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  • Glossary

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    Glossary

    SYM

     $

    Refers to US dollars unless specified otherwise

     <1 year

    Less than 1 year

     >1 year

    Greater than 1 year

     2P

    Proven and probable

    A

     AFS

    Available-for-sale

     Associate

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

    B

     BCF

    Billion cubic feet

     bbl

    Barrels of oil

    C

     CER

    Certified emissions reduction (carbon emissions certificate)

     CERT

    Carbon emissions reduction target

     CGU

    Cash generating unit

     CPI

    Consumer Price Index

    E

     EBITDA

    Earnings before interest, tax, depreciation and amortisation

     EUA

    European Union allowance (carbon emissions certificate)

    F

     FSA

    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

     FVLCS

    Fair value less costs to sell

    G

     g CO2/kWh

    Grammes of carbon dioxide per kilowatt hour

     GFRMC

    Group Financial Risk Management Committee

     GWh

    Gigawatt hour

    I

     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)

     IFRS

    International Financial Reporting Standard

    J

     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

    L

     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

     LNG

    Liquefied natural gas

    M

     mmboe

    Million barrels of oil equivalent

     mmth

    Million therms

     MWh

    Megawatt hour

    N

     NBV

    Net book value

     NGO

    Non-governmental organisation

    P

     PP&E

    Property, plant and equipment

     PRT

    Petroleum revenue tax

    R

     ROC

    Renewable obligation certificate

     RPI

    Retail Price Index

    S

     Securities

    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

     SCT

    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

    V

     VAT

    Value added tax

     VIU

    Value in use

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The Board

Board of Directors

The Board believes that good corporate governance contributes to Centrica's performance. A clearly defined framework of roles, responsibilities and delegated authorities is in place and this supports the Board's aim to deliver sustainable growth for the benefit of shareholders, employees and customers. As evidenced by the recent independent Board evaluation, the Directors consider that the Board leads and controls the Group effectively, has a robust governance structure and that no individual or small group of individuals dominate the Board's decision-making.

The powers of the Directors are set out in the Company's Articles of Association (Articles), which are available on the Company's website. The Articles may be amended by special resolution. In addition, the Directors have responsibilities and duties under other legislation, in particular the Companies Act 2006.

The Board has a schedule of matters specifically reserved for its approval which it reviewed against best practice in July 2011 and approved minor changes. A summary is shown below and the full schedule is available for inspection on the Company's website.

The Board recognises that its Non-Executive Directors have other interests outside of Centrica and so, each year, the Chairman and each Non-Executive Director provide assurance to the Board that they remain fully committed to their respective roles. The Board considers these assurances and is satisfied that each can dedicate the necessary amount of time to attend to the Company's affairs.

The Board is responsible for:

  • development of strategy and major policies;
  • the Group's corporate governance and system of internal control;
  • reviewing performance;
  • approving interim dividend payments and recommending final dividend payments;
  • approval of the annual operating plan, financial statements and major acquisitions and disposals;
  • the Group's corporate responsibility arrangements including health, safety and environmental matters; and
  • the appointment and removal of Directors and the Company Secretary.
 

Board meetings

The Board holds regular scheduled meetings throughout the year and in 2011 there were eight scheduled meetings of the Board.

The Board continuously assesses and reviews key priorities and business issues for the Group over the short, medium and longer term. Comprehensive papers are presented to the Board which facilitates meaningful debate on the performance and future direction of the Company.

All Directors are expected to attend all Board and relevant Committee meetings. Details of attendance by Directors at Board and Committee meetings during 2011 are set out in the table below. Where a Director was not in attendance, this was due to other prior work commitments. Directors who were unable to attend specific Board or Committee meetings reviewed the relevant papers and provided their comments to the Chairman of the Board or Committee, as appropriate. In addition, any Director who misses a meeting will, as a matter of course, receive the minutes of that meeting for future reference.

    Committees  
  Board Audit Remuneration Nominations Corporate
Responsibility
Overall
Attendance (%)
  1. Margherita Della Valle joined the Corporate Responsibility Committee in September 2011 and attended one remaining Committee meeting of the year.
  2. Andrew Mackenzie attended one meeting of the Audit Committee before he stepped down as a member.
  3. Ian Meakins was not in attendance at some Board and Committee meetings during the year due to work commitments agreed prior to his appointment as a Director of the Company.
Number of meetings 8 4 5 4 3  
Sir Roger Carr 8   5 4   100%
Sam Laidlaw 8     4 3 100%
Dame Helen Alexander 8 3 5 4   95%
Phil Bentley 8       2 91%
Margherita Della Valle(i) 8 4 5 4 1 100%
Mary Francis 8 4 5 4 3 100%
Mark Hanafin 8         100%
Nick Luff 8         100%
Andrew Mackenzie(ii) 6 1 5 3 3 86%
Ian Meakins(iii) 5 3 4 2   67%
Paul Rayner 8 4 5 4   100%
Chris Weston 8       3 100%
 

As part of its responsibilities, the Board approves and monitors the development of the Group's strategy. In addition to the scheduled Board meetings, each year the Board holds a conference devoted specifically to strategy. In 2011, the Board conference focused on some of the key strategic issues facing Centrica, including:

  • growth opportunities within British Gas;
  • delivering value from the upstream business;
  • long-term growth in North America;
  • gas storage strategy;
  • political and regulatory risks; and
  • the Group's financial profile and controls.

