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Centrica PLC Final Results

25/02/2021 7:00am

UK Regulatory (RNS & others)


Centrica (LSE:CNA)
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From Feb 2021 to Apr 2021

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TIDMCNA

RNS Number : 2802Q

Centrica PLC

25 February 2021

Preliminary results for the year ended

31 December 2020

CHRIS O'SHEA, GROUP CHIEF EXECUTIVE

"We started a major transformation of the Company during 2020. Against the continuing uncertain backdrop caused by the Covid-19 crisis, I am truly grateful for the efforts of all my colleagues, as we kept our customers warm, safe and supplied with energy and services and protected the business.

We have made a good start to the turnaround of Centrica, with the sale of Direct Energy now complete and our significant Group restructure on track. However, our journey to transform has only just started, as we seek to restore shareholder value by improving customer experience, retention and employee engagement, while maintaining a strong balance sheet. It won't be easy, but I am confident we have the people, the brands and the market positions to deliver a successful turnaround in the coming years."

TURNAROUND OF CENTRICA STARTED

-- Major transformation of Centrica underway.

-- Completion of Direct Energy sale in January 2021 strengthens the balance sheet and allows an increased focus on core UK and Ireland activities.

-- Significant restructure to simplify and modernise the Group on track.

-- Increased focus on fixing the basics. Customer service levels broadly maintained. Customer numbers broadly unchanged over H2 compared to a 2% drop in H1.

RESILIENT 2020 FINANCIAL PERFORMANCE

-- Group adjusted basic EPS of 6.5p, down 11%.

-- Adjusted operating profit from continuing operations (excluding Direct Energy) down 31% to GBP447m and adjusted basic EPS from continuing operations of 2.8p, down 35%.

- Reflects negative impacts of Covid-19, warmer weather and low commodity prices.

- Partly offset by efficiency benefits, a strong trading and optimisation result and lower depreciation.

-- Total exceptional charges in Group operating profit from continuing operations of GBP1,593m, including restructuring and pension strain costs of GBP274m and impairments of GBP1,319m.

-- From continuing operations, statutory operating loss of GBP362m (2019: GBP783m loss), statutory EPS loss of 4.7p (2019: 16.8p loss), statutory net cash flow from operating activities down 1% to GBP957m.

BALANCE SHEET STRENGTHENED

-- Total Group free cash flow up 10% to GBP1,061m and net debt down GBP0.4bn to GBP2.8bn, reflecting a tight focus on cash expenditure and prompt and prudent actions taken in response to Covid-19.

-- IAS19 pension deficit of GBP601m and technical pension deficit of GBP1.9bn on a roll-forward basis at 31 December 2020. Next triennial pensions valuation scheduled for 31 March 2021.

CREATING A MORE SUSTAINABLE AND PROFITABLE COMPANY

-- Significant uncertainties continue into 2021. No specific earnings or cash flow guidance provided.

-- Strengthened balance sheet and continued tight focus on cash flow generation and expenditure leave Centrica well placed to navigate future uncertainties.

-- Focus remains on adding shareholder value through simplifying and modernising the Group and improving the long-term quality, sustainability and level of earnings and cash flow.

-- Intention remains to sell Spirit Energy. Nuclear divestment process remains paused.

-- New climate change ambitions for Centrica to become net zero by 2045 and help our customers be net zero by 2050 are aligned to potential growth opportunities.

-- Intend to set out longer-term strategy in H2 2021.

FINANCIAL SUMMARY

 
Year ended 31 December                                     2020         2019  Change 
==================================================  ===========  ===========  ====== 
From continuing and discontinued operations(1) 
EBITDA                                                GBP1,635m    GBP2,119m   (23%) 
Group adjusted operating profit                         GBP699m      GBP901m   (22%) 
Group adjusted basic earnings per share (EPS)              6.5p         7.3p   (11%) 
Full year dividend per share                                  -         1.5p      nm 
Group free cash flow                                  GBP1,061m      GBP966m     10% 
Group net debt                                        GBP2,769m    GBP3,181m   (13%) 
Group net debt (including margin cash)                GBP2,998m    GBP3,507m   (15%) 
--------------------------------------------------  -----------  -----------  ------ 
Statutory operating profit/(loss)                        GBP52m    (GBP849m)      nm 
Basic earnings per share                                   0.7p      (17.8p)      nm 
Statutory net cash flow from operating activities     GBP1,400m    GBP1,250m     12% 
--------------------------------------------------  -----------  -----------  ------ 
From continuing operations 
EBITDA                                                GBP1,336m    GBP1,778m   (25%) 
Adjusted operating profit                               GBP447m      GBP650m   (31%) 
Adjusted basic earnings per share                          2.8p         4.3p   (35%) 
Free cash flow                                          GBP685m      GBP472m     45% 
Statutory operating (loss)                            (GBP362m)    (GBP783m)   (54%) 
Exceptional items included in statutory operating 
 (loss)                                             (GBP1,593m)  (GBP1,123m)     42% 
Basic earnings per share                                 (4.7p)      (16.8p)   (72%) 
Statutory net cash flow from operating activities       GBP957m      GBP970m    (1%) 
--------------------------------------------------  -----------  -----------  ------ 
 

See notes 2, 5 and 10 to the Financial Statements and pages 75 to 77 for an explanation of the use of adjusted performance measures.

