INSIDE THIS REPORT
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
Strategic Report
1 Group Highlights
2 Centrica At A Glance
4 Chair’s Statement
6 Group Chief Executive’s Statement
9 Our Purpose, Culture and Values
10 Business Model and Strategic Framework
12 Market Trends
13 Macro Trends
14 Our Stakeholders and s172 statement
18 Group Chief Financial Officer’s Report
22 Our View on Taxation
23 Business Review
26 Key Performance Indicators
28 Our Principal Risks and Uncertainties
35 Assessment of Viability
38 Group Chief People Officer’s Report
41 People and Planet
46
– Non-Financial and Sustainability
Information Statement
47
– Task Force on Climate-Related Financial
Disclosures
Financial Statements
114
Independent Auditor’s Report
127
Group Income Statement
128
Group Statement of Comprehensive
Income
129
Group Statement of Changes inEquity
130
Group Balance Sheet
131
Group Cash Flow Statement
132
Notes to the Financial Statements
229
Company Financial Statements
241
Gas and Liquids Reserves (Unaudited)
242
Five Year Summary (Unaudited)
Other Information
243 Shareholder Information
244
Additional Information
– Explanatory Notes (Unaudited)
249
People andPlanet
– Performance Measures
252 Glossary
READ MORE ABOUT
OUR COMPANY
OUR PROGRESS
IN2023
OUR FINANCIAL
PERFORMANCE
OUR PEOPLE OUR GOVERNANCE
READ MORE ON
PAGES4 to 5
READ MORE ON
PAGES6 to 8
READ MORE ON
PAGES18 to 21
READ MORE ON
PAGES38 to 40
READ MORE ON
PAGES 57 to 58
Unless otherwise stated, all references to the Company shall mean Centrica plc (registered in England
andWales No. 3033654); and references to the Group shall mean Centrica plc and all of its subsidiary
undertakings and equity-accounted associate/joint venture undertakings; and references to operating
profit or loss, taxation, cash flow, earnings and earnings per share throughout the Strategic Report are
adjusted figures, reconciled to their statutory equivalents in the Group Chief Financial Officer’s Report on
pages 18 to 21. See also notes 2, 4 and 10 to the Financial Statements on pages 134 to 135, 143 to 149
and 160 for further details of these adjusted performance measures. In addition see pages 244 to 248
for an explanation and reconciliation of other adjusted performance measures used within the
document. This Annual Report and Accounts does not offer investment advice, and does contain
forward-looking statements. The Disclaimer relating to this Annual Report and Accounts is included on
page 253.
WWW.CENTRICA.COM
GROUP HIGHLIGHTS
Strategic report | Centrica plc Annual Report and Accounts 2023 1
GROUP OPERATIONAL METRICS
British Gas Services & Solutions – Services
Engineer Net Promoter Score (NPS)
(1)
Total recordable injury frequency rate
(per200,000 hours worked)
Colleague engagement
(2)
Total greenhouse gas emissions (tCO
2
e)
(3)
GROUP FINANCIAL METRICS (YEAR ENDED 31 DECEMBER 2023)
£6,512m £2,752m
Group statutory operating profit/(loss) Group adjusted operating profit
70.6p 33.4p
Group statutory basic EPS Group adjusted basic EPS
£2,752m £2,207m
Group statutory net cash flow from
operating activities
Group free cash flow from continuing
operations
£2,744m 4.0p
Adjusted net cash Full year dividend per share
† Included in DNV Business Assurance Services UK Limited (DNV)’s independent limited
assurance engagement. See page 249 or centrica.com/assurance for more.
(1) Measured independently, through individual questionnaires, the customer’s willingness
torecommend British Gas following a gas engineer visit.
(2) Colleague engagement methodology has changed from percentage favourable to an
average score out of 10, measuring how colleagues feel about the Company.
(3) Comprises scope 1 and 2 emissions as defined by the Greenhouse Gas Protocol.
(4) Restated due to availability of improved data.
(5) 2022 comparator as reported. Excluding disposed Spirit Energy Norway assets 2022,
adjusted operating profit was £2,823m and adjusted EPS was 34.2p.
2022
£(240)m
2022
£3,308m
(5)
2022
(13.3)p
2022
34.9p
(5)
2022
£1,314m
2022
£2,487m
2022
3.0p
+71
+64
2023
2022
0.84
1.12
2023
2022
7.7
7.4
2023
2022
1,681,475
2,009,885
2023
2022
(4)
We reported another strong financial result in2023,
against a backdrop of continued elevated commodity
prices and volatility for much of the year. We’ve also
been focused on improving colleague engagement
and operational performance, resulting in improved
customer outcomes as welook to underpin customer
retention, growth and long-term profit sustainability.
†
2022
£1,199m
CENTRICA AT A GLANCE
2 Governance | Centrica plc Annual Report and Accounts 2023
OUR PURPOSE,
CULTURE AND
VALUES
Our Purpose is – ‘energising
agreener, fairer future’. Our
culture and values remain
firmly embedded in who we
are and guide everything
wedo.
