Centrica PLC — Annual Report 2019

Dec 31, 2019

Satisfying the changing needs of our customers Enabling the transition to a lower carbon future

Group Snapshot

Centrica plc is a leading international energy services and solutions provider focused on satisfying the changing needs of our customers and enabling the transition to a lower carbon future.

The world of energy is changing rapidly and Centrica is now equipped to help customers transition to a lower carbon future, with capabilities and technologies to allow them to reduce their emissions. Therefore, we announced in July 2019 our intention to complete the shift towards the customer, by exiting oil and gas production.

The Company's two customer-facing divisions, Centrica Consumer and Centrica Business, are focused on their strengths of energy supply and its optimisation, and on services and solutions, with a continued strong focus on delivering high levels of customer service. Centrica is well placed to deliver for our customers, our shareholders and for society. We aim to be a good corporate citizen and an employer of choice.

Technology is increasingly important in the delivery of energy and services to our customers. We are developing innovative products, offers and solutions, underpinned by investment in technology.

We are targeting significant cost efficiency savings by 2022 to position Centrica as the lowest cost provider in its markets, consistent with our chosen brand positioning and propositions. Alongside our distinctive positions and capabilities, this will be a key enabler as we target delivering growth in adjusted earnings, cash flow and the dividend over the medium term.

Explore online Visit our website to find out more: centrica.com/ar19

Unless otherwise stated, all references to the Company shall mean Centrica plc; references to the Group shall mean Centrica plc and all of its subsidiary entities; 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 Financial Review on pages 29 to 33. See also notes 2, 4 and 10 to the Financial Statements on pages 122, 125 to 128 and 138 in the Annual Report and Accounts 2019, for further details of these adjusted performance measures. In addition see pages 223 to 224 in the Annual Report and Accounts 2019 for an explanation and reconciliation of other adjusted performance measures used within this document.

Everything we do is focused on satisfying the needs of our customers.

Centrica Consumer

Centrica Consumer is focused on three areas, Energy Supply, In-Home Servicing and Home Solutions.

20

Centrica Business

Centrica Business is focused on three areas, Energy Supply, Energy Optimisation and Business Services & Solutions.

24

Upstream

Our Upstream division consists of our Exploration & Production (E&P) and Nuclear power generation businesses.

Strategic Report

• 2 Centrica at a Glance
• 4 Chairman's Statement
• 6 Group Chief Executive's statement
• 12 Our Strategy
• 14 Our Business Model
• 16 Stakeholder Engagement
• 18 Key Performance Indicators
• 20 Divisional Review:
• Centrica Consumer
• Centrica Business
• Upstream
• 29 Group Financial Review
• 34 Our Principal Risks and Uncertainties
• 46 A Pathway to Net Zero
• 48 Delivering our Responsible Business Ambitions
  • Non-Financial Reporting Statement

Governance

• 55 Summary Directors' and Corporate Governance Report
• 68 Summary Remuneration Report

Financial Statements

• 73 Independent Auditor's Statement
• 74 Summary Financial Statements

Other Information

• 76 Shareholder Information
• 77 Glossary

Centrica at a Glance

Our purpose

We are an energy services and solutions company, focused on satisfying the changing needs of our customers, enabling the transition to a lower carbon future.

• › '21st Century Energy Services and Solutions company'
• › Delivering long-term shareholder value through returns and cash flow growth
• › Trusted corporate citizen
• › Employer of choice

Group highlights

Total recordable injury frequency rate (per 200,000 hours worked) Internal carbon footprint (tCOe2e) DATA TO BE UPDATED ²⁰¹⁹ 1.06 2018 1.02 2019 55,145†

Centrica Consumer total customers ('000)

2019	12,512 DATA TO BE UPDATED
2018	12,518

2018 66,5664

Centrica Business total customers ('000)

2019	512
2018	503

Total customer energy consumption (TWh)

Group Operational Performance Group Financial Summary (Year ended 31 December 2019)

£22.7bn 9% 2018: £23.3bn(2) 3% 2018: 13% 4ppt

Adjusted operating profit(3) Statutory operating loss

Adjusted earnings attributable to shareholders(3)

Adjusted basic earnings per share (EPS)(3) Statutory basic earnings per share (EPS)

2018: 11.2p 35% 2018: 3.3p

Adjusted operating cash flow(3) Statutory net cash flow

£1,830m £1,250m

(1) Direct Group headcount excludes contractors, agency and outsourced staff.

• (2) Restated for presentation of energy derivatives. See note 1 to the Financial Statements.
• (3) See notes 2, 4 and 10 to the Financial Statements for definition and reconciliation of these measures.

(4) Restated mainly due to organisational changes which included divestments.

† We engaged PricewaterhouseCoopers (PwC) to undertake a limited assurance engagement over 6 metrics highlighted with the symbol '†' throughout the Annual Report and Accounts 2019. See page 225 in the Annual Report and Accounts 2019 or centrica.com/assurance for more details.

Group revenue Return on average capital employed (ROACE) (3)

£901m £(849)m 2018: £1,392m 35% 2018: £987m profit

Statutory loss for the year attributable to shareholders

£419m £(1,023)m 2018: £631m 34% 2018: £183m profit

7.3p (17.8)p

from operating activities

2018: £2,245m 18% 2018: £1,934m 35%

Group net debt Net exceptional charge after taxation included in statutory loss

Read more about our Key Performance Indicators Pages 18 to 19

The Group has redefined its operating segments during the year to reflect the way in which the business is now organised. Operating segments are now defined as Centrica Consumer, Centrica Business and Upstream. The revised operating segments incorporate similar products and services, as well as the major factors that influence the performance of these products and services, such as regulatory environments within Centrica Consumer, and access to commodity markets and trading counterparties within Centrica Business, across different geographical locations in which the Group operates. Further information on the operating segments of the Group is shown at note 4 on page 125 in the Annual Report and Accounts 2019.

Centrica Consumer

Centrica Business

UK Home

Supplying competitive and reliable energy to residential customers in the UK, and providing innovative services and solutions that help to keep their homes warm and working.

Ireland

Supplying competitive and reliable energy and energy services to residential and business customers across Ireland.

North America Home

Supplying competitive and reliable energy and providing home services to customers in North America.

UK Business

Supplying energy and services to a diverse range of business customers in the UK, using a variety of products tailored to meet their differing needs and help them more effectively manage their energy consumption and costs.

North America Business

Supplying competitive and reliable electricity and natural gas and energy services to retail and wholesale customers across North America.

Centrica Home Solutions

Providing smart home products and end-to-end solutions centred around energy for households in the UK & Ireland, including offers around Home Energy Management and Electric Vehicle Integration.

Read more about Centrica Consumer on Pages 20 to 23

Providing end-to-end design, installation, maintenance and service solutions including optimisation and covering a wide and expanding range of energy technologies helping our customers transition to a lower carbon future.

Energy Marketing & Trading

Providing risk management and wholesale market access for the Group, building on strong cross-commodity trading capabilities and a global presence in LNG.

Read more about Centrica Business on Pages 24 to 26

Spirit Energy

Producing around 50 million BOE (barrels of oil equivalent) a year, focused on the North Sea (the UK, the Netherlands, Norway and Denmark). We intend to exit our interests in Spirit Energy by the end of 2020.

Centrica Storage

Operating the Rough gas field in the UK North Sea, which has been converted from a storage asset to a producing asset before decommissioning.

Nuclear

Generating power from our 20% interest in eight nuclear power stations in the UK.

Read more about Upstream on Pages 27 to 28

Chairman's Statement

It is no coincidence that the primary focus of businesses that are successful in adapting to change lies in responding promptly to the demands of their markets and, specifically, serving the needs of their customers. Centrica is increasingly well positioned to help people in their homes and businesses to do what they need to tackle the climate change challenge and contribute to a lower carbon future."

Charles Berry Chairman

In my statement last year, I described taking on the Chairmanship of Centrica as a special privilege, given my interest in the Company from my long career in the energy industry. I recognise that Centrica has faced very challenging external circumstances in recent years and that this has been reflected in the shareholder experience. I also realise that I have stepped into the chair at a time of extraordinary and unprecedented structural change in the energy industry, with the global challenge of climate change facing us. But that is one of the reasons I am confident about Centrica's future and in the underlying strength of our business.

The external environment is constantly evolving and businesses must be prepared to respond. It is no coincidence that the primary focus of businesses that are successful in adapting to change lies in responding promptly to the demands of their markets and, specifically, serving the needs of their customers. Centrica is increasingly well positioned to help people in their homes and businesses to do what they need to tackle this challenge and contribute to a lower carbon future.

For homes, we have strong trusted brands in the UK, Ireland and North America serving approximately 12 million households. In the UK, British Gas has nearly 8,000 highly trusted engineers and technicians, a unique asset we can leverage to help our customers fulfil their energy needs. Their role is also becoming about much more than servicing boilers, vital though that remains. We now have the platform which enables us to provide customers with a range of new offers, such as installing electric vehicle charge points or giving them more control over the energy systems in their homes.

In serving businesses we have a strong position, supplying energy to nearly 1.2 million customer sites in the UK and North America. And Centrica Business Solutions offers services and solutions which play directly into the demand side of the energy transition. By offering a range of sustainable energy solutions in addition to energy supply – from monitoring and analysis of consumption patterns to on-site solar and combined heat and power generation – we can help our industrial customers become more cost efficient while lowering their carbon footprint. We also assist in providing flexibility services which enable electricity grids to be more efficient and reduce the requirement for centralised power generation.

In our customer-facing businesses, we are building upon our legacy and establishing a strong platform for the long term. Our long-term purpose is to provide energy and services to satisfy the changing needs of our customers and enable the transition to a lower carbon future. We have the potential to achieve that. But, in order to make sure that there will be a long term, we must secure the short term.

Creating momentum in 2019

After I took over the chairmanship, faced with some very challenging external circumstances, we took the opportunity at our March Board meeting, as a refreshed team, to stand back and review the business and probe areas where we felt there were particular challenges. The Board as a whole worked through those in discussion with the executive team, culminating in our strategic update in July.

In this we re-affirmed our strategic direction back towards the customer and our desire to exit nuclear – at the right time and in the right way. We announced our intention to sell our stake in the Exploration & Production business, Spirit Energy. This has nothing to do with the quality of Spirit as a business. But our journey is back towards the customer. If we want to embrace our strengths and the challenges of climate change with credibility and rigour, as well as contributing in areas where we can make a real difference, we need to focus on the customer and leave behind exploration and production activities. We also announced ongoing efficiencies, with an ambition to be right at the efficiency frontier. This is key to securing the future in the face of intense competition.

The final step, and I am very aware of the impact on shareholders of this decision, was to reduce the dividend per share from 12p to 5p. We did this reluctantly. But given the external environment and where the Company is going it was vital to make that reset, to achieve a position where we feel the Company will be sustainable and robust in the future.

Our people

So, as we continue to reposition the Company, I believe we are beginning to demonstrate the potential for a recovery in our fortunes. But I recognise that the short term remains painful and I'm very aware of the impact that has on our colleagues. Many of those affected by the ongoing reduction in roles have been with us for a long time and have helped to create the brand and develop the Company. That's why as Chairman I wanted the Board to get closer to our people.

In September we held a Board meeting in Stockport, where our UK home services operation is based, for the first time. It was fantastic for us to listen to our colleagues talking about what they have achieved and what they care about despite the changes they are facing.

I also visited our contact centre in Greater Manchester and listened to our team there looking after vulnerable customers. I continue to marvel at the skill and the professionalism with which they interact on sensitive issues, such as household income, and find ways to support our customers and advise them on government grants and other help available. When I was there, colleagues had just been told that they would be affected by changes in the business. But you wouldn't have noticed it from the way they spoke and interacted with customers on the phone.

These are the things that make the brand. These are things that we do which many of our smaller competitors do not. Simply put, in any business, it always comes down to people in the end. What makes the real difference is people. A brand is only as good as the service that people deliver when they're associated with that name.

Stakeholder engagement

All organisations today must place a much greater emphasis on their purpose, what they stand for and their impact on all stakeholders, including shareholders. A responsible company must think about its impact on the environment, on its employees and on wider society.

There is an increasing focus from fund managers on environmental, social and governance performance. In these areas we are consistently among the top quartile of UK

companies. We have been identified as a world leader for strategic action and disclosure on climate change by CDP, an international NGO reporting to investors, achieving a place on its prestigious 'A List', based on our reporting on this area in 2019.

We are also continuing to actively engage with politicians and regulators in all jurisdictions where we do business, on important policy issues that will shape the new energy sector. However, policy makers and regulators also need to play their part by ensuring a competitive environment that provides an adequate return on the substantial investments that will be needed to meet important societal needs, including the challenge of decarbonisation.

Board changes

There were several Board changes during 2019. Margherita Della Valle stepped down after eight years as a Non-Executive Director and I would like to thank her for all she has done. Sarwjit Sambhi was appointed Chief Executive, Centrica Consumer and joined the Board in March. Pam Kaur joined the Board as a Non-Executive Director in February and Kevin O'Byrne joined the Board and became Chairman of the Audit Committee in May. Heidi Mottram also joined as a Non-Executive Director in January 2020. It has been a pleasure getting to know my new fellow Board members and working with them. We appreciate their refreshing input.

Our Chief Executive Iain Conn will be stepping down in the course of 2020 after over five years at the helm. It has been a very tough role to undertake at a particularly challenging time for the Company and I would like to thank him for everything he has done. He has led the re-positioning of the Company back towards the customer and our core strengths, and towards making a major contribution to a lower carbon future. This has not been easy and required significant changes to the portfolio, reduction in costs and the size of the team, as well as strong attention to cash flow and our debt levels. During this time we have seen material improvements in safety performance and customer outcomes. There have been heavy external shocks during his tenure, many that could not have been anticipated, and he has navigated the Company through them bravely and we appreciate that highly. As we address 2020, we are in a much stronger position from which to build for the future.

Looking forward

Looking ahead, we believe our medium-term prospects remain bright and the potential long-term growth opportunities are significant. Our immediate focus on maximising our distinctive strengths in energy supply and optimisation, and on services and solutions centred around energy, is we believe correct. Embracing the challenges of climate change, and being at the forefront in tackling it, is the right thing to do. The course is set. Now we must deliver on our promises and seek to make this Company one that our employees and customers can be proud of. I would like to conclude by thanking all my colleagues and co-workers at Centrica for their dedication and hard work in challenging circumstances. They are our greatest asset.

Charles Berry

Chairman 12 February 2020

Group Chief Executive's Statement

We remain dedicated to satisfying the changing needs of our customers, but increasingly those needs are around the challenge of addressing the threat of climate change, and in 2019 we were therefore ready to make a commitment to enable our customers to transition to a lower carbon future."

Iain Conn Group Chief Executive

2019 presented a challenging operating environment for Centrica, with the implementation of the UK default tariff cap and very low UK natural gas prices.

These circumstances put significant pressure on our business and although underlying performance in our customer-facing divisions improved, including enabling us to deliver better customer outcomes and growth in account numbers, we were not able to mitigate the full impact of external factors or the lower performance volumes delivered from our Exploration & Production and Nuclear businesses. We did deliver operating cash flow and net debt within our target range and cost efficiencies were above target. Adjusted operating profit was down 35% to £901 million and adjusted operating cash flow was down 18% to £1,830 million. We also recognised £1,103 million of net pre-tax exceptional charges in 2019, mainly relating to impairments of our Exploration and Production and Nuclear assets, reflecting the current low commodity price environment and restructuring costs associated with our Group-wide cost efficiency programme.

After adjusting for external factors, including the UK default tariff cap and lower commodity prices, underlying operating profit was only marginally down relative to 2018 and the contribution of the customer-facing divisions was materially up. However, the impact of the external factors on our forecast cash flows, and the subsequent decision to cut the dividend following the Strategic Update we conducted in H1 2019, resulted in a very poor shareholder experience in 2019, something I greatly regret.

2019 context

2019 was also an extremely difficult year for the Centrica team, with a significant number of colleagues leaving the Company as we continued with our transformation, simplification and efficiency programmes. Despite these pressures, the Centrica team performed admirably, with improvements in net promoter scores, reduced customer complaints, the introduction of attractive new propositions, and the development of new capabilities as we shift the Company towards enabling a lower carbon future for our customers. Consumer accounts grew by 722,000 over the year, and by 451,000 in the UK, with continuing growth in services and solutions relationships and a further stabilisation of account losses in energy supply. Many other metrics were excellent, including continued top-quartile performance in process safety, and the actions we have underway have created significant momentum into 2020. Unfortunately, with so much change to the organisation and with the fall in our share price, our employee engagement scores were materially impacted. Improving these engagement scores will be a focus for the Executive team in 2020.

Having summarised the year, let me now return to some of the major events, milestones and deliverables which characterised 2019.

Strategic update

As we entered 2019, we knew we faced a very challenging set of circumstances, made worse by the fall in wholesale gas and power prices towards the end of 2018. We responded in two ways – first, initiating an acceleration of our transformation activity and cost efficiency programmes and, second, from March through to June, the Board conducted a Strategic Update including a review of our portfolio, performance and strategic choices. In July we presented our conclusions to shareholders. We announced that we would be completing our shift back towards the customer, exiting oil and gas production as well as the already announced intention to sell our stake in nuclear power generation. We had signalled since 2015 a lower emphasis on oil and gas production and, as we deliver this final shift, Centrica will finally become a leading international energy services and solutions provider, focused on our distinctive strengths of energy supply and its optimisation, and services and solutions centred around energy. This includes growing opportunities in home energy management, mobility solutions and system optimisation, ensuring the Company will be well positioned for the future and able to satisfy the changing needs of our customers, with an emphasis on helping them transition to a lower carbon future.

The Board's assessment of our business and the changed external circumstances in which it currently operates, and the requirement to meet additional obligations to our pension schemes, also resulted in us taking the very difficult decision to reduce the level of the dividend to 5 pence per share. We believe this was essential in order to create a sustainable basis in which we can balance distributions to shareholders with the amount that we need to invest into the business, and continue to support our other obligations, including to our pension funds and servicing our debt. With the Company having reduced its net debt by around 40% since the start of 2015 and with our planned exits from exploration, production and nuclear reducing our exposure to natural gas prices, we believe that the smaller company will be resilient to the environment in which we are operating while able to maintain strong investment grade credit metrics.

Whilst I am convinced that the difficult decisions we took were the right ones, and absolutely necessary to complete the repositioning of the Company for the future, I recognise that the shareholder experience over a number of years has been very poor. Although in 2018 we were in the top quartile of total shareholder return in the FTSE 100 as we regained momentum relative to 2017, in 2019 we were near the bottom on this measure. However, our performance was much improved during the second half of the year compared to the first half, with adjusted earnings per share of 7.3p for the year as a whole, relative to 2.4p in the first half, driven by strong momentum in our customer-facing divisions. We expect to benefit from this momentum into 2020.

External environment

Turning to the external environment, we are now beginning to see some of the adverse consequences of the temporary UK default tariff that we had predicted, including job losses, company failures, and other suppliers exiting the market. The price cap has reduced margins and put huge pressure on costs for many participants. Despite the high level of competition, very few UK energy suppliers are making money and, for those who are, pre-tax margins make it difficult to invest in the skills or technology required for the future. We are responding by broadening the propositions we offer to move away from just energy supply, while reducing our costs still further to allow us to price as competitively as possible. We remain committed to working with the government and the regulator to help determine the right conditions for the temporary cap to be lifted.

Natural gas prices have fallen further, and are currently under \$2/mmbtu in North America and under 30p/therm in the UK, below our own 'low case' scenario. Forward prices for 2020 remain weak and, while our proposed exit from exploration, production and nuclear will reduce our exposure to commodity volatility, these low prices continue to have a significant impact on Centrica.

Operational progress

Despite the very difficult context I have outlined, 2019 was a year where we made good progress in our core objective – to satisfy the changing needs of our customers. Focusing on improving our operational effectiveness has made us more cost-efficient and able to offer better value for money to our customers. We have continued to build the capabilities that we believe our customers will want and need in the future and exited areas where our offering was relatively undifferentiated. Overall Consumer account holdings were up 722,000 in 2019, the first full year of growth in my time with Centrica, and Business customer accounts were broadly stable. Brand net promoter scores (NPS) improved in UK Home from +9 to +12, in UK Business from -12 to +1, in North America Business from +28 to +32 and remained high in the other business units.

I am pleased to say that customer relationships and customer numbers are beginning to move in the right direction. I recognise that we have lost a significant number of energy supply customers in the UK in recent years, although a large proportion of the reductions we saw in 2017 and 2018 stemmed from a deliberate choice on our part to exit from certain channels that were loss-making. In 2019 the rate of UK energy supply net losses was less than half the rate of losses in 2018, and less than a quarter the rate of losses in 2017 against a backdrop of continued high levels of price competition and market switching. This reflects our efforts on both cost efficiency and proposition development. We will continue to focus on improving in both these areas and delighting our customers as a result.

722,000 +12 Consumer accounts grew by 722,000 over the year

Brand net promoter scores (NPS) improved in UK Home from +9 to +12

We are also redesigning our core operations in the UK, reorganising around customer end-to-end journeys rather than traditional industry processes. The trend for customers to increasingly want to deal with us digitally will continue; for example, the proportion of transactions completed online in UK Home has increased to 55% compared to 50% at the end of 2018. We are consolidating our call centres in the UK as a result and focusing our efforts on improving our digital journeys. In North America and Ireland we are pursuing a similar agenda.

We continue to unlock new opportunities for future growth. We are developing a set of capabilities to deliver propositions beyond those of energy supply and boiler servicing, from demand response for businesses to bundled energy supply and home energy management solutions for residential customers. This includes remote diagnostics, smart energy control and electric vehicle integration. We are set to provide electric vehicle charging installation points and related services in the UK for Ford, VW Citygate and NCP.

We are shifting the centre of gravity of our relationships with our customers away from commoditised energy supply towards a new suite of propositions that we know many will value. Many of these differentiated propositions do not require us to offer energy supply to the same customer, and as a result we are able to expand into new markets in Continental Europe and countries such as Mexico, while cross-selling to existing energy customers in the UK, Ireland, Canada and the United States. North America remains the biggest energy market in the world and the fastest-growing market for energy services and solutions. We have added significant new capabilities to Centrica Business Solutions, including in energy efficiency, lighting retrofits, HVAC, building automation, and water conservation through the acquisition of the North American energy services and solutions company SmartWatt.

In addition to sourcing and optimising energy supply for our customers, our Energy Marketing & Trading business has grown its customer-facing route-to-market services in Europe and delivered excellent optimisation results. In February we signed a landmark LNG agreement under which Tokyo Gas and Centrica will jointly purchase 2.6 million tonnes per annum, delivered ex-ship, from the Mozambique LNG Project. We will jointly market and optimise this gas between our respective home markets of Japan and Europe.

In our asset businesses, Spirit Energy production was 45.8 million barrels of oil equivalent (mmboe), our operated Morecambe Bay delivered excellent plant availability and production efficiency, but there were shortfalls in non-operated fields in Norway. We have also been working with our joint venture partner, Stadtwerke München, in preparing Spirit Energy for a joint sales process which is now underway. Centrica's Rough gas asset delivered 6.5mmboe of production, and continued to demonstrate strong performance in process safety. The Nuclear business had a very challenging year, with reactors at two sites, Hunterston and Dungeness, shut down for most of the year for regulatory inspections. As a result, our share of electricity generated from the Nuclear fleet was 10.2 TWh, down from 11.8 TWh in 2018. We are awaiting regulatory approvals to bring the reactors back online.

Read more about our Divisional Review on Page 20

Key events in 2019

	Direct Energy partners with Budweiser Canada to provide renewable energy		Centrica introduces Responsible Business Ambitions out to 2030		Centrica Business Solutions expands US operations with agreement to purchase SmartWatt
January	February	March	April	May	June
Centrica launch Mobility Ventures Centrica Business Solutions and WSP develop integrated energy solutions as part of the Modern Energy Partners project		Centrica signs contract with Alcoa to support a Power Purchase Agreement with 197MW Norwegian wind farm Centrica Business Solutions and Tokyo Electric Power Company join forces to support decarbonisation of Japanese grid		Direct Energy completes sale of franchise home services business, Clockwork, Inc. Centrica Business Solutions launches global Electric Vehicle (EV) offer and joins UK-wide Go Ultra Low campaign Centrica's Local Energy Market trial completes battery installation in over 100 Cornish homes in addition to over 100 businesses

Transformation and efficiency

Operationally, we have made a lot of progress in 2019 and delivered encouraging results in many areas. However, we still have much work to do as we adapt to very changed circumstances. We must finish the job of becoming the most competitive provider, particularly in the UK energy supply market, and not give our customers a reason to leave us. This requires becoming structurally even more efficient. In some cases we are dealing with legacy systems and processes that need to change in order to get there but there is also significant progress we can make in simplifying and improving customer journeys, and streamlining our internal processes. In 2019 we delivered £315 million of cost efficiencies, ahead of our target, with the associated exceptional restructuring costs to deliver these savings also £356 million. Cumulative efficiencies delivered since 2015 are now £1.26 billion per annum on a like-for-like basis. This has allowed us to offset inflation, invest for growth, and still have a nominal like-for-like controllable cost base of £4.6 billion at the end of 2019 relative to £5.0 billion in 2015. We are targeting a further £350 million of efficiencies in 2020 in our core programme, most of which is underpinned, which is expected to result in exceptional cash restructuring costs of around £300 million. We remain on track to have delivered £2 billion of cumulative efficiencies over the period 2015-22.

We know however that we can't just cost cut our way to success. While there will still be continuous improvement activities undertaken every year, 2020 is expected to be the last major year of change, transformation and efficiency delivery which will also underpin much of what we need to see come through in 2021. We therefore have an imperative to improve gross margin capture and to use our new capabilities to grow our customer relationships so that we can stabilise and then grow Centrica. While we are encouraged by the progress we have made, our customer journeys are still not as good as we would like and we have to keep focusing relentlessly on improving the experience we offer our customers and driving up NPS as the key measure of our success.

In 2019 we delivered £315 million of cost efficiencies

£315m £1.26bn

Cumulative efficiencies delivered since 2015 are now £1.26 billion per annum on a like-for-like-basis

	without subsidy	Centrica Energy Trading and Enovos Germany sign a Power Purchase Agreement that enables a German photovoltaic installation to operate		Centrica wins judicial review relating to the treatment of wholesale cost transitional arrangements	Centrica agrees to sell its 382MW King's Lynn gas-fired power station
July Centrica announces it plans to exit oil and gas production Centrica announces partnership with Ford to offer EV solutions in UK and Ireland	August	September 2019 Centrica loads its first liquified natural gas cargo at the Sabine Pass liquefaction plant in Louisiana	October	November Direct Energy from solar project in California	December Business signs long-term agreement to take power

Our colleagues

As a business, the changes we have been making to set ourselves up for success in the challenging new operating environment have resulted in a lot of upheaval for our colleagues in the Centrica team. I recognise how difficult this has been for many of them and am humbled by how hard they have worked. I want to thank them for having remained committed to doing the best for our customers and to delivering excellent operations across the Company. They have upheld and lived our values throughout.

