Further to the release of the Company's preliminary results announcement on 23 February 2017, the Company announces that it has today published its Annual Report and Accounts 2016 (Annual Report 2016).
The Company also announces that on 20 March 2017 it posted to shareholders the Notice of Annual General Meeting to be held at 2.00pm on Monday 8 May 2017 at the QEII Conference Centre, Broad Sanctuary, Westminster, London, SW1P 3EE.
In accordance with Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism:
- Annual Report and Accounts 2016
- Annual Review 2016
- Notice of Annual General Meeting 2017
The above documents are also available at centrica.com/ar16.
This information should be read in conjunction with the Company’s preliminary results announcement. A condensed set of the Company’s financial statements and information on important events that have occurred during the financial year and their impact on the financial statements, were included in the preliminary results announcement released on 23 February 2017. That information, together with the information set out below, which is extracted from the Annual Report 2016, is provided in accordance with the Disclosure and Transparency Rule 6.3.5, which requires it to be communicated to the media in full unedited text through a Regulatory Information Service. This announcement is not a substitute for reading the full Annual Report 2016. Page and note references in the text below refer to page numbers and note numbers in the Annual Report 2016.
Our Principal Risks and Uncertainties
Managing our risks and uncertainties is key to achieving our priorities.
In line with our strategy we are concentrating more investment on our customer-facing businesses organised into the two global customer-facing divisions of Centrica Consumer and Centrica Business. We are focused on delivering high levels of customer service, improving customer engagement and loyalty, and developing innovative products, offers and solutions for both residential and business customers, underpinned by investment in technology. Our asset businesses of Exploration and Production and Centrica Storage continue to play an important role in our portfolio providing cash flow diversity and balance sheet strength.
Our activities for near-term implementation and delivery of our strategy are framed around the five priorities below. These priorities are a lens through which we assess our risks and discussions around risk appetite. Each priority has associated risks, which are managed as part of our overall system of risk management and internal control.
Our five priorities
- Safety, compliance and conduct
- Customer satisfaction and operational excellence
- Cash flow growth and strategic momentum
- Cost efficiency and simplification
- People and building capability
Managing the Risks to the Delivery of our Priorities
Risk management is fundamental to the way the Group is governed and managed. Our system of risk management and internal control comprises the following elements that are assessed for effectiveness annually:
- Business Principles: sets our expected behaviours across the organisation.
- Enterprise Risk Framework: incorporates the principal risks within the Group Risk Universe, as outlined below.
- Board and Committees’ governance: committees are structured to be aligned with the Principal Risks identified, as outlined below.
- Executive management oversight: establishing appropriate executive processes to ensure appropriate planning and performance management.
- Operational management accountability and certification: represents the first line accountability for the risk and control environment.
- Delegations of Authority: structure within which accountability is delegated through the organisation in accordance with identified risk appetite.
- Management systems: the detailed Policies, Standards and Procedures establishing the requirement for process level controls that are monitored throughout the organisation.
- Assurance providers: second and third line assurance provided to ensure that Policies, Standards and Procedures are being followed and that risks are being mitigated in line with risk appetite.
The Group’s strategic review in 2015 and its implementation in 2016 highlighted emerging risks and provided an opportunity to simplify and standardise how significant risks are managed. We have identified the differing nature of our risks including:
- Risks that require standards where our tolerance for error is generally very low. This will include Health, Safety, Environment and Security, Legal and Regulatory Compliance, Financial Processing and Reporting, Information Systems and Data Security, and Ethical and Behavioural Standards. For these risks there will be management systems providing clearly prescribed standards with ring-fenced functional monitoring and assurance.
- Risks where judgement is required within a range of acceptable outcomes in order to deliver our priorities. This includes areas where we need to take a certain level of risk such as in commodity trading and our investment in the growth areas of the business.
- Risks resulting from external factors where we have limited influence over their occurrence, but can influence the impact on our business through our actions.
Assessing our Principal Risks in 2016
As in previous years we identified and assessed our risks within the categories of Principal Risk overleaf to ensure appropriate mitigating activities. During 2016 the risks that were prioritised for leadership attention, and those that had most significant impact in our assessment of the future viability of the organisation, particularly related to:
- ensuring we deliver a safe and compliant operating environment in all respects;
- our strategic transformation and its impact on our people;
- the changing political environment, and the potential for further intervention, including Brexit;
- the evolving regulatory requirements, particularly the outcome of the Competition and Markets Authority (CMA) investigation;
- ongoing volatility in the commodity market with its impact on pricing; and
- our commitment to our growth businesses and excellence in customer service.
We align our assessment of the extent of risk we wish to take with our priorities and express our risk appetite in relation to these priorities. For example, in relation to ensuring we have a safe and compliant operating environment our appetite is very low, whereas we are prepared to take risks in relation to delivering our growth objectives.
The Principal Risks, and their related components, are allocated oversight through the Board and its Committees as indicated overleaf. The table also provides an indication of the risk mitigation strategy for each risk category, reflecting our appetite for risk, and our view on changes in the risk climate compared with 2015.