READ MORE ON PAGE 9
OUR STRATEGY
AND BUSINESS
MODEL
RETAIL
Focused on providing
leading customer service
and experience, helping
customers to save money
and decarbonise through
innovative offerings.
OPTIMISATION
Supporting the responsible
buying and selling of
energy, managing risk
across our business and
accessing value from green
generation in our trading
business while continuing
to build out the flexibility
required for the future
energy system.
INFRASTRUCTURE
Investing to build a low
carbon, reliable energy
system including power
generating renewables,
flexible peaking generation
and energy storage
through batteries and
geological storage.
READ MORE ON PAGE 10
We are unique amongst energy companies in the
UK and Ireland, operating across the energy value
chain through our distinct, but complementary
businesses. Our Purpose is to energise agreener,
fairerfuture as we journey towards net zero for our
customers and Centrica.
WHAT SETS CENTRICA APART AS AN
INVESTMENT OPPORTUNITY?
Centrica is a uniquely
integrated energy company
operating primarily in the UK
and Ireland. We aim to deliver
long-term value for investors
by driving and leading the
energy transition through our
distinct, but complementary
businesses.
21,000 7,000 7,200
Colleagues worldwide Engineers Volunteering days
Top 50 13.0GW
Ranked in The Times Top
50 Employers for Gender
Equality
Route to market for
renewables under our
management
Strategic report | Centrica plc Annual Report and Accounts 2023 3
OPTIMISATION INFRASTRUCTURE
(1) Included within Retail and Infrastructure. Read more on page 10.
SUPPORTING COMMUNITIES, OUR PLANET AND EACH OTHER
Our People & Planet Plan aims to create a more inclusive and sustainable future – from being a net zero
business by 2045 and helping our customers be net zero by 2050, to creating the diverse and inclusive
team we need to get there and contributing to the communities we’re all part of.
READ MORE ABOUT OUR APPROACH AND OUR JOURNEY TO NET ZERO ATCENTRICA.COM/PEOPLEANDPLANET
RETAIL
READ MOREABOUT OUR PEOPLE & PLANET PLAN ON PAGE 41
(1)
(1)
This instability in energy markets has largely
been caused by global conflicts, and these
conflicts look set to continue. Whilst we
cannot control this, we are acutely aware of
the impact that price fluctuations have on all
our customers.
While other suppliers in the UK have collapsed
due to the volatility and uncertainty in the
market, we have not only stepped in to
support their customers but actually improved
our resilience and business model to ensure
we can be there for all of our customers, old
and new. You can read more about this in the
‘Business Model’ section on page 10.
It is this resilience that means we can add
value across the entire energy value chain. We
are integrated in a way that differentiates us
from our competitors. This is important in
itself; our business model is built on each part
of Centrica supporting the others, but it has
also been important for ensuring we can
support those who are struggling most during
the crisis. I am very pleased with what we
have achieved in 2023.
OUR PERFORMANCE
When I became Chair of the Board in 2020
the business was in a very different position.
Over the last few years, we have been going
through a turnaround process and can now
say the vast majority of that is complete. We
can see the impact of the turnaround in the
strong performance of the business.
I believe people have started to appreciate the
quality of the Company we have here. We
have a resilient balance sheet, good or
improving returns across business units, and
we have a clear plan for the future. We have
shown that the way our business fits together
really compounds the overall value of it.
A strong Centrica is vital for the customers
who rely on us every day and is good for our
shareholders. Our performance has allowed
us to resume and grow our dividend, whilst
remaining prudent, and we have also returned
capital to shareholders through our share
repurchases. These actions reflect the Board’s
confidence in the strength of Centrica and its
ability to deliver.
OUR SUPPORT FOR CUSTOMERS
Our performance matters to our shareholders
– including those thousands of private retail
shareholders of whom many were the original
‘Sids’ who bought shares during the
privatisation of British Gas in the 1980s. It also
matters to our customers. It is only because
we are in such a strong, resilient position
thatwe can go above and beyond for our
customers.
In 2023 we brought our total commitment to
helping customers since the start of 2022 to
£140 million, we hired 700 more UK-based
colleagues to support customers over winter
and into the future, and net promoter scores in
our Retail businesses have been improving.
The way the price cap is structured means
that if customers don’t pay their bills, costs are
added to the bills of all other customers. We
will continue to strive to find the right balance
between supporting those in difficulty whilst
keeping bills as low as possible for all our
customers.
This work shows leadership and it is
something we can be proud of. Leadership
also means responding responsibly when
something goes wrong.
Early in 2023 it was brought to our attention
that the supplier we worked with to install
prepayment meters under warrant had, in
some instances, not been showing our
customers empathy and respect. This is a
complex area, and the business took swift
action to investigate and report publicly on the
findings.
Our in-depth investigation highlighted some
issues in the installation of prepayment
meters. However, whilst these were not
systemic, we take the view that even one
failure, is one too many. Chris O’Shea and his
team showed leadership and humility in
investigating the issues and putting them right.
Centrica takes pride in the fact that we do
more to support customers that are in financial
difficulties than anyone else in the markets we
serve and we will always strive to do the right
thing by our customers.