Over the last four years our direct workforce has fallen by over one third, from 39,000 at the end of 2015 to just under 27,000 at the end of 2019. This has had a very big impact on morale and the changing business environment and energy transition has created uncertainty about our future. I take very seriously the calls for better communications, making our strategy and vision more accessible, and enabling leaders to empower the wider team, so that we can pull together as a team to deliver the business outcomes we need for our customers. We also need to begin to re-establish a winning mentality as our business stabilises and we shape new opportunities. It is particularly important when we consider that 2020 is going to be another year of significant change for the Company but, as the last year of major transformation, it is the gateway to a new future as a smaller and more sustainable energy services and solutions company.

To ensure we complete our transformation journey successfully, we must continue to live our values of care, delivery, collaboration, agility and courage which we have established group-wide over the last few years. I'm delighted with the way our organisation has embraced our values and, along with Our Code, these help guide us when the going gets tough and we have to face difficult choices and decisions. We have continued to pay attention to other foundational areas including safety, compliance and conduct. In safety, we strive for an incident-free workplace and aim to continuously improve performance through our focus on targeted safety interventions alongside improved controls and monitoring. While there were no significant (Tier 1) process safety events in 2019, we had two Tier 2 process safety events. Our total recordable injury frequency rate also increased by 4% to 1.06 per 200,000 hours worked, although outside of the UK we saw significant improvements in many businesses.

Despite all the change, we have continued to develop and invest in our people, the core strength of our Company, developing new ways to help them to build their skills and improve the consistency with which we approach our work. We also continue to work on the three pillars of our diversity and inclusion agenda: a diverse workforce, an inclusive environment, and meritocratic processes. We have seen significant improvements since I joined the Company – the Board is now 23% female and 23% ethnic minority members. Five of my twelve direct executive reports are women and we have very active affinity groups including our LGBTQ+ community, Spectrum. I recognise there is more to do across all areas of diversity and inclusion. Only by having a diverse and inclusive workforce will we be successful and harness the full range of talent that we need.

A lower carbon future

During 2019 we also reflected on Centrica's purpose. We remain dedicated to satisfying the changing needs of our customers, but increasingly those needs are around the challenge of addressing the threat of climate change, and in 2019 we were therefore ready to make a commitment enabling our customers to transition to a lower carbon future at the core of Centrica's purpose. We have owned the obligation to reduce the emissions of our customers (Scope 3 emissions) and, in addition, we are focused on enabling an energy system which is more efficient and lower carbon whilst continuing to reduce our own carbon footprint. I am pleased that Centrica regained the coveted CDP 'A' rating in early 2020, has signed up to the Taskforce on Climate-related Financial Disclosures (TCFD), and has engaged constructively with representatives of the Climate Action 100+ group of investors.

Centrica is a company now much more in tune with the transition to a lower carbon future. However, our origins and much of our business still revolves around natural gas. While the world will probably use more natural gas before it uses less, as gas displaces coal in the global energy system, we must play our part in helping our customers to use less energy in everything they do, and over time to decarbonise heating through the adoption of new technologies including partial use of hydrogen in the gas system, solar, batteries and heat pumps. Centrica is committed to developing a plan to be net zero by 2050 and playing a major role in helping our customers to do the same.

Read about our Responsible Business Ambitions to tackle climate change on Pages 50 to 51

Despite all the change, we have continued to develop and invest in our people, the core strength of our Company, developing new ways to help them to build their skills and improve the consistency with which we approach our work."

Regulatory and political landscape

I fully recognise we are a business that operates at the behest of policymakers and regulators and the space that we are allowed to occupy is significantly determined by them. We continue to be committed to full engagement with whoever is in power politically, and to collaborate and partner with our regulators in all of our geographies. In November it was announced that we had been successful in the judicial review which challenged the UK energy regulator Ofgem's treatment of wholesale energy costs in the initial period of the UK default tariff cap, and Ofgem announced in January 2020 that they were launching a consultation on the appropriate recovery mechanism. The decision to challenge the regulator in this area was not taken lightly but reflected how important I believe it is that regulatory processes are transparent and rigorous. It is in the long-term interests of customers that we have well designed regulation that supports an effectively functioning energy market.

Over the last few years the continued layering on of new regulation in the energy market in the UK has left it in a very challenging situation. I would encourage further reflection on this and some changes, including the lifting of the price cap, if we're going to create a sustainable market which facilitates much needed future investment. In North America, similarly, I believe in well regulated, competitive markets because these are in the best interests of the customer. We have a range of market designs across our geographies and it is clear that some are more effective than others.

Brexit provided significant uncertainty through 2019. The UK's departure on 31 January 2020 was certainly a milestone, but much remains to be addressed in the negotiation on the future relationship that is to come. Provided policymakers are pragmatic and thoughtful, there should not be material impact of Brexit on the energy markets other than the general impacts of foreign exchange movements on the price of energy and the potential impact of changes in economic growth on demand for energy and our services. Centrica operates in multiple jurisdictions, including Continental Europe, and we will continue to develop our capabilities to serve customers in all these geographies.

CEO succession

Finally, I will be stepping down as Chief Executive in the course of 2020 after five fascinating, but extremely tough years which have been very difficult for our shareholders and our Centrica colleagues in particular. We determined in 2015 that it was urgent the Company repositioned back towards the customer, and built skills and capabilities more in tune with where the energy markets were going, and in line with the demands to address climate change. During that time, as well as the usual challenges of commodity price movements and economic fluctuations, Centrica has faced unprecedented political uncertainty and regulatory intervention. Climate change has risen up the agenda as the major challenge facing our world and, as we predicted in 2015, a new decentralised, more digital and increasingly decarbonised energy system has begun to develop.

Centrica is having to make some huge changes to reposition itself for the future, and much of the burden of this has fallen on the shoulders of our team. I am deeply grateful for the hard work and dedication of the talented people I have worked with in this company, their commitment and caring attitude are what makes it great. As we have done over the last 208 years, Centrica needs to adapt while staying true to our values and to our core of energy, and services and solutions built around it.

Conclusion

In summary, 2019 has been a very difficult year in terms of the external environment and our key outputs. Our strategy remains clear and our direction towards the customer is unchanged. We are beginning to see success in doing what we said we would do and performance stabilise. We have significant momentum as we enter 2020, and I see 2020 as a gateway to the future of Centrica as a leading international energy services and solutions company, in tune with where the world is going.

Iain Conn Group Chief Executive 12 February 2020

Our Strategy

Our purpose, as set out in 2015, has been refreshed, but its essence remains unchanged. We are an energy services and solutions company, focused on satisfying the changing needs of our customers and enabling the transition to a lower carbon future.

• › '21st Century energy services and solutions company'
• › Delivering long-term shareholder value through returns and cash flow growth
• › Trusted corporate citizen
• › Employer of choice

Section 172(1) Statement

Section 172(1) of the Companies Act 2006 provides that a director of a company must act in a way that he considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to various other stakeholder interests – below are the six key factors:

• the likely consequences of any decision in the long term;
• the interests of the Company's employees;
• the need to foster the Company's business relationships with suppliers, customers and others;
• the impact of the Company's operations on the community and the environment;
• the desirability of the Company maintaining a reputation for high standards of business conduct; and
• the need to act fairly as between members of the Company.
• Read more about our Stakeholder Engagement on Pages 16 to 17

Strategic context

Our strategic update in 2019 confirmed that the trends we identified in 2015 continue to play out:

• the energy system is becoming more decentralised as advances in distributed technologies support decarbonisation;
• choice, power and influence are moving to the customer; and
• digitalisation is accelerating proposition development, increasing choice and driving efficiency across our sector.

We are now equipped and committed to help our customers transition to a lower carbon future

• we have developed capabilities to help customers reduce their emissions;
• we will exit hydrocarbon production, creating a leading international energy services and solutions provider;
• we supply natural gas and believe in its near-term role in replacing coal. But we also embrace the ultimate need to decarbonise heating; and
• we have targets to reduce the emissions of our customers, the energy system and our own operations and have made a commitment to be net zero by 2050 and communicate our pathway to it by 2030.
• Read more about Delivering our Responsible Business Ambitions Pages 48 to 54

Our divisions

In 2017, we reorganised the Group around the customer, creating two new, customer-facing divisions: Centrica Consumer and Centrica Business. These businesses will continue to focus on the areas of energy services and solutions in which we have distinctive capabilities – energy supply and its optimisation, services and solutions centred around energy. We now have sufficient capability in the customer-facing businesses to allow us to focus completely on the customer. The Upstream division includes our Nuclear, and Exploration & Production assets.

Centrica Consumer

Market trends

• Demographic change
• Ubiquitous technology
• Self-service
• Data analytics, Artificial Intelligence and automation
• Increased regulator and consumer activism
• Growing progress and support for decarbonisation
• Increased competitive intensity

Customer needs

• Value for money
• Easy, empathetic and personalised service
• Trusted, expert support
• Solutions, not just products
• Simple, clear choices
• Responsible options (including green tariffs)

Read more about Centrica Consumer on Pages 20 to 23

Centrica Business

Market trends

• Volumes per customer reducing
• Margins under pressure
• Gas becoming global
• Mega-trends impacting energy sector
• Electricity system becoming more local

Customer needs

• Reduced cost and increased productivity
• Supply security and resilience
• An expert partner to guide them through complexity
• A trusted and credible counterparty
• Not to be distracted from their main activity

Read more about Centrica Business on Pages 24 to 26

Upstream

Upstream includes our Nuclear and Exploration & Production assets. Our Exploration & Production activity is focused on North West Europe and consists of a 69% stake in the Spirit Energy business and the Rough field. We announced our intention to sell Spirit Energy and Nuclear.

Read more about Upstream on Pages 27 to 28

Strategic approach

To deliver the strategy we announced in July 2015, and reviewed in 2019, we set ourselves a number of medium-term objectives to 2020 and focus areas of long-term growth.

Our medium-term strategic objectives

• Demonstrating customer-led gross margin growth
• Driving cost efficiency towards being 'most efficient price setter'
• Improving organisational effectiveness
• Securing the capabilities we need for 2020 and beyond
• Maintaining capital discipline and balance sheet strength

Our focus areas for long-term growth

• Energy Supply
• In-home Servicing
• Home Solutions
• Energy Optimisation
• Business Services & Solutions

Our Business Model

Our business model is designed to deliver returns and growth focusing on energy services and solutions, enabling the transition to a lower carbon future.

Our Energy Supply, Services, Home Solutions, Business Solutions and Energy Marketing & Trading businesses are organised into two global customer-facing divisions; Centrica Consumer and Centrica Business. Our strategic framework shifts our focus towards energy services and solutions, in addition to providing energy supply, while putting emphasis on helping our customers transition to a lower carbon future.

Centrica Consumer is focused on energy supply, in-home servicing and home solutions centred around energy, including Home Energy Management and Electric Vehicle Integration.

Centrica Business is structured to deliver the full range of energy products and services solutions – from energy supply, to on-site generation and data-driven optimisation, to electricity wholesale market access.

Our Group priorities

in delivering performance in Safety, Customer Satisfaction, Operational Excellence and People is a core part of the overall Group performance, which is then measured through individual employee scorecards.

Capital re-discipline • Annual capital expenditure of around £500m post Spirit Energy and Nuclear disposals Credit rating • Strong investment grade ratings ROACE(3) • At least 10-12%

(1) Further information on controllable costs can be found in Additional Information – Explanatory notes on page 223 in the Annual Report and Accounts 2019. (2) Dividend Policy – the Group has a progressive dividend policy (based off the 2019 dividend level), linked to long-term growth in adjusted earnings and adjusted operating cash flow, and we will target dividend cover from adjusted earnings in the range 1.5-2.0. See note 11 to the Financial Statements in the Annual Report and Accounts 2019 for further details on current year dividends.

(3) See note 2 to the Financial Statements in the Annual Report and Accounts 2019 for definition and reconciliation of these measures.

Our customer-facing businesses are supported by the common operating functions of Customer Operations and Field Operations.

These functions are where we interact with the customer and are fundamental to our success.

The Upstream division includes our Nuclear and Exploration & Production businesses, Spirit Energy and Centrica Storage. We have announced our intention to divest Spirit Energy and Nuclear. To ensure our model remains efficient and scalable, all businesses are supported by a number of centre-led Group functions that are responsible for setting boundaries and standards which allow us to manage risk effectively and ensure a strong system of internal control.

Our strategic frameworks

Upstream Energy supply • Gas supply • Electricity supply In-home servicing • Cover products (protection plans, warranties) • On demand repair and maintenance • Electric vehicles charging point installations Home solutions • Home security and monitoring • Remote diagnostics • Home control • Appliances control • Home energy management Energy supply • Gas supply • Electricity supply Energy optimisation • Asset optimisation • Aggregation and optimisation of distributed energy resources • Access to energy, capacity and flexible markets • Trading partner • Energy commodities and risk products • Focus on safety • Operational excellence Business services and solutions • Multi-technology solutions • Design, install, maintain and service • Energy resource management and monitoring • Operational insights from energy data • Preventive maintenance Centrica Business Centrica Consumer

Stakeholder Engagement

Engaging with stakeholders delivers better outcomes for society, and our business. It's fundamental to our long-term success. The world of energy is evolving, customer needs are changing, and the social and environmental pressures we operate under are increasing. Against this backdrop, it's vital that we understand and collaborate with stakeholders so that we can grow our business in a way that delivers for our customers and society over the long term. These pages highlight some of the ways we engaged stakeholders on material issues in 2019.

Listening to customers helps us to satisfy their changing needs and reduce costs. We seek feedback on a range of issues such as customer service, new products and pricing. This is done through various methods such as focus groups, listening sessions and surveys, as well as proposition and usability testing.

Action from insight

We track feedback from customer journeys and run customer experience surveys. The Board receives a quarterly customer dashboard with key performance and plans, and uses this insight to make decisions that serve our customers for the long term as well as foster stronger relationships with them. Feedback, for example, informed the Board that customers wanted a cost-competitive provider with market-leading customer service. The Board has consequently been involved in transforming our customers' experience which includes oversight of the digital transformation.

Voice of the customer

The Board wanted to empower customer-facing teams with real-time customer service insights, to help them understand the root causes of issues and shape improvements. This led to the 'Discover' platform launching in UK Home and UK Business, which hosts survey feedback from over 20,000 customers a month. Insights from the platform have stimulated Board approval on new ways of working and key customer journeys, such as easier-to-understand bills and pricing renewal policies.

Read more about the benefits of the digital transformation on Page 21

Read more about our customer service experience on Pages 22 and 25

We use employee feedback to help develop a workplace where everyone is motivated and able to deliver for our customers. Issues discussed typically include reward, development and culture, with feedback shared via various channels such as events, surveys and performance reviews.

Employee Champion

Joan Gillman, Non-Executive Director, completed her first full year as Employee Champion. Having held listening sessions to hear about some of the cultural 'blockers' and 'pain points' employees were experiencing, she has since acted as the voice of the employee on the Board across discussions relating to talent and resource among other areas. Joan has also worked to improve the Board's understanding of employee concerns, including their desire to feel more connected to the Company's strategy.

Diversity and inclusion

Having a diverse and inclusive workforce is key for our business and people to thrive. Leaders champion inclusion and participate in employee discussions on issues such as gender, ethnicity, sexuality and caring responsibilities, to explore how we can build a more inclusive workplace. With increased insight, the Board took into account the needs of employees by introducing 2030 Responsible Business Ambitions to accelerate progress, signed up to The Valuable 500 to drive disability inclusion and enhanced policies to support carers and parents.

Read more from Joan about her role as Employee Champion on Page 66

Read more about building a more diverse and inclusive workforce on Page 52

Customers Colleagues Shareholders Government and regulators Suppliers Communities and NGOs

Shareholders provide funds that help us run and grow our business and they expect a sustainable return. When meeting shareholders and being involved in or responding to information requests, the Directors are conscious that they need to act fairly for all of our shareholders. Such views are particularly important to ensure that when we update on strategy, financial and operational performance, alongside Environmental, Social and Governance (ESG) issues, that it's relevant and beneficial to all our shareholders.

Annual General Meeting (AGM)

All shareholders are invited to the AGM where they have the opportunity to hear about our performance and put questions to the Board. Members of the Board, Investor Relations and customer service, are available to speak with shareholders before and after the meeting on issues that matter to them. All resolutions put to shareholders passed in 2019, with percentages ranging from 85.27% to 99.91%.

Responsible business

Following the introduction of our 2030 Responsible Business Ambitions, we hosted a webinar for investors and analysts to explore our commitments. Our Group Chief Executive also met Climate Action 100+ (CA100+), which represents over 370 investors managing USD\$35 trillion in assets. Engagement helped shape our Ambition to tackle climate change, spurred the publication of our net zero policy position and supported our decision to sign-up to the Task Force on Climate-related Financial Disclosures.

Read more about our AGM engagement on Page 67

Read more about our response to climate change on Pages 46 to 47 and 50 to 51

Section 172(1) Directors' Duty

As a result of being responsible for overseeing Our Strategy, described on pages 12 to 13, and Our Business Model, described on pages 14 to 15, both of which centre around the interests of key stakeholders, the Directors remain conscious of the impact their decisions can have on employees, communities and the environment.

Proactive engagement remains a central focus for the Board, which ensures the Directors have regard to the matters set out in S.172(1) (a) to (f) of the Company Act. They receive regular stakeholder insights and feedback, which enables them to place stakeholder considerations at the very heart of the Board's decisions. Examples of such decision making is further described on pages 16 to 17 Stakeholder Engagement, on page 57 S.172

table and page 64 Board activity. In doing so, we are better able to operate in a way that is mutually beneficial to society – from developing strategy and introducing new products, to advocating for policy change and managing our social and environmental impact. Examples are further described on pages 48 to 54 Delivering our Responsible Business Ambitions.

Sometimes the Directors have to take decisions that adversely affect one or more of our stakeholder groups. In these cases, we endeavour to treat those impacted fairly.

Read more about our Section 172(1) Directors' Duty on Page 57

Customers Colleagues Shareholders Government and regulators Suppliers Communities and NGOs

The Directors understand the value of fostering our relationship with government and regulators to ensure policies are developed in the interests of our customers, while enabling them to better understand our impact on the community and the environment. We provide expertise to support policy development around topics like market competition, employment and the environment. Engagement includes face-to-face meetings and written responses to consultations.

Decarbonising heat

We engaged the UK Government and the Committee on Climate Change (CCC) on how to decarbonise heat in a cost-effective way. We shared insight into our trial of new Home Energy Management solutions, the role hybrid heat pumps could play and the opportunity of green gas. The CCC has since become more supportive of hybrid heat pumps in domestic heating and we remain committed to working together to deliver customer-friendly policies and products that enable society's transition to net zero.

Opening new markets

In collaboration with business trade groups and environmental NGOs, we pursued political and regulatory engagement to open up competition in Virginia's electricity market, so that our customers can access zero carbon power. Due to our efforts, 100% renewable tariffs totalling over 100TWh of annual demand are now available to residential, commercial and industrial customers. This helps customers, such as Bernstein Management Corporation, fulfil their low carbon commitments at a competitive price.

Read more about our net zero policy recommendations on Pages 46 to 47

Read more about the positive impact of market reform on Bernstein Management Corporation on Page 26

The Directors fully support collaboration with suppliers as it reduces risk in our supply chain and ensures we maintain high standards of business conduct which benefits our communities. We interact with suppliers through the tender process, surveys and site inspections. Engagement covers topics including payment practices and strengthening social, ethical and environmental compliance.

Risk management

We conducted nine on-the-ground ethical site inspections on higher risk suppliers located in the UK, China, Italy and Turkey. While no modern slavery risk was detected, we worked with suppliers to create tailored action plans to raise labour and safety standards while providing workers with a confidential modern slavery helpline. The Board reviews our strategy and performance in upholding the Modern Slavery Act each year.

Sharing solutions

We hosted Responsible Sourcing Council's first meeting of 2019 to share our responsible procurement achievements so that others can learn from our experience, as well as collaborate to find solutions to some of our challenges. A supplier day was also hosted by one of our Board members, which brought together 14 strategic suppliers to explore innovative ideas to deliver our digital technology strategy. We are following up with suppliers to further scope ideas and hope to run similar sessions going forward.

Read more about reducing risk with suppliers on Page 54

By sharing our expertise and working alongside charities, NGOs and community groups, we not only collaborate to create stronger communities but gain insights that enable the Board to have full regard of our impact on the community and the environment, which helps them better understand the likely consequences of decisions in the long term. In doing so, we can tackle enduring societal challenges together – from tackling climate change to creating carer-friendly communities.

Transition from fossil fuels

We announced our intention to exit oil and gas production by the end of 2020 which will complete our shift towards being a customer-facing company. This allows us to focus on our distinctive strengths and respond to the growing call from customers, NGOs and wider society, to enable the lower carbon future. We believe gas has an important role as a transition fuel which does not always align with the expectations of some stakeholders. We continue to engage with them on this.

Supporting carers

We provide best-in-class support to help carers stay in work by better balancing work with caring responsibilities. With the Board having extended carers' leave allowance to up to six weeks following consultation with our people, we wanted communities to receive these same benefits. Our Group Chief Executive wrote to the UK's largest employers and, together with our charity partner Carers UK, we hosted peer learning forums and campaigned for the UK Government to introduce statutory carers leave which is now part of its legislative programme.

Read more about our transition to a lower carbon future on Pages 50 to 51

Read more about how we are helping carers thrive on Page 52

Key Performance Indicators

Our Key Performance Indicators (KPIs) help the Board and executive management assess performance against our Group Priorities.

(1) See notes 2, 4 and 10 to the Financial Statements in the Annual Report and Accounts 2019 for definition and reconciliation of these measures.

Keeping our people safe is a foundation of how we do business. Our TRIFR per 200,000 hours increased by 4%. We remain committed to creating an incident-free workplace.

Brand net promoter score (NPS)(1) Complaints(2)

2019	+15.1
2018	+10.0
2017	+9.4

Everything we do is focused on satisfying the changing needs of our customers. Improvements in customer service, enabled by digital transformation, contributed to our aggregated NPS improving by 5.1 points.

Link to Remuneration Long-term incentive

Employee engagement

Having a motivated and engaged workforce is key to our success. While we took action on feedback from our annual employee engagement survey to improve performance, business restructuring impacted engagement which decreased by 12%.

Link to Remuneration Long-term incentive

Link to Group Priorities

Total recordable injury frequency rate (TRIFR) Process safety incident frequency rate (Tier 1 and 2)

We prevent potential incidents where we source, generate and store energy with process safety. Less process safety hours worked per 200,000 hours led to our frequency rate increasing by 33%.

Long-term incentive

Link to Group Priorities

We are relentless in wanting to provide an excellent service that satisfies our customers and reduces complaints. This has led to our aggregated complaints per 100,000 customers improving by 1%.

Long-term incentive

Link to Group Priorities

The KPI performance outcome associated with executive remuneration can be found at centrica/ar19

• (1) Aggregated scores across UK Home, North America Home, Ireland, Centrica Home Solutions, UK Business and North America Business weighted by customer numbers.
• (2) Aggregated scores across UK Home, North America Home, Ireland, UK Business and North America Business weighted by customer accounts.

Read more about our responsible business performance on Pages 48 to 54

Centrica Consumer is focused on three areas, Energy Supply, In-Home Servicing and Home Solutions.

› UK Home

› Ireland

› North America Home › Centrica Home Solutions

Sarwjit Sambhi Chief Executive, Centrica Consumer

Customers ('000)

Adjusted operating profit (£m)

Our Centrica Consumer division is undergoing a digital transformation, broadening its capabilities to enable the launch of innovative new propositions – including combined energy and services bundles – while improving data analytics and customer segmentation. Customer satisfaction levels have risen significantly, and we maintain strong market positions.

In the UK, we are the largest energy supplier; the number one provider of contract energy services; and the largest installer of boilers and smart thermostats. We have leading brand awareness.

In North America, we are among the top three competitive energy suppliers in each of our chosen geographies of Texas, the US North East and Canada. We have a significant services position in a highly fragmented market.

In Ireland, we are the largest gas supplier and the second largest energy supplier overall.

2019 2018

Growth in customer accounts

• Centrica Consumer customer accounts grew by 722,000 in 2019, after adjusting for the impact of the disposal of the Clockwork North America home services business in April which had 182,000 customer accounts at the end of 2018.
• In the UK, total accounts increased by 451,000 in 2019, with 364,000 growth in services due to higher sales of products bundled with energy and 373,000 growth in cumulative home solutions customers, including growth from our remote boiler diagnostics proposition, BoilerIQ, and Cloud storage offer. This more than offset a reduction in energy supply accounts.
• UK Home energy supply customer accounts fell by 286,000, although the rate of losses significantly reduced compared to 2018 against a backdrop of continued high levels of price competition and market switching. Net losses were also lower in the second half of the year compared to the first half and accounts remained broadly stable over November and December 2019, and January 2020. This reflects the launch of a number of attractive customer offers in the fixed price market, including increased sales of energy and services bundles.
• Total accounts were broadly stable in Ireland against a backdrop of high levels of competitive intensity.
• In North America Home, accounts increased by 206,000 as we won some energy supply aggregation auctions in the US North East. We also delivered an increase in sales to customers on fixed price contracts.

'Book, Track & Manage'

This allows our customers to book and monitor British Gas engineer appointments online. It includes booking progress updates, a timeline to completion, the ability to amend or cancel appointments and a 'Track my Engineer' feature.

Results & key statistics: Breakdown appointments booked online up 58% since launch; calls about appointments down 30% year on year.

'Heating Offline Troubleshooting'

This new feature on our Hive app was launched towards the end of last year to address one of the biggest frustrations for our Hive customers – what to do when the connection between their boiler, smart thermostat and remote control heating app doesn't work properly.

Previously, to fix the problem, customers were directed to a static page on the website with a long list of steps to attempt which were seen as time consuming and complicated. Many customers understandably gave up and phoned a contact centre instead to speak to an agent. By contrast the new feature offers customers a simple, interactive, conversational troubleshooting journey – with engaging visual prompts – which dynamically adjusts their path based on their product holding and current status.

Customers rightly expect that they should be able to draw on all the services we provide using their PC, tablet or smartphone. Our digital transformation programme is focused on delivering simple and easy-to-use customer journeys."

Sarwjit Sambhi

Chief Executive, Centrica Consumer

Putting customers at the heart of our digital transformation

Our customers increasingly want to go online to complete day-to-day tasks. We're trying to make that experience as simple, easy and effective as possible.

Calling a contact centre can be frustrating and time consuming; but too often the experience of going online is not much better. That's why in early 2018 we embarked on an ambitious digital transformation programme, identifying hundreds of customer 'pain points' and creating new online ways of tackling them. The result has been a faster, slicker website and app offering improved customer experience.

We have three priorities: to ensure that 100% of any task – such as a meter reading – can be completed successfully online; to make it easy and simple with fewer steps; and to make sure our online services can be used effectively on any device.

We've built an entirely new app which has now been downloaded 1.3 million times and is rated as 'standout' by the Energy Saving Trust. Last year there were 2.9 million fewer calls to our British Gas contact centres because customers found it easier and more effective to deal with us online. Here are just a couple of the new features we've introduced so far.

Improved customer experience and enhanced customer offers

• We continue to focus on improving customer experience and our digital platforms in all markets, leading to a reduction in call volumes in UK Home, North America Home and Ireland.
• The British Gas Brand Net Promoter Score (NPS) improved to +12. NPS for Bord Gáis Energy, Direct Energy and Hive remained at relatively high levels, although Bord Gáis Energy saw a reduction to +23 against a backdrop of new entrants and increasing competition in the Irish market.
• In UK Home, we saw a 16% increase in digital visits in 2019 compared to 2018, and our new digital app had over 2m downloads in the year. The proportion of transactions completed online had increased to 55% by the end of 2019 compared to 50% at the end of 2018 and call volumes dropped by 4.3 million, or 15%.

