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 7 356 of 1021
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.
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.
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, expertbased 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
8 Strategic report | Centrica plc Annual Report and Accounts 2023
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.
357 of 1021
OUR PURPOSE, CULTURE AND VALUES
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
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 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.
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 longterm 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.
Strategic report | Centrica plc Annual Report and Accounts 2023 9 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.
358 of 1021
BUSINESS MODEL
10 Strategic report | Centrica plc Annual Report and Accounts 2023 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.
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.
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. 359 of 1021 Strategic report | Centrica plc Annual Report and Accounts 2023 11 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.
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
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.
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
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.
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.
360 of 1021
MARKET TRENDS
12 Strategic report | Centrica plc Annual Report and Accounts 2023 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
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
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
361 of 1021
MACRO TRENDS
Strategic report | Centrica plc Annual Report and Accounts 2023 13 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 fastacting 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
362 of 1021
OUR STAKEHOLDERS
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.
14 Strategic report | Centrica plc Annual Report and Accounts 2023 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.
Engaging our key stakeholders
enables us to create stronger
outcomes for people, planet
and our business.
363 of 1021
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.
READ MORE ON PAGES 38 to 40, 42 to 45
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.
Main focuses – Payment practices together
with social and environmental compliance
on important issues like human rights.
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.
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 – Tackling urgent social and
environmental issues like fuel poverty and
climate change.
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 15 364 of 1021
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.
16 Strategic report | Centrica plc Annual Report and Accounts 2023 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.
READ MORE ON PAGE 43
365 of 1021
SECTION 172(1) STATEMENT
PRINCIPAL DECISION BY THE BOARD
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
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
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
PRINCIPAL DECISION BY THE BOARD
A refreshed strategy focused on creating value for
all our stakeholders through the energy transition.
366 of 1021
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-ofthe-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.
18 Strategic report | Centrica plc Annual Report and Accounts 2023 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.
GROUP CHIEF FINANCIAL
OFFICER’S REPORT
READ MORE ON PAGE 11
Russell O’Brien | Group Chief Financial Officer
367 of 1021
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) 2023 2022
Retail 799 94
British Gas Services & Solutions 47 (9)
British Gas Energy 751 72
Residential energy supply 726 23
Business energy supply 25 49
Bord Gáis Energy 1 31
Optimisation 878 1,444
Centrica Business Solutions 104 44
Centrica Energy (formerly Energy Marketing & Trading) 774 1,400 Infrastructure (excl. disposed Spirit Energy assets) 1,083 1,308 Spirit Energy (retained) 235 245
Centrica Energy Storage+ 312 339
Nuclear 536 724
Colleague profit share (8) (23)
Operating profit from business performance excl. disposed Spirit Energy assets 2,752 2,823 Spirit Energy disposed assets - 485
Operating profit from business performance (Adjusted operating profit) 2,752 3,308 Exceptional items and certain re-measurements 3,760 (3,548) Group operating profit/(loss) (Statutory operating profit) 6,512 (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-themoney 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 remeasurements. 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 19 368 of 1021
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
2023 2022
YEAR ENDED 31 DECEMBER (£M) Notes
Business
performance
Exceptional items
and certain remeasurements
Results for the
year
Business
performance
Exceptional items
and certain remeasurements
Results for the
year
Group operating profit/(loss) 4(c) 2,752 3,760 6,512 3,308 (3,548) (240) Net finance cost 8 (39) — (39) (143) — (143)
Taxation 9 (838) (1,595) (2,433) (1,046) 793 (253)
Profit/(loss) from operations 1,875 2,165 4,040 2,119 (2,755) (636) Less: Profit attributable to noncontrolling interests
(16) (95) (111) (69) (77) (146)
Adjusted earnings/(loss) attributable to
shareholders 1,859 2,070 3,929 2,050 (2,832) (782)
Adjusted earnings attributable to
shareholders excluding disposed Spirit
Energy assets 1,859 2,005
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) 2023 2022
Adjusted operating profit before impacts of
taxation
2,752 3,308
Add: JV/associate taxation included in
adjusted operating profit
74 31
Net finance cost (39) (143)
Adjusted profit before taxation 2,787 3,196
Taxation on adjusted operating profit (838) (1,046)
Share of JV/associate taxation (74) (31)
Adjusted tax charge (912) (1,077)
Adjusted effective tax rate 33% 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.
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.
20 Strategic report | Centrica plc Annual Report and Accounts 2023 369 of 1021
YEAR ENDED 31 DECEMBER (£M) 2023 2022
Statutory cash flow from operating
activities
2,752 1,314
Statutory cash flow from investing activities 115 (566) Statutory cash flow from operating and
investing activities
2,867 748
Add back/(deduct):
Sale and purchase of securities 12 398
Interest received (267) (46)
Movements in collateral and margin cash (585) 1,173
Defined benefit pension deficit payments 180 214
Free cash flow 2,207 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 21 370 of 1021
OUR VIEW ON TAXATION
The Group takes its obligations to pay and collect the correct amount of tax very seriously.
Responsibility for tax governance and strategy lies with the Group Chief Financial Officer, overseen by the Board and the Audit and Risk Committee.
OUR APPROACH
Wherever we do business in the world, we take great care to ensure we fully comply with all our obligations to pay or collect taxes and to meet local reporting requirements.
We are committed to providing disclosures and information necessary to assist understanding beyond that required by law and regulation.
We do not tolerate tax evasion or fraud by our employees or other parties associated with Centrica. If we become aware of any such wrongdoing, we take appropriate action.
Our cross-border pricing reflects the underlying commercial reality of our business.
We ensure that income and costs, including costs of financing operations, are appropriately recognised on a fair and sustainable basis across all countries where the Group has a business presence.
We understand that this is not an exact science and we engage openly with tax authorities to explain our approach.
In the UK we maintain a transparent and constructive relationship with His Majesty’s Revenue & Customs (HMRC). This includes regular, open dialogue on issues of significance to HMRC and Centrica.
Our relationship with fiscal authorities in other countries where we do business is conducted on the same principles.
We carefully manage the tax risks and costs inherent in every commercial transaction, in the same way as any other cost.
We do not enter into artificial arrangements in order to avoid taxation nor to defeat the stated purpose of tax legislation.
We seek to actively engage in consultation with governments on tax policy where we believe we are in a position as a Group to provide valuable commercial insight.
THE GROUP’S TAX CHARGE, TAXES PAID AND THE UK
TAX CHARGE
The Group’s businesses are subject to corporate income tax rates as set out in the statutory tax rates on profits table.
The overall tax charge is dependent on the mix of profits and the tax rate to which those profits are subject.