4 Strategic report | Centrica plc Annual Report and Accounts 2023
CHAIR’S STATEMENT
Centrica occupies a unique place in the energy
market. It is a place I am very proud that we
occupy. We are a lynchpin of stability in a market
that for the last few years has been inturmoil.
Scott Wheway | Chair
OUR CONTRIBUTION TO ENERGY
SECURITY
Security of supply has climbed in importance
over the last two years and is likely to remain
important as long as global conflicts continue.
Our performance has meant we could take a
leading role in this area. I know the team at
Centrica are hugely proud of the contribution
we’ve made to energy security in the UK
andIreland.
Over 2023 we’ve expanded the capacity of
the Rough storage field, improving the UK’s
gas storage levels. However, the capacity of
the storage field at Rough is unlikely to be
expanded further without the certainty of a
regulatory model that would underpin a very
significant investment for the future. Our
colleagues in Centrica Energy have also
played a pivotal role in securing Liquified
Natural Gas (LNG) through multi-billion-dollar
deals, including a new deal with Delfin
Midstream in the US that will enhance energy
security for the customers we serve.
OUR FUTURE
Alongside our Interim Results in July 2023,
Chris and the Centrica Leadership Team
presented our new, Green Focused
Investment Strategy. We announced that
Centrica intends to invest between £600m
and £800m a year over the next five years
primarily in security of supply and flexibility,
renewable generation, and our customers. We
also gave guidance on our expected range of
annual operating profit in our Retail and
Optimisation businesses and provided clarity
on a new financial framework, including our
progressive dividend policy.
Centrica’s direction was already clear to our
investors and our wider stakeholders, but the
July update provided a clear overview of the
approach Centrica will take in the future. I’m
glad the update was received positively by the
market.
I am excited to see what Centrica can
accomplish in the coming years and I want to
take this opportunity to assure our
shareholders that your Board will be prudent
custodians of your money.
OUR SUPPORT FOR NET ZERO
Our Green Focused Investment Strategy will
also mean that Centrica is playing its part to
underpin the energy transition.
We are unequivocal in our support for net
zero. We believe it is an opportunity for the UK
and Ireland and we will continue to feed into
live discussions with our valuable experience
of energy markets. Gas is likely to continue to
be a transition fuel for some time, and your
Board is acutely aware that we have a
responsibility to ensure that energy is
affordable for everyone through the transition.
Last year I said that to meet net zero a
combination of technologies will be required,
and that these technologies would create
opportunities for companies with strong
balance sheets, flexible business models and
detailed knowledge of markets. This year, it is
my belief that we have cemented our position
as one of those companies.
We are one of the largest heat pump installers
in the UK’s emerging heat pump market, we
are leading on hydrogen innovation across the
UK and Ireland, and our strategy shows the
scale of our ambitions in renewables. Our
commitment is not merely words, it can be
seen in our actions.
OUR COLLEAGUES
None of this would be possible without the
fantastic work of our colleagues. It is a great
source of pride for me that Centrica continues
to grow and that we continue to show
leadership in the areas people care about,
such as our Carers Leave Policy.
Over the course of 2023 we have seen the
engagement of our colleagues increase, no
doubt due to the supportive culture that Chris
and Centrica’s Leadership Team have
nurtured in the business. I was also very
happy to see the continuation of our Shadow
Board initiative. It is absolutely right that a
representative group of our colleagues should
have the opportunity to share their views on
the management decisions that impact them.
Of course, we have also welcomed new
employees to the business this year and I
welcome all of them, not least the 700
permanent employees that were hired in time
to support our customers over the winter. I am
also delighted to welcome Russell O’Brien to
Centrica on his appointment as Group Chief
Financial Officer and Executive Director in
March 2023, and Philippe Boisseau who was
appointed to the Board as a Non-Executive
Director in September 2023.
Towards the end of the year, we were also
very pleased to announce the appointments of
Jo Harlow and Sue Whalley as Non-Executive
Directors. They bring an exciting mix of
experience to our Board, and I know their
contribution to the Remuneration Committee
and Nominations Committee will be highly
valued.
Thank you to all colleagues across Centrica for
your contribution in 2023.
SUMMARY
This year Centrica has taken significant steps
forward on performance, on delivering the
things that people care about and on showing
where our future lies. We are never satisfied
and there is still work to do, but I hope our
stakeholders across society can see a
company that cares about what it does and
makes a significant contribution to the UK’s
energy system.
I am confident that our capabilities, our
resilience, and our determination will deliver
great things in 2024, and I look forward to
reporting on our progress next year.
Scott Wheway, Chair
14 February 2024
Strategic report | Centrica plc Annual Report and Accounts 2023 5
Despite that pace of change, I stand by the
statement I made in last year’s report. I said:
“ My belief is that climate change is the
biggest single threat facing civilisation
today, and net zero is the biggest single
opportunity wehave at Centrica.
Climatechange is real, it’s here, and
it’simpacting lives across the planet.