• We now have more 'online only' than 'offline only' UK energy supply customers.

• We fulfilled 98.2% of UK services appointments on the scheduled day compared to 97.6% in 2018.

• In North America Home, energy digital marketing and web sales were up 30% compared to 2018 and made up 21% of total energy sales. The proportion of transactions completed online increased to 49% in 2019 compared to 45% in 2018 and call volumes dropped by 93,000 or 2%, despite growth in customer accounts.
• We launched over 160 propositions in 2019 in UK Home, including bundled energy and services offers, with 71% of customers who took a bundled offer being new to services.
• We launched our first residential electric vehicle tariff in the UK during the year and in November installed our first domestic charging point.
• In January 2020, British Gas launched its new 'Green Future' tariff, one of the greenest tariffs on the market which offers customers green gas and renewable energy.

Putting customers at the heart of our field operations

We have totally reorganised the way that our engineers work so that we can deliver a better service to UK households.

Our field operatives – the gas and electrical engineers, heating installers, plumbers and smart energy experts – are one of our greatest assets. They are invited into more homes every year than any other brand in the UK and trusted highly by our customers.

But until now they have been working in a fragmented fashion, organised on a nationwide basis around the individual products and services they provide, with different ways of doing things and sometimes duplicating each other's efforts.

We realised that, to make services a real engine for growth in the business, things would have to change. So, starting last July, we have completely reorganised. We have dismantled the product 'silos' to create local multi-functional teams, bringing all the different skills together, under a local manager.

8,000

engineers and technicians

These new teams are directly accountable for the customers they serve locally and will have full visibility of all their needs. We are changing the way that we recognise our engineers, so that rewards are based squarely on customer approval ratings and successful outcomes. Later this year, we will launch a new integrated computer system, in partnership with Microsoft, to manage operations and customer appointments more efficiently.

This is not just a new way of doing things. It also marks a fundamental change in our mindset. We are no longer thinking in terms of 'field operations', but rather of 'customer delivery'. From now on, we aspire to work around the customer, rather than expecting the customer to work around us.

The way we worked before was a bit like a department store, with each department working separately and not understanding the full needs of the customer. Now, by bringing our skills together in local teams, we can better understand and meet customer needs."

Andrew Reaney Customer Delivery Director, Centrica UK Field Operations

Progress towards fundamentally rebasing UK Home

• In July 2019, we announced that we were developing plans to fundamentally rebase our UK Home business.
• In UK energy supply, our focus will be on continuing to improve the customer experience while moving towards becoming the lowest cost supplier by 2022. Achieving cost leadership will enable sustainable customer and margin growth.
• In UK in-home servicing, we are also focusing on improving our levels of competitiveness while maintaining a high-quality customer experience.
• We removed around 800 non-customer facing roles across energy and services in 2019 as part of our efficiency plans, with energy supply back office costs 15% lower in 2019 than in 2018.
• The cost per UK energy supply customer was £109 in 2019 compared to £103 in 2018, although the underlying figure in 2018 was £111 when excluding the impact of a one-off bad debt credit. The decrease in the underlying figure came despite the lower average number of customer accounts than in 2018 and the impact of inflation.
• UK services cost per customer in 2019 decreased to £330 compared to £348 in 2018, with significant levels of cost efficiency more than offsetting the impact of inflation. Revenue per customer was flat.
• In addition to the progress already made in 2019 to improve the customer experience, we have plans in place to drive a further increase in digital transactions to help reduce call volumes. We are also upskilling contact centre colleagues to reduce the number of internal call transfers, reducing costs and improving the customer experience.
• We continue to develop plans to re-organise around customer end-to-end journeys and transform our technology stack to be more flexible and lower cost. We now have two end-to-end customer journey teams up and running and have a proof of concept technology platform based on our online-only British Gas Lite offer live in the market.
• We are preparing ourselves to benefit from new market opportunities, such as electric vehicle integration. In 2019, we upskilled around 100 of our service engineers to install electric vehicle charging points.

Refocusing Home Solutions

• We announced in July 2019 that our Home Solutions activity would be focused on the UK and Ireland, as we continue to leverage our distinctive field force and look to launch propositions focused around Home Energy Management and Remote Diagnostics and Monitoring.
• Centrica Home Solutions revenue increased by 10% to £74m in 2019 and the gross margin percentage increased to 22% compared to 19% in 2018.
• In May, we launched Hive thermostatic radiator valves which allow customers to digitally manage the temperature in individual rooms in their houses. We have sold over 100,000 units to date.
• Customer satisfaction rates remain high, with the Hive brand NPS at +39, and we continue to see a positive impact on our energy and services businesses. The energy NPS of a Hive customer is 20 points higher on average than for an energy only customer.
• We have taken actions to lower operating costs in the second half of the year, reducing headcount in Centrica Home Solutions by around 40%. As a result, we expect to deliver £15m of operating cost savings and £10m of capital expenditure savings in 2020 when compared to 2019.

10%

increase in Centrica Home Solutions revenue

451,000

growth in UK customer accounts

49%

In North America Home, the proportion of transactions completed online increased to 49% in 2019

Centrica Business is focused on three areas, Energy Supply, Energy Optimisation and Business Services & Solutions.

• › UK Business
• › North America Business
• › Centrica Business Solutions › Energy Marketing & Trading

Richard Hookway Chief Executive, Centrica Business

Brand Net Promoter Score (NPS)

Adjusted operating cash flow (£m)

75

2019 2018

Centrica Business has built enhanced capabilities across a range of activities, including distributed energy, route-to-market services and energy optimisation. We maintain strong market positions; we have delivered cost efficiencies to position ourselves competitively; and our customer satisfaction levels have improved.

We are the largest energy supplier to SME customers in the UK and retain a significant presence in the Industrial & Commercial market, where we focus on customers who want to take business services and solutions as well as energy supply.

In North America, we are the second largest supplier of gas and power to business customers and we have significant wholesale and optimisation positions. We have major global route-to-market and demand response optimisation positions, managing around 25 gigawatts of route-to-market capacity and 2.5 gigawatts of optimisation capacity across the UK, North America and Continental Europe.

Customer number stability and volume growth

• UK Business delivered growth in small and medium enterprise (SME) energy supply customer accounts, including from the online only British Gas Lite tariff.
• North America Business energy supply customer accounts were down 6%, reflecting our decision to focus our sales and retention activity on higher value, higher consuming customers. Total gas volumes were up 10%, reflecting this focus and the full year impact of small bolt-on acquisitions completed during 2018.

Improved customer experience

• UK Business brand NPS increased by 13pts over the year to +1, reflecting further operational improvements and enhancements to our digital platform.
• North America Business brand NPS improved by 4pts to +32, as we continued to launch new customer propositions, including those offering optionality on hedging profiles giving the customer more control.
• Centrica Business Solutions brand NPS remained high at +29.

Improving returns in North America Business

• We announced in July 2019 that, following a review of our business energy supply and optimisation activity in North America, we were making structural interventions to improve returns.
• Actions taken to improve margin delivery and customer quality, reduce costs and optimise capital employed have resulted in an improvement in post-tax economic returns to 9% in 2019 from 6% in 2018.
• Further actions underway are expected to result in post-tax average economic returns of 10-12%, which we are targeting to achieve in 2020, and no worse than 8% at the bottom of the cycle.

Saving energy and money to boost healthcare resources in Devon

Centrica Business Solutions is undertaking its most ambitious NHS project yet in the south west of England.

The Royal Devon and Exeter NHS Foundation Trust provides healthcare services to a population of nearly half a million across many sites and communities. Understandably, the trust would rather spend scarce resources on caring for people than paying for energy. So we're helping the Trust to do that.

We're currently installing state-of-the-art energy technology at five healthcare sites across Exeter, including a new 1.5 megawatt combined heat and power (CHP) unit at Wonford Hospital to generate electricity onsite, roof mounted solar panels, LED light fittings, air conditioning upgrades and new energy efficient boilers.

The £7 million project is due for completion by mid-2020 and is expected to reduce the annual emissions of the trust by 2,200 tonnes of carbon dioxide, equivalent to taking more than 1,450 cars off the road. It will save money too, an impressive £800,000 a year, which can be reinvested in critical frontline services.

By providing these solutions we are helping Royal Devon and Exeter to achieve its broader sustainability goals. Centrica currently supplies more than 1,300 NHS providers with products and services.

This initiative with Centrica is a major part of our approach to reduce the amount of money we spend on energy and utilities, releasing more funds to invest in frontline patient care and other vital functions. At the same time, reducing our energy consumption helps reduce our environmental impact."

Robert Steele

Deputy Director of Strategic Capital Planning, Royal Devon & Exeter NHS Foundation Trust

2,200 tonnes of CO2 saved a year

1,450 Equivalent to taking 1,450 cars off the road

£800,000 a year cost saving

Growing Business Solutions

• We are delivering growth in Business Solutions through leveraging existing energy supply customer relationships and the expansion of our technology range, with the focus increasingly on lower-carbon solutions. We are targeting £1 billion of revenue by 2022 and EBITDA break-even by 2021.
• The Centrica Business Solutions order book has increased by 19% compared to the end of 2018, revenue in 2019 was up 36% to £285 million and the adjusted operating loss reduced.
• On 1 July 2019, we acquired the energy services and solutions company SmartWatt for a total consideration of \$37 million, adding further capabilities in energy efficiency, lighting retrofits, heating, ventilation and air-conditioning, building automation, water conservation and performance assurance in North America.
• We continue to utilise our FlexPond Demand Side Response platform in support of our customer solutions and are also offering it as a 'software as a service' offer to third parties, including an agreement with Japanese utility TEPCO to provide flexibility services for the reserve market in the Kyushu region of Japan.

Expanding our global LNG footprint and route-tomarket offering

• In LNG, we signed a landmark LNG sales and purchase arrangement in February under which Tokyo Gas and Centrica will jointly purchase 2.6 million tonnes per annum, delivered ex-ship, from the Mozambique LNG Project from the start-up of production until the early 2040s.
• In customer solutions, our global total route-to-market capacity under management is now 25.0 Gigawatt (GW), 9% higher than at the start of 2019.

Fresh impetus for renewables in North America

Direct Energy is gaining hundreds of new customers in the US state of Virginia by offering 100% renewable power.

The United States is a patchwork of different energy rules, with some states allowing free competition and others retaining a monopoly supplier. That creates a challenging environment for Direct Energy.

One of our leading customers, real estate group Bernstein Management Corporation, has been buying retail power and gas from Direct Energy Business for their Maryland and Washington D.C. properties since 2010; but state regulations prevented them from doing the same in Virginia. Until now.

Rule changes introduced last year mean that customers with usage below 5 Megawatts can use an independent supplier if that supplier can offer 100% renewable power. Direct Energy acquired its licence in February 2019 and Bernstein was one of the first customers to sign up.

100% Renewable power below the utility default rate 200+ New customers

The Company will purchase renewable power at a fixed rate, giving it certainty and boosting progress towards its own renewable goals. But the truly remarkable aspect of the deal is that Bernstein is paying less for its power now than the prevailing monopoly utility rate for electricity in Virginia and will continue to do so.

Last October Centrica also launched a new business unit in the US, Direct Energy Renewable Services, which is focused on this growing market. It will allow us to meet the demands of customers like Bernstein in a more joined-up way.

For us to have the ability to offer renewable power at below the utility headroom price speaks volumes. It's a 'win, win' for all parties involved and it clearly demonstrates the demand for green energy in Virginia."

Keith Korin Bernstein Account Lead, Direct Energy Business

Our Upstream division consists of our Exploration & Production (E&P) and Nuclear power generation businesses.

• › Spirit Energy
• › Centrica Storage
• › Nuclear

In E&P, Spirit Energy, our joint venture with Stadtwerke München, is a robust, self-financing business.

However, Centrica's journey is back to consumer, so E&P is no longer strategically core for us. That is why we have announced our intention to exit from Spirit Energy by the end of 2020.

We continue to own and operate the Rough field and the onshore Easington gas processing terminal. Our focus is on maximising the value of both these assets.

We also own a 20% interest in EDF Energy's nuclear power generation fleet. In 2018, we announced our intention to dispose of this stake by the end of 2020.

Production and generation performance

• Nuclear generation volumes were down 14% to 10.2TWh in 2019 compared to 2018, reflecting the extensions to outages at the Dungeness B and Hunterston B power stations.
• Total E&P production volumes were down 10% to 52.3mmboe in 2019 compared to 2018.
• Spirit Energy production was down 2% to 45.8mmboe with a slight increase in gas production volumes offset by lower liquids production. We saw improved operational performance from the operated Morecambe field which largely offset natural decline across the portfolio and lower availability at Statfjord.
• Rough production was down 42% to 6.5mmboe, in line with the expected decline profile of the reservoir.

E&P development and exploration progress

• In March 2019, the Oda field, Spirit Energy's first development as the operator on the Norwegian Continental Shelf, came on line five months earlier than originally planned and under budget.

• The development of the Nova field in Norway is proceeding as planned, with production due to begin in the third quarter of 2021. The field has an estimated 77mmboe of 2P reserves and Spirit Energy owns 20%.

• In January 2020, we announced plans with our Statfjord partners to drill up to 100 new wells and extend production from the area by more than 10 years.

• Spirit Energy's 2P reserves were 14mmboe higher at the end of 2019 than at the end of 2018, with 64mmboe of positive revisions more than offsetting the impact of production and the Valemon and Sindre divestments in the year. This represents a 2P reserves replacement ratio of 140%. The Statfjord life extension resulted in 31mmboe of the revision, with positive revisions also recognised at Kvitebjorn, Cygnus and South Morecambe.
• In 2019, three wells were drilled in the Greater Warwick Area, in which Spirit Energy owns a 50% interest. The Lincoln Crestal well confirmed the presence of Iight oil and produced at potentially commercial rates. The Warwick area yielded mixed results. Warwick Deep proved unsuccessful with water production and minor oil encountered. Warwick West was a discovery and confirmed the presence of light oil which was produced to surface during well testing. Further technical analysis is required to understand reservoir quality in this area.

Spirit Energy has transformed efficiency and production at Morecambe.

The Morecambe Bay gas fields have been a part of Centrica since the Company was founded more than 20 years ago. At one time, they accounted for 15% of the UK's entire gas needs. They are still a significant production hub. But until recently the ageing infrastructure was beset by problems.

The challenge of extending Morecambe's life was taken on by the team at Spirit Energy, our specialist exploration and production joint venture with Stadtwerke München. The first task was to shut down the parts of the infrastructure that were no longer needed. We now have one less onshore terminal at Barrow and two fewer platforms to maintain offshore.

The next step was to improve the integrity of the remaining facilities and modernise maintenance strategies to increase uptime. Experts now manage our onshore gas compressor, a key piece of equipment which enables the flow of gas to the grid. Proactive maintenance has helped us to reduce the number of 'trips' and failures. Better root cause analysis has enabled us to eliminate defects and get the plant back online quicker when there is a trip.

77% Efficiency up from 32%

We are already reaping big benefits and the results have exceeded our expectations. Safety performance is at a five-year high. Production volumes increased from 3.2mmboe in 2018 to 6.7 million in 2019. Production efficiency has more than doubled from a lowly 32% to 77%.

The rationalised and stable asset also costs less to run. Improved working practices and a focus on supply chain efficiencies have reduced operating cost to £100 million in 2019, down from £140 million the year before.

It is true that we are in the process of selling our stake in Spirit Energy. But we are doing this because Centrica's journey is back to the consumer. It has nothing to do with the quality of Spirit as a business, which is very high. The turnaround at Morecambe shows what a focused team can achieve and is a great illustration of Spirit Energy's potential.

It's a great time to be involved with Morecambe. The facilities are strategically important as a gas hub and may have a second life as we transition to other forms of energy. The Spirit team are building an operating foundation to be proud of and we are now working on the next phase of value creation from our asset."

John Cowie

Morecambe Hub Asset Manager, Spirit Energy

Group Financial Review

The environment was challenging for Centrica's portfolio in 2019, which impacted the Company's performance. However, performance during the second half was much improved compared to the first half."

Chris O'Shea Group Chief Financial Officer

Group revenue

• Group revenue included in business performance reduced by £0.6bn or 2% to £26.8bn (2018: £27.4bn). Gross segment revenue, which includes revenue generated from the sale of products and services between segments, reduced by £1.0bn or 3% to £28.0bn (2018: £29.0bn).
• Centrica Consumer gross segment revenue was broadly flat as the impact of energy supply customer account growth in North America offset the impact of a lower average number of energy supply accounts in the UK and lower prices, in part due to the introduction of the UK default tariff cap.
• Centrica Business gross segment revenue fell by £0.7bn, largely due to the impact of lower wholesale commodity prices and warmer weather on gas optimisation revenue in North America.
• Upstream gross segment revenue fell by £0.4bn due to reduced oil and gas production and nuclear power generation volumes and lower achieved gas prices due to falling wholesale commodity prices.

Adjusted operating profit

£901m 2018: £1,392m 35%

Statutory loss for the year attributable to shareholders

£(1,023)m 2018: £183m profit

Adjusted operating cash flow

£1,830m

2018: £2,245m 18%

Adjusted basic earnings per share (EPS)

7.3p 2018: 11.2p 35% Statutory operating loss

£(849)m 2018: £987m profit

Adjusted effective tax rate

34%

2018: 41% 7ppt

Statutory basic earnings per share (EPS)

(17.8)p 2018: 3.3p

Statutory net cash flow from operating activities

£1,250m 2018: £1,934m 35%

Operating profit

• The statutory operating loss was £849m (2018: operating profit of £987m). Adjusted operating profit was £901m (2018: £1,392m). The difference between the two measures of profit relates to exceptional items and certain re-measurements. A table reconciling the different profit measures is shown below.

Adjusted operating profit

• Centrica Consumer adjusted operating profit was down £245m or 33% to £505m.
• There was a £300m negative revenue impact from the UK residential energy supply default tariff cap, including a one-off £70m impact in the first quarter due to Ofgem's revision to the methodology calculating supplier wholesale costs during the transitional period.
• Total efficiency savings more than offset lower gross margin resulting from lower average UK energy supply accounts and a change in customer mix in both energy and services towards lower priced products.
• Centrica Business adjusted operating profit was up £142m or 189% to £217m.
• This includes the impact of a significant improvement in power retail margins in North America and good trading and optimisation performance in Europe.
• It also includes benefit from the decision to defer delivery of gas from 2019 into 2020 from the one remaining large legacy gas contract and strong trading and optimisation performance in Europe.
• Upstream adjusted operating profit was down £388m or 68% to £179m.
• Nuclear adjusted operating profit was down £27m or 59% to £19m, with lower output resulting from extensions to outages at the Dungeness B and Hunterston B nuclear power stations not fully offset by the impact of a higher achieved power price.
• Exploration & Production adjusted operating profit was down £361m or 69% to £160m, largely due to lower achieved gas sales prices reflecting the falling UK NBP price, lower volumes from Rough reflecting the field's natural decline, higher depreciation charges following 2018 asset write-backs and production mix, and field specific write-offs.

Exceptional items

• A net exceptional pre-tax charge of £1,103m was included within Group operating loss before taxation in 2019 (2018: £185m) including:
• A £476m charge relating to the impairment of E&P assets, predominantly due to the reduction in near-term prices and long-term price forecasts and a conclusion that certain field reserves levels were not sufficient for development.
• A £381m charge relating to the impairment of power assets, including £372m related to the nuclear investment largely as a result of a reduction in price forecasts and availability issues at the Hunterston B and Dungeness B power stations.
• A £77m charge following the strategic decision to refocus Centrica Home Solutions activity on the UK and Ireland, largely related to asset impairments (including goodwill), inventory write-downs and onerous contract provisions.
• £356m of restructuring charges arising from the continuation of phase 2 of the Group's cost efficiency programme, principally related to redundancy, change resource, consultancy, property rationalisation costs, and other transformational activity including member compensation payments from renegotiating UK defined benefit pension arrangements.
• A £152m net credit relating to pension changes. This includes a £260m credit in relation to a rule amendment to the UK defined benefit pension scheme arrangements to offer members an option to level up their ongoing pension if they retire before the statutory pension age, partially offset by £108m of pension strain costs associated with redundancy.
• A £35m net gain on disposals of the Clockwork assets, Valemon, Sindre, the King's Lynn power station (which is held for sale) and contingent consideration on the historic disposal of Trinidad and Tobago E&P assets.
• These charges in total generated a taxation credit of £116m (2018: £89m). As a result, total net exceptional charges after taxation were £987m (2018: £235m).

Operating profit

		2019		2018
Year ended 31 December	Notes	Business performance £m	Exceptional items and certain re-measurements £m	Statutory result £m	Business performance £m	Exceptional items and certain re-measurements £m	Statutory result £m
Adjusted operating profit/(loss)
Centrica Consumer		505			750
Centrica Business		217			75
Upstream		179			567
Group operating profit/(loss)	4(c)	901	(1,750)	(849)	1,392	(405)	987
Net finance cost	8	(255)	–	(255)	(273)	(139)	(412)
Taxation	9	(218)	219	1	(461)	128	(333)
Profit/(loss) for the period		428	(1,531)	(1,103)	658	(416)	242
Profit attributable to non-controlling interests		(9)			(27)
Adjusted earnings		419			631

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 has shown the fair value adjustments on these commodity derivative trades separately as certain remeasurements, as they do not reflect the underlying performance of the business because they are economically related to our upstream assets, capacity/off-take contracts or downstream demand, which are typically not fair valued.
• The operating loss in the statutory results includes a net pre-tax loss of £647m (2018: £220m) relating to these re-measurements, with the decline in gas prices over the period being reflected in the fair valuing of historic and current energy procurement to meet the needs of our customers.
• These re-measurements generated a taxation credit of £103m (2018: £39m). As a result, the total net re-measurement loss after taxation was £544m (2018: £181m).
• The Group recognises the realised gains and losses on these contracts when the underlying transaction occurs. The business performance profits arising from the physical purchase and sale of commodities during the year, which reflect the prices in the underlying contracts, are not impacted by these remeasurements.

Group finance charge and taxation

Finance charge

• Net finance costs decreased to £255m (2018: £273m), largely reflecting the impact of a £1.1bn repurchase of gross debt which was completed in 2018 and the maturity of a bond in September 2018. There were no exceptional net finance items (2018: £139m).

Taxation

• Business performance taxation on profit decreased to £218m (2018: £461m). After taking account of tax on joint ventures and associates, the adjusted tax charge was £217m (2018: £458m). The resultant adjusted tax rate for the Group was 34% (2018: 41%). The decrease in adjusted tax rate reflects the more highly taxed E&P businesses contributing 18% of adjusted operating profit, compared to 37% in 2018. An adjusted effective tax rate calculation is shown below.

Group earnings

Adjusted earnings

• Profit for the year from business performance decreased to £428m (2018: £658m) and after adjusting for non-controlling interests, adjusted earnings fell by 34% to £419m (2018: £631m). This reflects the overall decline in adjusted operating profit, partly offset by the lower net finance costs and adjusted tax charge as described above.
• Adjusted basic EPS was down 35% to 7.3p (2018: 11.2p).

Group statutory loss

• The statutory loss attributable to shareholders for the period was £1,023m (2018: profit of £183m). The reconciling items between Group profit for the period from business performance and statutory profit are related to exceptional items and certain re-measurements.
• The movement to a statutory loss, compared to a statutory profit in 2018, is due to the reduction in adjusted earnings and the increase in the exceptional charges and loss from certain re-measurements, all as described above.
• The Group reported a statutory basic EPS loss of 17.8p (2018: profit of 3.3p).

Dividend

• In addition to the interim dividend of 1.5p per share, the proposed final dividend is 3.5p, giving a total full year dividend of 5.0p (2018: 12.0p).

Group tax charge

Year ended 31 December	2019 £m	2018 £m
Adjusted operating profit before impacts of taxation	901	1,392
Add: JV/associate taxation included in adjusted operating profit	(1)	(3)
Net finance cost	(255)	(273)
Adjusted profit before taxation	645	1,116
Taxation on profit	218	461
Share of JV/associate taxation	(1)	(3)
Adjusted tax charge	217	458
Adjusted effective tax rate	34%	41%

Group cash flow, net debt and balance sheet

Operating cash flow

• Adjusted operating cash flow, which is reconciled to net cash flow from operating activities in the table below, fell by £415m or 18% to £1,830m, largely in line with the reduction in adjusted operating profit after accounting for the increase in depreciation.
• Net cash flow from operating activities decreased to £1,250m (2018: £1,934m), which reflects the reduction in adjusted operating cash flow as described above, higher pension deficit repair payments as agreed with the trustees as part of the triennial review, increased exceptional payments largely relating to the Group's restructuring programme and an inflow of margin cash compared to an outflow in 2018.

Net cash flow

• Net cash outflow from investing activities decreased to £503m (2018: £1,007m) primarily due to the Clockwork disposal proceeds, reduced capital expenditure and lower acquisition spend.
• Net cash outflow from financing activities fell to £1,077m (2018: £2,540m) largely reflecting lower repayment of borrowings due to the debt repurchase programme and a bond maturity in 2018, and a slight reduction in cash equity dividends paid reflecting the rebasing of the 2019 interim dividend paid in November 2019.

Net debt

• Reflecting all of this, and the Company adopting IFRS 16 which increased opening 2019 net debt by £394m, the Group's net debt increased by £525m to £3,181m in the year (2018: £2,656m), including cash collateral posted or received in support of wholesale energy procurement.

Balance sheet

• Net assets decreased to £1,795m (31 December 2018: £3,948m) driven by the statutory loss made in the year, net actuarial losses, exchange differences on translation of foreign operations and dividend payments made during the year.

2019 Acquisitions and disposals

• On 1 July 2019 the Group acquired SmartWatt Energy Inc., a leading energy services and solutions company in North America, for consideration of \$37m (£29m). There have been no other material acquisitions during the year.
• On 30 April 2019, the Group disposed of Clockwork Home Services for a gross consideration of \$300m which, after deal-specific adjustments related to working capital, resulted in a net consideration of \$279m (£215m).

• The Group also disposed of Norwegian exploration and production assets, Valemon and Sindre, during the year. Proceeds of £33 million were equal to the carrying value of the assets disposed of subsequent to the recognition of an impairment charge of £49 million. The impairment charge is included in net gain on disposal programmes within exceptional items.

Events after balance sheet date

• On 23 December 2019, the Group agreed to sell its 382MW King's Lynn combined cycle gas turbine power station to RWE Generation for headline consideration of £105 million, adjusted for final working capital, based on a valuation date of 31 December 2019. The deal completed on 12 February 2020.
• Further details of events after the balance sheet date are available at centrica.com/ar19

Risks and capital management

• The nature of the Group's principal risks and uncertainties are largely unchanged from those set out in its 2018 Annual Report, with two changes to note. The Information Systems and Security risk has been separated into two principal risks, enabling more focused conversations on our digital transformation and ongoing security. A new principal risk, Regulated Insurance and Services, has also been identified.
• In addition, there continues to be a high degree of uncertainty surrounding the future relationship between the EU and UK including trade agreements and the supply of electricity and gas.
• Details of how the Group has managed financial risks such as liquidity and credit risk, and details of the Group's capital management processes are available at centrica.com/ar19

Accounting policies

• UK listed companies are required to comply with the European regulation to report consolidated financial statements in conformity with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Group's specific accounting measures, including changes of accounting presentation and selected key sources of estimation uncertainty, are available at centrica.com/ar19. Changes include the presentation of the income statement for energy derivative contracts following an IFRIC agenda decision on the recognition of fair value.