STATUTORY TAX RATES ON PROFITS
Group activities
23.5%
75%
22%
12.5%
UK supply of energy
and services (1) (2)
UK gas production
Denmark energy
services
Republic of Ireland
supply of energy
and services
(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
2023 2023
Current tax
charge/(credit)
Cash tax paid/
(received)
UK (including Petroleum Revenue Tax) 572 687
Denmark 96 121
Singapore — 25
Republic of Ireland 2 (29)
Rest of world — (1)
670 803
Electricity generator levy 285 285
Total tax paid 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 (1)(2)
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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 mediumterm 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) 2,950 3,193 (8%)
On-demand jobs (‘000)(2) 218 122 79%
Boiler installs (‘000) 95 99 (4%)
Services complaints per customer (%)(3) 6.0% 7.0% (14%) Services Engineer NPS(4) 71 64 7pt
Adjusted operating profit/(loss) (£m) 47 (9) 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 ondemand 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) 7,529 7,516 0%
Small business customer sites (‘000)
(closing) 552 480 15%
Energy complaints per customer (%)(2) 13.3% 14.4% (8%)
Energy Touchpoint NPS(3) 17 13 4pt
Cost per residential energy customer
(excl. bad debt) (£) 91 83 10%
Adjusted operating profit (£m) 751 72 943%
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 23 372 of 1021
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 2023 2022 Change
Customers (‘000) (closing) 503 526 (4%)
Complaints per customer (%)(1) 1.7% 2.2% (23%)
Journey NPS (2) 18 19 (1pt)
Adjusted operating profit (£m) 1 31 (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 2023 2022 Change
Renewable capacity under management (GW)(1) 13.0 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.
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) 20.7 22.3 (7%)
Energy supply complaints per customer
(%)(1) 12.2% 9.1% 34%
Energy supply Touchpoint NPS(2) 32 31 1pt
Services order intake (£m) 225 212 6%
Net investment (£m) 114 19 500%
Adjusted operating profit (£m) 104 44 136%
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. 24 Strategic report | Centrica plc Annual Report and Accounts 2023 373 of 1021
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) 14.8 17.5 (15%)
Nuclear power generated (GWh) 7,456 8,719 (14%)
Adjusted operating profit (£m) 1,083 1,793 (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.
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:
2024 2025
Volume
hedged
Average
hedged
price
Volume
hedged
Average
hedged
price
Spirit Energy 443mmth 174p/th 197mmth 139p/th
Nuclear 5.4TWh £153/MWh 1.7TWh £110/MWh
Strategic report | Centrica plc Annual Report and Accounts 2023 25 374 of 1021
Group free cash flow from continuing
operations (£m)(i)
Group adjusted operating profit from
continuing operations (£m)(i)
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)
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).
33.4 34.9
4.1p
6.1 p
p
(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 midcentury. 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
26 Strategic report | Centrica plc Annual Report and Accounts 2023
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.
2,207
2,487
1,174
2,752
3,308
948
2022
2021
2022
2021
2022
2021
2023
2022
-53% 2021
-5%
2023
2023
2023
-21%
375 of 1021
British Gas Services & Solutions – Services
Engineer Net Promoter Score (NPS)(i)
Total customers (m)(ii)
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.
Total recordable injury frequency rate
(TRIFR)
Colleague engagement(iii)
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.
7.7 7.4
0 (i) Measured independently, through
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.
(ii) 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
Strategic report | Centrica plc Annual Report and Accounts 2023 27 10,266
10,296
10,067
2022
2021
0.84 1.12
1.07 2022
2021
2023
+71
+64
+60
2022
2021
2022
2021
2022
2023 2023
2023
376 of 1021
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 longterm 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.
28 Strategic report | Centrica plc Annual Report and Accounts 2023 * Audit and Risk Committee (ARC).
** Safety, Environment and Sustainability Committee (SESC).
OUR PRINCIPAL RISKS AND UNCERTAINTIES
377 of 1021
¢ 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 offtake 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.
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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 DETERIORATED
MARKET RISK
Overview
Risk Category — Financial
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
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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 noncompliance ¢ 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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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 STABLE
CUSTOMER
Overview
Risk Category — Operational/Strategic
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 STABLE
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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 colleaguecentred 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 STABLE
SAFETY
Overview
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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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
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ASSESSMENT OF VIABILITY
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.
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.
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.
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.
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 shorterterm in nature including, commodity prices, trading performance, margin cash requirements, weather, and asset performance.
Strategic report | Centrica plc Annual Report and Accounts 2023 35 384 of 1021
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) 69 68 68
Baseload Power (£/Mwh) 54 56 52
HIGH PRICE ENVIRONMENT 2024 2025 2026
NBP (p/th) 319 210 162
Baseload Power (£/Mwh) 245 189 134
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
2024 2025 2026
NBP (p/th) 46 50 52
Baseload Power (£/Mwh) 47 44 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 ¢ Political, Legal, Regulatory or Ethical Intervention/ Compliance
Operational impact of sustained employee industrial action ¢ 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
Significant adverse weather event and commodity
price volatility
¢ Financial Markets – Weather Risk
Cluster 4: Trading
Business Underperformance
Underperformance of trading business ¢ Financial Markets – Market Risk See note below** 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 385 of 1021
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 threeyear 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.
Strategic report | Centrica plc Annual Report and Accounts 2023 37 386 of 1021
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.
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.
38 Strategic report | Centrica plc Annual Report and Accounts 2023 Jill Shedden MBE | Group Chief People Officer
GROUP CHIEF PEOPLE
OFFICER’S REPORT
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.
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.
387 of 1021
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.
Strategic report | Centrica plc Annual Report and Accounts 2023 39
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.
388 of 1021
WHAT OUR COLLEAGUES SAY ABOUT HEALTH AND WELLBEING AT CENTRICA 40 Strategic report | Centrica plc Annual Report and Accounts 2023 “ 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,
“ I found this very interesting from various you have a support network.” 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.”
“ 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.”
“ 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.”
389 of 1021
PEOPLE AND PLANET
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 NONFINANCIAL 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
Strategic report | Centrica plc Annual Report and Accounts 2023 41 (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).
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.
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 underrepresented groups by 2030 (2,000 apprentices by the end of 2025)
PLANET
Supporting every customer to live more
sustainably.
WE WANT TO:
¢ 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)
DOING BUSINESS RESPONSIBLY
Underpinned by strong foundations to ensure we act fairly and ethically – from customer service to human rights Creating a more inclusive and
sustainable future that supports
communities, our planet and
each other.
390 of 1021
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 15% l 9% l
Disability 3% l 2% l
LGBTQ+ 3% l 2% l
Ex-service 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.
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 maledominated 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 underrepresented groups whilst embedding succession planning and diverse shortlisting
to strengthen our senior leadership team;
¢ 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.
42 Strategic report | Centrica plc Annual Report and Accounts 2023 “ 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
WIDER GENDER BREAKDOWN(3)
2023 2022
Women Men Women Men
Board 5 (42%) 7 (58%) 4 (44%) 5 (56%)
Senior executives
and direct reports
27 (34%) 52 (66%) 24 (33%) 49 (67%)
Senior leaders 136 (32%) 287 (68%) 117 (33%) 243 (67%)
All company 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. 391 of 1021 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 1,198 l
(1) Base year 2021.