Transforming how we generate, store
and use energy can make a huge
difference to reducing the warming of
ourplanet. Longer term, if the net zero
transition is thoughtful and targeted,
itcan keep prices stable for customers
and drive economic growth, especially
for those companies and countries at
theforefront of thetransition.”
As I write at the end of 2023, I am even more
convinced that this is the case. Your
Company is incredibly well placed to both
drive forward, and benefit from, the energy
transition. This will require a relentless focus on
performance and continuous improvement,
and disciplined but bold capital allocation to
ensure we have a portfolio of investments
across a mix of technologies. We have a lot to
play for.
I believe we get more right than we get wrong,
but the real test of character is how you
respond when things go wrong. It’s my view
that we need to put things right when this
happens, and we need to learn from our
experience.
Sadly, we saw an example of getting it wrong
early in 2023 when a report highlighted some
of our contractors were not treating our
customers with the respect they deserved
when installing prepayment meters under
warrant. We immediately apologised, we
suspended the installation of prepayment
meters under warrant, and we launched an
investigation overseen by an independent third
party. Whilst our investigation found no wide-
ranging problems with our systems and
processes, it did highlight some isolated
instances that fell short of the high standards
of behaviour that we expect when engaging
with customers. Asa result, we have brought
all such activity ‘in house’ (as opposed to
using contractors) and have spent the past
year ensuring our policies, procedures and
practices are updated and that our colleagues
are fully trained in these areas. We also
contributed to the development of new
industry rules to protect vulnerable customers.
At the time of writing, we have not yet
restarted the installation of prepayment meters
under warrant. However, we may choose to
do so in the future, as, done properly, they are
an effective tool both in helping customers
manage their costs and in helping energy
companies manage bad debts, which is even
more important as people struggle with the
cost of living. This is important because under
the price cap, those who pay for their energy
ultimately end up paying for those who
choose not to pay, and we don’t think
that’sright.
However, we are not sitting on our hands
waiting for others to solve the problem of
people who can’t pay for their energy. We
have taken decisive steps to support
consumers who are facing hardship and
we’ve done more than any other UK energy
company. Since 2022, we have committed
£140 million to support customers struggling
with their energy bills in the UK and Ireland,
whichis on top of around £400 million of
contributions we are required to make each
year. It is a huge amount of money but our
customers are at the heart of everything we
do, and we must support them when they’re
in need. Unfortunately it cannot address all of
the issues our customers face today because
these are not limited to energy costs – people
are struggling to pay their mortgage or rent,
their council tax, their food costs, and so
much more.This is a societal issue which
requires a societal response.
We have been vocal in our calls for regulatory
reform, both in terms of how energy
companies are made more robust to avoid
failures in the future, and in terms of how we
can have a system which is fairer for
consumers.
6 Strategic report | Centrica plc Annual Report and Accounts 2023
GROUP CHIEF EXECUTIVE’S
STATEMENT
I am increasingly coming to the conclusion that the
speed with which things seem to change is now
simply indicative of the world we live in. The news
cycle has shortened, the urgency with which things
need to happen has increased, and the pace at
which we are moving in our quest to make your
Company the best is as fast as I’ve seen it in my
fiveand a half years at Centrica.
Chris O’Shea | Group Chief Executive
For consumers, we believe that the standing
charge for gas and electricity where people
pay a fixed fee to cover things like network
costs (roughly £300 each year) should be
eliminated. Those costs should be recovered
through the unit rate for gas and electricity so
that those who consume less pay less and
those who consume more pay more. We also
believe a social tariff should be introduced
where those who are the most vulnerable pay
less for energy. We believe that this, along
with all policy costs, should be funded from
general taxation but that is not something
which has universal support.
For energy companies, we believe that they
should be made to hold sufficient capital to
ensure that if more companies go bust, their
shareholders pick up the costs rather than the
unacceptable situation in recent years where
the costs were picked up by consumers. We
have seen some progress on this, with Ofgem
requiring energy companies to hold £115 of
capital for each customer by March 2025.
This is welcome but it is our view that this
does not go far enough, nor fast enough. We
believe that all companies should be required
to hold in the region of three times this
amountand that they should not be able
totake on additional customers until they
candemonstrate they are financially sound.
Asof now, a number of energy companies
effectively have a free bet, using customer
deposits to fund their businesses. If their bet
comes good, their owners get all of the
rewards; and if it doesn’t, consumers bear all
of the cost. This cannot be right, and we urge
Ofgem to be more focused on establishing a
fairer market for consumers and to ensure
energy companies who are not yet financially
resilient enough are forced to meet proper
capital adequacy requirements.
2023 PROGRESS AND PERFORMANCE
We can support customers and credibly make
the case for market reform only because we
are a very resilient company. That resilience
comes from our uniquely integrated business
model and strong balance sheet.
We have a well-balanced portfolio with
market-leading positions across the entire
energy value chain. In our Retail business we
are the largest supplier of energy to residential
customers in the UK through British Gas
Energy and the second largest in Ireland
through Bord Gáis Energy, and we have a
strong and growing B2B energy supply
position. Our Infrastructure business brings
electricity and gas to the market every single
day. Then at the heart of these energy flows
sits the Optimisation business, the glue that
binds our group together.