Operating cash flow

Year ended 31 December	2019 £m	2018 £m
Net cash flow from operating activities	1,250	1,934
Add back/(deduct):
Net margin and cash collateral inflow/(outflow)(1)	46	(57)
Payments relating to exceptional charges	298	248
Dividends received from joint ventures and associates	1	22
Defined benefit pension deficit payment	235	98
Adjusted operating cash flow	1,830	2,245

(1) Net margin and cash collateral inflow includes the reversal of collateral amounts posted when the related derivative contract settles.

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 Committee.

Our approach

Wherever we do business in the world, we take great care to ensure we fully comply with all of our obligations to pay or collect taxes and to meet local reporting and disclosure requirements. We fully disclose information on ownership, transactions and financing structures to the relevant tax authorities. Our cross-border tax reporting reflects the underlying commercial reality of our business.

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.

We ensure that income and costs, including costs of financing operations, are appropriately recognised on a fair and sustainable basis across 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 Her Majesty's Revenue & Customs (HMRC). This includes regular, open dialogue on issues of significance to HMRC and Centrica. Our relationship with fiscal authorities in other countries where we do business 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. However, we do not enter into artificial arrangements in order to avoid taxation nor to defeat the stated purpose of tax legislation.

We 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 tax charge

The Group's businesses are subject to corporate income tax rates as set out in the statutory tax rates on profits table. The overall tax charge is therefore dependent on the mix of profits and the tax rate to which those profits are subject.

Statutory tax rates on profits

Tax charge compared to cash tax paid

	Current tax charge/(credit) £m	Cash tax paid/ (recovered) £m
UK	1	(111)
Europe	131	193
North America	57	46
Total	189	128

For details on the Group's effective tax rate see pages 29 to 32.

Further information on the tax charge is set out in note 9 on Pages 135 to 137 in the Annual Report and Accounts 2019

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

Our Principal Risks and Uncertainties

Understanding those risks that impact our strategy and determining how much risk we would like to take.

The Group presented an update to the 2015 strategy in the July 2019 Interim announcement. The trends identified in 2015 continue to play out with decentralisation of energy systems, shifting power to the consumer; and increasing digitalisation, presenting both opportunities and risks. Identifying and appropriately managing these risks is critical to the successful delivery of our strategy whilst enabling the transition to a lower carbon future.

The strategy update detailed an evolution of the Group Priorities. Within our System of Risk Management and Internal Control we assess risk in relation to the delivery of Group Priorities and determine the level of risk we are prepared to take. Within this framework we consider safety, compliance and conduct to continue to be an underpinning priority. The Group Risk Appetite Statements were updated in the context of the evolved Group Priorities and approved in November 2019:

• Customer Obsession: It is only through delighting our customers and giving them propositions that they want and are willing to pay for that we will be able to grow our Group. We have a moderate risk appetite for pursuing innovative opportunities to deliver better service throughout the customer journey.
• Operational Excellence: Paying attention to excellence in the basics in our operations and the way we execute our business processes as we serve our customers is fundamental to our competitive success. As we aim to improve our operations, we have a moderate risk appetite for pursuing innovative opportunities to deliver better service through the customer journey and to deliver improved operational excellence.
• Most Competitive Provider: Being the most competitive provider enables us to retain our customers and enable the provision of other services and solutions to them thereby growing our Group. We have a moderate to high risk appetite for identifying and implementing innovative improvements to save cost but a lower risk appetite for managing procurement and managing our business-as-usual processes in a rigorous and systematic way.
• Cash flow Growth: Our aim is to deliver long-term shareholder value through returns and cash flow growth. We assess our stakeholder expectations in establishing our financial priorities, allocating capital across our portfolio of businesses, and operating within a disciplined financial framework. We have a moderate risk appetite for seeking opportunities to deliver cash flow growth. However, there are some aspects of this priority impacted by external risks where we have to accept a higher risk appetite.
• Empowered Colleagues: A productive, empowered and capable workforce is critical to delivery of our Group strategic priorities. Accordingly, we accept a moderate level of risk in finding effective ways to empower ourselves to innovate and to attract, develop and reward people with the diverse capabilities needed to deliver our ambitions.

• Safety, compliance and conduct: We put customers at the heart of everything we do. As part of treating customers fairly we set high standards of fairness and have a low risk appetite for failures of conduct towards customers. Our risk appetite is as low as reasonably practicable as we continue to strive for an incident-free workplace and to conduct business operations in compliance with the laws and regulations and we have a low appetite for rewarding and retaining people who fail to demonstrate Our Values and act within Our Code.

Strengthening our System of Risk Management and Internal Control

Each business unit and Group function is responsible for identifying and assessing its significant risks. We consider both the potential impact to the Group and the likelihood of occurrence on an inherent and residual basis and aggregate these risks within defined Principal Risk categories. The Executive Committee then considers these perspectives alongside broader external and internal factors to create a Group-wide set of prioritised risks.

We categorise our risks as:

• Risk Requiring Standards (RRS): Risk with negative impacts that we control through Standards and Management Systems, for example process safety or data security.
• Risk Requiring Judgement (RRJ): Risk that we choose to take to execute our business strategy, for example new products or business improvement opportunities.
• External Risk: Risk that requires a focus on scenario and contingency planning with little or no ability to reduce likelihood, for example extreme weather or geopolitical turbulence.

We identify all 'severe, but plausible' consequences of our risks, where the realisation is more than remote in likelihood. These consequences are considered in our assessment of viability as described on pages 44 to 45.

On an annual basis, we evaluate our System of Risk Management and Internal Control, learning from any control incidents that have arisen, to ensure we are mitigating risks in line with our risk appetite. We are evolving our System of Risk Management and Internal Control to ensure it remains appropriate in support of our strategy.

Evaluating risks through our Enterprise Risk Framework

Our Enterprise Risk Framework is designed to enable us to identify, evaluate and mitigate our risks appropriately. It comprises six steps:

Identify

• Identify significant risks to achieving business unit and/or function objectives

Assess & Analyse

• Assess inherent impact and likelihood using the Group risk assessment matrix
• Identify risk type (RRS, RRJ or External Risk) and determine target risk rating
• Identify mitigating activity and key risk indicators and assess current risk exposure

Design & Implement Controls

• Design and implement controls and actions to mitigate the potential impact and likelihood of risks

Our Enterprise Risk Framework is designed to enable us to identify, evaluate and mitigate our risks appropriately. It comprises six steps:

Report, Evaluate & Improve

• Report consolidated risk, assurance and control position to the Group Ethics, Risk, Assurance, Control and Compliance Committee, Audit Committee and Safety, Health, Environment, Security and Ethics Committee (SHESEC)
• Evaluate priority risks within the Group risk profile to identify any corrective actions
• Evaluate Group-wide severe, but plausible, risks and implications
• Drive continuous improvement through reviewing the Risk Universe and Group risk appetite

Calibrate & Assure

• Risks are calibrated to ensure consistency and prioritise responses
• Second line assurance and internal audit activity
• Assess impact of assurance findings

Manage & Monitor

• Management of risks and controls to deliver target risk level
• Monitor through inspection, performance reviews and regular reporting
• Identify and implement specific remediation actions

Mitigating risk through our System of Risk Management and Internal Control

Our System of Risk Management and Internal Control is central to our governance processes and comprises the following elements:

What we stand for:

• Our Purpose: We are an energy and services company. Everything we do is focused on satisfying the changing needs of our customers and enabling the transition to a lower carbon future.
• Our Values: Our Values of Care, Collaboration, Courage, Delivery and Agility underpin our strategy and Group Priorities.
• Our Code: This was launched in early 2018 to replace our Business Principles and provides the foundation for how we operate.

Our strategic framework:

• Strategy: This is aligned throughout the organisation by the five Group Priorities and underpinning priority of safety, compliance and conduct.
• Financial Framework: Sets out parameters and targets within which we operate to guide our strategic planning and financial decision-making.
• Enterprise Risk Framework: Incorporates the Principal Risks within the Group Risk Universe.

Our governance:

• Board and Committees: Structured to effectively execute required duties and through which our Principal Risks are monitored.
• Legal entities: Subsidiary company legal entities with boards of directors required to meet legal and regulatory obligations.
• Delegations of authority: Accountability is delegated through the organisation to individuals in accordance with risk appetite.
• Executive and Committees: Oversight to ensure appropriate planning and performance management.

How we are organised and managed:

• Management Systems: The detailed policies, standards and processes establishing the mandatory requirements and which are required for the systematic management of related risks.

How we provide assurance:

• Second line assurance: Ensuring policies and standards are complied with through monitoring and testing activities performed by individuals who are not directly responsible for the operation of the controls relating particularly to Finance, Health Safety & Environment (HSES), and Digital Technology Services.
• Internal Audit: Providing confidence to the Board, via the Audit Committee, that the Group has appropriate risk management procedures and effective controls in place.

Changes in risk climate and emerging risks

We monitor closely the evolving risk climate in relation to each of our Principal Risks. We consider that the overall risk climate has broadly remained unchanged over the past year, but the markets in which the Group operates continue to be challenging.

Our global Consumer businesses continue to face significant uncertainty with respect to political risks and potential regulatory intervention. Markets in both the UK and US remain highly competitive with pressure from new and existing entrants. Whilst the outcome of the UK general election in December has provided greater certainty over the UK's Brexit strategy, the prospect was raised of the nationalisation of parts of the energy sector under an alternative government in the future. Our UK Energy Supply business is now operating in a market subject to a price cap with the potential for further regulation in UK markets. Recent developments in US states (notably the announcement by New York State to re-regulate aspects of its market) are indicators that further interventions are also a possibility in North American markets.

The Board recognises the significant emerging risks posed by climate change. A climate change risk register is being developed to identify and assess the Group's climate change risks which will be integrated into the Board's oversight of risk through the Group Enterprise Risk Framework. Further details of the risk and opportunities posed by climate change can be seen on pages 46 to 51.

The Group continues to monitor risks relating to global energy and services trends. Our Strategic Update in July 2019 highlighted that the Company's focus would be on its strengths of energy supply and its optimisation, and on services and solutions centred around energy, with an emphasis on helping our customers transition to a low carbon future. This focus is critical to help the Group deliver customer-led growth. Quarterly performance reviews are held with each business and function to monitor progress against targets and embed continuous improvement.

The continued drive for cost efficiency with a view to becoming the lowest cost provider in all our markets, consistent with chosen brand positioning and propositions, is key for the Group, but brings associated risks and challenges. The volume, pace and complexity of change remain significant, including continued large-scale transformational programmes, organisational and structural changes. The Board is focused on risks associated with our people, ensuring that talent is retained and the Company has the capabilities and capacity needed to deliver the strategic goals for 2020 and beyond.

Our Information Systems are transitioning to a new operating model, designed to create a new customer-centric architecture approach to support our Group priority of customer obsession. Security and privacy risks remain a core focus area for the Board and regular Board reviews consider the threats and mitigating actions being taken to detect and protect against potential physical, cyber and insider attacks.

Maintaining capital discipline and balance sheet strength is key and the Board focuses on monitoring our pension obligations and the credit rating of the Group. To mitigate the risk of rising pension obligations and contributions a revised pension funding plan has been agreed and increased interest rate hedging will mitigate the risk of further deficit growth.

Principal Risks

The Group Risk Universe is made up of a holistic framework of Principal Risks, laid out below in the Group's order of prioritisation based on potential impact then likelihood of the risk. We have indicated if the magnitude of the risk driving the prioritisation of risks has increased, decreased or remained unchanged from last year. The Board makes a robust assessment of these Principal Risks, considering future performance and our ability to deliver the strategy, including solvency and liquidity risks. In order to reflect the evolving risk landscape, we have made a number of changes to our Group Risk Universe:

• Information Systems and Security: the Board agreed to separate this into two Principal Risks (Digital Technology and Information Systems and Cyber, Security and Resilience), enabling more focused conversations on how we are investing in our digital transformation and our ongoing security and recognising the different appetites for risk between these two areas.
• Regulated Insurance and Services: a new Principal Risk, capturing risk relating to our regulated insurance and services businesses British Gas Insurance Limited and British Gas Services Limited. This will facilitate the alignment of our Group Enterprise Risk Framework with the requirements for these businesses.

For each Principal Risk, we discuss the nature of the risk and the impact on our Group Priorities. Each Principal Risk is regularly overseen directly by the Board or one of its Committees, with the Board retaining overall responsibility for risk across the Group.

Our assessment of risk extends to risks associated with our investments in joint ventures and associates, including our nuclear business. The impact and likelihood of these risks are evaluated and reported using a consistent approach.

Non-Financial Reporting Statement

The following Principal Risks have been identified as specifically relating to the matters listed above: Health, Safety and Environment (HSE), People, Strategy Delivery, Legal, Regulatory and Ethical Standards Compliance and Procurement and Supplier Management (Pages 38 to 43).

Principal Risk:	Related topic:
Health, Safety and Environment	Environment and Employees
People	Human Rights and Employees
Strategy Delivery	Social matters
Legal, Regulatory and Ethical Standards Compliance	Anti-bribery and corruption
Procurement and Supplier Management	Human rights, anti-bribery and corruption

Description	Political and Regulatory Intervention Risk of political or regulatory intervention and changes, including those resulting from Brexit, or a failure to influence such changes. External Risk Governance oversight: Board		Financial Market Risk of financial loss due to our exposure to market movements, including commodity prices, inflation, interest rates and currency fluctuations. External Risk with elements that are Risks Requiring Judgement.		Health, Safety and Environment (HSE) Risk of failure to protect the health and safety of customers, employees and third parties or to take appropriate measures to protect our environment and in response to climate change. Risk Requiring Standards Governance oversight: Board and Safety, Health,
			Governance oversight:	Board and Audit Committee	Committee	Environment, Security and Ethics
	Priority	Magnitude NO CHANGE	Priority	Magnitude NO CHANGE	Priority	Magnitude NO CHANGE
Potential impacts	political agenda.	Brexit continues to pose risks should the UK fail to agree a trade deal with the EU or through macro-economic impacts following the UK's exit from the EU. While the default price cap has now been in force in the UK market for 12 months, there is continued regulatory pressure in the Consumer Energy Supply markets in the UK and North America that could result in the erosion of our profit margins. There is a risk of partial/total regulation of a small number of retail and/or natural gas markets in the US. Operating costs could also increase in the case of further smart meter and/or energy efficiency obligations. The UK General Election has brought the threat of nationalisation back onto the		Due to our large upstream and downstream business positions, our exposure to adverse price movements in commodity markets could impact profitability and cash flow generation across the business. While increased volatility in commodity prices could provide more opportunities, it could also give rise to higher collateral costs and/or additional credit risk for both Energy Marketing & Trading (EM&T) and North America Business. Further, it would create volatility in asset and contract valuations. An unseasonally warm autumn/winter in the UK and a cooler summer in the US could reduce customer demand significantly.	as described on page 19.	Our operations have the potential to result in personal or environmental harm. Significant HSE events could have regulatory, financial and reputational repercussions that would adversely affect some, or all, of our brands and businesses. We recognise and report on incidents that do occur,
Mitigation	choice for consumers. stakeholders. the EU during 2020.	• We are committed to an open, transparent and competitive UK energy market which provides • Executive Directors and senior management actively engage in discussions with political parties, regulatory authorities and other • We have dedicated Corporate Affairs and Regulatory teams which examine upcoming political and regulatory changes and their impact. Our dedicated Brexit project group continues to assess the Brexit-related risks as the UK aims to negotiate a trade deal with	Committee. Committee. risks we face. volatility.	• Financial risk is reviewed regularly by the Financial Risk, Assurance and Control Committee, and the Group Ethics, Risk, Assurance, Control and Compliance Committee to assess financial exposures and compliance with risk limits. Regular review is also undertaken by the Audit • Stress testing analysis is presented weekly to the EM&T Risk • As we move into new trading arrangements, we are focused on ensuring that our financial risk policies remain appropriate to the • We have appropriate hedging strategies in place that are regularly updated to mitigate exposure to commodity and financial market • We continue to invest in our systems to further automate and strengthen our control environment.	third parties. courses for their role.	• HSE Management Systems are established to include the policies, standards and procedures to protect customers, employees and • We continue to invest in training to ensure we maintain safe operating practices and require all employees to complete the relevant online HSE • We drive an Incident Free Workplace (IFW) culture across our business. • We undertake regular reviews and have assurance processes in place with reporting to the HSE Committee on a quarterly basis. • We engage with regulatory agencies such as the Environment Agency, Oil and Gas Authority and UK HSE to ensure we comply with legislative/regulatory requirements. • We are restructuring our business to make it less carbon intensive and we engage with climate change bodies and NGOs to offer our perspective, understand the direction of future actions and assess our readiness to respond to change.

38 Centrica plc Annual Review 2019

Obsession

Excellence

Competitive Provider

Growth

Colleagues

and conduct foundation

Priorities

People People Risk that we are unable to attract and Risk that we are unable to attract and retain employees to ensure that the retain employees to ensure that the business has the appropriate capabilities business has the appropriate capabilities to meet our strategic objectives. There is to meet our strategic objectives. There is also a potential risk of industrial action also a potential risk of industrial action as a large proportion of our field and as a large proportion of our field and office-based employees are represented office-based employees are represented by trade unions and works councils. by trade unions and works councils.	Change Management Change Management Risk of failure in the identification, Risk of failure in the identification, alignment and execution of change alignment and execution of change programmes and business programmes and business restructuring. restructuring.	External Market External Market Environment Environment Risk that events in the external market Risk that events in the external market or environment could hinder the or environment could hinder the delivery of our strategy. delivery of our strategy.
Risk Requiring Judgement Risk Requiring Judgement with elements that are Risks with elements that are Risks Requiring Standards. Requiring Standards.	Risk Requiring Judgement Risk Requiring Judgement with elements that are Risks with elements that are Risks Requiring Standards. Requiring Standards.	Risk Requiring Judgement Risk Requiring Judgement Governance oversight: Governance oversight: Board Board
Governance oversight: Governance oversight: Board and Safety, Health, Environment, Board and Safety, Health, Environment, Security and Ethics Committee Security and Ethics Committee	Governance oversight: Governance oversight: Board Board
Priority Priority Magnitude Magnitude INCREASE INCREASE	Priority Priority Magnitude Magnitude INCREASE INCREASE	Priority Priority Magnitude Magnitude NO CHANGE NO CHANGE
Failure to attract and retain key Failure to attract and retain key capabilities across the business could capabilities across the business could have a detrimental impact on our ability have a detrimental impact on our ability to meet our strategic objectives. to meet our strategic objectives. The risk of industrial action in our The risk of industrial action in our businesses may have a potential impact businesses may have a potential impact on customer service levels and retention. on customer service levels and retention. We require the right behaviours from our We require the right behaviours from our leaders and employees to deliver our leaders and employees to deliver our business strategy in line with Our Values business strategy in line with Our Values and Our Code. and Our Code.	If transformation projects are not If transformation projects are not aligned to our strategic objectives, aligned to our strategic objectives, or not implemented appropriately, or not implemented appropriately, the expected benefits may not be the expected benefits may not be realised and resources for other realised and resources for other critical projects may be depleted. critical projects may be depleted. There are many transformation There are many transformation initiatives that could be disruptive and/ initiatives that could be disruptive and/ or result in compromise to the control or result in compromise to the control environment if not governed environment if not governed appropriately. appropriately.	We operate in highly competitive We operate in highly competitive markets, where customer behaviour, markets, where customer behaviour, needs and demands are evolving due needs and demands are evolving due to digitalisation, energy efficiency, to digitalisation, energy efficiency, climate change, government initiatives climate change, government initiatives and the general economic outlook. and the general economic outlook. Failure to react appropriately and Failure to react appropriately and rapidly to changes in customer rapidly to changes in customer behaviour could result in the erosion behaviour could result in the erosion of our customer base, leading to of our customer base, leading to reduced revenues and associated reduced revenues and associated margins. In addition, we are subject margins. In addition, we are subject to global market volatility in our to global market volatility in our upstream businesses in commodity upstream businesses in commodity markets. markets.
• Our Code and Our Values set the • Our Code and Our Values set the behavioural expectations for all behavioural expectations for all employees and protection of employees and protection of human rights. human rights. • The Executive Committee has clear • The Executive Committee has clear oversight through regular discussions oversight through regular discussions of the people-related challenges of the people-related challenges inherent in our transformation inherent in our transformation programme. programme. • We have been developing a more • We have been developing a more strategic relationship with our trade strategic relationship with our trade union colleagues and engage with union colleagues and engage with them on restructuring and issues that them on restructuring and issues that could impact terms and conditions, could impact terms and conditions, with clear and open processes to with clear and open processes to cultivate an environment of trust and cultivate an environment of trust and honesty. honesty. • We conduct annual employee • We conduct annual employee engagement surveys and results are engagement surveys and results are reviewed and actioned by senior reviewed and actioned by senior leaders. leaders.	• We have a standardised • We have a standardised requirement articulated as Our requirement articulated as Our Approach to Managing Change Approach to Managing Change Impacts. Impacts. • Transformation programmes are • Transformation programmes are approved by the Board via the approved by the Board via the Group Strategic Planning and Group Strategic Planning and capital allocation process. capital allocation process. • Investment appraisal criteria are • Investment appraisal criteria are defined in Group Investment defined in Group Investment Committee Guidance. Committee Guidance. • Progress on specific projects is • Progress on specific projects is consistently monitored through consistently monitored through Steering Groups and reported Steering Groups and reported through to the Board. through to the Board. • We have dedicated change • We have dedicated change capability at Group and business capability at Group and business unit level to monitor the realisation unit level to monitor the realisation of benefits, the prioritisation of of benefits, the prioritisation of efforts and to share best practice. efforts and to share best practice. • We have post-merger integration • We have post-merger integration procedures in place to integrate procedures in place to integrate acquired businesses. acquired businesses.	• We focus on understanding • We focus on understanding consumer segments and their consumer segments and their needs, through products and needs, through products and services that are attractive and services that are attractive and competitive. competitive. • We undertake regular analysis of • We undertake regular analysis of commodity price fundamentals commodity price fundamentals and their potential impact on our and their potential impact on our business plans and forecasts. business plans and forecasts. • Our Market and Competitive • Our Market and Competitive Intelligence team monitors Intelligence team monitors movements in markets and movements in markets and provides information to enable provides information to enable appropriate decision-making. appropriate decision-making. • The Group is now equipped and • The Group is now equipped and committed to help our customers committed to help our customers transition to a lower carbon future. transition to a lower carbon future. • We have developed Centrica • We have developed Centrica Innovations and our Technology Innovations and our Technology & Engineering function to keep & Engineering function to keep abreast of technological advances. abreast of technological advances.

Description	Strategy Delivery Risk that our strategy is not appropriate to respond to external issues and/or the risk that the strategy is not deliverable due to insufficient capability. Risk Requiring Judgement Governance oversight: Board Priority Magnitude DECREASE	Brand, Trust and Reputation Risk that our competitive position is compromised by poor standards of fairness and transparency, and by failing to protect our brands. Risk Requiring Judgement Governance oversight: Board Priority Magnitude DECREASE	Cyber, Security and Resilience Risk of IT system internal misuse, cyber-attack, security of IT systems and resilience and business continuity. Risk Requiring Standards Governance oversight: Board, Audit Committee and Safety, Health, Environment, Security and Ethics Committee Priority Magnitude NEW
Potential impacts	Successful delivery of our strategy requires serving customers in a way that satisfies their changing needs in a competitive marketplace. Failure to identify changing trends in customers' needs, stay ahead of technological and digital advancements, develop appropriate responses to changing markets and competitive environments, and build the necessary capabilities to compete, have the potential to adversely impact our cash flow growth and value goals.	Failure to appropriately manage brand perception, media attention and lobbying from pressure groups could impact customer sentiment and could ultimately result in a reduction in overall customer numbers. Failure to be fair and transparent could lead to reputational damage, falling share prices and, in the case of very poor standards, legal and regulatory action.	Our substantial customer base and strategic requirement to be at the forefront of technological development mean that it is critical that our technology is robust, our systems are secure and our data is protected. Sensitive data faces the threat of misappropriation, for example from hackers and viruses, leading to potential financial loss and/or reputational damage.
Mitigation	• The Board sets and reviews the Group's strategy, determining the strategic direction and confirming the strategic choices made by the business. Regular reviews are conducted considering changes in market trends and the competitive environment, social matters and the business response. • The Board and Executive Committee regularly review the capabilities required to deliver on the strategy and address issues as they appear. • We have a clear financial framework to ensure capital is allocated in accordance with our strategy and that balance sheet strength and return on capital boundary conditions are met. • We have dedicated teams to ensure we continue to develop and innovate in new technologies. • Our Digital Technology Services function works in partnership with change functions to assure and deliver programmes of change.	• We aim to deliver a fair, simplified and transparent offering to all our customers. • We engage with NGOs, consumer and customer groups, political parties, regulators, charities and other stakeholders to identify solutions to help reduce bills and improve trust in the industry. • We review and monitor changes in our customer brand position through NPS. • We are transforming our complaints process to lower backlogs and resolution times, and to address root causes. • We closely monitor key metrics including broken promises/ appointments, grade of service and complaint numbers.	• We operate a combined Global Security function which includes Physical Security and Resilience and Digital Technology Services Information Security. • Our information security strategy seeks to integrate information systems, personnel and physical aspects to prevent, detect and investigate threats and incidents. • We have established governance bodies to oversee compliance with new security requirements. • We regularly evaluate the adequacy of our infrastructure and IT security controls, test our contingency and recovery processes, and undertake employee awareness and training. • Controls testing and security patching around our core systems is performed regularly, and our controls are further tested by outside experts.

Most Competitive Provider

Cash flow Growth

Empowered Colleagues

Safety, compliance and conduct foundation

40 Centrica plc Annual Review 2019

Balance Sheet Strength and Credit Position

Risk that our balance sheet may not be resilient, with implications for our ability to withstand difficult market or trading conditions or financial stresses to the business.

Risk Requiring Judgement

Governance oversight: Board and Audit Committee

Financial Processing and Reporting

Risk of errors or losses arising from the processing and reporting of financial transactions for both internal and external purposes.

Risk Requiring Standards

Governance oversight: Board and Audit Committee

Customer Service

Risk of failure to consistently provide good quality customer service through the customer lifecycle, with potential consequences being increased consumer churn and declining gross margin.

Risk Requiring Judgement

Governance oversight: Board

Priority	Magnitude	Priority	Magnitude	Priority	Magnitude
	INCREASE		NO CHANGE		NO CHANGE

Failure to operate within the Group's financial framework could result in risk to maintaining our target credit rating, which would impact our access to cost-effective capital and trading arrangements.

Long-term financial obligations may increase in value due to factors both inside and outside of our control, such as pension schemes, resulting in additional funding required to meet our obligations.