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-tostrength 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.
Strategic report | Centrica plc Annual Report and Accounts 2023 43
SOME OF THE
WAYS WE MADE
A DIFFERENCE
IN 2023
£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
10 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
>800
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
392 of 1021
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
¢ 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.
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.
44 Strategic report | Centrica plc Annual Report and Accounts 2023 PLANET
Supporting every customer
to live more sustainably.
393 of 1021
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 45 394 of 1021
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.
Reporting requirement Section
Business model Our Strategy & Business Model – Pages 9-11 Reporting requirement
and policy position
Our Code sets out our position on key issues by providing a high-level summary of key policies that form the foundation for how we do business.
Due diligence and outcome
READ MORE AT CENTRICA.COM/OURCODE
Colleagues
Our policy states that we work collaboratively to create a workplace that has a respectful and inclusive culture whilst offering fair reward and recognition. We’re also committed to working safely and provide proactive support to ensure colleagues’ health and wellbeing.
¢ 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. ¢ 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 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. ¢ 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
Human rights
This policy commits that wherever we work in the world, we respect and uphold the fundamental human rights and
freedoms of everyone who works for us or with us.
¢ Stakeholder Engagement – Page 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
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.
¢ 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 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.
395 of 1021
TASK FORCE ON CLIMATERELATED 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 climaterelated 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).
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.
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.
Strategic report | Centrica plc Annual Report and Accounts 2023 47 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.
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.
396 of 1021
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 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 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
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
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)
Business units
Follows and provides feedback on climate strategy
Managers and teams – Operationalises climate change considerations in line with Group strategy
Risk owners – Identifies, assesses and mitigates climate risks and opportunities
(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 READ MORE ON PAGES 57 TO 71
READ MORE ON PAGES
82 TO 83
READ MORE ON PAGES
72 TO 78
READ MORE ON PAGES
84 TO 102
397 of 1021
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.
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.
Strategic report | Centrica plc Annual Report and Accounts 2023 49 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.
398 of 1021
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
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:
Battery storage plant planned in Perthshire to
65MW
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
Solar farm built and opened at Codford which can
18MW
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.
50 Strategic report | Centrica plc Annual Report and Accounts 2023 399 of 1021
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
(short
term)
2038
(medium
term)
2050
(long
term)
Transition: Policy,
Markets and
Technology
Transition away
from fossil
fuelled heating
Risk: Reduced GM from the
sale and servicing of natural gas
residential boilers and
commercial Combined, Heat
and Power (CHP) units at British
Gas Services & Solutions (BG
S&S), Centrica Business
Solutions (CBS) and Bord Gáis
Energy (Bord Gáis)
¢ 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
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
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
¢ 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
Transition: Policy,
Markets and
Technology
Transition away
from natural gas
Risk: Reduced GM from the
sale of natural gas from fuel
switching and energy efficiency
at British Gas Energy (BGE),
CBS and Bord Gáis
¢ Strategic aim to grow customer
numbers in UK&I energy supply
Transition: Policy,
Markets and
Technology
Growth in low
carbon heating
market
Opportunity: Increased sales of
electricity and green/low carbon
hydrogen at BGE, CBS and
Bord Gáis
¢ Systems and capabilities in place to
pivot towards trading and selling
hydrogen
¢ Partnering in hydrogen production and
use trials to grow capability and
adoption
Transition:
Markets
Growth of EV
transport market
Opportunity: Access to new
and growing value pools related
to EV charging installs,
operation and maintenance
(O&M), and energy supply at
BG S&S and Bord Gáis
¢ 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
Transition:
Energy Source
Growth in
demand for
renewable
energy
Opportunity: Strong growth in
solar and battery markets driven
by decarbonisation at CBS,
Bord Gáis and BG S&S
¢ Strategy to invest up to £100 million
each year by 2025 to build a low carbon
and transition asset portfolio of more
than 800MW
¢ Value derived from install, O&M and
asset ownership
Physical Chronic Rising mean
temperatures
Risk: Reduced sales of natural
gas and electricity for heat at
BGE, CBS and Bord Gáis
¢ 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
Net impact for
the Group
¢ 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 >2° C l l l
1.5° C l l l
>2° C l l l
1.5° C l l l
>2° C l l l
1.5° C l l l
>2° C l l l
1.5° C l l l
>2° C l l l
1.5° C l l l
>2° C l l l
1.5° C l l l
>2° C l l l
1.5° C l l l
>2° C l l l
1.5° C l l l
+ + +
+ + +
400 of 1021
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.
(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
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
401 of 1021
¢ 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 zeroemission 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
2023 2022
Total GHG emissions (scope 1 and 2)(1) 1,681,475tCO2e
†(2) 2,009,885tCO2e(3)(4)
Scope 1 GHG emissions 1,674,829tCO2e
†(5) 2,004,693tCO2e(4)(6)
Scope 2 GHG emissions 6,647tCO2e
†(7) 5,193tCO2e(4)(8)
Scope 3 GHG emissions(9) 21,180,922tCO2e 24,330,208tCO2e Total GHG intensity by revenue(10) 64tCO2e/£m (11) 85tCO2e/£m (12) Total energy use 7,437,652,380kWh †(13) 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 energyrelated 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 53 402 of 1021
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 2023 Progress 2022 Progress
Customer GHG emissions – 28% intensity reduction by 2030 and net zero by 2050 (from 2019)
10% reduction l 6% reduction l
Hive Active Heating – 2.5 million customers by 2025 (units to date) 2.4m l 2.0m l Smart meters – 6 million additional installed by 2025 (from 2020) 3.0m l 2.3m l EV charging points – 100,000 in year by 2025 (annual units) 7.0k l 7.4k l Heat pumps – 20,000 in year by 2025 (annual units) 3.0k 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) 132MW l 101MW l Fleet by 2025 (total to date)(5)
– 100% EV van roll-out
– 100% EV car roll-out
29% l
74% l
23% l
43% l
Property – 50% reduction in UK emissions by 2030 (from 2019) 65% l 63% l Capex – grow capital allocated to green activities from 5% to at least 50% by 2025 (from 2019)(5) 31% 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 403 of 1021
TASK FORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES
The table below sets out the 11 TCFD recommendations and where the related information can be found.