Board constitution and appointments

The Board comprises a good balance of Executive Directors and independent Non-Executive Directors which promotes thorough consideration of the important issues facing Centrica and the Group's performance. The roles of Chairman and Chief Executive are separate, formalised in writing and have been approved by the Board. They are available on the Company's website, together with an explanation of the roles of the Non-Executive Directors.

As discussed in the Chairman's Statement, the Non-Executive Directors play a key governance role and bring an external view to the Board's deliberations through their knowledge, experience and insight from other sectors. As part of its annual review of corporate governance, the Board considered the independence of each Non-Executive Director, other than the Chairman, against the criteria in the Code and determined that each Non-Executive Director remained independent. During the year the Non-Executive Directors, including the Chairman, met independently of management. In addition, the Senior Independent Director met with the independent Non-Executive Directors in the absence of the Chairman to appraise the Chairman's performance.

A formal, rigorous and transparent process is followed during the selection and subsequent appointment of new Directors to the Board. This process is described in the section on the Nominations Committee. Recent changes to the composition of the Board are set out in the table below:

Dame Helen Alexander Non-Executive Director Resigned 31 December 2011
Lesley Knox Non-Executive Director Appointed 1 January 2012

The Companies Act 2006 and the Articles require the Board to consider any potential conflicts of interests. The Board considers and, if appropriate, authorises each Director's reported actual and potential conflicts of interest regularly. The conflicts of interest register was reviewed by the Board four times during 2011. Each Director abstained from approving their own reported conflicts.

The Board has agreed that each Director shall stand for re-appointment at each Annual General Meeting (AGM).

Details of the Directors of the Company, including their biographies and their Board Committee memberships, are set out in Board of Directors and Senior Executives. Details of Directors' service contracts or letters of appointment, in the case of Non-Executive Directors, emoluments and share interests are set out in the Remuneration Report.

Directors' indemnities and insurance

In accordance with the Articles, the Company has granted a deed of indemnity, to the extent permitted by law, to Directors and the General Counsel & Company Secretary. Qualifying third party indemnity provisions (as defined by section 234 of the Companies Act 2006) were in force during the year ended 31 December 2011 and remain in force. The Company also maintains directors' and officers' liability insurance for its Directors and Officers.

Board Performance

Board evaluation

The Board considers the annual review of the Board, its Committees and Directors as an essential part of good corporate housekeeping, with the use of an external facilitator at least once every three years. During Sir Roger's time as Chairman, the Company has employed JCA Group and Egon Zehnder on two occasions and this year, Independent Board Evaluations (IBE) to bring a fresh pair of eyes to the appraisal. IBE have no other connections with the Company. On each occasion, the Board has received positive reports and has adopted recommendations to improve Board, Committee and individual director performance. This year, IBE observed a Board meeting as well as meetings of the Audit and Nominations Committees and conducted face-to-face interviews with each of the Directors to get a detailed understanding of how well the Board operates. The scope of the evaluation was to assess how well the Board and its Committees operated as a unit and individually. The evaluation covered key governance areas such as shareholder accountability, strategy, risk management, Board composition and succession planning and Board culture and decision-making. A comprehensive analysis was then presented to the Board. For 2011, the findings continued to be positive and recommendations were aimed at 'making a good board great'. These suggestions included making more time in regular Board meetings for strategic debate and encouraging Executive Directors to speak more often outside their areas of specific expertise. The Board and each of its Committees have already started to make progress against the findings and the Board will conduct a review against these objectives at the mid-year.

During 2011, the Board progressed the issues identified in the 2010 internal evaluation, summarised in last year's Annual Report, through both the regular Board and Committee meetings and as part of the annual Board strategy conference.

Board development

All new Directors appointed to the Board receive a comprehensive induction programme tailored to meet their individual needs. The Chairman and General Counsel & Company Secretary are responsible for delivering an effective induction programme for newly appointed Directors.

Lesley Knox, recently appointed to the Board, discussed with the General Counsel & Company Secretary what briefings and meetings would most be of benefit to her to ensure an effective induction. As a result, an induction programme has been specifically tailored for Lesley Knox to include briefings from members of the Executive Team on key areas of the business including the internal audit function, an overview of the Group's risk management processes, the key risks facing the business and a briefing in respect of the corporate governance framework within Centrica. Lesley was also provided with recent broker reports on the Company. In addition, and as a key part of her induction, Lesley attended the annual Board strategy conference held at the end of October 2011 and an investor day for institutional investors and analysts held in December 2011 which focused on Centrica Energy.

Ongoing development and training is also provided to all Directors at Board and Committee meetings. During the year, Directors received regular updates and presentations on changes and developments to the business and to the legislative and regulatory environments in which the Group operates. In particular, the Board was briefed on the following key issues during 2011:

  • the competitive landscape and market conditions for energy prices;
  • the legal and regulatory changes and their impact on the industry;
  • the consequences on the industry following the natural disasters in Japan and the subsequent Fukushima nuclear incident;
  • health, safety and environmental strategy and governance;
  • the UK power generation market;
  • customer insight;
  • the corporate responsibility strategy;
  • acquisitions and investments; and
  • corporate governance developments.

In addition, the Directors visited Direct Energy's offices in Houston in March 2011 for presentations on the North American environment, management priorities, performance, outlook and strategy and to undertake site visits.

The Directors have full access to the advice and services of the General Counsel & Company Secretary, who is responsible for advising the Board through the Chairman on corporate governance matters. They are also able to seek independent professional advice at the Company's expense in respect of their duties.