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  • Glossary





    Refers to US dollars unless specified otherwise

     <1 year

    Less than 1 year

     >1 year

    Greater than 1 year


    Proven and probable





    An entity in which the Group has an equity interest and over which it has the ability to exercise significant influence



    Billion cubic feet


    Barrels of oil



    Certified emissions reduction (carbon emissions certificate)


    Carbon emissions reduction target


    Cash generating unit


    Consumer Price Index



    Earnings before interest, tax, depreciation and amortisation


    European Union allowance (carbon emissions certificate)



    Financial Services Authority

     FTSE 100

    Financial Times Stock Exchange 100 share index, an average of share prices in the 100 largest, most actively traded companies on the London Stock Exchange


    Fair value less costs to sell


     g CO2/kWh

    Grammes of carbon dioxide per kilowatt hour


    Group Financial Risk Management Committee


    Gigawatt hour


     IAS 19

    The International Accounting Standard related to Employee Benefits. These financial reporting rules include requirements related to pension accounting

     IAS 39

    The International Accounting Standard related to financial instruments (recognition & measurement)


    International Financial Reporting Standard


     Jointly controlled entity

    A joint venture which involves the establishment of an entity to engage in economic activity, which the Group controls jointly with its fellow venturers


     Level 1

    Fair value is determined using observable inputs that reflect unadjusted quoted market prices for identical assets and liabilities, for example exchange-traded commodity contracts valued using close-of-day settlement prices. The adjusted market price used for financial assets held by the Group is the current bid price

     Level 2

    Fair value is determined using significant inputs that may be either directly observable inputs or unobservable inputs that are corroborated by market data, for example over-the-counter energy contracts within the active period valued using broker-quotes or third-party pricing services and foreign exchange or interest rate derivatives valued using market-based data

     Level 3

    Fair value is determined using significant unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management's best estimate of fair value, for example energy contracts within the inactive period valued using in-house valuation techniques


    Liquefied natural gas



    Million barrels of oil equivalent


    Million therms


    Megawatt hour



    Net book value


    Non-governmental organisation



    Property, plant and equipment


    Petroleum revenue tax



    Renewable obligation certificate


    Retail Price Index



    Comprised of Treasury gilts designated at fair value through profit or loss on initial recognition and available-for-sale financial assets. The fair values of securities are based on quoted market prices, when available. If quoted market prices are not available, fair values are estimated using observable market data


    Supplementary charge associated with UK Corporation Tax

     Spark spread

    The difference between the price of a unit of electricity and the cost of the gas used to generate it



    Value added tax


    Value in use

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Review of the year

2011 was a year of turbulence and challenge. At the beginning of the year there was little indication how dramatically events would unfold for the world in general or for Centrica in particular.

The Japanese nuclear power disaster at Fukushima in March cast a shadow over the industry as nuclear plants across the globe were shut down, driving up demand for gas and resulting in higher wholesale prices worldwide. Events in the Middle East and North Africa created further political and economic uncertainty as the unrest spread in the spring and energy prices reacted again to the increased risk to supplies.

In the wake of a 30% increase in wholesale gas prices and escalating losses in British Gas, we were faced with the need to implement a significant price increase, in the knowledge that any rise in the cost of living would be very difficult for hard pressed customers, already struggling in a severe economic downturn.

In an effort to mitigate the scale of the increase, whilst preserving a 6% pre-tax residential energy profit margin for the year, management conducted a thorough reappraisal of the cost structure of the Group. With considerable cooperation from employees and unions, we were able to improve engineers' rostering and customer service, lower future pension costs and reduce overheads through the loss of some 2,300 roles across the Group. This was painful but necessary to support our competitive position in challenging markets.

Maintaining an efficient cost structure, however, was not done at the expense of building talent for the future. British Gas continued to invest more than £25 million during the year in academies and apprenticeships, helping to train the young and re-skill older employees.