Recommendation Recommended disclosure Pages
Governance a) Describe the Board’s oversight of climate-related risks and opportunities
¢ Pages 47 to 48 and 57 to 71
b) Describe management’s role in assessing and managing climate-related risks and opportunities
¢ Pages 47 to 48, 52, 72 to 78
and 82 to 83
Strategy a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term
¢ Pages 49 to 52,138 to 142
and 152 to 156
b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses, strategy, and financial planning
¢ Pages 49 to 52, 138 to 142
and 152 to 156
¢ CDP 2023 submission
centrica.com/CDP23
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario
¢ Pages 49 to 52
Risk management a) Describe the organisation’s processes for identifying and assessing climate-related risks
¢ Pages 28 to 29, 48 and 52
b) Describe the organisation’s processes for managing climaterelated risks¢ Pages 28 to 29, 31 to 32, 34, 48 and 52
c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the
organisation’s overall risk management
¢ Pages 28 to 29, 48 and 52
Metrics and targets a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process
¢ Pages 52 to 54
¢ Data centre at centrica.com/
datacentre
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks
¢ Pages 49 to 53
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
¢ 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 55 404 of 1021
56 Governance | Centrica plc Annual Report and Accounts 2023 Governance
57 Directors’ and Corporate Governance Report
59 – Board of Directors
64 Corporate Governance Statement
72 – Audit and Risk Committee
79 – Nominations Committee
82 – Safety, Environment and Sustainability Committee
84 – Remuneration Report
110 Other Statutory Information
405 of 1021
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 abovementioned 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 57 406 of 1021
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.
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
58 Governance | Centrica plc Annual Report and Accounts 2023 407 of 1021
BOARD OF DIRECTORS*
Scott Wheway | Chair
Scott joined the Board on 1 May 2016
and became Chair of the Board on
17 March 2020.
Relevant skills and experience
Scott has a wealth of experience as a senior
customer-facing business leader with a mix of
deep retail and consumer expertise. He has
considerable knowledge gained in both the
retail and insurance sectors, together with a
strong understanding of operating within
highly regulated businesses.
Previous experience
Scott worked in retail for 27 years both in the
UK and internationally. His prior roles include
chair of AXA UK plc from December 2017 until
June 2022, seven years on the board of
Santander UK plc, where he was the senior
independent director, and non-executive
director of Aviva plc between 2007 and 2016.
He is the former chief executive officer of Best
Buy Europe (retail services), director of The
Boots Company plc, managing director and
retail director of Boots the Chemist at Alliance
Boots plc and a director of the British Retail
Consortium. He formerly held a number of
senior executive positions at Tesco plc (retail
services), including chief executive of Tesco
in Japan.
External appointments
Non-executive director of Lloyds Banking
Group plc and chair of Scottish Widows
Group.
Chris O’Shea | Group Chief Executive
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).
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, multinational organisations, not only in the energy sector but also in technology-led
engineering and services industries.
Previous experience
Chris was appointed Group Chief Executive
in early 2020 having previously been Group
Chief Financial Officer. Prior to joining Centrica,
Chris was group chief financial officer of UK
listed Smiths Group plc and Vesuvius plc,
and a non-executive director of Indian listed
Foseco India Ltd. From 2006 to 2012 Chris
held various senior finance roles with BG
Group plc, including chief financial officer of
Africa Middle East & Asia and Europe &
Central Asia, prior to which he held a number
of senior roles with Shell, (living and working in
the UK, the US and Nigeria), and with Ernst &
Young.
Chris studied Accounting and Finance at the
University of Glasgow, is a Chartered
Accountant, and holds an MBA from the
Fuqua School of Business at Duke University.
External appointments
None.
Russell O’Brien | Group Chief Financial Officer
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
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 59 408 of 1021
Carol Arrowsmith | Independent Non-Executive
Director
Carol joined the Board on 11 June 2020
and is Chair of the Remuneration
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 nonexecutive director of Compass Group PLC and Vivo Energy plc.
External appointments
Director and trustee of Northern Ballet Limited.
Philippe Boisseau | Independent Non-Executive
Director
Philippe joined the Board on 1 September
2023.
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.
Nathan Bostock | Independent Non-Executive
Director
Nathan joined the Board on 9 May 2022
and is Chair of the Audit and Risk
Committee.
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 customerfacing 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 409 of 1021
Chanderpreet (CP) Duggal | Independent NonExecutive Director CP joined the Board on 16 December
2022.
Relevant skills and experience
CP brings valuable expertise of digital
technology and the use of data and analytics
in large customer-facing businesses.
Previous experience
CP worked for 20 years at American Express
in various senior roles, 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.
Jo Harlow | Independent Non-Executive Director
Jo joined the Board on 1 December 2023.
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
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 nonexecutive 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 nonexecutive director at Chapter Zero Ltd.
Heidi Mottram | Independent Non-Executive
Director
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, multistakeholder 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 61 410 of 1021
Kevin O’Byrne | Senior Independent Director
Kevin joined the Board on 13 May 2019.
He became Senior Independent Director
on 1 June 2022.
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)
Rt Hon. Amber Rudd | Independent
Non-Executive Director
Amber joined the Board on 10 January
2022.
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.
Sue Whalley | Independent Non-Executive Director
Sue joined the Board on 1 December 2023.
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 411 of 1021
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 inhouse 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 63 412 of 1021
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 413 of 1021
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
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.
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 decisionmaking 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 65 414 of 1021
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.
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-theground 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.
66 Governance | Centrica plc Annual Report and Accounts 2023 415 of 1021
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 Group Head of Treasury, Pensions, & Insurance External assurance External auditors
Remuneration Committee advisors PwC
Rewards & Benefits Group Chief People Officer, Director of Rewards & Benefits People & Culture Group Chief People Officer
Energy sector and trends, energy markets Group Strategy Director, Group Regulatory Affairs Director, Group Head of M&A, Group Head of Investor Relations
Net zero, sustainability Group Strategy Director, Group Head of Environment Stakeholder communication and engagement Group General Counsel & Company Secretary and Group Corporate Affairs Director
Corporate governance and Board operations 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 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.
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.