As I look at our portfolio, I see a number of high
performing businesses. But the real value-add
that makes us unique at Centrica comes at the
portfolio level as we integrate our businesses
with each other. I believe this model means we
are well-positioned to adapt to any future
changes in the energy landscape.
You can see just how this integration works in
practice in our performance and achievements
over the last year. At a Group level, our
performance in 2023 was very strong. Our
Group adjusted operating profit was £2.8bn
compared to £3.3bn at year end in 2022. Our
adjusted basic EPS was 33.4p in 2023
compared to 34.9p in 2022, 4.1p in 2021,
and 2.8p in 2020, and our free cash flow was
£2.2bn. We ended the year with £2.7bn of net
cash – just three years ago we had £2.8bn in
net debt. In short, your Company has been
transformed. There is still so much more that
we can go for, but as Russell points out in his
CFO report, there were some large one-off
benefits in the 2023 results which we don’t
expect to repeat in future years.
RETAIL
British Gas Energy performed well in the
year and benefitted in 2023 from the recovery
of costs incurred in previous years under
Ofgem’s price cap adjustments. By the end of
the year, we had migrated around two thirds
of our customers on to our new software
platform and we should complete the transfer
in the next 12 months or so. This allows us to
develop our new energy offering, which will
help give our customers insight into the best
time to use their energy, putting more power
in their hands. Our PeakSave Sundays
product already has half a million customers
and we are learning every day how our
customers vary their energy use depending on
costs changing during the day.
Bord Gáis was quite a mixed picture in 2023.
We continued to see pressure in the retail
market in Ireland and had another year of
making losses in that market, all of which were
offset by profits made in our infrastructure (the
Whitegate power station in Cork) and
optimisation activities. We believe that the
issues in the Irish retail market are temporary
and we hope to see a return to normality
in2024.
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
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
our10 million customers. Our profits have
apurpose. We have continued to encourage
colleagues to volunteer in their local
communities with over 7,200 days donated
tothe 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
thepace at which net zero is delivered.
Iwould argue that Centrica is well placed to
provide stability, remain sustainable, and
deliver value across all our stakeholder
groupsirrespective of changes to the pace
ofnet 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 agreener, fairer future as we
journey towards net zero for our customers
and Centrica.
In addition, we’re looking at how we can
improve our capabilities in a number of areas.
In Infrastructure, we have demonstrated that
we have a team who knows how to deliver
growth over a number of years. There is more
to do in both our Retail and Infrastructure
businesses and I am delighted that our new
Chief Customer Officer will join on 1 May 2024
with a remit to drive relentless improvements
in customer experience and help our retail
businesses access the growth that we all
know is there.
CONCLUSION
2023 has been a strong year for Centrica. We
have not got everything right, but where we
get things wrong, we put them right. Our
business is on an incredibly strong footing, our
future is laid out ahead of us and we are firmly
on the path to continue the growth we’ve
seen in recent years.
Going into 2024 I want to take this moment to
thank all our customers, colleagues and
shareholders for their support this year, and I
want to take this opportunity to assure you
that our progress will continue. We will
continue to support our customers, we will
continue to improve energy security, and we
will continue to provide the sensible, expert-
based input into the net zero discussion.
It is always invigorating and a privilege to be
your Chief Executive. I look forward to seeing
what we can achieve in the year ahead.
Chris O’Shea, Group Chief Executive
14 February 2024
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.
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,
webuild winning
relationships
throughout our own
organisation and with
others to deliver on the
scale challenges the
industry faces
We step up and
takeresponsibility.
Werecognise 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 long-
term gas supply and
LNG deals.
We value delivering
great service and
customer outcomes.
We are rigorous, and
do things the right
way. We have been
recognised by Ofgem
as a well-run supplier,
been protecting
customer credit
balances and
invested an additional
£25m in customer
service through the
energy crisis.
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.
BUSINESSMODEL
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 flexibleassets
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
onproviding 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.
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 siteswith 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
willreinforce 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
anda progressive dividend.
To give a flavour of the kinds of
investments weanticipate:
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,
suchas 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.
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
ontheir 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
tariffthat help customers access
cheaper energy rates at particular
timesof 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
inextreme financial difficulty
After a tumultuous year in
UKenergy markets, 2023
sawmarket volatility return
topre-energy crisis levels,
although energy prices
remained relatively high.
Consumer energy bills were
somewhat shielded through
theEnergy Price Guarantee
during the first half of 2023.
Macroeconomic conditions,
including elevated inflation
andinterest 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
ofhaving 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,
andpositions us for growth and
valuecreation
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
netzero
¢ 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
MACRO TRENDS
Strategic report | Centrica plc Annual Report and Accounts 2023 13
Climate change and the
imperative to decarbonise
remain central concerns for
ourcustomers 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
andextreme weather with
increasing frequency. As a
UKand Ireland energy
industryleader and a
responsible business, our
strategy remains focused on
the drive to net zero.