• We assess available resources on a regular basis. Significant committed facilities are maintained with sufficient cash held on deposit to meet fluctuations as they arise.
• We model the severe but plausible scenarios and consequences of our risks and their potential to impact our net debt position.
• The current credit rating position is reported and discussed regularly by the Board.
• We consider accounting assumptions impacting on our balance sheet carefully, including decommissioning and impairment.
• Long-term obligation estimates are updated annually.
• Counterparty exposures are restricted by setting credit limits for each counterparty, where possible with reference to published credit ratings.
• Wholesale credit risks associated with commodity trading and treasury positions are managed in accordance with Group policy.

The accounting landscape is evolving with the adoption of IFRS 16 in 2019. During the current transformation of

our Finance function the potential for failures in core controls is increased.

There is a risk that we fail to comply with relevant tax and regulatory requirements.

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 if they are unimpressed with their customer experience.

Remaining at the forefront of digital developments and innovation is critical as it leads to increased choice and control for our customers.

We also face risks regarding our ability to develop and price propositions competitively and profitably, which has increased recently as our business moves into new markets.

• The Audit Committee reviews our compliance with both our internal policies and external requirements.
• The Audit Committee has regularly reviewed progress with regard to the further strengthening of the control environment. During 2019 Project Link was established to further enhance the financial control environment of the Group.
• Our financial control framework incorporates our financial controls and management self-assessment compliance.
• We undertake detailed testing and evaluation of the effectiveness of our controls in response to critical financial risks, reporting to the Finance, Risk, Assurance and Control Committee quarterly.

• The Group Tax function has a control framework, to ensure compliance with all requirements, which has been globalised to drive consistency and simplification.

• Leadership teams in our frontline businesses establish accountability for specific aspects of the customer journey and assess performance daily and weekly.

• We operate an environment of continuous improvement, incorporating an accredited programme (STAR), and use root cause analysis of complaint and NPS insight to continuously improve our service delivery.
• Customer and Field Operations teams monitor customer service levels, ensuring enquiries are answered in a timescale and manner acceptable to the customer, complaint levels are minimised, and that customer satisfaction is reviewed at all stages of the customer journey.
• Customer service agents are quality assessed for consistency with a rigorous training and performance management programme.
• Performance parameters are monitored weekly for all third-party service providers involved in the customer service process.

Description	Information Systems Risk of reduced availability and sustainability, data optimisation and business benefit realisation essential for our operations. Risk Requiring Standards and elements that are Risks Requiring Judgements. Governance oversight: Ethics Committee	Digital Technology and associated with IT systems and data Board, Audit Committee and Safety, Health, Environment, Security and	Business Planning, Forecasting and reporting. Risk Requiring Judgement with elements that are Risks Requiring Standards. Governance oversight: Board	Performance Management Risk that plans and forecasts may not be deliverable or may fail to drive efficient and effective performance, and the risk of failures in performance	Availability and Performance delivery. Governance oversight: Board	Asset Development, Risk that failures in the development or integrity of our investments in operated and non-operated assets could compromise performance Risk Requiring Judgement
	Priority	Magnitude NEW	Priority	Magnitude NO CHANGE	Priority	Magnitude DECREASE
Potential impacts	financial resources to ensure sustainability. Our data is a key asset and Failure to deliver IT solutions in and change programmes in the both for our organisational our compliance obligations.	Reliance on our IT infrastructure is significant, and it is therefore key that our systems are available in line with user requirements but balanced with optimisation of that data is key to delivery of our strategic objectives. support of the prioritised objectives business would have consequences transformation and, in some cases,	We prioritise how we allocate plans and forecasts. Failure to accurately plan and to realise anticipated benefits.	resources according to our business forecast, accounting for the evolving business environment, could result in sub-optimal decisions and failure	unplanned outages. the strategic objectives. reported on page 8.	Failure to invest in the maintenance and development of our assets could result in significant safety issues or asset underperformance through Operational integrity is vital to our ability to deliver projects in line with During 2019 we experienced asset outages across our Nuclear fleet as
Mitigation	• We have a Digital Technology data and digital activities. • Controls testing and security outside experts.	Services Strategy Committee in place to track progress of the strategic priorities for technology, • We regularly evaluate the adequacy of our infrastructure and IT security controls, test our contingency and recovery processes, and undertake employee awareness and training. patching around our core systems is performed regularly and our controls are further tested by	aggregated risk position. identified as necessary.	• Annual planning processes are subject to scrutiny from the Executive Committee and the Board with respect to underlying market trends, competitive threats, organisational capability and delivery. Central contingencies are considered in response to the • Group functions utilise standard planning processes in support of business unit priorities, driving improved integration of plans. • The performance of each business unit is reviewed against their plan throughout the year so that any indications of plans not being delivered can be understood and any required actions can be undertaken. • Quarterly performance review meetings involving the Group CEO and CFO enable the review of plans and forecasts, with revisions • Post Investment Reviews are conducted to assess investment performance, whether benefits were fully realised and lessons that can be applied for future investment.		• Capital allocation and investment decisions are governed through the Investment Committee. • Group-wide minimum standards are applied to all assets, whether operated or non-operated. • Maintenance activity and improvement programmes are conducted across the asset base to optimise effectiveness and maximise production levels.

Provider

foundation

Legal, Regulatory and Ethical Standards Compliance

Risk of failure to comply with laws and regulations, and to behave ethically in line with Our Code, resulting in adverse reputational and/or financial

impact. Risk Requiring Standards Governance oversight: Board and Safety, Health, Environment, Security and Ethics Committee and Audit Committee Risk Requiring Standards Governance oversight: Regulated Entity Boards, Board, Audit Committee and Safety, Health, Environment, Security and Ethics Committee Risk Requiring Judgement with elements that are Risks Requiring Standards. Governance oversight: Board and Safety, Health, Environment, Security and Ethics Committee Priority Magnitude DECREASE Priority Magnitude NEW Priority Magnitude NO CHANGE Any real or perceived failure to follow Our Code or comply with legal or regulatory obligations would undermine trust in our business. Non-compliance could lead to financial penalties, reputational damage, customer churn and/or legal and/or regulatory action. There is a significant increase in the number of customer claims as a result of extreme cold conditions. Gross Premium Rate is significantly overpriced leading to low volume sales or Net Premium Rate is significantly underpriced, resulting in inadequate cash flow and/or leading to a high loss ratio, and adversely affecting profitability and solvency. Claims made by customers are not adequately validated, leading to the completion of work which is not underwritten by the insurer, which adversely impacts the loss ratio BGI is exposed to, or an unintended liability as a result of imperfectly or ambiguously worded policies and/or terms & conditions. 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 contractual terms in addition to legal, regulatory and ethical business requirements. Failure to comply with the Group policy and standards when procuring goods and services or to manage key suppliers and contracts effectively could inhibit the ability of the business to maintain competitive products and services or expose the Group to a range of regulatory or legal risks. • Regulatory compliance monitoring activities are performed by a single function to drive Group-wide consistency and quality. • Control frameworks are in place to deliver customer experience in line with requirements over sales compliance, billing, retentions, customer correspondence and complaints handling. These are regularly reviewed by relevant leadership teams through KPIs. • Our Financial Crime team monitors threats throughout the business and adequacy of response to the threat of anti-bribery and corruption. • A global 'Speak Up' helpline exists to • We utilise risk models and demand data to understand the cold weather risks with the data and corresponding actions overseen by the Quarterly Insurance Risk Committee. • Pricing of premiums is closely monitored and reviewed. • Anti-fraud controls have been designed and implemented to mitigate the risk of fraudulent claims. • Insurance policy documentation is subject to review and approval at the Joint Insurance Meeting. • We operate an end-to-end category management process to maximise value capture throughout the procurement lifecycle, from market analysis through to ongoing contract management and monitoring. • All suppliers are required to sign up to our 'Ethical Procurement' policies and procedures. • We review the ethical conduct of our suppliers, including a programme of supplier visits to provide additional assurance over practices employed. • Financial health, human rights risk

provide a consistent Group-wide approach and reinforce the importance of this channel as a means to flag unethical behaviour. Risk of loss/adverse change in the value of insurance liabilities, due to inadequate pricing and provisioning, resulting from premium and reserve risk, catastrophe risk and other non-life underwriting risks.

Regulated Insurance

and Services

Procurement and Supplier Management

Risk of failure to source effectively and to co-ordinate and collaborate with the supply chain to ensure value delivery and continuity.

• and anti-bribery and corruption due diligence and monitoring are implemented in supplier selection and contract renewal processes.
• Audits are conducted in relation to third-party operation of jointly operated Exploration & Production assets.

Viability Statement

Requirement

In accordance with provision 31 of the 2018 UK Corporate Governance Code (2018 Code) the Directors have assessed the prospects and viability of the Group taking into account the business model (as set out in the Strategic Report on pages 14 to 15), current position in the context of liquidity and credit metrics of the Group, and principal risks.

Assessment of prospects

Central to our prospects and delivery of our long-term growth objectives is the Group's business model and strategy which was reviewed in 2019 along with the revised Group Financial Framework to 2022 as set out on page 14. A summary of the business strategy is provided in the Strategic report on pages 12 to 13. In assessing our prospects, we consider the success in delivery of our strategy and our current business performance. We are confident that the measures we have taken and the efficiencies we have realised, as described on page 13, leave the Group in a strong relative competitive position.

The progress in delivering the Group's strategic objectives is assessed annually by the Board through its Corporate Planning process. During this process the Group also considers the forecast strength of the Group at the end of the planning period and the forecast cash the Group would generate against its long-term obligations to debt and defined pension holders.

In assessing delivery of the strategic plan, we consider the market context as well as the progress on executing on our strategic objectives. The financial position of the Group, its performance, cash flows and liquidity are presented in the Financial Review on pages 29 to 33. The Board considers the principal risks facing the Group, as set out on pages 34 to 43. The risks we consider to be of greatest significance include:

• the risk of further political or regulatory turbulence or intervention;
• external risks associated with commodity and other index movements;
• risks associated with the effectiveness of our internal control environment in relation to cyber, data protection and customer conduct; and
• risks related to our competitive positioning in a world of rapid digital innovation and increased customer choice.

Our risk climate has not receded during the year, but we have embedded improved controls and assurance activities in areas including finance, performance management, information security, data protection, cyber, asset integrity, personal safety and regulatory compliance, which we can demonstrate have increased our resilience in the face of both internal and external risks.

The Directors have evaluated and approved the Group Annual Plan for 2020 and, during 2019, have approved the updated strategic plan. In doing so, the Board considered the longer-term prospects of the Group in assessing the forecast strength of the Group, the planned cash generation and obligations at the end of the planning period. Overall, we are comfortable in the prospects for the Group in the context of our strategy and our management of the principal risks.

Assessment of viability

The Board continues to believe that three years is the appropriate timeframe to assess viability reflecting the strategic planning horizon for the Group. The Group's focus on the energy supply and services businesses means our most significant risks continue to be shorter term in nature including the potential for regulatory change and competitive pressures creating disruption in our customer-facing markets. Similarly, the commodity markets in which we operate generally only have transparent and executable pricing available for a three-year period.

A key consideration in the viability assessment is the management of the Group's financing profile through accessing a diverse source of term funding and maintaining access to carefully assessed levels of standby liquidity. These committed facilities of £4.4 billion (set out on page 158) are not due to expire until 2024. The undrawn committed facilities at 31 December 2019 were £3.1 billion.

To make the viability assessment, we have identified five sensitivities (A to E) which incorporate the impact of our principal risks as set out on pages 34 to 43. These five key sensitivities and the linkage to our principal risks are set out in the table below. These risks were selected as they have the most material impact on cash flow, liquidity and credit metrics.

Viability sensitivity tests assessed	Links to Principal Risks
A. External risks associated with a 30% fall in commodity prices	Financial Markets
B. The risk of further regulatory intervention and/or risks in relation to cyber, data protection and customer conduct	Legal, Regulatory and Ethical Standards Compliance Cyber, Security & Resilience Digital Technology and Information Systems
C. Significant under performance operationally of our Upstream asset portfolio	Health, Safety and Environment Asset Development, Availability and Performance
D. Failure to fully deliver our growth agenda and programme to transition Centrica to a low cost, customer focused provider	Change Management People Strategy Delivery External Market Environment
E. Additional Pension contributions are required, the level of undrawn credit facilities are reduced and the Group is subject to a single notch credit downgrade	Balance Sheet and Credit Position

These sensitivities were applied to the Group Annual Plan for 2020 and our Strategic Forecasts over 2021 and 2022 with a particular focus on the impact on headroom against the £3.1 billion of undrawn committed facilities noted previously and our credit metrics.

The five sensitivities were then grouped into three scenarios as set out in the table below. We do not believe that it is plausible that all five sensitivities would occur at the same time, and therefore we consider each of the three scenarios as a plausible combination of events and sensitivities. Within these scenarios, commodity (sensitivity A) and credit rating and liquidity risks (sensitivity E) were selected as constant events in all three scenarios.

Sensitivities grouped into 3 scenarios

Scenario 1: A significant external event outside of the Group's control such as a significant and sustained reduction in commodity price, along with additional regulatory events and additional debt and liquidity risks	A + B + E
Scenario 2: A significant external event outside of the Group's control such as a significant and sustained reduction in commodity price, along with a significant disruption to the Asset-Based Businesses and additional debt and liquidity risks	A + C + E
Scenario 3: A significant external event outside of the Group's control such as a significant and sustained reduction in commodity price, along with an underperformance in delivering Gross Margin and additional debt and liquidity risks.	A + D + E

The scenarios applied sought to confirm that the Group would have sufficient liquidity available against its existing undrawn committed facilities of £3.1 billion and that calculated credit metrics would not imply a sustained fall to below investment grade (S&P BB and Moody's Ba1 NP).

The key assumptions embedded in these tests include:

• historical evidence and the evaluation of similar events observed in the market have been used to inform the potential impact of modelled scenarios;
• whilst we have announced an intention to dispose of the Spirit Energy and Nuclear businesses, this assessment has been prepared on the basis that the current portfolio of assets is maintained and no disposal proceeds are received. By including the disposal the viability assessment is not negatively impacted; and
• no new debt funding within the three-year period of the assessment.

In order to reach a conclusion as to the Group's viability the Directors have considered the following:

• Given the available headroom, did any of the tests breach the available headroom in the 3-year period. While scenario 1 had the most severe impact, sufficient headroom against the £3.1 billion of committed facilities was available in all three scenarios.
• With regards to a downgrade to sub investment grade, scenario 2 had the most severe impact. Given Centrica is currently rated BBB (s)/ A-2 (s) for S&P, and Baa1 (n)/ P-2 (n) for Moody's, this scenario did not lead to a downgrade to sub investment grade (BB for S&P, and Ba1 NP for Moody's).

Minor mitigations were required in certain of the above scenarios, and additional mitigations could be deployed to increase headroom and reduce the risk of a credit downgrade include reductions in operational expenditure, bonuses, capital expenditure and dividend payments, all of which are within the Group's control.

Conclusion

The Directors have considered all the above factors in their assessment of viability over the next three years, including the availability of mitigating actions within their control in the event that one of the scenarios above materialises. We have performed sensitivity analysis that enables the Directors to confirm that they have a reasonable expectation that no individual risk, or plausible combination of risks, will impact on the Group's ability to continue to operate and meet its liabilities, as they fall due, over a period of at least three years.

A Pathway to Net Zero

Climate change is the greatest threat facing society and the energy sector is at the forefront of the need to respond. That's why we're committed to enabling a lower carbon future and why we've set out key policy recommendations to support a pathway to net zero.

We welcome the political momentum that has developed around the need to tackle climate change and we are committed to working with governments, regulators and legislators, to ensure we have the right policies and frameworks in place to achieve net zero by 2050.

The next decade is vital if we are to mitigate the worst effects of climate change. We do not, however, believe that the world is moving fast enough in taking action or finding solutions to some of the challenges around net zero. Decarbonisation will require action at all levels of society – it will involve inspiring and empowering consumers, as well as policy support to introduce and scale up activities and technologies for a lower carbon future.

The power sector has been at the heart of the energy transition and is where the quickest progress can be made in reducing emissions over the next 20 years. Despite generation from renewables being at an all-time high and generation from fossil fuels at an all-time low(1), the UK still needs a quadrupling of renewable capacity by 2050(2). To maximise utilisation and minimise costs, we also need a mix of technologies to back-up intermittency and balance the grid while avoiding the need for expensive network upgrades and the construction of large-scale centralised assets.

We're calling on the UK Government to:

• stimulate investment and reduce risk in expanding renewable generation by allowing developers to participate in regular renewable auctions (CfDs), and set an escalating carbon price with a clear forward trajectory; and
• implement a policy framework and reforms to the network architecture that support renewables by driving expansion of flexible and decentralised technologies such as storage, solar and demand response.

Fossil fuels dominate heating, so transforming how we heat our homes and businesses is an urgent challenge. With 85% of UK homes having a gas boiler(3), we need to accelerate the deployment of lower carbon heating solutions. Hybrid heat pumps are the most practical and cost-competitive alternative in the near term, while hydrogen is needed longer term.

We're calling on the UK Government to:

• enable the roll-out of hybrid heat pumps by setting up a grant scheme when the Renewable Heat Incentive ends in 2021, while expanding wider energy efficiency funding for industrial, commercial and public sectors;
• introduce higher decarbonisation standards by bringing forward a Future Homes Standard to 2021 from 2025, banning the use of gas and oil-fired heating in new builds as well as phasing out oil and coal usage in off-grid homes by 2022; and
• stimulate investment and research to define the longer-term role that heat networks, heat pumps, biogas and hydrogen can play.

Power Heat The gas network Transport

Gas provides an important back-up to intermittent renewables and will remain a key part of the energy mix as we transition to a lower carbon future. We believe green gas and hydrogen should increasingly be injected into the network to replace natural gas. This would also help decarbonise heat in the least disruptive and most cost-effective way.

• We're calling on the UK Government to:
• provide greater clarity on the mechanisms that support green gas beyond 2021 to boost investment and increase blending of green gas in the network;
• collaborate across the sector to update the Gas Quality Index which will allow more green gas to be injected into the network and carbon savings to be banked more efficiently; and
• encourage policy to accelerate trials and adoption of hydrogen and Carbon Capture and Storage (CCS) in the long term. Key sites should be identified to support large-scale projects, while new funding models are needed to encourage investment with more effective allocation of risk between the developer and government.

2.7GW†

Our flexible, distributed and low carbon capacity under management

• (1) Carbon Brief, Analysis: UK electricity generation in 2018 falls to lowest level since 1994, 2019. (2) Committee on Climate Change (CCC), Net Zero
• Report, 2019.

9,000

Our global footprint of skilled engineers and technicians to help decarbonise homes and businesses

† Included in PwC's limited assurance engagement. (3) CCC, Heat in UK Buildings Today, 2017.

Largest UK biomethane provider

We have a 50% share in Barrow Green Gas, the UK's largest shipper of biomethane

Towards this aim, we have set out key policy recommendations for the near term that will support energy's pathway to net zero across the critical areas of power, heat, the gas network and transport. With the UK now committed to become net zero by 2050, we have focused primarily on outlining the policy recommendations that we believe will help the UK Government achieve this, while summarising how we advocate for lower carbon policies beyond the UK.

Our commitment to net zero

Since 2015, we have been repositioning our business away from centralised power generation and oil and gas production, towards providing energy services and solutions that enable a lower carbon future. And in 2019, we set 2030 Responsible Business Ambitions to:

• help our customers reduce their emissions by 25% through direct and indirect action;
• enable a decarbonised energy system with 7GW of flexible, distributed and low carbon technologies; and
• be net zero by 2050 and develop a pathway to it by 2030.

Net

zero

Power Heat The gas network Transport

Transport is the most polluting sector in the UK(4) and electric vehicles (EVs) provide a great opportunity to cut emissions. With EVs set to become cost-competitive by the mid-2020s and The Paris Declaration on Electro-Mobility and Climate Change targeting 100 million EVs to be on the road by 2030, it's vital that we continue their drive into the mainstream and expand the charging infrastructure rapidly.

We're calling on the UK Government to:

• require EV charge points to be smart and interoperable to maximise usability and reduce 'range anxiety' which is a key barrier to take-up;
• allow EV charging to take place in a competitive market to ensure consumers get the best deal; and
• enable research and development into low carbon gases like biogas and hydrogen, which will likely support the decarbonisation of larger vehicles and shipping.

17,200

Electric vehicle charge points we've installed since 2013

(4) Office for National Statistics, Road Transport and Air Emissions, 2019.

Our global recommendations

Tackling climate change is a global imperative, so we also advocate lower carbon policies beyond the UK. Below are a few examples from our core markets.

Ireland priorities:

• ensure that natural gas remains the most cost-effective fossil fuel during the transition to net zero, and introduce appropriate supports to stimulate investment in grid-injected Renewable Gas projects;
• implement appropriate support schemes, funding mechanisms and skills development to help customers transition to lower carbon heating solutions;
• support CCS near Whitegate Power Station to provide a clean and reliable back-up to renewable generation; and
• enable EVs by developing the charging infrastructure and increasing support for Compressed Natural Gas (CNG), Bio-CNG and hydrogen.

North America priorities:

• support robust competitive markets to give consumers greater choice and access to a range of low carbon and energy efficiency solutions;
• develop smart grid capabilities that enable data insights, flexibility and distributed energy solutions to balance a lower carbon grid;
• promote electrification and reform wholesale markets to send fair price signals that recognise the full value of carbon-free generation, energy efficiency and demand response; and
• support the transition to EVs, which includes robust competition for charging services.

Read more about our strategy on Pages 12 to 13

Read more about our Responsible Business Ambitions on Pages 48 to 54

Delivering our Responsible Business Ambitions

Energy is at the heart of homes, businesses and communities and has huge potential to contribute to a more sustainable world.

We take our role as a global energy services and solutions company very seriously, and are committed to accelerate the positive impact we have in society and on the environment. That's why, in 2019, we introduced our 2030 Responsible Business Ambitions – a set of 15 global goals that help our customers run their world in ever more sustainable ways.

Our 2030 Ambitions support the United Nations Sustainable Development Goals and address some of the most challenging issues facing society, in areas where we can have the biggest impact. This includes tackling climate change, driving innovation to make our customers' lives easier, building a more skilled and inclusive workforce and making our communities stronger.

We have a long journey ahead of us, but, by working closely with our customers and expert partners, we will maximise our positive impact and help create a more sustainable world. In doing so, we will realise our strategy to satisfy the changing needs of our customers and enable the transition to a lower carbon future.

Our 2030 Ambitions are underpinned by our Responsible Business Foundations, which ensure our business operates with integrity.

Read more about our Responsible Business Ambitions at centrica.com/sustainability

Non-Financial Reporting Statement

In line with the Non-Financial Reporting Directive, we have set out where the relevant information we need to report against can be found, together with an explanation of the relevant Group policies which relate to the below matters and an overall summary of the effectiveness of such policies. Specific examples of how these policies are implemented, any due diligence processes are conducted and outcomes can be found on the pages specified below.

Our Code represents a high-level summary of our key policies and forms the foundation for how we do business. Our policy positions are embodied across our Responsible Business Ambitions and Foundations framework. Where specific policies are published externally, these are shared throughout.

Social matters (Pages 16 to 17, 19 to 26, 40, 49 and 53 to 54) Environment (Pages 16 to 17, 38, 46 to 47, 50 to 51 and 54)

Non-financial key performance indicators across Our 2030 Ambitions and Foundations (Pages 49 to 54)

• Read more about Our Code at centrica.com/ourcode
• Read more about our Group policies including the Diversity, Respect and Inclusion Policy, the Health, Safety, Environment and Security Policy and the Procurement and Corporate Responsibility Policy for Suppliers at centrica.com/policies

Our 2030 Responsible Business Ambitions

Helping you run your world in ever more sustainable ways

Our Ambition for Customers

Delivering for our customers

Through the latest innovations and a commitment to service, we are making our customers' lives easier.

Key: Progress against Ambitions On track Behind

Deliver solutions to make our customers' lives easier
2030 Ambitions	2019 Progress (Year 1)
Help customers understand and manage their energy better	10 Innovations delivered
Give customers peace of mind through tailored propositions and connected technologies	6 Innovations delivered
Develop solutions to help our customers run their worlds	6 Innovations delivered

During 2019, we delivered 22 innovations across our goal areas to transform the way we live, work and move. For example, we:

• introduced and sold 100,000 Hive Radiator Valves which helps customers manage the temperature in individual rooms to save energy and improve comfort; and
• developed innovative technologies through our £100 million Centrica Innovations fund which includes investment in Mixergy. Mixergy is a smart hot water system that only heats the amount of water required by adjusting to household routines while storing excess renewable energy from the grid, improving flexibility and reducing energy use from heat losses by up to 40% a year.

We additionally rolled out existing services and solutions that make our customers' lives easier and more sustainable. Around 1.8 million customers now use Hive connected home products that can be controlled with just a tap on the app – from smart thermostats, plugs, lights and cameras, to contact and motion sensors. Our leadership of the UK's smart meter roll-out was also maintained, with cumulative installs totalling over 7.7 million across homes and businesses, improving bill accuracy and energy management.

Satisfy our customers with excellent service

2030 Ambition 2019 Progress (Year 1)

Make it simpler for people to deal with us in ways that work for them

49% Customers using online account management

Our customers want and deserve a better service. One of the ways we are doing this is through the transformation of our customers' digital experience. We are reorganising processes to create smoother journeys, transforming our IT stack to become more flexible and embedding machine-learning automation alongside improved apps. In UK Home, we have also introduced capabilities to book appointments and track engineer visits online, while upgrading diagnostics to boost first-time fix rates. Actions like these have increased the volume of customers managing their accounts online and improved customer satisfaction, as reflected in our aggregated NPS rising by 5.1 points to +15.1.

Read more about the digital transformation on Page 21

We bought originally three and then another five…no longer do we have either hot or cold spots within the house as the heating is more even and we only heat rooms which we use at certain times of the day."

Richard Southgate gave his new Hive Radiator Valves a 5-star rating on Trustpilot (18 December 2019)

Our Ambition for Climate Change

Enabling the transition to a lower carbon future

We are helping to shape a low carbon future by enabling our customers, the energy system and our business to manage energy more sustainably.

Key: Progress against Ambitions On track Behind

Help our customers reduce emissions in line with Paris goals(1)

2030 Ambition 2019 Progress (Year 1)

Help our customers reduce emissions by 25%, by direct (3%) and indirect action

3.9%(2) Emission reduction

Over 90% of our carbon emissions arise from our customers. So the greatest contribution we can make to tackle climate change is to help them use energy more sustainably. Through our services and solutions, we directly enabled customers to reduce emissions by an average of 3.9% in 2019. This is equivalent to 2.6mtCO2e, which is an increase of 180% compared to 2018 and is equivalent to the annual emissions of around 900,000 UK homes.

For example, we:

• continued to grow the infrastructure for a low carbon transport system by installing over 17,200 electric vehicle (EV) charge points since 2013, and joined forces with Ford to deliver charging installations and energy tariffs at scale;
• signed one of the UK's largest combined green energy contracts supplying over 4,500 Catholic schools and churches; and
• partnered with Budweiser Canada to provide 100% certified renewable power to brew beer from zero carbon sources.