Governance | Centrica plc Annual Report and Accounts 2023 67 416 of 1021
Number of Board and Committee meetings attended during 2023(1):
Name Role
Joined the
Board Tenure(2) Board AC NC RC SC
Scott Wheway Chair 01/05/2016 7 years, 8 months 8/8 N/A 3/3 N/A 3/3 Chris O’Shea Group Chief Executive 01/11/2018 5 years, 2 months 8/8 N/A N/A N/A N/A Kate Ringrose(3) Group Chief Financial Officer 18/01/2021 2 years, 1 month 2/2 N/A N/A N/A N/A Russell O’Brien(3) Group Chief Financial Officer 01/03/2023 0 years, 10 months 6/6 N/A N/AN N/A N/A Carol Arrowsmith Independent Non-Executive Director 11/06/2020 3 years, 6 months 8/8 4/4 3/3 5/5 N/A Philippe Boisseau Independent Non-Executive Director 01/09/2023 0 years, 4 months 3/3 1/1 1/1 N/A 1/1 Nathan Bostock Independent Non-Executive Director 09/05/2022 1 year, 7 months 8/8 4/4 3/3 N/A 3/3 CP Duggal Independent Non-Executive Director 16/12/2022 1 year, 1 month 8/8 4/4 3/3 5/5 N/A Jo Harlow Independent Non-Executive Director 01/12/2023 0 years, 1 month 1/1 N/A N/A N/A N/A Heidi Mottram Independent Non-Executive Director 01/01/2020 4 years, 0 months 8/8 N/A 3/3 5/5 3/3 Kevin O’Byrne Senior Independent Non-Executive Director 13/05/2019 4 years, 7 months 8/8 4/4 3/3 N/A N/A Amber Rudd Independent Non-Executive Director 10/01/2022 1 year, 11 months 8/8 N/A 3/3 5/5 3/3 Sue Whalley Independent Non-Executive Director 01/12/2023 0 years, 1 month 1/1 N/A N/A N/A 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 Evidence
The likely consequences of any decision in the long term Please see page 9 to 11, 14 to 17, 41 to 55 and 67 to 69 The interests of our colleagues 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 417 of 1021
BOARD DISCUSSIONS HELD DURING THE YEAR INCLUDED
Strategy and business plan
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
Stakeholders considered:
Performance and risk
Financial performance and risks, as well as risk controls and processes are regularly reported to the Board and to the Audit and Risk Committee. Risks are also brought to the attention of the Board through reports from the Group Chief Executive, Group Chief Financial Officer, heads of business and functional subject matter experts. 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:
Governance | Centrica plc Annual Report and Accounts 2023 69 418 of 1021
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.
70 Governance | Centrica plc Annual Report and Accounts 2023 419 of 1021
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-tostrength 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 71 420 of 1021
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.
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.
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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 climaterelated 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 73 422 of 1021
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 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
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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).
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.
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 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-onyear 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.
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Key judgements and financial reporting matters in 2023 Audit and Risk Committee reviews and conclusions 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’).
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 outof-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 remeasurement 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.
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-themoney, 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-themoney 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).
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.
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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.
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.
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 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.
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Key judgements and financial reporting matters in 2023 Audit and Risk Committee reviews and conclusions Classification and presentation of exceptional items and certain re-measurements
The Group reflects its underlying financial results in the business performance column of the Group Income Statement. To be able to provide this in a clear and consistent presentation, the effects of certain re-measurements of financial instruments and onerous supply contract provisions, and exceptional items are reported separately in a different column in the Group Income Statement.
The classification of items as exceptional and specific trades as certain re-measurements (see ‘Onerous energy supply contract provision’ and ‘Energy Derivatives – classification and valuation’ sections above) are subject to defined Group policies. These policies are reviewed annually by management.
At the year-end, exceptional items included the Nuclear 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.
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.
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-bycustomer 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).
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.
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.
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.
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. 78 Governance | Centrica plc Annual Report and Accounts 2023 427 of 1021
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 79 428 of 1021
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.
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 DiverseAbility 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
80 Governance | Centrica plc Annual Report and Accounts 2023 429 of 1021
BOARD AND SENIOR
LEADERSHIP DIVERSITY
SEX/GENDER REPRESENTATION
Number of
Board members
Percentage
of the Board
Number of
senior positions
on the Board*
Percentage of
senior positions
on the Board*
Number in
executive
management
Percentage of
executive
management
Men 7 58% 4 100% 7 70%
Women 5 42% — — 3 30%
Other/not Specified — — — — — —
Prefer not to say — — — — — —
*There are 4 senior positions on the Board (Group Chief Executive, CFO, SID and Chair).
ETHNICITY REPRESENTATION
Number of
Board members
Percentage
of the Board
Number of
senior positions
on the Board*
Percentage of
senior positions
on the Board*
Number in
executive
management
Percentage of
executive
management
White British or other White 11 92% 4 100% 8 80%
Mixed/Multiple Ethnic Groups — — — — — —
Asian/Asian British 1 8% — — 2 20%
Black/African/Caribbean/Black British — — — — — —
Other ethnic group, including Arab — — — — — —
Not specified/prefer not to say — — — — — —
*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 81 430 of 1021
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.
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.
82 Governance | Centrica plc Annual Report and Accounts 2023 431 of 1021
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
Governance | Centrica plc Annual Report and Accounts 2023 83
READ MORE ABOUT OUR PEOPLE &
PLANET PLAN ON PAGES 41 TO 55
432 of 1021
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
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.
84 Governance | Centrica plc Annual Report and Accounts 2023 433 of 1021
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 highperforming 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 85 434 of 1021
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.
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 yearon-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.
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
86 Governance | Centrica plc Annual Report and Accounts 2023 435 of 1021
REMUNERATION AT A GLANCE
SINGLE FIGURE OF TOTAL REMUNERATION IN FY 2023
GROUP CHIEF EXECUTIVE GROUP CHIEF FINANCIAL OFFICER
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 Weighting Outcome MEASURE Weighting Vesting Outcome (% of max)
EPS 37.5% 100 % Relative TSR 33% 100 %
BG Cost to Serve
37.5% 85 %
Cumulative EPS 22% 100 %
Customers to Ensek Cash conversion 22% 75 %
BG complaints Employee engagement
22% 57 %
BG reschedules Aggregate Brand NPS
BG complaints Complaints
Centrica cost/income Total Recordable Injury Frequency
Rate (TRIFR)
CBS order intake Overall outcome 85 %
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 25%
Group Chief Executive 87.5 %
Group Chief Financial Officer 82.5 %
Deduction for prepayment meter
investigation (10) %
OVERALL OUTCOME (% MAXIMUM)
Group Chief Executive 87.5 %
Group Chief Financial Officer 86.3 %
Governance | Centrica plc Annual Report and Accounts 2023 87 £140m £100k 4.0p
Support given to help customers with
their energy costs since 2022
Contributions to colleagues via the
Colleague Support Foundation
Full year dividend per share
25,000 1,000 £613m
Customers supported through the British
Gas Energy Trust since the start of the
energy crisis
Professional colleagues joined our
business
Shares repurchased in 2023
700 3ppt 45%
Extra colleagues hired across our
customer contact centres
Increase in colleague engagement Increase in share price over the financial year
FYE 2022
FYE 2023
0 2,500 5,000 7,500
£,000
790 1,422 2,262
810 1,426 5,902
4,490
8,231
FYE 2022
(Kate Ringrose)
FYE 2023
(Russell O’Brien)
0 500 1,000 1,500
£,000
459 576
498 640
1,084
1,196
HOW WE’VE SUPPORTED OUR STAKEHOLDERS IN 2023
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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
Chris O'Shea Median FTSE 100
benchmark
Russell O'Brien Median FTSE 100
benchmark
Salary £815,000 £935,000 Salary £540,000 £596,000
Target Total Compensation(1) £2,934,000 £3,533,000 Target Total Compensation(1) £1,674,000 £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 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 Goal
Actual
31/12/2023
Actual
31/12/2022
300
0% 100% 200% 300%
224 222
69 83
446
152
Goal
Actual
31/12/2023
Actual
31/12/2022
200
82 400% 500% 0% 50% 150% 250% 300%
48 100% 200%
130
437 of 1021
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
Salary/
fees
Bonus
(cash)
Bonus
(deferred)(1) Benefits(2) LTIPs(3) Pension(4) Total
Total fixed
remuneration
Total variable
remuneration
2023
Chris O’Shea 810 713 713 16 5,902 77 8,231 903 7,328
Russell O’Brien(5) 498 320 320 13 — 45 1,196 556 640
Kate Ringrose(6) 77 45 45 3 1,833 — 2,003 80 1,923
Total 1,385 1,078 1,078 32 7,735 122 11,418 1,527 9,891 2022
Chris O’Shea 790 711 711 16 2,262 — 4,490 806 3,684
Kate Ringrose(6) 459 288 288 16 — 33 1,084 508 576
Total 1,249 999 999 32 2,262 33 5,574 1,314 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
Salary/fees Total
£000 2023 2022 2023 2022
Scott Wheway 418 410 418 410
Carol Arrowsmith 96 93 96 93
Nathan Bostock(1) 97 47 97 47
CP Duggal(2) 76 3 76 3
Heidi Mottram 96 93 96 93
Kevin O’Byrne 100 109 100 109
Amber Rudd(3) 76 71 76 71
Philippe Boisseau(4) 25 N/A 25 N/A
Jo Harlow(5) 6 N/A 6 N/A
Sue Whalley(6) 6 N/A 6 N/A
Total 996 826 996 826
(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
Governance | Centrica plc Annual Report and Accounts 2023 89 438 of 1021
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:
Threshold Target Max Outcome
Adjusted EPS 17.6p 22.0p 26.4p 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.