HOW WE’RE RESPONDING
¢ We committed to an ambitious
investment programme that aims for
>50% of total capex invested in green
taxonomy investments through 2028,
thereby underpinning our transition to
net zero
¢ We created a new business intended
to be a one-stop green home services
shop for residential customers
¢ We are working with partners to
explore decarbonisation opportunities
for our existing conventional power
generation and molecule storage
assets
Unlocking the full benefit of
renewables will require more fast-
acting generation and storage,
flexible energy consumption, and
intelligent systems working in the
background to seamlessly
manage the two. Centrica already
plays a key role in this area by
optimising energy flows to and
from grid-side assets, as well as
within the home.Through further
investment and continued
customer engagement, we will
continue unlocking opportunities
for flexible energy generation
andutilisation to reduce cost
andcarbon.
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 servicedelivery
¢ We are closely collaborating with leading
technology companies to implement AI
toolsand 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
savingsto the business and unlocking new
capabilities needed for future propositions
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.
Indoing 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 theBoard 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 ofstakeholders.
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 usto create stronger
outcomes for people, planet
and our business.
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 netzero.
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 asustainable 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
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 £140million, 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
nosystemic 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
anotherenergy crisis in the future.
READ MORE ON PAGE 43
SECTION 172(1) STATEMENT
PRINCIPAL DECISION BY THE BOARD
BOARD CONSIDERATIONS
With the turnaround of Centrica now
materiallycomplete and the balance sheet
strengthened, the Board carefully considered
the refreshed strategy developed by
management and how that would impact
ourstakeholders.
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 tonet 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
theenergy transition. It has the potential to
bring customers greener energy and at an
affordable price, while helping insulate the
UKfrom 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
netzero 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,
withinvestment expected to build to
£600-£800 million per year until at least 2028.
Aspart 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,
atleast 50% of our capital expenditure is
expected to go into green taxonomy eligible
projects, compared to only 5% in 2019.
Thiswill 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.
FINANCIAL OVERVIEW
The Group’s adjusted operating profit was
£2.8bn (2022: £3.3bn), with lower
Infrastructure and Optimisation results partially
offset by a higher Retail contribution.
Reflecting this, along with both a lower net
finance charge and taxation on business
performance, Group adjusted earnings
attributable to shareholders were £1.9bn
(2022: £2.1bn) and Group adjusted EPS was
33.4p (2022: 34.9p).
From a statutory perspective, operating profit
was £6.5bn (2022: £0.2bn loss). This includes
a large certain re-measurement gain during
the year of £4.4bn (2022: £3.4bn loss)
predominantly due to unwinds of 2022 out-of-
the-money positions and release of the
onerous energy supply contract provision. In
addition an exceptional loss of £0.6bn (2022:
£0.2bn) was recognised driven predominantly
by impairments to both our Nuclear
investment and Rough gas storage asset
reflecting changes in commodity prices and
spreads. Statutory profit attributable to
shareholders was £3.9bn (2022: £0.8bn loss)
and statutory EPS was 70.6p (2022: 13.3p
loss).
None of the items reported in the middle
column of the Income Statement are
considered to reflect the underlying
performance of the business.
The Group’s total Free Cash Flow (FCF)
reduced to £2.2bn (2022: £2.5bn), with the
impact of lower operating profit and the timing
of tax payments partially offset by a net
working capital inflow of £0.2bn (2022: £0.7bn
outflow).
From a statutory perspective, net cash flow
from operating and investing activities was
£2.9bn (2022: £0.7bn). This was higher than
the FCF noted above largely because of the
exclusions from that measure of movements
in variation margin and collateral, which
support our commodity hedging activity and
Centrica Energy optimisation activity and
generated an inflow of £0.6bn (2022: £1.2bn
outflow).
The Group’s net assets increased to £4.2bn
(2022: £1.3bn) with the impact of the increase
in statutory profit partially offset by the impact
of £1.1bn from items reported in other
comprehensive income or directly in equity,
including impacts of the share buyback
programme, net actuarial losses on defined
benefit pension schemes and dividends paid
to both shareholders and non-controlling
interests.
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’SREPORT
READ MORE ON PAGE 11
Russell O’Brien | Group Chief Financial Officer
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-the-
money energy supply contract hedge purchases, while there was
also an unwind of our infrastructure businesses and Centrica Energy
out-of-the-money positions from December 2022. The net positive
impact of these two factors was £3,529m. In addition, we saw a net
unrealised mark-to-market gain of £44m from our wider portfolio as
we were in a net sell position at certain points in the year as
commodity prices fell.ell.]
¢ A net gain of £833m from the onerous energy supply contract
provision utilisation and reversal. At the 2022 year-end, an onerous
provision was held on the balance sheet relating to our non-domestic
customers on longer-term fixed contracts agreed at levels below the
forward commodity prices in December 2022. This was because,
although the Group is predominantly hedged and so does not
expect to make a true economic loss on these contracts, the hedges
are generally market trades which are reflected as derivatives and are
marked-to-market through the middle column as certain re-
measurements. At 2022 year-end, the unrealised hedges were still
in-the-money and this led to retaining an onerous contract provision.