1 Includes Direct Energy which is now classified in discontinued operations. See note 5 for more information on segmental operating profit and free cash flow.

GROUP PERFORMANCE INDICATORS

 
Year ended 31 December                                    2020    2019  Change 
======================================================  ======  ======  ====== 
  Total recordable injury frequency rate (per 200,000 
   hours worked)                                          1.03    1.06    (3%) 
  Total residential customers ('000) (1)                 9,217   9,440    (2%) 
  Group Brand NPS                                           14      15   (1pt) 
  Group direct headcount                                23,846  26,932   (11%) 
  Group employee engagement (%)                            42%     43%  (1ppt) 
------------------------------------------------------  ------  ------  ------ 
 

1 Includes British Gas Energy, British Gas Services and Bord Gáis Energy. Excludes Direct Energy.

INVESTOR PRESENTATION

A pre-recorded results presentation will be available on Centrica.com at 8am GMT on 25 February 2021 and Centrica will host a conference call for institutional investors and analysts at 10.30am GMT on 25 February 2021. To register for the call please visit:

https://webcasts.centrica.com/centrica112/vip_connect

If you would like to join in listen only mode, please register at:

https://webcasts.centrica.com/centrica112

ENQUIRIES

Investors and Analysts: tel: +44 (0)1753 494900 email: ir@centrica.com

Media: tel: +44 (0)1784 843000 email: media@centrica.com

Group Overview

HELPING COLLEAGUES, CUSTOMERS AND COMMUNITIES DURING COVID-19

-- Centrica was significantly impacted by the Covid-19 pandemic during the year. However, colleagues responded with incredible commitment and dedication, as we ensured the continuity of the supply of gas and electricity and the provision of essential energy services to homes and businesses, while following all advice from governments and relevant health authorities.

Looking after our colleagues

-- Looking after our colleagues to ensure they can continue to offer our customers the level of service they demand was, and remains, a key focus.

-- Our service engineers continued carrying out essential work such as boiler breakdowns during lockdown periods, as we provided them with appropriate personal protective equipment.

-- We were also able to provide our customer agents with all the necessary equipment to work from home, with customer service levels holding up relatively well.

-- We committed to find flexible working options for parents and carers to support them balance work with their other responsibilities.

-- Our commitment to offer mental health and wellbeing support to colleagues has been more important than ever, with a variety of options available to them to get any help they may need.

Being there for customers

-- We remained available to all our customers, while prioritising those who are vulnerable and needed additional support and those without heating or hot water. Throughout the year we regularly reviewed which services we could carry out safely.

-- In addition, over 80,000 of British Gas' most vulnerable customers had additional help in the year, through advance credit for prepayment customers or deferred payments for credit customers.

Supporting our communities

-- We also continued to help the communities we serve. Through our partnership with the Trussell Trust in the UK more than 3,000 British Gas engineers volunteered to deliver from foodbanks to help get food to people who need it most. Our engineers volunteered over 58,000 hours and have now delivered the equivalent of over 4 million meals across the UK.

-- We helped fund extended helpline hours for Carers UK, with the volume of carers contacting their national helpline having increased by 60% in the first few weeks of the pandemic.

-- We also partnered with the Sagesse charity in Alberta to promote the organisation's 'REAL Talk' campaign focusing on recognising signs of domestic violence.

SIGNIFICANT GROUP RESTRUCTURE ON TRACK

Creating a simpler, leaner, more modern Company

-- In June 2020, we announced plans for a significant restructure designed to create a simpler, leaner Group focused on delivering for our customers. This included a proposed new organisational design, and the start of a consultation process to simplify terms and conditions for colleagues in the UK.

-- These changes will help to simplify and modernise the Group and allow us to put customers at the heart of everything we do. This will provide us with the platform from which we will continue to invest in transforming our business, to improve competitiveness and enable growth.

Restructure expected to be largely completed in 2021

-- The reorganisation was expected to lead to a total reduction of around 5,000 roles across the Group when compared to the start of 2020, with around 1,000 of the reduction expected to have come from roles in Direct Energy. Over half of the reduction is expected to come from management roles.

-- The expected cost to complete this restructuring has largely been provided for in the 2020 full year exceptional charge of GBP274m, with the cash expenditure expected to occur over 2020 and 2021.

-- These changes will result in a more competitive cost structure, in particular in our UK energy supply and services businesses, and an improved customer experience to provide a platform for growth. The restructure is on track:

- The number of organisational layers has been reduced from eleven to seven, creating a flatter, less bureaucratic organisation, which is closer to and focused on the customer.

- The number of roles at the three most senior levels of the organisation has been reduced by around half since the restructure was announced.

- The total number of colleagues in customer-facing roles was significantly higher at the end of 2020 compared to the end of 2019.

- Group direct headcount excluding Direct Energy was over 3,000 lower at the end of 2020 than at the end of 2019, with the remaining approximately 1,000 role reductions expected to take place in 2021.