The Board retains overall non-executive responsibility for risk across the Group. With the exception of certain risks that the Board reserves to itself, oversight of specific Principal Risks contained within the Group Risk Universe are delegated by the Board to one or more of its Committees. The table below summarises each Principal Risk with reference to oversight by the Board or its Committee, its risk climate and the associated priority.
| Description | Potential impacts | Mitigation |
1 | Strategy delivery Failure to deliver Centrica strategy. Governance oversight Board Risk climate - unchanged Priority Cash flow growth and strategic momentum | Following the conclusion of the strategic review, the delivery of our future strategy will involve growth in a number of business areas, implementing substantial
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2 | External market Changes and events in the external market or environment that could impact delivery of Centrica’s strategy. Governance oversight Board Risk climate - increased Priority Cash flow growth and strategic momentum | Customer behaviour and demand can change due to improved energy efficiency, climate change, government initiatives, long-term weather patterns and the general economic outlook. In addition we face competition in our upstream businesses in uncertain commodity markets and we must respond appropriately.
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3 | Political and regulatory intervention Changes, intervention or a failure to influence change to the political or regulatory landscape. Governance oversight Board Risk climate - increased Priority Cash flow growth and strategic momentum | We are subject to oversight from various political and regulatory bodies in the UK, Republic of Ireland, US, Canada and elsewhere. These bodies set and oversee the terms of our licences and the conduct of our operations. In particular at present, as a consequence of the UK’s decision to exit the European Union and wider political changes in the markets we operate in, risks relating to changing policies in relation to energy markets and carbon emissions are recognised.
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4 | Brand, trust and reputation Competitive positioning and protection of the Centrica and subsidiary brands. Governance oversight Board Risk climate - unchanged Priority Customer satisfaction and operational excellence | Our primary focus is to serve our customers and satisfy their changing needs in all of the markets we operate in. We also actively manage our brands and reputation, in order to protect and develop our competitive position amongst a wide range of stakeholders.
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5 | Business planning, forecasting and performance Business planning, forecasting, risk management and achievement of anticipated benefits. Governance oversight Board Risk climate - unchanged Priority
Cash flow growth and strategic momentum | We prioritise how we use our resources based on our business plans and forecasts. Failure to accurately plan and forecast taking into account the changing business environment could result in suboptimal decisions and failure to realise anticipated benefits.
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6 | Customer service Failure to provide good quality customer service through the customer lifecycle. Governance oversight Board Risk climate - Reduced in some parts of the business, but unchanged in others Priority Customer satisfaction and operational | The delivery of high quality customer service is central to our business strategy. With the entry of new competitors to the market, customers are increasingly likely to switch supplier if they face an unacceptable customer experience. Remaining at the forefront of digital developments and innovating to provide choice and control for our customers is critical.
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7 | People Attraction, retention, and succession of the right people with the right skills in the right role at the right time. Governance oversight Board and Safety, Health, Environment, Security and Ethics Committee Risk climate - increased Priority People and | The attraction, retention, development and motivation of our people and leaders are critical factors in the successful execution of our strategy. In addition, we require the right behaviours from our leaders and employees to deliver our business strategy in accordance with our values and Business Principles.
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8 | Change management Execution of change programmes and business Governance oversight Board Risk climate - increased Priority Cost efficiency and simplification
| The successful delivery of business change is fundamental to our future success, and includes organisational, cultural and technical transformation. At the same time, we must continue to focus on maintaining our systems of internal control throughout.
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9 | Asset development, availability and performance Investment, development and integrity of operated and non-operated assets. Governance oversight Board Risk climate - unchanged Priority Customer satisfaction and operational
| Failure to invest in the maintenance and development of our assets could result in underperformance, assets being out of service or significant safety issues, particularly given the aging nature of a number of our assets. Operational integrity is critical to be able to deliver performance in line with the strategic objectives.
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10 | Sourcing and supplier management Dependency on, and management of, third parties to deliver the products and services for which they are contracted to the agreed time, cost and quality. Governance oversight Board and Safety, Health, Environment, Security and Ethics Committee Risk climate - unchanged Priority Customer satisfaction and
| Our business operations rely on products and services provided through third parties, including outsourced activities, infrastructure and operating responsibility for some assets. We rely on these parties to comply with not only contractual terms, but also legal, regulatory and ethical business requirements.
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11 | Health, safety, environment and security (HSES) HSES hazards and regulations associated with Governance oversight Board and Safety, Health, Environment, Security and Ethics Committee Risk climate - unchanged Priority Safety, compliance and conduct
| Our operations have the potential to result in personal or environmental harm, or operational loss. Significant HSES events could also have regulatory, legal, financial and reputational impacts that would adversely affect some or all of our brands and businesses.
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12 | Information systems and security Effectiveness, availability, integrity and security of IT systems and data essential for Centrica’s operations. Governance oversight Board, Audit Committee and Safety, Health, Risk c |