Measure Target Outcome
Group Adjusted Operating Profit £1,878m £2,752m
Free Cash Flow £672m £2,207m
Net (Debt)/Cash £1,089m £2,744m
British Gas Energy Complaints 11.5% 13.3%
British Gas Services & Solutions Complaints 10.8% 8.5%
British Gas Services & Solutions Reschedules 5.0% 3.1%
Bord Gáis Cost to serve €212 per customer €187 per customer British Gas Energy Cost to serve(1) £127 per customer £142 per customer Centrica Business Solutions Order Intake £264m £225m
Centrica Energy Opex: Gross Margin Ratio 33.5% 33.3%
Customer numbers 10,228,00 unique customers 10,264,000 unique customers Colleague engagement 7.7 7.7
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
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.
Customers on Ensek 5m 5.4m
(1) British Gas Energy cost to serve per customer excluding bad debt was £84, against a target of £83. 90 Governance | Centrica plc Annual Report and Accounts 2023 439 of 1021
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:
Key objectives
Personal objectives
Outturn (as % of
maximum)
Chris O’Shea 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.
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.
82.5%
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. 50%
Governance | Centrica plc Annual Report and Accounts 2023 91 440 of 1021
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 Chris O’Shea Russell O’Brien Kate Ringrose
EPS 100% 100% 100%
Balanced scorecard 85 % 85% 85%
Deduction for prepayment meter
investigation (10%) (10%) (10%)
Individual objectives 87.5% 82.5% 50%
Total AIP (as % of maximum) 87.5% 86.3% 78.1%
Total AIP (£) £1,426,250 £640,406(1) £90,088(2)
(1) Prorata for the employment period.
(2) Prorata for the employment period.
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 Targets
Measures Weightings Threshold (25%) Maximum (100%) Outcomes Vesting Relative Total Shareholder Return
(TSR)
33.3% FTSE 100
median
FTSE 100
upper quartile
Ranked first
at 267.4%
100%
Cumulative EPS 22.2% 7.5p 10.5p(1) 72.4p 100%
Cash conversion 22.2% EBITDA to
OCF of 85%
EBITDA to
OCF of 100%
95.0% 75.5%
Non-financial KPI improvement 22.2% See below See below 57.3% Overall 100% 85%
(1) 3-year cumulative EPS
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%). 92 Governance | Centrica plc Annual Report and Accounts 2023 441 of 1021
Non-financial KPI targets and outcomes
The KPI measures, targets and outcomes for the 2021-23 cycle were:
Targets
Threshold Maximum Outcomes Vesting
Safety
Total recordable injury frequency rate (TRIFR)(1) 0.85 0.65 0.84 29% Customer satisfaction
Aggregate brand NPS across our customer businesses weighted by customer numbers
+10.52 +12.35 +18.3 100%
Complaints per 100,000 customers across our customer businesses weighted by customer accounts
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)
Total notional
pension fund as at
31 December 2023
£
Total notional
pension fund as at
31 December 2022
£
Chris O’Shea(1) 431,775 319,407
Kate Ringrose(1) 79,500 78,761
(1) The retirement age for the CUPS DC scheme is 62.
Governance | Centrica plc Annual Report and Accounts 2023 93 442 of 1021
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.
% of salary
Chris O’Shea 10% cash in lieu of pension
Russell O’Brien 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.
Beneficially
owned(1)
Shares subject to
performance
conditions
Shares vested but
unexercised
Shares subject to
continued service
only(2)
Shares
exercised
in the year
Shareholding
requirement
(% of salary)
Current
shareholding
(% of salary)(3)
Executives
Chris O’Shea(5) 1,295,884 7,954,419 — 1,289,274 — 300 224 Russell O’Brien(5) 185,511 — — 314,566 — 200 48
Kate Ringrose(4) 550,940 1,501,143 — 348,139 — 200 126
Non-Executives
Carol Arrowsmith 49,286 — — — — — —
Phillippe Boisseau(7) 2,669 — — — — — —
Nathan Bostock 27,000 — — — — — —
CP Duggal 15,000 — — — — — —
Jo Harlow — — — — — — —
Heidi Mottram 10,000 — — — — — —
Kevin O'Byrne 40,000 — — — — — —
Amber Rudd(6) 42,559 — — — — — —
Sue Whalley 13,868 — — — — — —
Scott Wheway 110,187 — — — — — —
(1) These shares are owned by the Director or a connected person and they are not, save for exceptional circumstances, subject to continued service or the achievement of performance conditions. They include 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. 94 Governance | Centrica plc Annual Report and Accounts 2023 443 of 1021
SHARE AWARDS GRANTED IN 2023 (AUDITED)
Set out below are details of share awards granted in 2023 to Executive Directors. 2023 RSP
Plan Award Type
Number
of shares(1)
Basis of
award
% of salary
Face value
of award
£
Vesting
date
Release
date
Chris O’Shea RSP Conditional 1,186,547 150% 1,222,500 March 2026 March 2028 Russell O’Brien RSP Conditional 655,148 125% 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.