Read our Health, Safety, Environment and Security Policy at centrica.com/HSESpolicy

Enable a decarbonised energy system

2030 Ambition 2019 Progress (Year 1)

Deliver 7GW of flexible, distributed and low carbon technologies as well as provide system access and optimisation services

2.7GW† Flexible, distributed and low carbon technologies

We are helping create a cleaner energy system by pioneering end-to-end solutions that enhance grid flexibility, support renewables and reduce reliance on fossil fuels. In line with plans during 2019, we delivered 2.7GW† of flexible, distributed and low carbon technology – enough capacity to directly charge around 400,000 electric vehicles simultaneously. This included signing an agreement with Tokyo Electric Power Company, to use our demand response platform to meet industrial demand more flexibly when the grid is under pressure, which avoids the need to turn on additional generation from fossil fuels. We also provided a route-tomarket for renewables with 11GW under management. To further this, we have entered into a long-term Power Purchase Agreement for Intersect Power's Athos Solar I 250MW project, generating clean energy for around 70,000 homes in North America.

2030 Ambition 2019 Progress (Year 4)

Be net zero by 2050 and communicate our pathway to it by 2030

55,145† Internal carbon footprint (tCO2e)

Following the strategic transformation of our business, we now produce over 80% less carbon than we did a decade ago (see Strategy overleaf). During 2019, however, our total carbon emissions rose by 31% compared to 2018 due to increased generation from our upstream assets. Meanwhile, the internal carbon footprint of our property, fleet and travel declined by 39% against our 35% reduction target for 2015-25. The reduction of our 2019 footprint was achieved through low carbon fleet initiatives like installing GPS and 'right sizing' vehicles to smaller and more efficient models, delivering property efficiencies across lighting, heating and cooling systems, alongside savings arising from the restructuring of our business. To further reduce emissions, we joined EV100 which brings together forward-looking companies committed to accelerating the transition to EVs, and commits us to electrify our 12,500-strong fleet by 2030.

• (1) Paris goals refer to the global agreement to keep temperature rise well below 2°C above pre-industrial levels, and pursue efforts to limit the increase to 1.5°C.
• (2) Direct savings only. We intend to enhance our understanding and disclosure of indirect customer carbon savings relating to decarbonising the energy system and advocating for cleaner energy policies. Read how we are advocating for cleaner energy policies on page 17.
• † Included in PwC's limited assurance engagement. See centrica.com/assurance for more details.

Task Force on Climate-related Financial Disclosures

Climate change is the greatest challenge facing society, and the energy sector has a key role in tackling it. We are committed to reducing energy's impact on the climate, and support increased disclosure on how companies are responding to this important issue. Towards this, we became signatories of the Task Force on Climate-related Financial Disclosures (TCFD) in 2020, and we are committed to progressively align with the recommendations, as well as continuously improve our disclosure.

Governance

The Board has oversight of climaterelated issues. In 2019, the Safety, Health, Environment, Security and Ethics Committee reviewed our position on climate change, our performance against our 2030 Ambitions to tackle climate change (see previous page), and our analysis of asset resilience in a net zero 2050 scenario. Meanwhile, the Centrica Executive Committee's Health, Safety, Environment and Security (HSES) Sub-Committee, which is chaired by the Group Chief Executive and is responsible for setting objectives, targets and policies on climate change, met quarterly during 2019. The Sub-Committee developed, approved and assessed performance against our 2030 Ambitions while performing deep dives on topics such as low carbon products.

Strategy

Our business is based on satisfying the changing needs of our customers and enabling the transition to a lower carbon future. We are moving away from fossil fuel production to focus on providing services and solutions that help our customers run their world in ever more sustainable ways, while setting an Ambition to become net zero by 2050. We have assessed the strategic risks and opportunities of decarbonisation, including a 1.5 degree scenario in the UK, and believe that we are well positioned to succeed in the energy transition. In 2020, we will continue to assess our strategy against the requirements of the low carbon transition while senior leaders will further engage stakeholders such as Climate Action 100+ to inform our strategy (see page 16).

Risk management

Climate change risks are managed through our Enterprise Risk Management process. Risk profiles are produced at a business level and reviewed quarterly at the Group Ethics, Risk, Assurance, Control and Compliance Committee. The HSES function additionally provides horizon scanning, testing and calibration. Meanwhile, longer-term risks are

Became signatories of the Task Force on Climate-related Financial Disclosures in 2020

DISCLOSURE INSIGHT ACTION

Rated 'A' for leadership in action and disclosure on climate change by CDP

assessed at the annual Board Planning Conference, which considers how the market environment, technology and policy are influenced by climate change.

We have identified and assessed nearand long-term climate-related risks and opportunities. These include trends in policy, technology and markets, such as the decarbonisation of heat, the electrification of transport and changing consumer behaviour. Physical aspects of climate change have also been considered – from the potential impact of extreme weather on our people and operations, to an increase in average temperatures on demand for services and solutions.

Metrics and targets

We were early adopters of best practice greenhouse gas emissions reporting and have a strong track record in setting and achieving climate-related targets. We monitor and report our global scope 1, 2 and 3 emissions (see table below) and have set 2030 Ambitions that are aligned to Paris goals. As part of our TCFD implementation roadmap, we will develop and implement a framework to track and disclose metrics that assess climate-related risks and opportunities on our business.

Our carbon emissions

		2019		2018
Total carbon emissions		2,283,514tCO2 e†		1,737,122tCO2 e
Scope 1 emissions		2,246,167tCO2 e†		1,698,388tCO2 e
Scope 2 emissions	37,347tCO2 e†			38,734tCO2 e
Scope 3 emissions	127,209,632tCO2 e			126,137,878tCO2 e
Total carbon intensity by revenue		101tCO2 e/£m		74tCO2 e/£m(1)
	UK & Offshore	Non-UK	UK & Offshore	Non-UK
Total energy use(2)	3,130,631,079	6,964,542,291	1,642,646,626	5,635,480,865
	KWh	KWh	KWh	KWh

We report on an equity basis with practices drawn from WRI/WBCSD Greenhouse Gas Protocol, IPIECA's Petroleum Industry Guidelines for Reporting Greenhouse Gas Emissions and Defra's Environmental Reporting Guidelines.

† Included in PwC's limited assurance engagement. See centrica.com/assurance for more details.

(1) Restated due to a change in accounting methodology.

(2) Total energy use of 10,095,173,370kWh has been included in PwC's limited assurance engagement.

Our Ambition for Colleagues

Building the workforce of the future

We are developing vital skills and a more inclusive workforce to ensure we deliver for our customers.

Key: Progress against Ambitions	On track Behind
Empower people with future skills
2030 Ambition	2019 Progress (Year 1)
Inspire and develop 100,000 people with essential STEM skills	11,409(1) People

We are developing essential STEM (Science, Technology, Engineering and Maths) skills, to deliver for our customers. In 2019, colleagues learnt new skills through our apprenticeships, Career Development Hub and specialist Learning Academies. From 2020, we want to reach more people with new and inspirational STEM learning content.

(1) May involve double counting if someone has undertaken more than one STEM activity.

Build a more inclusive workplace

2030 Ambitions 2019 Progress (Year 1)

Female STEM recruits

17%

diversity

Attract and develop more women into STEM with 40% of STEM recruits to be female

Aspire for senior leadership to reflect the full diversity of our labour markets

29% Senior gender 10% Senior ethnic

diversity

Help one million carers stay in or return to work via active promotion of carer-positive policies

1,000 Carers supported

Having a diverse workforce that reflects our communities is key to satisfying the changing needs of our customers. That's why we are passionate about creating an inclusive workplace where everyone feels motivated and able to reach their full potential.

Towards this in 2019, we:

• sought to encourage the next generation of young girls to explore a career in STEM by working with the Royal Academy of Engineering to showcase strong female role models;
• rolled out unconscious bias training with interactive workshops completed by leadership and made further training available to all employees; and
• progressed our carer-positive culture by extending our worldclass carers leave allowance to up to six weeks in total, advocated for the introduction of statutory carers' leave in the UK which is now part of the UK Government's legislative programme and hosted peer learning forums to share best practice.

Despite our efforts, progress against some Ambitions were impacted by business transformation so we hope to make greater progress next year. We received recognition for diversity and inclusion activities in 2019, including the Working Families' Best in Care and Eldercare Award while two of our leaders ranked in the OUTstanding LGBT+ Role Model Lists.

Read our Diversity, Respect and Inclusion Policy at centrica.com/DRIpolicy

Our diversity

			2019		Changes to gender senior executives and direct reports not made for 2018
		Female		Male	Female		Male
Gender breakdown(2)	Headcount	Percentage	Headcount	Percentage	Headcount	Percentage	Headcount	Percentage
Board of Directors	2	17	10	83	2	17	10	83
Senior executives and direct reports	12	35	22	65	12	32	25	68
Senior management	224	29	561	71	277	28	703	72
All employees	7,420	29	18,507	71	8,723	29	21,359	71

(2) Headcount as at 31 December differs from numbers referenced elsewhere in the Annual Report and Accounts due to different methodologies. To accurately reflect the full diversity of our workforce, we use overall headcount numbers rather than a headcount based on their full-time equivalent. Gender of three employees is unknown. In January 2020, female representation on the Board increased to 23%.

	2019		2018
Ethnic minority breakdown(3)	Headcount	Percentage	Headcount	Percentage
Board of Directors	3	25	0	0
Senior executives and direct reports	6	18	8	22
Senior management	81	10	86	9
All employees	3,126	12	3,683	12

(3) Based on 63% of employees in 2019 and 65% of employees in 2018 who voluntarily disclosed that they are from a Black, Asian, Mixed/Multiple or other ethnic group across the UK and North America, which constitutes the majority of our workforce.

Our Ambition for Communities

Creating stronger communities

By offering our knowledge and expertise, we are empowering communities to take control of their energy and tackle pressing social issues.

Key: Progress against Ambitions On track Behind

Apply new energy technologies to drive positive change

2030 Ambitions 2019 Progress (Year 1)

Deliver £5bn of value for communities through new and distributed energy technologies

£27.6m Value for communities

Deliver £300m in energy efficiency savings to public and essential services

£2.5m Savings for public and essential services

Our services and solutions help communities increase their energy resilience, reduce their environmental impact and unlock financial savings that can be used to build a more productive and prosperous economy for all.

For example in 2019, we:

• enabled money from energy savings to be redirected towards patient care by cumulatively installing distributed energy solutions at 90 hospitals; and
• rolled-out technologies such as solar and battery storage in over 200 UK homes and businesses as part of the Cornwall Local Energy Market trial. The trial will test how flexible demand, generation and storage can support the grid during peak times, help stimulate the growth of renewables and create opportunities to reduce energy bills.

Read more about how we are saving energy and money to boost healthcare in Devon on Page 25

Read more about how distributed energy solutions are creating savings for communities at centrica.com/economicfuture

Our research shows that if just 50% of the UK's Industry, Healthcare and Hospitality & Leisure sectors took up distributed energy solutions, the potential benefits would be:

£980m 260,000

Annual energy bill savings Jobs supported

£18.5bn 11%(1)

Gross value added to the economy

Annual carbon footprint reduction

Sustainable healthcare will help our budgets stretch further and the savings, alongside the reduction in our carbon emissions, are invaluable."

David Furnival

Group Director of Estates at Facilities, Manchester University NHS Foundation Trust (Centrica Business Solutions customer)

Collaborate across sectors to improve local communities
2030 Ambitions	2019 Progress (Year 1)
Encourage our people to share their skills by volunteering over 100,000 days	2,452 Volunteering days
Deliver 2,500 skills development opportunities for young people not in education or employment	362 Young people

We tackle issues our communities and business care passionately about. In 2019, over 360 young, unemployed people were given the opportunity to gain workplace skills through Movement to Work. This brings the overall number of young people helped through the scheme to 1,800 since 2014. Our volunteering days reduced by almost 50% compared to 2018, with participation impacted by the reorganisation of our business.

£6m

Contributions we have enabled over the course of our flagship charity partnerships with Carers UK, Focus Ireland and the Children's Miracle Network Hospitals in North America

⁽¹⁾ Carbon and economic values are calculated using different scenarios. See centrica.com/economicfuture for more information.

Our Responsible Business Ambitions

Our Responsible Business Ambitions are underpinned by strong foundations that ensure our business operates with integrity.

Customers

We care about our customers and want to be there for them. We spent £164 million in mandatory and voluntary contributions to help people with their energy bills. This included nearly 619,000 customers through the UK's Warm Home Discount scheme and over 2,400 customers via North America's Neighbor-to-Neighbor bill assistance programme. The British Gas Energy Trust supported an additional 24,200 customers and non-customers with energy and debt advice. We are also upskilling our call centre advisers to avoid the need for transferring calls, which contributed to our aggregated complaints per 100,000 customers falling by 1% to 3,429.

Environment

Our environmental impact is monitored and managed closely. Following a reduction of more than 40% across our water and waste consumption in 2018, our water consumption dropped a further 11% to 516,836m3 while our waste decreased 9% to 27,596 tonnes. We do not undertake water-intensive activities in water-stressed zones.

Colleagues

We want our people to feel safe, engaged and rewarded. While there were no significant (Tier 1) process safety events in 2019, we had two Tier 2 process safety events. The events related to a 439kg release of gas into the atmosphere following a partial valve opening at a Spirit Energy platform, while a small fire occurred at a customer's site when a combined heat and power (CHP) engine failed. Meanwhile, our total recordable injury frequency rate increased by 4% to 1.06 per 200,000 hours worked. We strive for an incident-free workplace and aim to continuously improve performance with targeted safety interventions alongside improved controls and monitoring. Alongside physical safety, we also focus on mental health. Mental health support was progressed in 2019 with the introduction of the 'Unmind' Wellbeing app, leadership training and support via our 150-strong network of Mental Health First Aiders. The reorganisation of our business contributed to our employee engagement score declining by 12% to 43% favourable. We recognise our people have been through significant change and we want to improve their experience by connecting them with our purpose and enabling them to perform at their best.

We reward our people fairly. This includes paying at least the Living Wage in the UK and upholding equal pay. We are working to reduce our gender pay gap but recognise that it will take time for the positive impact of our diversity and inclusion action plan (see page 52) to transform our business, sector and society. Our gender pay gap is driven by more men working in higher-paid, traditionally male-dominated technical roles such as engineering and, in 2019, our median gender pay gap reduced by 1% to 30% which remains above the national average.

Communities

Our Code and Our Values help us operate in a way that is beneficial to society by setting out the high standards and behaviours we expect from everyone who works for us or with us. For example, Our Code includes our commitment to uphold and protect human rights. We take action to ensure our people and suppliers are safeguarded from abuses which includes undertaking human rights training and conducting on-the-ground ethical site inspections (see page 17) as part of our work to uphold the UK's Modern Slavery Act. Clear guidance is additionally provided on avoiding bribery and corruption by condemning payments we feel to be improper and taking extra care when offering or receiving gifts and hospitality. To reduce risk, training is provided to colleagues in higher risk roles while our Financial Crime team undertakes due diligence and monitors action to reduce threats including across supplier selection, contract renewals and our gifts and hospitality register. During 2019, we provided refresher training to help employees with their ongoing understanding of Our Code. Due to the significant transformation of our business, completion rates of training dropped from 96% to 82% so we will focus on improving this in 2020. If anyone suspects Our Code is being violated, we provide a confidential Speak Up helpline to raise concerns (see page 56).

We want our presence to be a force for good in our communities. In 2019, we invested £167 million in mandatory, voluntary and charitable contributions (see page 53). We also assessed a further 52 suppliers on their social, ethical and environmental standards which resulted in a sustainability score of 59 (low risk). This is better than the multi-industry average of 45 (medium risk). If suppliers receive a medium or high-risk rating, we consider appropriate action which may involve collaboration to raise standards and conducting an on-the-ground ethical site inspection or terminating our relationship.

Read more about Our Code and policies at centrica.com/ourcode

Read more about our Procurement and Corporate Responsibility Policy for Suppliers at centrica.com/supplierpolicy

Read more in our Gender Pay Statement at centrica.com/genderpay

Read more in our Modern Slavery Statement at centrica.com/modernslavery

The Strategic Report, which has been prepared in accordance with the requirements of the Companies Act 2006, has been approved by the Board and signed on its behalf by:

Justine Campbell Group General Counsel & Company Secretary 12 February 2020

Summary Directors' and Corporate Governance Report

We strive to maintain a robust and effective governance framework which supports the execution of our strategy and remains consistent with Our Values and behaviours."

Charles Berry Chairman

Highlights

• First year as Chairman
• Three new Non-Executive Directors and one Executive Director
• Applied all the principles and fully complied with the provisions of the 2018 Code throughout the year.

Corporate governance

Effective corporate governance provides an essential foundation for the long-term sustainable success of the Company. This report sets out the key elements of Centrica's corporate governance arrangements, including how we have sought to apply the principles and provisions of the 2018 UK Corporate Governance Code (2018 Code) during the year.

Set out below is the summary of the Directors' and Corporate Governance Report from the Annual Report and Accounts 2019. The full Report can be found at centrica.com/ar19

Dear Shareholder

This is my first review since becoming Chairman of Centrica in February 2019. I am pleased to introduce the Directors' and Corporate Governance Report for 2019 which sets out the systems and procedures the Company has put in place to structure authority, balance responsibility, and provide accountability to our stakeholders.

2018 UK Corporate Governance Code

In 2018 the Financial Reporting Council (FRC) published its updated UK Corporate Governance Code which applied to the Company from 1 January 2019. The 2018 Code is substantially different from the previous versions and Centrica supports the FRC's aim of setting higher standards of corporate governance to promote transparency and integrity in business and attract investment in the UK for the long term, benefitting the economy and wider society.

The 2018 Code focuses on demonstrating how the governance of a company contributes to its long-term sustainable success, achieves wider objectives and has a greater emphasis on culture and board diversity. These principles already existed in Centrica, and many of the initiatives being promoted by the FRC – including those relating to corporate culture and values, diversity and inclusion, strengthening the stakeholder voice and adopting and operating appropriate remuneration structures – continued to be areas of focus for the Board in 2019.

The Directors' and Corporate Governance Report enables shareholders and wider stakeholders to evaluate how we have complied with the principles of the 2018 Code through the application of its principles. It also illustrates how your Board ensures that the Company has effective corporate governance in place that contributes to the long-term sustainable success of the Company and its strategy for shareholders and for stakeholders more generally.

The 2018 Code and associated guidance are available on the FRC's website at www.frc.org.uk. The index on page 101 of the Annual Report and Accounts 2019 sets out where to find each of the required disclosures in respect of Listing Rule 9.8.4 and Disclosure Guidance and Transparency Rules 4.1.5R and 7.2.1.

Corporate governance

At Centrica we recognise the importance of effective corporate governance in supporting the long-term success and sustainability of our business. Sound corporate governance enables clear and consistent delegation of authority from the Board to senior management and beyond in order to promote robust, informed and transparent decision-making. It also promotes effective stewardship to ensure the delivery of strategic objectives and sustainable success. It is the Board's responsibility to set the tone for the organisation including the right culture, values and behaviours that are intended to protect and promote the long-term success of the business. We strive to maintain a robust and effective governance framework which supports the execution of our strategy and remains consistent with Our Values.

The Board is responsible for providing leadership and stewardship of the Group within a framework of appropriate and effective controls that enable risks to be assessed and then managed in a manner which promotes the long-term sustainable success of the Group. The Board is also responsible for overseeing the execution of the Group's strategy, operational and financial performance, financial reporting, internal control and risk management, and corporate governance.

In order to facilitate its oversight role in these areas, and to ensure that it retains decision-making power over matters considered to be material to the current or future financial performance of the Group, the Board has put in place the governance framework. This includes a schedule of matters reserved to the Board. In order to allow the Board to focus on its priorities, a number of its oversight responsibilities have been delegated to five Committees. These responsibilities are set out in terms of reference for each Committee. The Board regularly reviews the remit, authority, composition and terms of reference of each committee.

The Board has also delegated authority to the Group Chief Executive for the execution of the strategy and day-to-day management of the Group. The Chief Executive's Committee supports the Group Chief Executive in the performance of his duties. The Board oversees, challenges and supports executive management in the execution of the strategy and management of the Group.

Board refreshment and succession planning

During 2019, the Board and the Nominations Committee continued to dedicate considerable time to succession planning. Centrica continues to embrace the importance of diversity and inclusion in all Board recruitment. As part of a structured and continuous process of Board refreshment, this year again saw several changes to the Board.

Margherita Della Valle stepped down from the Board as Non-Executive Director and Chairman of the Audit Committee on 12 May 2019. I joined as a Non-Executive Director on 31 October 2018, becoming Chairman of the Board on 21 February 2019. Two further Non-Executive Directors were appointed to the Board during the year, Pam Kaur, who joined in February 2019 and Kevin O'Byrne who joined in May 2019 and was appointed Chairman of the Audit Committee. Heidi Mottram was appointed to the Board on 1 January 2020. The Board acknowledges that work needs to continue to be carried out to further advance and ensure the right balance on the Board.

In December 2018, we announced that Mark Hodges, Chief Executive, Centrica Consumer would be stepping down from the Board in February 2019. We welcomed Mark's successor, Sarwjit Sambhi, an internal candidate, to the Board in March 2019.

Culture and Values

The Board recognises the importance of its role in setting the tone for the organisation and monitoring the Group's culture and values. Our Code sets out our minimum expectations for all those we work with or alongside. It is a guide to making good choices and represents our commitment to doing the right thing and acting with integrity.

During the year, the Board took several opportunities to engage both formally and informally with colleagues from across the business enabling a better understanding of the extent to which Our Values – care, delivery, collaboration, agility and courage – have been embedded throughout the Group. Our Code, along with Our Values, underpin everything that we do.

During 2019, we provided refresher training to help employees with their ongoing understanding of Our Code, with 82% completing it. In September 2019, we celebrated the second anniversary of Our Values. Chris O'Shea and Sarwjit Sambhi hosted a Q&A session to celebrate the anniversary, and employees asked excellent questions around leaders enabling more recognition of colleagues who uphold Our Values, and how living Our Values can support our customer obsession. In addition to this, employees were invited to take part in Our Values' new year's resolutions challenge and share their work-related aspirations.

An employee engagement survey was conducted in October 2019. It is important we obtain feedback from our colleagues about what we are doing well and what we can improve, so that we can take action on issues that matter to our people and build a motivated and engaged workforce that can deliver for our customers. Further information on employee engagement can be found on page 54.

Speak Up is a confidential whistleblowing hotline for employees to report serious concerns. The Company relaunched Speak Up last year to provide a consistent Group-wide approach to raising a concern or seeking advice about any malpractice and misconduct observed in the Group. The Board acknowledges that speaking up can often require the demonstration of one of Our Values, courage, and therefore the Company has various options available to employees when it comes to raising a concern. In the first instance employees are always encouraged to discuss their concerns with their manager. There are times when this might not be the best option so they should consider an alternative manager or function lead. If an employee is not comfortable approaching someone internally then they can raise their concern to the Speak Up helpline or use the online web tool.

Diversity and inclusion

The Group is committed to putting diversity, inclusion, care and respect at the heart of what we do. Our vision is to employ a rich and diverse mix of people who reflect the societies in which we work. We're creating a workplace in which the most talented individuals reach their full potential, whatever their age, gender or background. Our 2030 Responsible Business Ambition is for our senior leadership teams to reflect the diversity of our communities and the customers they serve by 2030. The Chairman leads the Board in its support for the recommendations of the Hampton-Alexander Review, which aims to raise the proportion of women on UK boards to at least one-third by the end of 2020, and also the Parker Review on ethnic diversity on boards. In November 2019, the Company joined energy sector leaders in committing to eliminate the exclusion of disabled people worldwide by signing up to The Valuable 500, a campaign encouraging global business leaders to recognise the value of the world's 1.3 billion disabled people. The Company also supports networks for employees who are, for example, carers, LGBT+, from an ethnic minority, disabled, and US veterans and military members.

Board effectiveness review

The Board carries out an annual evaluation of its effectiveness which includes assessing how it develops and promotes its shared vision of the purpose of the Group, its culture, its values and the behaviours it wishes to encourage in carrying out its business, since the behaviours demonstrated, individually as Directors and collectively as the Board, set the tone from the top. The previous review of the Board for 2018 was an external evaluation conducted by a governance consultancy, Independent Audit Limited, which has no other relationship with the Company. For the 2019 Board evaluation, Independent Audit Limited was again engaged and supported a self-assessment of the

effectiveness of the Company's Board and Committees, including observing Board and certain Committee meetings. The Board believed that this approach would bring the benefits of continuity from Independent Audit's Limited reappointment and recognised that the Board was in a transitional phase, given the number of changes to the Board during the year. The evaluation exercise was led by the Chairman and supported by the Group General Counsel & Company Secretary.

Conclusion

Your Board is committed to maintaining high standards of corporate governance across the Group and believes this is integral to the delivery of our strategy for the long-term sustainable success of the Company for the benefit of shareholders and stakeholders.

I am pleased to say that Centrica has applied all the principles and fully complied with the provisions of the 2018 Code throughout the year.

The Directors' and Corporate Governance Report which follows has been prepared in order to provide stakeholders with a comprehensive understanding of the Company's governance framework under the 2018 Code, the Companies Act 2006, the UK Listing Rules and the Disclosure Guidance and Transparency Rules. I hope that you find the Report informative and engaging.

Charles Berry

Chairman 12 February 2020

Section 172(1) considerations	Where to find more information
Decisions for the long-term success of the Company	Our Strategy – six key factors in Directors' decision-making Stakeholder engagement – decisions involving the interests of employees and the effect of that on principal decisions e.g. exiting Exploration & Production	12 16 to 17
	Responsible Business Ambitions Board activity – examples of decisions made by the Directors	48 to 54 64
How the Board engages with stakeholders and how the Directors have regard to the need to foster the Company's business relationship with all of its stakeholders, and the effect of that regard	Stakeholder Engagement Responsible Business Ambitions Board activity	16 to 17 48 to 54 64
Risk	Principal Risks and Uncertainties – risk management process, including financial risks	34 to 45
Training and information	Directors' and Corporate Governance Report – Training and development for Directors	65
Policies and procedures	Responsible Business Ambitions – Non-Financial Reporting Statement Directors' and Corporate Governance Report – Governance framework	48 63
Capital allocation and dividend policy – the long-term approach to making decisions around the amount and timing of returns to shareholders, including dividends, share buybacks and other capital distributions within the context of any relevant legal or financial constraints	Business Model – group financial framework Board activity Note 11, page 139 of the Annual Report and Accounts 2019	14 64
Culture and workforce	Stakeholder Engagement Responsible Business Ambitions Directors' and Corporate Governance Report – also see page 79 of the Annual Report and Accounts 2019	16 to 17 48 to 54 56
	Workforce engagement	66

Section 172(1) Directors' Duty

Board of Directors

It is considered that each of the Directors on the Board of the Company effectively contributes to the Company's long-term sustainability by actively promoting the success of the Company, generating value for shareholders and contributing to the wider society.

Full biographies can be found at centrica.com/board

Committee membership key

• C Chairman of the Board AC Audit Committee DC Disclosure Committee
• NC Nominations Committee
• RC Remuneration Committee
• SC Safety, Health, Environment, Security and Ethics Committee Denotes Committee Chairman

Skills and experience key

• Energy Sector
• Geopolitics
• Emerging Markets
• Financial Services
• Technology
• Engineering/Safety
• Consumer services
• Government/Regulatory
• \$ Finance/M&A

Reasons for the (re-)election of each of our Directors at the forthcoming AGM can be found on our website within the Centrica plc Notice of Annual General Meeting 2020.

