes only. Centrica Energy
Storage Limited does not produce, supply or trade gas, except to the extent necessary for
the efficient operation of the storage facility. In accordance with the Gas Act 1986, such
production, supply and trading of gas is carried out wholly independently of Centrica Energy
Storage Limited by other Centrica group companies.
Certain figures shown in this announcement were rounded in accordance with standard
business rounding principles and therefore there may be discrepancies.
Centrica plc
Registered office:
Millstream
Maidenhead Road
Windsor
Berkshire
SL4 5GD
Company registered
in England and Wales
No. 3033654
centrica.com