In parallel, we focused on securing long-term supplies of gas to provide security of supply for our customers. This was achieved by the completion of a ground breaking liquefied natural gas (LNG) agreement with Qatar, the acquisition of new gas fields for exploration and production and towards the end of the year, a long-term supply agreement with Statoil in Norway.

In March however, our investment plans for the UK sector of the North Sea were undermined by the sudden imposition of higher taxes on production of oil and, most harmfully, gas. In spite of the representations made by ourselves and the rest of the industry to Government, no change was forthcoming to this damaging decision.

Centrica, together with other members of the industry, made it clear to Government ministers that capital intensive industries must have long-term certainty of both regulatory and tax regimes if they are to be major investors in the UK energy infrastructure. Our own major shareholders echoed this view. As one of the UK's largest taxpayers, with Centrica contributing around £800 million a year to the Treasury, it is hoped that our case has been heard.

On a more positive note, we have welcomed the Government's proposals for electricity market reform and the carbon floor price, as well as its commitment to the new nuclear programme. However, the detail still needs to be agreed, the pace of progress needs to accelerate and economic returns must be in keeping with our commitment to shareholder value.

Whilst the upstream team were securing the Group's future energy requirements, the downstream team continued to work with customers to help reduce consumption.

Household surveys and home insulation were provided free of charge to British Gas customers and new smart meters helped people monitor and manage their energy usage. We continue to pay particular care to the more vulnerable members of society.

As inflation increased and economic conditions became more difficult, energy companies found themselves the target of public criticism. British Gas, as the largest UK supplier, was at the forefront of the debate. The scale of price increases, driven by factors entirely beyond the control of the energy suppliers, were considered by much of the public to be unsupportable whatever the rationale for the increase.

It was for this reason that British Gas decided to embark on its 'honest conversation' campaign with customers in the late autumn.

The campaign sought to explain the factors that have given rise to increases in the energy bill, which are faced by all energy suppliers. We also reiterated Ofgem's findings that there is no collusion in the sector and our view that pre-tax profits averaging 6-7% through the cycle are both modest and necessary to sustain the multi-billion pound investment programme required to secure UK energy supplies and deliver energy efficiency. In parallel, British Gas led the way in tariff simplification.

There are signs that these actions are starting to resonate with the public and I hope that all commentators and the Regulator will take a more balanced view in the year to come.

We ended the year in the UK with the warmest last quarter on record which reduced consumption and meant that average customer bills for the year were lower than 2010, despite the higher unit prices. Inevitably, there was also an adverse impact on British Gas' profits.

The challenges in the UK were different from those faced in North America, where the increase in production of shale gas has dramatically reduced wholesale gas prices and unusual weather patterns also caused high volatility in electricity prices. A change in attitude to deregulation eroded our position in Ontario but we continued to increase market share and expanded our services business in the United States, while deploying our upstream capability to good effect.

In spite of everything, through a mixture of tenacity, innovation and endeavour, the management team, led by Sam Laidlaw, delivered a 3% increase in adjusted earnings which facilitated a further 8% increase in the full-year dividend to our shareholders of 15.4 pence per share.

Against that background, I am enormously grateful to all the employees of Centrica for their commitment, flexibility and considerable effort in a testing period. I also appreciate the continued support of our shareholders in an uncertain environment and the loyalty of our customers who we continue to serve with dedicated resolve, providing total service with a competitive edge.

During the course of the year, I have taken measures to refresh the Board, review its effectiveness and ensure continued achievement of the highest corporate standards.

Following the departure of Dame Helen Alexander, the Board will have a total of 12 directors of which five are Executive and six Non-Executive, in addition to myself as Chairman. The skill set of the Non-Executive Directors includes financial, consumer, marketing and upstream energy expertise. Non-Executive nationalities include British, Australian and Italian. Twenty-five per cent of the Board are women, with Non-Executive Directors, excluding the Chairman, being equally balanced between male and female.