Plan Award Type
Number
of shares
Face value
of award
£000
Vesting
date
Chris O’Shea AIP Deferred shares 694,925 710,965 March 2026 Kate Ringrose AIP Deferred shares 281,073 287,561 March 2026 Governance | Centrica plc Annual Report and Accounts 2023 95 444 of 1021
To staff
To Directors
To government
To shareholders
Investing activities
To staff
To Directors
To government
To shareholders
Investing activities
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.
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 Sustainable
Fair and consistent Agile
Simple Flexible
Supports wellbeing 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. 96 Governance | Centrica plc Annual Report and Accounts 2023 2023 2022
20%
0%
32%
4%
44%
27%
0.04%
23%
1%
48%
445 of 1021
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”.
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.
Sharing in our success 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 97 446 of 1021
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
Executive Directors Salary/fees Benefits Bonus Salary/fees Benefits Bonus Salary/fees Benefits Bonus Salary/fees Benefits Bonus Chris O’Shea(1) 6.3 — — — -28.0 — 2.5 -11.1 100 2.6 — 0.3 Russell O’Brien(2) — — — — — — — — — — — —
Kate Ringrose(11) 2.5 6.7 18.7 -83.3 -81.2 -84.4
Non-Executive Directors
Scott Wheway 268.8 — — — — — — — — 2.6 — —
Carol Arrowsmith — — — — — — — — — 3.8 — —
Nathan Bostock(3) — — — — — — — — — 32.9 — —
CP Duggal(4) — — — — — — — — — — — —
Heidi Mottram — — — 27.8 — — — — — 3.8 — —
Kevin O’Byrne(5) — — — — — — — — — -20.7 — —
Amber Rudd(6) — — — — — — — — — — — —
Philippe Boisseau(7) — — — — — — — — — — — —
Jo Harlow(8) — — — — — — — — — — — —
Sue Whalley(9) — — — — — — — — — — — —
Average per
colleague (excluding
Directors)(10)
— 1.1 236.4 1.8 -10.3 16.3 1.9 — — 4.4 — 42.3
(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) Jo Harlow joined the board on 1 December 2023.
(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 NonExecutive 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. 98 Governance | Centrica plc Annual Report and Accounts 2023 447 of 1021
The chart below shows the ratio of remuneration of the CEO to the average UK colleague of the Group.
CEO pay ratio 25th
percentile
50th
percentile
75th
percentile
2023 Option B 198:1 142:1 120:1
2022 Option B 128:1 77:1 70:1
2021 Option B 29:1 24:1 15:1
2020 Option B 32:1 15:1 14:1
2019 Option B 34:1 29:1 22:1
2018 Option B 72:1 59:1 44:1
For 2020,the CEO total remuneration figure includes the single figure chart combined earnings of both Iain Conn and Chris O’Shea for the period that they were in the CEO role during 2020.
2023 Salary Total pay and benefits
CEO remuneration 810,000 8,231,007
Colleague 25th percentile 26,484 41,514
Colleague 50th percentile 41,415 58,029
Colleague 75th percentile 47,970 68,439
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, longterm 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
%
Chris O’Shea
2023 8,231 87.5 85
2022 4,490 89.5 76
2021 875 0 0
2020 765 0 0
Iain Conn
2020 239 0 0
2019 1,186 0 0
2018 2,335 41 18
2017 1,678 0 26
2016 4,040 82 0
2015 3,025 63 0
Sam Laidlaw
2014 3,272 34 35
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
Centrica Total Return Index FTSE 100 Total Return Index 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
0 50
100
150
200
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 99 448 of 1021
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.
2023
£m
2022
£m
%
Change
Share repurchase(1) 613 43 1,326
Dividends 186 59 215
Staff and employee costs(2) 1,400 1,440 (3)
(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.
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 AGM
Votes
for
Votes for
%
Votes
against
Votes against
%
Votes
withheld
Directors’ Remuneration Policy 2022 3,132,342,144 83.48% 619,903,528 16.52% 1,275,033 Directors’ Remuneration Report 2023 3,463,208,517 93.19% 252,986,960 6.81% 1,244,130 100 Governance | Centrica plc Annual Report and Accounts 2023 449 of 1021
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 Implementation in 2024 Base salary With effect from 1 April 2023, salaries for Executive Directors were:
¢ Group Chief Executive: £815,000
¢ Group Chief Financial Officer: £540,000
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
Annual Incentive
Plan (AIP)
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%
No change
Restricted Share
Plan (RSP)
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.
No change
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.
No change
Benefits Benefits to be provided in line with the Policy No change All-employee
share plan
Executives were entitled to participate in all-employee share plans on the same terms as all other eligible employees.
No change
Shareholding
requirements
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.
No change
NED Fees With effect from
1 April 2023
With effect from 1 April 2024
Chair of the Board £420,500 £440,000 (+4.6%)
Basic fee for Non-Executives £76,000 No change
Additional fees
Chair of Audit and Risk Committee £25,000 No change
Chair of Remuneration Committee £20,000 No change
Chair of Safety, Environment and Sustainability Committee £20,000 No change Senior Independent Director £20,000 No change
Employee Champion £20,000 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 101 450 of 1021
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) 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.
102 Governance | Centrica plc Annual Report and Accounts 2023 Pension
Base
pay
Benefits
451 of 1021
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.
Usually, base salary increases in
percentage terms will be within the
range of increases awarded to other
employees of the Group.
Increases may be made above this level
to take account of individual
circumstances such as a change in
responsibility, progression/development
in the role or a significant increase in the
scale or size of the role.
Not applicable.
Annual Incentive Plan (AIP)
Designed to incentivise
and reward the
performance of individuals
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.
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 103 452 of 1021
Purpose and
link to strategy
Operation and
clawback
Maximum
opportunity
Performance
measures
Restricted Share Plan (RSP)
Designed to reward and
incentivise the delivery of
long-term performance
and shareholder value
creation.
RSP awards granted to 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 maximum opportunity for RSP
awards will be 150% of salary earned
during the financial year for Executive
Directors.
The RSP will be subject to an
underpin framework. In
assessing the underpin, the
Committee will consider the
Company’s overall
performance, including
financial and non-financial
performance measures over
the course of the vesting
period as well as any material
risk or regulatory failures
identified.
Financial performance can
include elements such as
revenue, profitability,
shareholder experience and
return on capital. Nonfinancial 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 postretirement benefit, in a
way that manages the
overall cost to the
Company.
Executives are entitled to participate in a
Company money purchase pension
arrangement or to take a fixed salary
supplement (calculated as a percentage
of base salary, which is excluded from
any AIP calculation) in lieu of pension
entitlement.
The Group’s policy is not to offer
defined benefit arrangements to new
employees at any level, unless this is
specifically required by applicable
legislation or an existing contractual
agreement.
The maximum benefit for Executives is
10% of base salary earned during the
financial year. This compares with the
average pension benefit across the
wider UK workforce, currently 10-14%
of salary.
Not applicable.
Benefits
Positioned to support
health and wellbeing and
to provide a competitive
package of benefits that is
aligned with market
practice.