However, following the fall in commodity prices seen in 2023, the
supply hedges were out-of-the-money at the end of the year and as
a result, the remaining energy supply onerous provision has been
fully unwound.
Further details can be found in note 7(a).
Strategic report | Centrica plc Annual Report and Accounts 2023 19
Exceptional items
An exceptional pre-tax charge of £645m was recognised within the statutory Group operating profit (2022: £155m), made up of:
¢ A £549m impairment of the nuclear investment, as a result of lower forecast commodity prices, partially offset by the positive effect of life
extensions at Heysham 1 and Hartlepool.
¢ An £82m impairment of the Rough gas storage asset as a result of a reduction in both forecast gas prices and forecast summer/winter gas
price spreads.
¢ A £14m impairment in Centrica Business Solutions predominantly related to a battery storage asset and a gas engine, also as a result of
the lower forecast commodity prices.
Further details on exceptional items, including on impairment accounting policy, process and sensitivities, can be found in notes 7(b) and 7(c).
GROUP EARNINGS AND DIVIDEND
2023 2022
YEAR ENDED 31 DECEMBER (£M) Notes
Business
performance
Exceptional items
and certain re-
measurements
Results for the
year
Business
performance
Exceptional items
and certain re-
measurements
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 non-
controlling 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
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
forsale
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
note24.
ACCOUNTING POLICIES
The Group’s accounting policies and specific accounting measures,
including changes of accounting presentation and selected key
sources of estimation uncertainty, are explained in notes 1, 2 and 3.
Russell O’Brien, Group Chief Financial Officer
14 February 2024
Strategic report | Centrica plc Annual Report and Accounts 2023 21
OUR VIEW ON TAXATION
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
ofour business.
We ensure that income and costs, including costs of financing
operations, are appropriately recognised on a fair and sustainable
basisacross 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,
opendialogue on issues of significance to HMRC and Centrica.
Ourrelationship with fiscal authorities in other countries where we
dobusiness 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
TAXCHARGE
The Group’s businesses are subject to corporate income tax rates
asset 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
inenergy supply and services) are subject to Electricity Generator Levy (EGL)
at45% 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 ISSET 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)
BUSINESS REVIEW
BUSINESS UNIT OPERATIONAL, COMMERCIAL AND
FINANCIAL PERFORMANCE
We expect to deliver around £800m of sustainable adjusted operating
profit on average each year from Retail and Optimisation by 2026, with
additional growth potential. We also expect to deliver material medium-
term cash flows from Infrastructure.
Of the £800m per year, we expect UK residential energy supply to
make £150m-£250m, British Gas Services & Solutions to continue to
recover to £100m-£200m, Centrica Energy to make £250m-£350m,
and UK business energy supply and Bord Gáis Energy to deliver
combined adjusted operating profit of £100m-£200m.
In any given year the actual results by business are likely to fluctuate, so
these ranges should be seen as an average over time. However, one of
the key benefits of our balanced portfolio is that our businesses de-risk
each other and this reinforces our confidence in the delivery of these
overall profit projections.
RETAIL
In Retail, we have ramped up investment in our operations and
customer service. This has resulted in improved performance metrics,
with lower complaints and improving NPS scores across our
businesses. Total Retail adjusted operating profit increased to £799m
(2022: £94m), largely due to the material recovery of costs incurred in
prior periods through the regulatory price cap mechanism in British Gas
Energy.
British Gas Services & Solutions
YEAR ENDED 31 DECEMBER 2023 2022 Change
Services & Solutions customers (‘000)
(closing)
(1)
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 on-
demand jobs increased to 218,000, up 75% and 79% on 2022
respectively. We also grew our market share and margins in boiler
installations in a declining market, underpinned by more innovative
commercial offerings.
Adjusted operating profit was £47m (2022: £9m loss), with improved
productivity allowing better margin capture in the core contract service
and repair and installation businesses, and lower pension costs. These
positive impacts were partially offset by the impacts of lower average
customer numbers and ongoing inflationary cost pressures.
British Gas Energy
YEAR ENDED 31 DECEMBER 2023 2022 Change
Residential energy customers (‘000)
(closing)
(1)
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
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
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
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
inUpstream (part of our Infrastructure
business), reflecting the sale of the Spirit
Energy Norway assets and the introduction
of the Electricity Generator Levy and
inCentrica 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 dueto 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
6.1
4.1p
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 2,132,680mtCO
2
e. It’s also
aligned to the Paris Agreement and based
on science to limit global warming,
corresponding to a well below 2°C
pathway initially and 1.5°C by mid-
century. 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
ONPAGES 18 TO 21
26 Strategic report | Centrica plc Annual Report and Accounts 2023
KEY PERFORMANCE INDICATORS
Our Key Performance Indicators (KPIs)
helpthe Board and executive
management team assess performance
against our refreshed strategy laid out
inJuly 2023.
2,207
2,487
1,174
2,752
3,308
948
2022
2021
2022
2021
2022
2021
2023
2022
2021
-53%
-5%
2023
2023
2023
-21%
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 inBritish 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
OURNON-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
20232023
2023
We manage risks
tosupport our
Groupstrategy.
