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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

    Search glossary

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Other Governance Information

The Board recognises and values the importance of maintaining an effective investor relations and communication programme. The Board is proactive in obtaining an understanding of shareholder views on a number of key matters affecting the Group and receives formal investor feedback regularly.

During 2011, Centrica hosted three investor days, focusing on the Group's strategy, objectives and operational progress for each of Direct Energy, British Gas and Centrica Energy. Attended by both Executive and Non-Executive Directors, the presentations were made to institutional investors and analysts, including representatives of many of the Group's largest shareholders. The presentation materials are also available on the Company's website.

The Chief Executive and Group Finance Director also held regular meetings with the Company's major shareholders during the year. The Chairman and the Senior Independent Director attended the meetings at which the annual and interim results were presented to major investors and analysts. The Chairman continues to meet major institutional shareholders regularly in order to gain a first-hand understanding of their concerns and key issues and provides regular updates to the Board. In addition, the Board receives annually an Investor Perception Survey which covers strategy, management, investment approach, valuation, business performance and balance sheet management.

The Company's AGM provides all shareholders with the opportunity to develop further their understanding of the Company. Shareholders can ask questions of the full Board on the matters put to the meeting, including the Annual Report and the running of the Company generally. The Company intends to send to shareholders the Notice of AGM and any related papers at least 20 working days before the meeting. All Directors are invited to attend each AGM. At the AGM, the Chairman and the Chief Executive present a review of the Group's business. A poll is conducted on each resolution at all Company general meetings. All shareholders also have the opportunity to cast their votes in respect of proposed resolutions by proxy, either electronically or by post. Following the AGM, the voting results for each resolution are published and are available on the Company's website.

Mary Francis, the Senior Independent Director, is available to shareholders if they have concerns that contact through the normal channels has either failed to resolve or is deemed inappropriate.

Centrica's website contains up-to-date information for shareholders and other interested parties including Annual Reports, shareholder circulars, share price information, news releases, presentations to the investment community and information on shareholder services.

The Board is responsible for the Group's system of internal control and risk management and considers this to be fundamental to the achievement of the Group's strategic objectives.

The diagram on the right shows some of the key elements in the governance, risk and control framework by which Centrica's operations are conducted. The work of the Board and its Committees are at the heart of the process. The Board and its Committees set objectives, performance targets and policies designed to achieve a balanced and transparent assessment of the risks facing the Group's operations and to measure the effectiveness of the key controls in place to manage them. The work of the Board is underpinned by clear delegations of authority, effective policies and procedures covering key areas of Group operation together with a set of business principles and processes which are communicated to Centrica's staff.

In addition, mechanisms are in place to ensure that both strategic and operational risks are identified and assessed and that the controls designed to manage such risks are operating effectively. These mechanisms are reinforced through regular performance management and business reviews.

Lastly, it is important that the effectiveness of the framework is assessed impartially. There is, therefore, a programme of independent reviews by the internal audit function which is designed to cover the key processes and risks.

As with any such system, the processes are designed to manage rather than eliminate the risk of failure to achieve the objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss.

Details of the Group's principal risks and uncertainties are set out in the Business Review.

2011 developments

Centrica took a number of steps to improve the risk reporting process in 2011 and reinforce the linkage between risk and controls. These included:

  • reporting of risks and audit activity against the risk themes;
  • upgrade of the Group's risk assessment matrices;
  • introduction of new red/amber/yellow/green controls guidance;
  • endorsement of the updated business risk policy and standards; and
  • increased focus on tracking of mitigating actions.

Centrica believes that the above steps will help maintain good governance for the business going forward.

Governance, risk and control framework

Segment diagram (Inner to Outer): Level 1: Board and Committees; Level 2: Delegated authority, People and values, Policies and procedures; Level 3: Risk assessment, Control activities; Level 4: Strategic planning, Performance management; Level 5: Interal Audit


Group risk governance structure

Group Risk Management Committee

The Group Risk Management Committee (GRMC) plays a pivotal role in the governance of risks. Each of Centrica's business units has a Business Risk Management Committee or equivalent management committee whose role is to evaluate, report and advise on material risks and to consider the adequacy of controls and the actions planned to mitigate those risks. The most material risks are then reported to the GRMC so that it has a clear understanding of Centrica's aggregate risk profile and can ensure that control processes are in place for the monitoring and management of significant risks. During 2011, the GRMC was chaired by the Group Finance Director and membership included senior management covering business units and corporate functions. The GRMC met four times in 2011. Recent changes to the governance of the GRMC for 2012 mean that the Committee is now chaired by the Group Chief Executive and the membership reflects that of the Executive Committee.

Group Financial Risk Management Committee

A separate specialised process to manage financial risks is also required to achieve adequate levels of control. The role of the Group Financial Risk Management Committee (GFRMC) is therefore to focus specifically on financial risks as part of the overall risk management profile.

Additional monitoring of the Group's financial risks (market, credit and liquidity risks) is performed by local Financial Risk Management Committees covering Europe and North America. Material financial risk exposures are then reported to the GFRMC for consideration. The GFRMC also monitors the design and implementation of financial risk policies and compliance with Group-wide financial risk limits and appetite. Quarterly overviews of the GFRMC's activities are provided to the GRMC.