The Group offers Executives a range of
benefits including (but not limited to):
¢ a company-provided car and fuel, or
a cash allowance in lieu;
¢ life assurance and personal accident
insurance;
¢ health and medical insurance for the
Executive and their dependants; and
¢ health screening and wellbeing
services.
Cash allowance in lieu of company car –
currently £15,120 per annum.
The benefit in kind value of other
benefits will not exceed 5% of base
salary.
Not applicable.
All-employee share plans
Provides an opportunity
for employees to
voluntarily invest in the
Company.
Executives are entitled to participate in
all-employee share plans on the same
terms as all other eligible employees.
Maximum contribution limits are set by
legislation or by the rules of each plan.
Levels of participation apply equally to
all participants.
Not applicable.
104 Governance | Centrica plc Annual Report and Accounts 2023 453 of 1021
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 longterm period including after
departure from the Group.
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 postemployment 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.
Not applicable.
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 105 454 of 1021
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 Enables the Group to recruit or promote the appropriate individual into a role, to retain key skills and to provide career opportunities.
Operation and clawback Assistance may include (but is not limited to) removal and other relocation costs, housing or temporary accommodation, education, home leave, repatriation and tax equalisation.
Maximum opportunity Maximum of 100% of base salary.
Performance measures Not applicable.
Changes No changes.
Service Contracts
Service contracts provide that either the Executive or the Company may terminate the employment by giving one year’s written notice. The Committee retains a level of flexibility, as permitted by the UK Corporate Governance Code 2018, in order to attract and retain suitable candidates.
It reserves the right to offer contracts which contain an initial notice period in excess of one year, provided that at the end of the first such period the notice period reduces to one year. All Executive and Non-Executive Directors are required to be re-elected at each AGM.
Executive Director Date of appointment to role Date of current contract Notice from the Group Notice from the individual Chris O’Shea 1 November 2018 10 December 2020 12 months 12 months Russell O’Brien 30 January 2023 30 January 2023 12 months 12 months 106 Governance | Centrica plc Annual Report and Accounts 2023 455 of 1021
Termination policy
The Committee carefully considers compensation commitments in the event of an Executive Director’s termination. The aim is to avoid rewarding poor performance and to reduce compensation to reflect the departing Executive’s obligations and to mitigate losses.
Remuneration
element
Scenario Payment
Base salary, pension
and other benefits
Dismissal with cause No further payments made except those that an individual may be contractually entitled to.
All other scenarios Either continue to provide base salary, pension and other benefits for any unworked period of notice or, at the option of the Company, to make a payment in lieu of notice 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 Executives leaving as a result of resignation will forfeit any potential AIP award for the performance year in which the resignation occurs.
Change of control The AIP award will be 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.
Exceptions* An AIP award for the year in which the termination occurs may be made following the normal year end assessment process, subject to achievement of the agreed performance measures and time apportioned for the period worked.
Any award would normally be payable at the normal time with a 50% deferral vesting in line with the normal time-frame.
The Committee has discretion to accelerate the vesting of deferred awards.
LTIP and RSP Dismissal with cause or
resignation
All unvested awards will lapse.
Change of control Existing awards will be exchanged on similar terms or vest to the extent that the performance conditions have been met at the date of the event and be time-apportioned to the date of the event or the vesting date, subject to the overriding discretion of the Committee.
Exceptions* Any outstanding awards will normally be 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 107 456 of 1021
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 How the Policy aligns
Clarity
Remuneration arrangements should be transparent and promote effective engagement with shareholders and the workforce
The Policy is simple and designed to support long-term, sustainable performance.
Shareholders were extensively consulted 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.
Simplicity
Remuneration structures should avoid complexity and their rationale and operation should be easy to understand
The latest Policy results in a clear simplification of remuneration arrangements through the replacement of a performance share plan, with a simpler restricted share plan.
We further operate an annual incentive (the AIP) with a straightforward deferral structure to allow it to be easily understood.
The performance conditions for variable elements are clearly communicated to, and understood by, participants and aligned with the Group strategy.
Risk
Remuneration arrangements should ensure reputational and other risks from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identified and mitigated
The majority of the 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.
Predictability
The range of possible values of rewards to individual Directors and any other limits or discretions should be identified and explained at the time of approving the Policy The Policy sets out the maximum potential value for each element of remuneration subject to the achievement of performance conditions.
The potential total remuneration outcomes are easily quantifiable and are set out in the illustrations provided in the Policy.
As highlighted in Risk, the Committee has discretion to override formulaic outcomes if they were deemed to be inappropriate.
Proportionality
The link between individual awards, the delivery of strategy and the long-term performance of the Group should be clear. Outcomes should not reward poor performance
Remuneration is appropriately balanced between fixed and variable pay.
Short-term performance targets are linked to the Group’s strategy and the use of deferral in the AIP ensures a link to long-term performance through this element.
The introduction of an RSP ensures a strong link to long-term performance as executive reward is directly linked to the share price of the Company.
Alignment to culture
Incentive schemes should drive behaviours consistent with the Group’s purpose, values and strategy
The short-term incentive plans are measured against performance measures which underpin the Group’s culture and strategy.
The incentive structure is cascaded through the top six levels of the organisation ensuring that it drives the same behaviours across the Group. 108 Governance | Centrica plc Annual Report and Accounts 2023 457 of 1021
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
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.
The maximum level of fees payable to
Non-Executives, in aggregate, is set out
in the Articles of Association.
Not applicable.
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 Date of appointment to role Date of current contract Notice from the Group Notice from the individual Scott Wheway 1 May 2016 13 June 2023 6 months 6 months
Carol Arrowsmith 11 June 2020 13 June 2023 3 months 3 months Amber Rudd 10 January 2022 13 June 2023 3 months 3 months Nathan Bostock 9 May 2022 13 June 2023 3 months 3 months CP Duggal 16 December 2022 13 June 2023 3 months 3 months Heidi Mottram 1 January 2020 13 June 2023 3 months 3 months Kevin O’Byrne 13 May 2019 13 June 2023 3 months 3 months Phillippe Boisseau 1 September 2023 1 September 2023 3 months 3 months Jo Harlow 1 December 2023 1 December 2023 3 months 3 months Sue Whalley 1 December 2023 1 December 2023 3 months 3 months Governance | Centrica plc Annual Report and Accounts 2023 109 458 of 1021
OTHER STATUTORY
INFORMATION
Index to Directors’ Report and other disclosures
70 Annual General Meeting (AGM)
110 Articles of Association
114 to 126 Audit Information
59 to 63 Board of Directors
10 to 11 Business Model
66 Conflicts of Interest
111 Directors’ indemnities and insurance
109 Directors’ service contracts and letters of
appointment
94 Directors’ share interests
111 Disclosure required under Listing Rule
9.8.4 R
42, 57, 81 and 249 Diversity
Note 11