Charles Berry Chairman

C

Charles joined the Board as a Non-Executive Director on 31 October 2018 and became Chairman of the Board and Nominations Committee on 21 February 2019.

Relevant skills and experience

Charles has a wealth of international energy and engineering knowledge and a track record of successful leadership of businesses across the industrial, minerals, telecommunications and retail sectors. He also has extensive experience, in both the UK and US, of the regulatory framework of the energy and service markets.

Previous experience

Charles has previously held chairman roles at Senior plc, Drax Group plc, EAGA plc and Thus Group plc. Charles was an executive director of Scottish Power plc from 1999-2005.

External appointments

Chairman of The Weir Group PLC and member of the steering group of the Hampton-Alexander Review.

Iain Conn Group Chief Executive

Iain was appointed Group Chief Executive on 1 January 2015 and is Chairman of the Disclosure Committee.

Relevant skills and experience Iain possesses a deep

understanding of the energy sector built up over a lifetime in the industry and has demonstrated strong commitment to customers, safety and technology.

Previous experience

Iain was previously BP's chief executive, downstream (BP's refining and marketing division), a position he held for seven years. Iain was a board member of BP for 10 years from 2004 and had previously held a number of senior roles throughout BP including in trading, exploration and production, and the management of corporate functions such as safety, marketing, technology and human resources. He also served as a non-executive director and latterly senior independent director of Rolls-Royce Holdings plc from January 2005 until May 2014.

External appointments

Non-executive director of BT Group plc, chairman of the advisory board of Imperial College Business School and a member of the CBI's President's Committee.

Responsibilities

The Group Chief Executive is responsible for the executive leadership and day-to-day management of the Company, to ensure the delivery of the strategy agreed by the Board.

Chris O'Shea Group Chief Financial Officer

Chris was appointed Group Chief Financial Officer on 1 November 2018.

Relevant skills and experience

Chris is an experienced listed company chief financial officer with considerable experience of complex, multi-national organisations, not only in the energy sector but also in technology-led engineering and services industries.

Previous experience

Prior to joining the Company, Chris was group chief financial officer of both Smiths Group plc and Vesuvius plc, and a non-executive director of Foseco India Ltd, an Indian-listed supplier to the foundry industry. From 2006 to 2012 Chris held various senior finance roles with BG Group plc, including chief financial officer of Europe and Central Asia, prior to which he held a number of senior roles with Royal Dutch Shell plc in the UK, the US and Nigeria, and with Ernst & Young. Chris studied Accounting and Finance at the University of Glasgow, is a Chartered Accountant, and holds an MBA from the Fuqua School of Business at Duke University.

External appointments

Chairman of the Tax Committee of the 100 Group of UK Finance Directors.

Responsibilities

Responsible for providing strategic financial leadership of the Company and day-to-day management of the finance function. Also responsible for Exploration & Production.

Sarwjit Sambhi Chief Executive, Centrica Consumer

Sarwjit was appointed Chief Executive, Centrica Consumer and joined the Board on 1 March 2019.

Relevant skills and experience

Sarwjit joined Centrica in 2001 and has held senior leadership positions in retail, strategy, finance, trading, power generation, exploration and production.

Previous experience

Prior to joining the Company, Sarwjit worked for the management and technology consulting company, Booz Allen & Hamilton. Most recently, he was Managing Director, UK Home at the Group.

External appointments

Director of Energy UK (representing Centrica).

Responsibilities

Responsible for executive leadership and day-to-day management of Centrica Consumer in support of the Group Chief Executive and the delivery of the strategy agreed by the Board.

Richard Hookway Chief Executive, Centrica Business

\$ \$

Richard was appointed Chief Executive, Centrica Business and joined the Board on 1 December 2018.

Relevant skills and experience

Richard has worked in the energy sector for 35 years at BP plc, most recently as Group Chief Operating Officer for Global Business Services and IT.

Previous experience

Prior to joining the Company, Richard spent seven years as chief financial officer for BP's Downstream division which includes customer-facing businesses, refining and marketing and the P&L for BP's oil trading activities. He previously held a number of senior commercial roles both in the UK and in North America including head of the Natural Gas Liquids business based in Houston and the Commercial and Industrial Marketing business for Europe. He also held positions in trading, exploration and production, petrochemicals and in group functions.

External appointments

Non-Executive Director of EDF Energy Nuclear Generation Group Limited (representing Centrica).

Responsibilities

Responsible for executive leadership and day-to-day management of Centrica Business in support of the Group Chief Executive and the delivery of the strategy agreed by the Board.

Joan Gillman Non-Executive Director

NC RC SC \$

Joan joined the Board on 11 October 2016 and is the Employee Champion on the Board.

Relevant skills and experience

Joan's expertise lies in optimising stakeholder management and shaping growth and transformational strategies to lead and govern high performing teams. She has a consistent track record of thought leadership and growth in new technology.

Previous experience

Joan started her career as an executive in a Senator's office of the United States Senate. As the internet became a growing force, she has driven growth and transformation across four media and communications companies since 1995. Most recently, Joan served as a former executive vice president of Time Warner Cable, as well as chief operating officer, Time Warner Cable Media and president, Time Warner Cable Media LLC. Joan led one of Time Warner Cable's three operating divisions, doubling revenues and overseeing the company's big data strategy.

External appointments

Director of Airgain, Inc., InterDigital, Inc and Cumulus Media, Inc.

Stephen Hester

Senior Independent Director

Stephen joined the Board on 1 June 2016 and is the Senior Independent Director.

Relevant skills and experience

Stephen has wide-ranging experience, particularly in customer-facing businesses, together with recognised expertise in transforming business performance. He has a deep knowledge of operating within highly regulated businesses with over 35 years' experience in financial services and within FTSE 100 companies.

Previous experience

Stephen has previously held positions as chief executive of Royal Bank of Scotland Group, chief executive of British Land plc and chief operating officer of Abbey National plc, as well as a number of senior executive roles at Credit Suisse First Boston in London and New York.

External appointments

Group chief executive of RSA Insurance Group plc.

Pam Kaur Non-Executive Director

Pam joined the Board on 1 February 2019.

Relevant skills and experience Pam has extensive experience in audit, business, compliance, finance and risk management.

Previous experience

Pam has previously held various senior roles at global financial institutions including Citigroup, Lloyds TSB, the Royal Bank of Scotland and Deutsche Bank, and has worked with regulators and supervisory boards across the world. She has an MBA in finance and a BCom (Hons) from Panjab University in India and is a qualified chartered accountant.

External appointments

Group Chief Risk Officer at HSBC Holdings plc.

Heidi Mottram Non-Executive Director

Heidi joined the Board on 1 January 2020.

Relevant skills and experience Heidi brings considerable relevant strategic and operational experience acquired in her current and previous roles. Her deep understanding of the importance of customer service, delivered in complex multi-stakeholder environments with a high public profile, is particularly pertinent to the Company, at this time, as it focuses on the delivery of its customer-centric strategy.

Previous experience

Heidi began her career with British Rail in the mid-1980s. She held a number of roles in GNER, before joining Midland Mainline in 1999 as Operations Director. She was Commercial Director for Arriva Trains Northern from January 2004, before becoming Managing Director of Northern Rail Limited, the UK's largest rail franchise.

External appointments

CEO of Northumbrian Water Limited and Northumbrian Water Group Limited. Vice-Chair of the North East Local Enterprise Partnership, and a member of the CBI Board and Vice-Chair of Newcastle University Council.

Kevin O'Byrne Non-Executive Director

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Kevin joined the Board on 13 May 2019 and is Chairman of the Audit Committee.

Relevant skills and experience

Kevin brings extensive retail and finance experience to the Board, having occupied senior roles in a number of leading UK and international retailers. The Board considers that Kevin has recent and relevant financial experience.

Previous experience

Kevin was previously chief executive officer of Poundland Group plc, and held executive roles at Kingfisher plc including divisional director UK, China and Turkey, chief executive officer of B&Q UK & Ireland and group finance director. Prior to that he was finance director of Dixons Retail plc. From 2008 to 2017 he was a non-executive director and chairman of the audit committee of Land Securities Group PLC where he was also senior independent director from 2012 to 2016.

External appointments

Group chief financial officer of J Sainsbury plc.

Carlos Pascual Non-Executive Director

Carlos joined the Board on 1 January 2015.

Relevant skills and experience Carlos has held a number of senior positions in the energy industry and is a senior leader in energy geopolitics and economic and commercial development.

Previous experience

Between 2011 and 2014 Carlos established and directed the US State Department's Energy Resource Bureau and until August 2014 Carlos was special envoy and co-ordinator for international energy affairs, acting as senior adviser to the US Secretary of State on energy issues. He has also served as US ambassador in Mexico and Ukraine.

External appointments

Non-resident senior fellow at the Center on Global Energy Policy, Columbia University, and senior vice-president for global energy at IHS Markit.

Steve Pusey Non-Executive Director

Steve joined the Board on 1 April 2015 and is Chairman of the SHESEC.

Relevant skills and experience

Steve has a wealth of international experience as a senior customerfacing business technology leader. He also has considerable experience in the telecommunications industry, in both the wireline and wireless sectors, and in business applications and solutions.

Previous experience

Between 2006 and July 2015 Steve was the chief technology officer of Vodafone Group Plc and held responsibility for defining and leading their global technology strategy. Steve was a director of Vodafone Group Plc for six years. Prior to joining Vodafone Group Plc, Steve was executive vice president and president of Nortel in Europe, Africa and the Middle East, and spent several years with British Telecom. Steve is a graduate of the Advanced Management Program at Harvard University.

External appointments

Non-executive director of FireEye, Inc.

Scott Wheway Non-Executive Director

Scott joined the Board on 1 May 2016 and is the Chairman of the Remuneration Committee.

Relevant skills and experience

Scott has a wealth of experience as a senior customer-facing business leader with a mix of deep retail and consumer expertise. He has considerable knowledge gained in both the retail and insurance sectors, together with a strong understanding of operating within highly regulated businesses.

Previous experience

Scott worked in retail for 27 years both in the UK and internationally. He is the former chief executive officer of Best Buy Europe (retail services), director of The Boots Company plc, managing director and retail director of Boots the Chemist at Alliance Boots plc and a director of the British Retail Consortium. He formerly held a number of senior executive positions at Tesco plc (retail services), including chief executive of Tesco in Japan, and served as non-executive director of Aviva plc.

External appointments

Chairman of AXA UK plc and senior independent director of Santander UK group Holdings PLC.

Board changes and attendance

Board changes

• Pam Kaur joined the Board on 1 February 2019
• Rick Haythornthwaite stepped down from the Board on 20 February 2019
• Charles Berry became Chairman on 21 February 2019
• Mark Hodges stepped down from the Board on 28 February 2019
• Sarwjit Sambhi joined the Board on 1 March 2019
• Margherita Della Valle stepped down from the
• Board on 12 May 2019 • Kevin O'Byrne joined the Board on 13 May 2019
• Heidi Mottram joined the Board on 1 January 2020

The Board has agreed that each Director shall stand for election or re-election at each AGM. Copies of the Executive Directors' service contracts and the Non-Executive Directors' Letters of Appointment are available for inspection by shareholders at each AGM and during normal business hours at the Company's registered office.

Board attendance

	Board(1)(3)
Number of meetings 11
Charles Berry(2)	10/11
Iain Conn	11/11
Margherita Della Valle 3/3
Joan Gillman	11/11
Rick Haythornthwaite	2/2
Stephen Hester	11/11
Mark Hodges	2/2
Richard Hookway	11/11
Pam Kaur	10/10
Kevin O'Byrne	8/8
Chris O'Shea	11/11
Carlos Pascual(2)	9/11
Steve Pusey(2)	10/11
Sarwjit Sambhi	9/9
Scott Wheway	11/11

(1) During the year there were 11 Board meetings, of which nine were scheduled meetings and two were called at short notice.

(2) All absences were due to Directors having unavoidable diary conflicts. (3) Attendance is expressed as the number of meetings

attended out of the number eligible to be attended.

Senior Executives

Charles Cameron Director of Technology & Engineering and Chairman of Centrica Innovations

Charles was appointed Director of Technology & Engineering on 1 January 2016 and Chairman of Centrica Innovations on 1 May 2017.

Skills and experience

Charles has extensive technology and engineering experience and has held corporate roles in marketing, planning and M&A. Before joining the Group, he was head of technology, downstream at BP plc and was a member of the downstream executive team.

Prior to his time at BP, Charles spent 23 years with the French Institute of Petroleum and their catalyst, technology licensing and engineering service business, Axens.

Justine Campbell Group General Counsel & Company Secretary

Justine was appointed Group General Counsel & Company Secretary on 1 April 2019 and has responsibility for legal, regulatory, compliance and governance across the Group.

Skills and experience

Justine joined Centrica in 2013 as General Counsel for British Gas. Prior to joining Centrica, Justine was General Counsel and Corporate Affairs Director of Vodafone UK for five years, before which she spent seven years at O2/Telefonica, the final two as European general counsel. She qualified with Freshfields in London and Brussels and holds a law degree from Trinity College, Dublin and an advanced management qualification from the Saïd Business School, Oxford.

Jill Shedden, MBE Group Human Resources Director

Jill was appointed Group Director, Human Resources on 1 July 2011.

Skills and experience

Jill joined British Gas plc as a graduate in 1988 and has since held a wide range of senior HR roles across the Group. Prior to her appointment as Group HR Director, Jill was HR Director in British Gas Business, British Gas Energy and Centrica Energy. In 2017 Jill was awarded an MBE for 'services to women and equality' in recognition of her work with, amongst other organisations, the Women's Business Council.

External appointments

Non-executive director of Thames Water Utilities Limited.

Mike Young Group Chief Information Officer

Mike was appointed Group Chief Information Officer on 1 November 2016.

Skills and experience

Mike brings a wide range of experience in managing global information systems functions in partnership with customer-facing units and using big data and digital technologies to drive revenue growth and improve the customer experience. Before joining the Group he was group chief information officer with the media and digital marketing company Dentsu Aegis Network.

Governance framework

The Board

The Board is collectively responsible for the long-term success of the Group. With due regard to the views of shareholders and other stakeholders, it provides leadership and direction including establishing the Group's culture, values and ethics, setting strategy and overseeing its implementation, ensuring only acceptable risks are taken and being responsible for corporate governance and the overall financial performance of the Group.

for the Board There are certain key responsibilities that the Board does not delegate and which are reserved for its consideration. The full Schedule of Matters Reserved is available under governance on our website, but key features include:

Matters reserved exclusively

• the development of strategy and major policies;

• approving the annual operating plan, Financial Statements and major acquisitions and disposals;

• approving interim dividend payments and recommending final dividend payments; and

• the appointment and removal of Directors and the Company Secretary.
• Read more about our Stakeholder Engagement on Pages 16 to 17
• Read more on how we manage our Risks on Pages 34 to 45
• Read more about Our Strategy and Our Business Model on Pages 12 to 15

Board composition and roles

Chairman

Responsible for the leadership and management of the Board. In doing so, he is responsible for promoting high ethical standards, ensuring the effective contribution of all Directors and, with support from the Group General Counsel & Company Secretary, best practice in corporate governance.

Group Chief Executive

Responsible for the executive leadership and day-to-day management of the Company, to ensure the delivery of the strategy agreed by the Board.

Group Chief Financial Officer

Responsible for providing strategic financial leadership of the Company and day-to-day management of the finance function.

Independent Non-Executive Directors

Responsible for contributing sound judgement and objectivity to the Board's deliberations and overall decision-making process, providing constructive challenge, and monitoring the Executive Directors' delivery of the strategy within the Board's risk and governance structure.

Senior Independent Director Acts as a sounding board for the Chairman and serves as a trusted intermediary for the other Directors, as well as shareholders as required.

Group Executive Directors

Responsible for executive leadership and day-to-day management of relevant business units in support of the Group Chief Executive and the delivery of the strategy agreed by the Board.

Group Company Secretary

Adviser to the Chairman and the Board on matters of corporate governance, induction, training and the efficient management of Board and Committee meetings. Responsible for ensuring the effectiveness of the Company's governance framework.

Board activity

Board meetings

The Board held 11 meetings in 2019, nine of which were in person and two by scheduled telephone conferences. If Directors are unable to attend a meeting, they have the opportunity beforehand to discuss any agenda items with the Chairman.

Each year the Board seeks to combine one or two meetings with visits to the Group's operations and in 2019 visited North America Home, Houston, in March and British Gas, Stockport, in September. Details of these visits can be found on page 65. During the year, the Non-Executive Directors, including the Chairman, met frequently without management present. The Non-Executive Directors met once during the year without the Chairman present.

Board activity

During the year, the Board considers a comprehensive programme of regular matters covering operational and financial performance reporting, strategic reviews and updates, and various governance

reports and approvals. In addition, each Board meeting features deep dives into a specific operation or topic. In 2019, the Board's focus for the first half was on the strategic update and during that the Board reviewed the foundations of the 2015 Group Strategy Review (GSR), considered developments in the external environment since the time of the GSR and in that context reflected on the Company's progress in delivering its strategy. Various scenarios were modelled and discussed, with regard to all stakeholders, focusing in particular on the options for exiting Exploration & Production, and Nuclear and the implications for the Group's financial framework. In addition, the Board reviewed the Group's potential for delivering further cost efficiencies as well as the future potential of the North America Business, Centrica Business Solutions and Centrica Home Solutions business units. Following four months of review, the Board announced the results of its review in July 2019, including the divestment of Spirit Energy and the rebasing of the dividend.

Key areas of activity	Matters considered	Views of Stakeholder groups considered
Strategy and business plan	• Strategic update • Group Annual Plan • Multi-year efficiency programme update • Portfolio optimisation • Group Strategic Transformation Programme	• Customers • Investors and shareholders • Communities and NGOs • Government and regulators • Suppliers • Colleagues
Performance and risk	• Group Performance Reports, including reports from the Group Chief Executive, Group Chief Financial Officer and Executive Directors • Business reviews • Periodic results –including dividend • Going concern and viability statements • UK Defined Benefit Pension Schemes Valuation and Funding	• Customers • Investors and shareholders • Suppliers • Government and regulators • Colleagues
Governance	• Annual Report and Accounts • AGM documentation • 2018 UK Corporate Governance Code • Board evaluation findings • Succession planning for Directors and Senior Leadership Team • Reports from Committee Chairs • Conflicts of interest review • Terms of Reference reviews • Director independence	• Investors and shareholders • Government and regulators • Colleagues
Culture and stakeholders	• Employee engagement surveys • Feedback from Employee Champion • Investor updates and feedback • Our Code • Diversity and inclusion • Culture, talent & capability review • Town hall meetings • Site visits • Gender pay gap reporting	• Investors and shareholders • Communities and NGOs • Government and regulators • Colleagues
Political and regulatory environment	• Climate change • Brexit preparations • Energy supply nationalisation • Modern Slavery Act • Price cap and judicial review	• Investors and shareholders • Communities and NGOs • Government and regulators • Suppliers

During 2019, Board discussions included:

Directors' independence and conflicts

All our Non-Executive Directors are considered to be independent against the criteria in the 2018 Code and free from any business interest which could materially interfere with the exercise of their judgement. In addition, the Board is satisfied that each Non-Executive Director is able to dedicate the necessary amount of time to the Company's affairs.

The Non-Executive Directors' Letters of Appointment state that Non-Executive Directors must inform the Group Company Secretary of any other business, directorships, appointments, adviserships or other relevant connections (including any relevant changes, and a broad indication of the time involved). By accepting their appointment, Non-Executive Directors agree to confirm that they are able to allocate sufficient time to meet the expectations of their role and to perform their responsibilities effectively. Directors also confirm that they will inform the Board of any subsequent changes to their circumstances which may affect the time they can commit to their duties. The agreement of the Chairman must be obtained before accepting additional commitments that might affect the time Non-Executive Directors are able to devote to their appointment.

In accordance with the Companies Act 2006 and the Company's Articles of Association, Directors are required to report actual or potential conflicts of interest to the Board for consideration and, if required, authorisation. If such conflicts exist, Directors recuse themselves from consideration of the relevant subject matter. The Company maintains a schedule of authorised conflicts of interest which is regularly reviewed by the Board.

The Company's Articles of Association provide how Directors are appointed, retired and replaced. These can be found on our website.

Directors' induction

All new Directors appointed to the Board receive a comprehensive induction programme which is led by the Chairman and supported by the Group Chief Executive Officer. This programme is tailored to meet each individual's needs and is structured and designed to ensure that new Directors are equipped with the requisite information and knowledge about the Group and its markets to contribute meaningfully and effectively to Board discussions as soon as possible. The programme includes briefings from members of the Executive, and management teams covering key areas of the business, an overview of the Group's Risk Management processes, the Internal Audit function and the corporate governance framework within Centrica. The induction programme also includes a series of site visits for new Directors to familiarise themselves with the Group's businesses.

On completion of the induction programme, all new Directors will have sufficient knowledge and understanding of the business to effectively contribute to strategic discussions and the oversight of the Group.

Training and development for Directors

It is important to make sure that Directors' skills and knowledge are refreshed and updated regularly. The Chairman is responsible for the ongoing development of all Directors and discusses with each Director any individual training and development needs, such as formal and informal briefings, meetings with management and visits to the Group's operations. As part of this approach, formal insight and training sessions are held each year. In March, a session was held for new Directors which focused on Market Abuse Regulation and Directors' duties (including their section 172(1) duty). This was followed in September by teach-ins on planning and dispatch, digital journeys, and the SIPD (simplified, integrated planning and dispatch) Programme. Two showcases were presented to the Board members covering customer STAR intervention (demonstrating the value of thinking differently resulting in improved performance across key metrics), and customer empathy.

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

Board diversity

The Company recognises the benefits of diversity and inclusion in all its forms, at Board level and throughout the Group.

Our Nominations Committee is committed to ensuring and promoting a diverse blend of skills, backgrounds and nationalities on the Board and further details on the Committee's activities in this regard are set out in the Nominations Committee report on pages 77 to 79 of the Annual Report and Accounts 2019.

The Company supports the recommendations of the Hampton-Alexander and Parker Reviews in relation to gender and ethnic diversity and is continuing to develop a diverse talent pipeline with the necessary skills, experience and knowledge. Our Chairman, Charles Berry, is a member of the Hampton-Alexander steering group.

As at 31 December 2019, 17% of the Board were women and comprised Directors from the UK, Ireland, US and India with a wide range of skills and expertise. Heidi Mottram was appointed a Non-Executive Director with effect from 1 January 2020, increasing the proportion of women on the Board to 23%.

Board planning conference and Site visits

During 2019, the Board attended their Planning Conference, and Board visits included the Group's operations in the US (Houston) and the UK (Stockport). Further details can be found on pages 65 to 66 of the Annual Report and Accounts 2019.

Evaluation of the Board and its Committees

The Board recognises that it continually needs to monitor and improve its performance. The performance and effectiveness of the Board and its Committees are subject to formal review through the annual evaluation process. In accordance with the 2018 Code, Centrica's annual evaluation of Board effectiveness is facilitated by an independent third party at least once every three years.

Read more about our employee diversity on Page 52

Read more about Evaluation of the Board on Page 66 of the Annual Report and Accounts 2019

Workforce engagement

Employee engagement is critical to our success. During 2019, we began the work to embed the role of Employee Champion as an integral part of Centrica's governance framework. Using the output from employee discussions in 2018, we formalised the Employee Champion role in written terms of reference to ensure that its purpose was clear, it was well supported by the Company, and there were mechanisms in place for reporting and feedback.

The key purposes set out in the terms of reference are to:

• Bring employee perspectives to the Board to increase board effectiveness and decision making through the lens of an employee;
• Review reports on the Group's organisational health and culture; and
• Bring about positive results for employees with the Board being better informed by employee perspective and insight.

During 2019, I continued discussions with employees across the Centrica group. Workshops were held at our UK sites in Manchester, Cardiff, Windsor, Staines and London and in the US, at our main locations in New Jersey and Houston. These workshops were held across a range of organisational levels to gather a broad range of views and were structured around understanding how we could "improve the experience of our colleagues" to empower them and to help them perform at their best in order to better serve our customers. Colleagues were also encouraged to share their views on any other aspects of their working environment.

I am pleased to report that employees across the group continued to engage fully and openly, sharing their views on key themes such as ways of working in the context of significant organisational transformation, and colleagues' understanding of the Group's strategy as it relates to the roles they perform. Feedback from colleagues during the workshops was not always positive and this was reinforced by the engagement scores from the Our Voice employee engagement survey which were lower than the previous year. After the workshops, feedback and observations were provided to senior management who kept the Board informed on actions taken to address employee concerns. Additionally, follow-ups were sent to all employees summarising thoughts, observations and the actions arising from the workshops.

The principal purpose of the role of Employee Champion is to ensure the voice of the workforce is heard in the boardroom and considered in Board discussions and decision making. The Board has listened to what employees have said and has therefore made empowering colleagues a Group priority for 2020 and beyond. Its aim is to eliminate obstacles and create opportunities for our employees to deliver for our customers. To ensure this happens, a number of initiatives were implemented during 2019 including:

• The inclusion of people and culture in the SHESEC agenda;
• The development of a people and talent dashboard for the Board; and
• The appointment of the Employee Champion to the Remuneration Committee.

We will further develop the role and impact of the Employee Champion during 2020 and beyond, with a focus on the following key areas:

• Engagement for all Board members with colleagues at offsite visits and town hall briefings;

• Improved communications to enable all of our colleagues to connect to our Purpose and to perform at maximum capability;
• Ensure the Board has more clarity on goals and initiatives that senior executives are pursuing to address pain points that prevent colleagues from performing at their best;
• Graduate and apprentice focused events to support engagement with future leaders; and
• Diversity, respect and inclusion ensure that this remains firmly on the Board agenda.

Looking ahead, I will continue to spend time with colleagues in 2020 and work with senior executives to develop a programmatic effort to ensure that we create an environment where each employee can reach their full potential and be at their best, and we can retain and develop the best talent to continue to deliver for our stakeholders.

Joan Gillman

Employee Champion

Shareholder engagement

The Board is committed to maintaining open channels of communication with all of the Company's stakeholders. An important part of this is providing a clear explanation of the Company's strategy and objectives, and ensuring feedback is acknowledged, considered and, where appropriate, acted upon. During 2019, the Chairman held 27 one-to-one meetings with investors.

Meetings, roadshows and conferences

We typically offer meetings with senior management to our major institutional shareholders twice a year, following the Company's Preliminary and Interim results. These meetings are attended by the Group Chief Executive and Group Chief Financial Officer, and also sometimes divisional Chief Executives, to ensure that shareholders have the opportunity to hear directly from management on the Company's performance and progress.

In addition, management and/or Investor Relations attend a number of investor conferences throughout the year, giving shareholders further opportunity to meet and receive updates directly from Company representatives, while senior management are also available to meet on an ad hoc basis with major shareholders if requested.

Engagement themes with our institutional shareholders

During the year, engagement themes included:

• Centrica's strategic update, announced alongside the Interim results in July;
• The intended divestments of Nuclear and Spirit Energy;
• The regulatory and political environment for UK energy;
• Restructuring and cost efficiency progress;
• Climate change and Centrica's role in this; and
• CEO succession.