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,
inorder of magnitude to the Group.
RISK APPETITE
The Board is ultimately responsible for aligning
the risk appetite of the Group with our long-
term strategic objectives, taking into account
the emerging and Principal Risks. Risk
appetites for the categories of Strategic,
Operational, Financial and Compliance risks
are in place and the key risks within Centrica’s
Risk Universe have been mapped into these
categories.
Due to the industry and the nature of some of
the markets in which the Group operates, we
have high to moderate risk appetites for our
strategic and operational risks. However, we
have a minimal risk appetite for operational
safety risk and we continue to strive for an
incident-free workplace. For financial risks we
adopt a conservative approach to manage our
liquidity position and balance sheet strength.
However, due to the higher risks inherent in
managing the commodity and weather
variables within our energy supply businesses,
we accept a higher appetite for those
elements offinancial market risk. We are
committed to operating our businesses in
compliance with relevant laws and regulations.
Risks are identified and assessed at a
Business Unit (BU) level to determine impact
and likelihood, with an appropriate risk
response subsequently evaluated and
implemented. The different risk responses are:
¢ Terminate: cease the activity that creates
the risk;
¢ Transfer: pass the risk to another party;
¢ Tolerate: accept a level of risk;
¢ Treat: act to reduce the likelihood or
impact of risk.
During BU and Group risk reviews, the net
residual risk scores are compared to the
Group risk appetite to review the adequacy of
existing mitigating actions/controls, with
further action taken tocontrol and monitor
risks as required.
RISK FRAMEWORK
Day-to-day ownership of risk sits with
business management under the regular
scrutiny of the Centrica Leadership Team
(CLT) to whom the Board has delegated
principal responsibility for risk oversight. The
Group Principal Risks are those which could
potentially impact delivery of our strategic
objectives over the medium to long term,
where medium term is up to three years,
asdetermined through our strategic planning
process. The annual risk management
process is summarised in the diagrambelow.
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 bythe 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
¢ The Group Principal Risk profile, as
reviewed by the CLT, ispresented 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 assessmenthas 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 aspart 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 thatPPMusers no longer
pay a premium for their energy. For eligible
non-domestic customers, the Energy Bills
Discount scheme is in place until March 2024.
The impact of the Government support
schemes is considered in the bad debt
provision (see note 17), which is also factored
into the Going Concern review.
Energy market
Global wholesale energy prices have reduced
since their peaks in 2022, however European
gas and power prices remain above historical
averages. While the war in Ukraine continues,
alternative sources of gas to replace the Nord
Stream 1 pipeline have been secured across
Europe, largely through Liquified Natural Gas
(LNG) shipped from outside the European
continent. The Gaza conflict has the potential
to increase market volatility if wider Middle
Eastern states are caught up in the conflict.
The gas storage capacity for Rough has been
increased from 30 to 54 bn cubic feet of gas,
and Ofgem (the UK regulator) has agreed to
extend the exemption to negotiated third-party
access until April 2030. The strategic goal for
Rough is to act as one of the world’s largest
natural gas and hydrogen storage facilities and
to play a key part of energy security
infrastructure within Great Britain and the
wider European market.
Centrica has concluded a 15-year LNG off-
take agreement with Delfin Midstream. The
additional 1m tonnes per annum of LNG will
provide another key foundation to ensuring
energy security whilst providing Centrica with
increased optimisation capacity from 2029.
A Risk Capital Steering methodology has been
developed to bolster our existing robust
monitoring and to improve our ability to react
to changes in our Financial risks.
Government and regulatory intervention
In the November 2023 Autumn Statement, the
Government announced it will legislate for a
new investment exemption for the Electricity
Generator Levy (EGL). The EGL is a temporary
45% levy on receipts from the production of
nuclear and renewable electricity sold at an
average price in excess of £75/MWh
applicable from 1 January 2023 to 31 March
2028. We are reviewing the Government’s
technical note on the new investment
exemption and developing our approach on
how to implement.
Other announcements impacting the Energy
sector include £1,000 off electricity bills for a
decade for those living near energy
infrastructure such as pylons or onshore
turbines; committing the Electricity System
Operator to work with Government to
produce a new Strategic Spatial Energy Plan;
introducing competition into onshoreelectricity
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
onCarbon Capture Utilisation, Electricity
Networks, Hydrogen, Nuclear andOffshore
Wind.
Additionally in November 2023, the
Government and Ofgem jointly published a
Connections Action Plan, setting out a series
ofreforms to the process for connecting
generation projects to the transmission
network, with substantial progress expected
in2025 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 willbe
monitored within the BUs and functions as
these technology changes are delivered and
embedded.
Strategic report | Centrica plc Annual Report and Accounts 2023 29
PRINCIPAL RISKS
The following Principal Risks were adopted by the Board in 2023 and reflect the position of the Group at the point of signing the
accounts. The risks are presented in order of highest to lowest magnitude to the Group based on net residual risk, after mitigations.
The Risk Climate is the expected change in the risk landscape from the previous year’s risk review, based onthe environment and
controls inplace.
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 inc