The GFRMC is chaired by the Group Finance Director and membership comprises senior finance and risk personnel. The Committee met 11 times in 2011, plus one special meeting to discuss Direct Energy's options strategy. Further details of the Group's Financial Risk Management are provided in note S3 to the Financial Statements.

Centrica Controls Board

The Centrica Controls Board, whose members are the Group Finance Director, the Director of Corporate Finance, the Head of Audit & Risk and finance directors for each business unit, is responsible for ensuring that appropriate internal controls are in place over key operational and financial reporting processes and related IT systems. During 2011, the Controls Board also reviewed the controls strategy for the Group.

The responsibilities of the Centrica Controls Board are discharged through the Centrica Controls Steering Group (CCSG) and the Information Risk Steering Group (IRSG).

The CCSG monitors the risks and associated controls over financial reporting processes, including the process by which Centrica's Group Financial Statements are prepared for publication (the consolidation process). The financial reporting controls are monitored and maintained through the use of internal control frameworks which address key financial reporting risks, including risks arising from changes in the business or accounting standards. Effectiveness is assessed through quarterly self-certification and independent testing of the controls. The CCSG met twice during 2011 and is chaired by the Head of Information Risk.

The IRSG monitors the Group's information systems control environment, providing robust challenge to the business units to ensure that information systems' risk management remains effective and appropriate for the Group. It is also responsible for monitoring the progress of key information security projects. The IRSG met twice during 2011 and is chaired by the Chief Information Officer.

Executive Committee and Audit Committee

The Group's material risks are also reported to the Executive Committee which regularly undertakes in depth reviews of specific risks as appropriate.

At each of its meetings in 2011 the Audit Committee received a Group risk report, which provided an assessment of the key risks facing the Company and the adequacy of the associated controls. In addition, the Audit Committee assessed the activity of the Group internal audit function including details of findings from reviews conducted against a plan which is approved annually by the Audit Committee. These reports, supplemented by management presentations and discussion with the Audit Committee, enable it to track issues, monitor performance and ensure that necessary actions are taken to remedy any significant failings or weaknesses identified.

The Company is also aware that the integrity and reputation of the Company's public financial reporting is of utmost importance. In addition to the controls described above, there are a number of further processes and steps to provide assurance over the completeness and accuracy of Centrica's public financial reporting, including:

  • review by members of the Executive Committee;
  • verification exercises;
  • review and recommendation by the Audit Committee; and
  • review and approval by the Board.

Centrica Storage and other Group companies

Centrica Storage Limited, which is subject to undertakings given to the Secretary of State for Business, Innovation & Skills, operates separately but to the same standards of internal control and risk management as the rest of the Group. The internal control and risk management processes of newly-acquired companies are also integrated with those of the Group.

The Board's review of the system of internal control

Each year, an extensive process of self-certification operates throughout the Group whereby the effectiveness of internal controls and compliance with Group business principles and policies are assessed. In 2011, the self-certification was completed both at the half year and full year. The results of the annual process, together with the conclusions of the internal reviews by Internal Audit, inform the annual assessment performed by the Audit Committee.

The Board, with the advice of the Audit Committee, has reviewed the effectiveness of the system of internal control, for the period from 1 January 2011 to the date of this report, and is satisfied that the Group complies with the Turnbull Guidance. The Board will continue routinely to challenge management in order to ensure that the system of internal control is constantly improving and remains fit for purpose.

Group risk governance structure

Diagram showing key elements of Centrica's risk governance structure

After making enquiries, the Board has a reasonable expectation that the parent company and the Group as a whole has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Board continues to adopt the going concern basis in preparing the Financial Statements. Further details of the Group's liquidity position and going concern review are provided in note 25 of the Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the parent company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to:

  • select suitable accounting policies and then apply them consistently;
  • make judgements and accounting estimates that are reasonable and prudent;
  • state whether IFRS as adopted by the EU and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company Financial Statements respectively; and
  • prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Furthermore, the Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed in Board of Directors and Senior Executives confirm that, to the best of their knowledge the Group Financial Statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group. In addition, they confirm that the Directors' Report comprising the Chairman's Statement, the Business Review, the Board of Directors and Senior Executives, the Corporate Governance Report, the Remuneration Report and the Other Statutory Information includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Each of the Directors who held office at the date of approval of this Directors' Report confirm that so far as they are aware, there is no relevant audit information of which the Company's auditors are unaware; and that they have taken all steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

PwC have expressed their willingness to be re-appointed as auditors of the Company. Upon the recommendation of the Audit Committee, separate resolutions to re-appoint them as the Company's auditors and to authorise the Directors to determine their remuneration will be proposed at the forthcoming AGM.

The Directors' Report comprising the Chairman's Statement, the Business Review, the Board of Directors and Senior Executives, the Corporate Governance Report, the Remuneration Report and the Other Statutory Information includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces and has been approved by the Board and signed on its behalf by:

Grant Dawson
General Counsel & Company Secretary
23 February 2012

Registered office:

Maidenhead Road
Berkshire SL4 5GD

Company registered in England and Wales No. 3033654