Key investor relations activities during the year

Annual General Meeting

Our AGM is attended by our Board and Executive Committee members and is open to all our shareholders to attend. A summary presentation of financial results is given before the Chairman deals with the formal business of the meeting. Shareholders present during the meeting can question the Board. Representatives from Investor Relations and customer services are available before and after the meeting to answer any additional questions that shareholders may have. Our 2019 AGM was very well supported; the level of support for the resolutions carried ranged from 85.27% to 99.91%.

We are holding our 2020 AGM at the Manchester Central Convention Complex, Windmill St, Manchester M2 3GX on Monday, 11 May 2020. The move to a regional location reflects the breadth of our customer and shareholder base and office locations too, and we look forward to holding future AGMs in other UK locations to enable us to reach more of our shareholders. Further information is available in the Notice of AGM (see centrica. com/agm20).

Reuniting our shareholders with unclaimed dividends

Since 2009, together with our Registrar, Equiniti, and its partner ProSearch, Centrica has run an asset reunification programme. This seeks to reunite shareholders with uncashed dividends and share entitlements. To date, we have successfully reunited £23.5million of share and dividend assets with shareowners. At the 2019 AGM, shareholders approved the adoption of new Articles which have provided the Company with greater control

and flexibility in relation to its treatment of untraced shareholders, the procedure for the payment of dividends and the holding of combined physical and electronic general meetings. Following the adoption of the new Articles and attempts to trace shareholders, the forfeited shares were sold in June 2019. The funds will be spent on progressing Centrica's 2030 Responsible Business Ambitions and the 15 global goals we have set to contribute to a more sustainable world. Further information can be found on page 48 and on our website. As agreed, the Company will honour all late claims and asks shareholders who want to make a claim to contact our Registrars who are managing this process for us. Contact details can be found on page 76.

Share dealing programme

We continue to run our popular share dealing programme for shareholders with shareholdings of up to 5,000 shares, giving them the option to sell or increase their shareholdings at a fixed fee. Shareholders who sold their shares had a further option to donate the proceeds to UK Charity ShareGift, resulting in over £404,000 being donated since 2010.

Centrica.com

Our website, centrica.com, 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.

Further details on Shareholder Information are available at centrica.com/ar19

Summary Remuneration Report

We continue to take a disciplined approach to executive remuneration that seeks to ensure Executive Directors are fairly and appropriately rewarded while ensuring alignment with the expectations of all our stakeholders."

Scott Wheway Committee Chairman

Set out below is the summary of the Remuneration Committee Chairman's annual statement and a summary of the Remuneration Report from the Annual Report and Accounts 2019. The full Report can be found at centrica.com/ar19

2019 was a very difficult year for Centrica with performance outcomes that were disappointing in a number of areas. The external environment continued to be challenging, with the implementation of the UK default tariff cap, low wholesale gas prices and nuclear outages. Adjusted earnings and adjusted operating cash flow (AOCF) were down compared with the previous year. However, net debt was in line with our 2019 target ranges and cost efficiency delivery was strong. For our non-financial KPIs, brand NPS improvements and customer complaint targets were met and process safety performance was held at top quartile levels.

The Committee has carefully considered the many exceptional contributions of the leadership team and the wider workforce with the mitigation of external factors outside of management control, alongside absolute performance outcomes and shareholder experience in the year.

In this context we have made some tough decisions which reflect our determination to demonstrate that a number of the financial outcomes for 2019 were below expectations.

In summary the Committee has decided:

• to reduce the CEO and Executive Directors' 2019 annual bonus to zero;
• to use discretion to reduce to zero the 2017/19 LTIP outcome for Executive Directors as a result of overall financial performance over the three-year performance period;
• not to award any annual pay increases to Executive Directors; and
• to reduce the 2020/22 LTIP grant from 300% to 250% in recognition of the lower starting share price.

The effect of these decisions is that the CEO and Executive Directors will receive no variable remuneration for 2019. This is an unusual and far-reaching outcome but the Committee believes it shows appropriate alignment with our key stakeholders, including our shareholders and our workforce, all of whom have endured a very difficult 2019.

Performance outcomes for the year

The Committee has carefully assessed performance against the original targets that were set for the 2019 Annual Incentive Plan (AIP). The formulaic outcome resulted in AOCF narrowly missing the threshold level. Ordinarily, discretionary adjustments for commodity price movements and other external factors would have increased the AOCF result to midway through the award range. However, Adjusted Operating Profit (AOP) failed to meet the required threshold even with commodity price movements and other external factors considered. Cost efficiency delivery was strong, with an outcome midway between target and maximum for this measure. In making its assessment of performance overall the Committee took into full consideration the shareholder experience over 2019 and as a result, concluded that irrespective of the formulaic result, it was not appropriate to make an annual bonus payment to any of the Executive Directors for the year.

The Committee also assessed the vesting outcome for the Long Term Incentive Plan (LTIP) awards that were made in 2017. The performance conditions were equally weighted between EPS growth, absolute aggregate Economic Profit and non-financial KPIs over the three-year period. The two financial targets were not met, but performance against the non-financial KPIs across the period resulted in a vesting of 40% for this element of the award, mainly as a result of strong safety performance. However, given the poor performance against the two financial measures, the Committee decided to exercise its discretion and reduce the overall outcome of the 2017/19 LTIP to zero.

Application of Policy for 2020

In 2020, no Executive Director will receive a salary increase. The Committee has also considered the impact that the current share price could have on the number of shares to be granted under the 2020/22 LTIP cycle and as a result has decided to reduce the award level to 250% of salary.

The Committee has reviewed the bonus measures and weightings to apply for 2020, in line with the Group Annual Plan. 50% of the financial measures will be based on adjusted operating profit, 30% of the financial measures will be based on free cash flow and 20% of the financial measures will be based on cost efficiency.

Remuneration Policy review

In accordance with the established three-year cycle of presenting remuneration policy to shareholders, during 2020 the Committee will review its Policy to ensure that it remains aligned with the strategic objectives and long-term aims of the Group prior to presentation at the 2021 AGM.

Conclusion

Overall, 2019 has been a challenging year for Centrica as a business and for our shareholders. The Committee continues to take a disciplined approach to executive remuneration that seeks to ensure Executive Directors are fairly and appropriately rewarded while ensuring alignment with the expectations of all our stakeholders. We believe that the difficult decisions made in respect of 2019 achieve this aim and align pay and performance effectively. The Committee is dedicated to an open and transparent dialogue with our investors and therefore I welcome views on any part of our remuneration arrangements.

Scott Wheway

on behalf of the Remuneration Committee

CEO Pay Ratio

The chart below shows the ratio of remuneration of the CEO to the average UK employee of the Group for 2018 and 2019.

	25th percentile	50th percentile	75th percentile
2019	34:1	29:1	22:1
2018	72:1	59:1	44:1

The Company has used its gender pay gap data (Option B in the Directors' Reporting Regulations) to determine the employees whose remuneration packages sit at the lower, median and upper quartile positions across the UK workforce. This is deemed the most appropriate methodology for Centrica given the different pension and benefit arrangements across the diverse UK workforce. To ensure this data accurately reflects individuals at each quartile position, a sensitivity analysis has been performed. The approach has been to review the total pay and benefits for a number of employees immediately above and below the identified employee at each quartile within the gender pay gap analysis.

The annual remuneration relating to 2018 and 2019 for the three identified employees has been calculated on the same basis as the CEO's total remuneration for 2018 and 2019 in the single figure table on page 72 to produce the ratios.

The lower ratios in 2019 compared with 2018 reflect the fact that Iain Conn's total remuneration for 2019 does not include an annual bonus or the value of a long-term share award vest.

Remuneration Summary for 2019

Total remuneration received in 2019

(£000)(1)

Fixed remuneration Maximum total pay Short-term incentive On-target total pay

Long-term incentive Minimum total pay

(1) Prepared on the same basis as the single figure for total remuneration table set out on page 72.

Components of remuneration package in 2019

Read more about our Remuneration Policy Pages 94 to 99 of the Annual Report and Accounts 2019

Short-term incentive outcome (Annual Incentive Plan)

Financial performance

40%	40%		20%
00% AOCF	AOP	Cost efficiency
Maximum Achieved Not achieved		75%	25%

Irrespective of the formulaic result, due to the financial performance of the business in 2019 the Committee exercised discretion resulting in a zero bonus for Executive Directors.

Long-term incentive outcome

(Long Term Incentive Plan)

three-year period.

33.3%	33.3%	33.3%
00% EPS	EP	Non-financial KPIs
Maximum Achieved Not achieved		40% 60%

Irrespective of the formulaic result, the Committee decided to use its discretion to reduce to zero the 2017 LTIP outcome for Executive Directors as a result of overall financial performance over the

2019 cash flow distribution to stakeholders

The Committee monitors the relationship between the Directors' total remuneration and cash outflows to other stakeholders. As demonstrated by the chart, the Directors' aggregate total remuneration for the year equates to 0.10% (2018: 0.10%) of the Group's operating cash flow.

Directors' Annual Remuneration Report

Directors' remuneration in 2019

This report sets out information on the remuneration of the Directors for the financial year ended 31 December 2019.

Single figure for total remuneration (audited)

		Salary/fees		Bonus (cash)	Bonus (deferred)		Benefits(1)		LTIPs(2)		Pension(3)(4)(5)		Total
£000	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018(2)
Executives
Iain Conn	953	940	–	388	–	388	31	31	–	306	202	282	1,186	2,335
Jeff Bell(6)	–	479	–	198	–	198	–	35	–	182	–	101	–	1,193
Mark Hanafin(6)	–	584	–	235	–	235	–	23	–	207	–	163	–	1,447
Mark Hodges(7)	106	638	–	–	–	–	4	25	–	–	27	159	137	822
Richard Hookway(8)	600	100	–	41	–	41	34	4	–	–	110	20	744	206
Chris O'Shea(9)	620	191	–	79	–	79	25	7	–	–	107	38	752	394
Sarwjit Sambhi(10)	517	–	–	–	–	–	21	–	–	–	69	–	607	–
Total													3,426	6,397

(1) Taxable benefits include car allowance, health and medical benefits and financial planning advice. Non-taxable benefits include matching shares received under the Share Incentive Plan (SIP). Both taxable and non-taxable benefits are included in the table.

(2) The values of the LTIP awards vesting in April 2019 have been recalculated based on the share price on the date of vest which was 113.6 pence. The previous disclosure in the 2018 single figure table used an estimated share price. Iain Conn, Jeff Bell and Mark Hanafin's total remuneration for 2018 has therefore been restated to include the amended value of these awards.

(3) Notional contributions to the Centrica Unapproved Pension Scheme defined contribution section (CUPS DC) for Jeff Bell, Mark Hanafin, Richard Hookway and Chris O'Shea have been included in this table as if CUPS DC was a cash balance scheme. This includes a deduction in respect of an allowance for CPI inflation on the opening balances of 2.4% in 2019 (3.0% in 2018). CUPS DC contributions for Richard Hookway and Chris O'Shea were reduced to 15% from 1 June 2019 to move towards alignment with the wider workforce.

(4) Iain Conn and Mark Hodges were entitled to receive a salary supplement in lieu of a pension contribution. Iain Conn's salary supplement was reduced to 15% from 1 June 2019 to move towards alignment with the wider workforce.

(5) The value of the increase in defined benefit (DB) pension accrual for Sarwjit Sambhi has been calculated using 20 times the increase in accrued pension over the period, less the contributions paid by him over the year. He received a salary supplement of 10% of the difference between the earnings cap and base pay between 1 March and 31 December 2019.

(6) Jeff Bell stepped down from the Board on 31 October 2018 and Mark Hanafin stepped down from the Board on 30 November 2018. The remuneration in this table includes their pro-rated salary, bonus, benefits and pension benefits earned up to the date they stepped down. The remuneration for the remainder of 2018, whilst they were working their remaining notice periods, was disclosed in the payments for loss of office disclosure on page 94 of the Annual Report and Accounts 2018. The full value of the LTIP awards that vested in April 2019 has been included in the single figure table above. Both Jeff Bell and Mark Hanafin were appointed as non-executive directors of Spirit Energy during 2019.

(7) As Mark Hodges had tendered his resignation and agreed a leaving date of 28 February 2019, his AIP award relating to the 2018 year, and all unvested LTIP awards as at his date of leaving, were forfeited.

(8) Richard Hookway was appointed to the Board on 1 December 2018.

(9) Chris O'Shea was appointed to the Board on 1 November 2018.

(10)Sarwjit Sambhi was appointed to the Board on 1 March 2019.

Single figure for total remuneration (audited)

		Salary/fees	Bonus (cash)		Bonus (deferred)		Benefits		LTIPs		Pension		Total
£000	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
Non-Executives
Rick Haythornthwaite(1)	71	495	–	–	–	–	–	–	–	–	–	–	71	495
Charles Berry(2)	392	12	–	–	–	–	–	–	–	–	–	–	392	12
Margherita Della Valle(3)	36	98	–	–	–	–	–	–	–	–	–	–	36	98
Joan Gillman	93	73	–	–	–	–	–	–	–	–	–	–	93	73
Stephen Hester	93	93	–	–	–	–	–	–	–	–	–	–	93	93
Pam Kaur(4)	67	–	–	–	–	–	–	–	–	–	–	–	67	–
Kevin O'Byrne(5)	62	–	–	–	–	–	–	–	–	–	–	–	62	–
Carlos Pascual	73	73	–	–	–	–	–	–	–	–	–	–	73	73
Steve Pusey	93	93	–	–	–	–	–	–	–	–	–	–	93	93
Scott Wheway	93	93	–	–	–	–	–	–	–	–	–	–	93	93
Total													1,073	1,030

(1) Rick Haythornthwaite stepped down from the Board on 20 February 2019.

(2) Charles Berry was appointed Chairman of the Board on 21 February 2019.

(3) Margherita Della Valle stepped down from the Board on 12 May 2019.

(4) Pam Kaur joined the Board on 1 February 2019.

(5) Kevin O'Byrne joined the Board on 13 May 2019.

Independent Auditor's Statement

to the members of Centrica plc

We have examined:

• the summary financial statements contained within the Annual Review for the year ended 31 December 2019 which comprise the Summary Group Income Statement, the Summary Group Balance Sheet, the Summary Group Statement of Changes in Equity, the Summary Group Cash Flow Statement (the "summary financial statements"); and
• the table of the single total figure for directors' remuneration contained within the Summary Remuneration Report.

This report is made solely to the Company's members, as a body, in accordance with the terms of our letter of engagement with the company dated 31 May 2019. Our work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, for our audit report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

The directors are responsible for preparing the Annual Review (which includes the summary financial statements) and the supplementary material which includes the table of the single total figure for directors' remuneration in accordance with applicable United Kingdom law.

Our responsibility is to report to you our opinion on the consistency of the summary financial statements contained within the Annual Review with the full annual financial statements and our opinion on the consistency of the table of the single total figure for directors' remuneration contained within the summary Remuneration Report with that table in the Directors' Remuneration Report.

We also read the other information contained in the Annual Review and the supplementary material as described in the contents section, and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the summary financial statements.

Our report on the Company's full annual financial statements describes the basis of our audit opinion on those financial statements, the Directors' Remuneration Report, the Strategic Report and the Directors' Report.

Opinion

In our opinion, the summary financial statements contained within the Annual Review are consistent with the full annual financial statements for the year ended 31 December 2019 and the table of the single total figure for directors' remuneration contained within the Summary Remuneration Report is consistent with that table in the full Directors' Remuneration Report.

Deloitte LLP

Statutory Auditor London, United Kingdom 12 February 2020

Summary Financial Statements

The information set out below is only a summary of information derived from the Group's annual reports and accounts and the Directors' Remuneration Report in the Annual Report and Accounts 2019, and does not contain sufficient information to allow as full an understanding of the Group's results, state of affairs, and its policies and arrangements concerning Directors' remuneration as would be provided by the full Annual Report and Accounts. Shareholders and certain other persons have the right to obtain a copy of the full Annual Report and Accounts free of charge or elect to receive the full Report and Accounts instead of an Annual Review for all future financial years by contacting Equiniti whose details can be found on page 76 and in the Shareholder Centre on our website centrica.com.

Summary Group Income Statement

2019			2018 (restated) (i)
Business performance £m	Exceptional items and certain re-measurements £m	Results for the year £m	Business performance £m	Exceptional items and certain re-measurements £m	Results for the year £m
	(4,151)	22,674	27,381	(4,077)	23,304
	7,178	(15,795)	(23,128)	6,808	(16,320)
	(3,673)	(3,673)	–	(2,931)	(2,931)
	(646)	3,206	4,253	(200)	4,053
	–	(2,742)	(2,721)	–	(2,721)
	–	(197)	(143)	–	(143)
	(476)	(476)	–	90	90
	(381)	(381)	–	(46)	(46)
	(77)	(77)	–	–	–
	35	35	–	(16)	(16)
	152	152	–	(41)	(41)
	(356)	(356)	–	(170)	(170)
	(1,103)	(4,042)	(2,864)	(183)	(3,047)
	(1)	(13)	3	(22)	(19)
	(1,750)	(849)	1,392	(405)	987
	–	(255)	(273)	(139)	(412)
	(1,750)	(1,104)	1,119	(544)	575
	219	1	(461)	128	(333)
	(1,531)	(1,103)	658	(416)	242
	(1,442)	(1,023)	631	(448)	183
	(89)	(80)	27	32	59
		Pence			Pence
		26,825 (22,973) – 3,852 (2,742) (197) – – – – – – (2,939) (12) 901 (255) 646 (218) 428 419 9

Basic	(17.8)	3.3
Diluted	(17.8)	3.2
Interim dividend paid per ordinary share	1.50	3.60
Final dividend proposed per ordinary share	3.50	8.40

(i) The Group has amended the presentation of energy derivative contracts following an IFRIC agenda decision in March 2019 and a review of its trading businesses. Prior year results have been restated accordingly.

(ii) Gains and losses on disposals include any impairments and write-backs associated with the assets and businesses disposed of or classified as held for sale.

Summary Group Balance Sheet

	31 December	31 December
	2019 £m	2018 £m
Non-current assets	9,859	11,891
Current assets	8,171	8,666
Assets of disposal groups classified as held for sale	124	–
Current liabilities	(8,867)	(8,382)
Liabilities of disposal groups classified as held for sale	(18)	–
Non-current liabilities	(7,474)	(8,227)
Net assets	1,795	3,948
Total shareholders' equity	1,212	3,145
Non-controlling interests	583	803
Total shareholders' equity and non-controlling interests	1,795	3,948

Summary Group Statement of Changes in Equity

	2019 £m	2018 £m
1 January	3,948	3,432
(Loss)/profit for the year	(1,103)	242
Other comprehensive (loss)/income		(504) 771
Employee share schemes and other share transactions		30
Scrip dividend	96	125
Dividends paid to equity holders	(561)	(673)
Distributions to non-controlling interests	(124)	–
Other movements	–	21
31 December	1,795	3,948

Summary Group Cash Flow Statement

Year ended 31 December	2019 £m	2018 £m
Cash generated from operations	1,640	2,243
Taxation and other operating cash flows	(390)	(309)
Net cash flow from operating activities	1,250	1,934
Net cash flow from investing activities	(503)	(1,007)
Net cash flow from financing activities	(1,077)	(2,540)
Net decrease in cash and cash equivalents	(330)	(1,613)
Cash and cash equivalents including overdrafts at 1 January	1,128	2,737
Effect of foreign exchange rate changes	(4)	4
Cash and cash equivalents including overdrafts at 31 December	794	1,128

The Summary Financial Statements on pages 74 to 75 were approved and authorised for issue by the Board of Directors on 12 February 2020 and were signed below on its behalf by:

Iain Conn Chris O'Shea

Group Chief Executive Group Chief Financial Officer

Shareholder Information

General enquiries

Centrica's share register is administered and maintained by Equiniti, our Registrar, whom you can contact directly if you have any questions about your shareholding which are not answered here or on our website. You can contact Equiniti using the following details:

Address: Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA United Kingdom

Telephone: 0371 384 2985*

Outside the UK: +44 (0)121 415 7061

Textphone: 0371 384 2255*

Outside the UK: +44 (0)121 415 7028

Contact: help.shareview.co.uk

Website: equiniti.com

* Calls to an 03 number cost no more than a national rate call to an 01 or 02 number. Lines open 8.30 am to 5.30 pm, Monday to Friday (UK time), excluding public holidays in England and Wales.

When contacting Equiniti or registering via shareview.co.uk, you should have your shareholder reference number to hand. This can be found on your share certificate, dividend confirmation or any other correspondence you have received from Equiniti.

If you hold less than 2,500 shares you will be able to change your registered address or set up a dividend mandate instruction over the phone; however, for security reasons, if you hold more than 2,500 shares, you will need to put this in writing to Equiniti.

Together with Equiniti, we have introduced an electronic queries service to enable our Shareholders to manage their investment at a convenient time. Details of this service can be found at shareview.co.uk

American Depositary Receipt (ADR)

We have an ADR programme, trading under the symbol CPYYY. Centrica's ratio is one ADR being equivalent to four ordinary shares. Further information is available on our website or please contact:

Address: BNY Mellon Shareowner Services, PO Box 505000, Louisville, KY 40233-5000, USA

Email: shrrelations@cpshareownerservices.com

Website: mybnymdr.com

Telephone: +1 888 269 2377 (toll-free in the US) Outside the US: +1 201 680 6825

Manage your shares online

We actively encourage our shareholders to receive communications via email and view documents electronically via our website, centrica.com. Receiving communications and Company documents electronically saves your Company money and reduces our environmental impact. If you sign up for electronic communications, you will receive an email to notify you that new shareholder documents are available to view online, including the Annual Report and Accounts and the Annual Review, on the day they are published. You will also receive alerts to let you know that you can cast your AGM vote online. You can manage your shareholding online by registering at shareview.co.uk, a free online platform provided by Equiniti, which allows you to:

• view information about your shareholding;
• have your dividend paid into your bank account;
• update your personal details; and
• appoint a proxy for the AGM.

Centrica FlexiShare

FlexiShare is an easy way to hold Centrica shares without a share certificate. Your shares are held by a nominee company, Equiniti Financial Services Limited. However, you are able to attend and vote at general meetings as if the shares were held in your own name. Holding your shares in this way is free and gives you:

• low cost share dealing rates (full details of which are available on centrica.com, together with dealing charges);
• quicker settlement periods for buying and selling shares; and
• no paper share certificates to lose.

Centrica.com

The Shareholder Centre on our website contains a wide range of information including a dedicated investors section where you can find further information about shareholder services including:

• share price information;
• dividend history;
• ownership profile;
• the Scrip Dividend Programme;
• telephone and internet share dealing;
• downloadable shareholder forms; and
• taxation.

This Annual Report and Accounts can also be viewed online by visiting centrica.com/ar19

Dividends

Centrica dividends can be paid directly into your bank or building society account instead of being dispatched to you by cheque. More information about the benefits of having dividends paid directly into your bank or building society account, and the mandate form to set this up, can be found in the Investors section of our website.

If you do not have a UK bank or building society account, Equiniti is able to pay dividends in local currencies in over 90 countries. For a small fee, you could have your dividends converted from sterling and paid into your designated bank account, usually within five days of the dividend being paid.

ShareGift

If you have a small number of shares and the dealing costs or the minimum fee make it uneconomical to sell them, it is possible to donate them to ShareGift, a registered charity, who provide a free service to enable you to dispose charitably of such shares. More information on this service can be found at sharegift.org or by calling +44 (0)20 7930 3737.

2020 calendar

Ex-dividend date for 2019 final dividend
Record date for 2019 final dividend
Trading Update AGM
Payment date for 2019 final dividend
Half-year results announcement

Glossary

\$	Refers to US dollars unless specified otherwise
2P reserves	Proven and probable reserves
AGM	Annual General Meeting
AIP	Annual Incentive Plan
AOCF	Adjusted operating cash flow
bcf	Billion cubic feet
CHP	Combined heat and power
CCGT	Combined cycle gas turbine
CO2e	Universal unit of measurement of the global warming potential (GWP) of greenhouse gases (GHG) expressed in terms of the GWP of one unit of CO2e (carbon dioxide equivalent)
CPI	Consumer Price Index
CSS	Consolidated Segmental Statement
CUPS DB	Centrica Unfunded Pension Scheme defined benefit
CUPS DC	Centrica Unfunded Pension Scheme defined contribution
	Data analytics The process of examining data sets to draw conclusions and insights about the information they contain
DEEPAC	Direct Energy Employee Political Action Committee
EBITDA	Earnings before interest, tax, depreciation and amortisation
EBT	Employee Benefit Trust
EP	Economic profit
EPS	Earnings per share
EU	European Union
EU ETS	European Union Emissions Trading Scheme
FCA	Financial Conduct Authority
FRS	Financial Reporting Standards
GDPR	General Data Protection Regulation
GPS	Global Positioning System
GW	Gigawatt
GWh	Gigawatt hours
HVAC	Heating, ventilation and air conditioning
IAS	International Accounting Standards
IFRS	International Financial Reporting Standards
KPI	Key performance indicators
kWh	Kilowatt hour
LGBTQ+	Lesbian, Gay, Bisexual, and Trans plus. The 'plus' is inclusive of other groups such as asexual, intersex and questioning

LNG	Liquefied natural gas
LTIFR	Lost time injury frequency rate
mmboe	Million barrels of oil equivalent
mmth	Million therms
NGO	Non-governmental Organisation
NPS	Net promoter score
NFRD	Non-Financial Reporting Directive
PP&E	Property, Plant and Equipment
ppt	Percentage point
	Process safety Process safety is concerned with the prevention of harm to people and the environment, or asset damage from major incidents such as fires, explosions and accidental releases of hazardous substances
PRA	Prudential Regulatory Authority
PRT	Petroleum Revenue Tax
PWR	Pressurised Water Reactor
RBD	Reconciliation by difference
ROACE	Return on average capital employed
ROC	Renewable Obligation Certificate
RPI	Retail Price Index
RRJ	Risk Requiring Judgement
RRS	Risk Requiring Standards
SAYE	Save As You Earn
SHESEC	Safety, Health, Environment, Security and Ethics Committee
SIP	Share Incentive Plan
STEM	Used in reference to skills relating to the subjects of science, technology, engineering and maths
tCO2e	Tonnes of carbon dioxide equivalent
TCFD	Task Force on Climate-related Financial Disclosures
the Company	Centrica plc
the Group	Centrica plc and all of its subsidiary entities
TRIFR	Total Recordable Injury Frequency Rate
TSR	Total shareholder return
TWh	Terawatt hour
VIU	Value in use
WBCSD	World Business Council for Sustainable Development
WRI	World Resources Institute

Designed by SALTERBAXTER MSL

This report is printed on recycled silk papers made from 100% pre and post-consumer waste. The paper mills are based in the European Union and manufacture papers independently audited and certified by the Forest Stewardship Council® (FSC®) and accredited to the Environmental Management System 14001.

Printed by CPI Colour Limited ISO14001, FSC® certified and CarbonNeutral®.

Disclaimer

This Annual Report and Accounts does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any of the Company's shares or other securities.

This Annual Report and Accounts contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of the Company. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.

Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

Centrica plc

Registered office: Millstream Maidenhead Road Windsor Berkshire SL4 5GD

Company registered in England and Wales No. 3033654

centrica.com