The Executive Committee that operates one level beneath the Board has one female member and it is our ambition over time that both the Board and Executive Committee will have a more balanced executive gender mix.

Earlier in the year we confirmed our support for the recommendation made by Lord Davies following his review into Women on Boards which set an aspirational target of 25% of Board positions of FTSE 100 companies to be filled by women by 2015. Whilst it is our intention to maintain or exceed this ratio, we are, however, against the implementation of quotas. We recognise the benefits of greater diversity, not just gender specific, however, appointments within Centrica will continue to be made on merit.

Looking forward at our Board composition, our plan will be to reflect the increasing upstream content of our business mix with the recruitment of a Non-Executive Director who has both upstream and operating experience in North America. Longer term, we will seek to replace two further members of the Board who will complete their nine year term in 2013. According to circumstances at that time, we may choose to stagger their departure to ensure we retain appropriate corporate memory and a gradual infusion of new thinking.

Economic headwinds continue to prevail as we enter 2012 but I remain confident that the management are both appropriately skilled and suitably determined to meet the challenges that lie ahead. We are closely focused on delivering cost efficiencies, for the benefit of both our customers and our shareholders, while maintaining high levels of service and innovation. In parallel we will continue to invest for the future, driving long-term growth across the Group.

Sir Roger Carr
23 February 2012

Ensuring the business is
run the right way

Sound corporate
governance – the building blocks to ongoing success

The composition of the Board continues to evolve. Recently appointed members are already bringing new dynamics to the Board and, together with the existing Directors, have formed a diverse and dedicated team who take their responsibilities seriously.

Read more on our approach to Governance


In late 2010, we were pleased to recruit Ian Meakins, the CEO of Wolseley plc, to bring seasoned operational experience at the highest level to the Board. We subsequently appointed Margherita Della Valle, the Group Financial Controller of Vodafone Group Plc, with an invaluable history of both finance and consumer brand marketing in a world class business. The appointments proved to be excellent additions bringing both current operational experience and fresh perspectives to Board discussion.

In December 2011, after nine years, Dame Helen Alexander stepped down from the Board. Dame Helen made a material contribution to the Group, both as a Director and as Chairman of the Remuneration Committee, and will be much missed.

We were particularly fortunate, however, to recruit Lesley Knox, an experienced non-executive director and current Chairman of Alliance Trust Plc, to replace Dame Helen as both a Director and as Chairman of the Remuneration Committee with effect from 1 January 2012. Lesley brings a wealth of strategic and financial experience across a range of businesses which will help in the delivery of Centrica's strategic objectives.

Two male colleagues discussing business


Our Group-wide business principles create a framework to help us make decisions in line with a consistent set of operating behaviours based on trust, integrity and openness.

  1. Demonstrating integrity in corporate conduct.
  2. Ensuring openness and transparency.
  3. Respecting human rights.
  4. Enhancing customer experiences and business partnerships.
  5. Valuing our people.
  6. Focusing on health, safety and security.
  7. Protecting the environment.
  8. Investing in communities.

Our ongoing campaign to communicate these principles will help our employees, business partners and external audiences understand the standards we expect. For more information, go to www.centrica.com/businessprinciples

Earnings and operating profit numbers are stated, throughout the Annual Report, before depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and before exceptional items and certain re-measurements where applicable – see note 2 for definitions. In addition, all references to profit and loss are stated before share of joint venture and associate interest and tax. The Directors believe these measures assist with better understanding the underlying performance of the Group. The equivalent amounts after exceptional items and certain re-measurements are reconciled at Group level in the Group Income Statement. Exceptional items and certain re-measurements are described in note 7. Adjusted earnings and adjusted basic earnings per share are reconciled to their statutory equivalents in note 11. All current financial results listed are for the year ended 31 December 2011. All references to 'the prior period', 'the prior year', '2010' and 'last year' mean the year ended 31 December 2010 unless otherwise specified.