- The cost per customer in British Gas Energy was GBP106 in 2020, down GBP5 compared to 2019.

-- Within British Gas, we are now utilising a new low-cost 'software as a service' third party platform for energy only customers in order to compete more effectively with challenger brands. We currently have around 36,000 residential customers on this platform and will look to migrate residential and smaller business customers to it over time. This is expected to result in additional operating costs. However, we would also expect to reduce expenditure on the legacy IT system as we migrate customers onto the new platform.

A more flexible workforce

-- In addition to the proposed new organisational design, the company consulted to simplify colleague terms and conditions in the UK over the second half of 2020. Centrica has had over 80 different employee contracts, each with multiple variants, with many of the agreements dating back over 35 years. We need to modernise these to enable us to best serve the changing expectations of today's customers while retaining the quality of our service.

-- We have seen industrial action from a portion of our UK services engineer base in the first couple of months of 2021. We have had contingency plans in place and operationally have handled the situation relatively well, prioritising emergency visits and vulnerable customers. In total, over 80% of colleagues have now accepted new terms and we will continue to engage with all colleagues.

DIRECT ENERGY SALE FURTHER SIMPLIFIES THE GROUP

-- We announced on 24 July 2020 that we had entered into an agreement to sell our North American business, Direct Energy, to NRG Energy for $3.625bn in cash, on a debt free, cash free basis. Having hedged the currency exposure at $1.32, net cash proceeds were GBP2.7bn after transaction costs.

-- Having received a highly compelling unsolicited offer to acquire Direct Energy, we entered into a limited period of exclusive negotiations with NRG in May to explore further the basis for a transaction.

-- The transaction resulted in an attractive price for Direct Energy, representing a multiple of 7.9x 2019 Underlying Adjusted EBITDA of $457 million and completed on 5 January 2021.

-- The transaction enables Centrica to simplify further its business, which alongside the significant restructure will create a simpler, leaner Company, focused on its core markets of the UK and Ireland.

-- It also increases the long-term strength of the Group's balance sheet, with net cash proceeds to be used to reduce net debt and make a contribution to the Group's defined benefit pension schemes.

-- In addition, it will result in a more stable financial profile for the Group, with an increased proportion of cash flows generated from contracted services, and removal of volatility inherent within Direct Energy.

RESILIENT OPERATIONAL, COMMERCIAL AND FINANCIAL PERFORMANCE

British Gas customer satisfaction levels maintained and customer numbers stable in H2

 
British Gas Energy                           2020    2019    Change 
=========================================  ======  ======  ======== 
  Energy customers ('000)                   6,916   7,080      (2%) 
  Cost per energy customer (GBP) (1)       GBP106  GBP111      (5%) 
  Energy complaints per customer (%) (2)     6.1%    8.6%  (2.5ppt) 
  Energy Touchpoint NPS (3)                     9      11     (2pt) 
  Adjusted operating profit (GBPm) (1)         80     124     (35%) 
-----------------------------------------  ------  ------  -------- 
 

1. 2019 restated following the treatment of Direct Energy as a discontinued operation and the reallocation of corporate costs.

2. A complaint is an expression of dissatisfaction, in line with submissions made to Ofgem.

3. Measured independently, through individual questionnaires, the customer's willingness to recommend British Gas following contact with an Energy call centre.

-- British Gas Energy customers fell by 164,000 or 2%, with nearly all the net losses coming in the first half of the year.

- In the first half, some core sales channels were unavailable during Covid-19 related lockdowns. We also limited our activity in the fiercely competitive price comparison website market, as some competitors priced at negative gross margins and falling commodity prices helped unhedged smaller competitors.

- The number of customers was broadly unchanged over the second half. This includes the impact of the acquisition of around 85,000 Robin Hood Energy customers in September and an increased focus on customer retention.

-- Energy Touchpoint NPS reduced, reflecting the impact of longer average call waiting times at points in the year, as we prioritised emergency calls and contact centre colleagues moved to home working.

-- Total call volumes fell, as we encouraged our customers to interact with us online to ensure we could prioritise calls from more vulnerable customers. This in turn reduced complaints.

-- Our continued investment in digital platforms meant we were able to handle the significant increase of digital contacts, with 64% of all transactions completed online in 2020 compared to 55% in 2019.

-- British Gas Energy adjusted operating profit reduced by 35% to GBP80m.

- The reduction includes a roughly GBP40m impact due to warmer weather impacting energy consumption, the non-recurrence of a benefit in 2019 of approximately GBP30m from the renegotiation of a smart metering contract and the impact of the reduction in customer numbers and a changed customer mix.

- It also includes a net negative Covid-19 impact, with slightly higher domestic consumption more than offset by higher balancing charges and an increase of around GBP40m in the bad debt charge.

- These negative impacts were partially offset by cost efficiencies and a benefit from the non-repeat of the one-off default tariff cap related cost of GBP70m in Q1 2019.

 
British Gas Services & Solutions               2020    2019    Change 
-------------------------------------------  ------  ------  -------- 
  Services customers ('000)                   3,563   3,685      (3%) 
  Revenue per services customer (GBP)        GBP359  GBP388      (7%) 
  Cost per services customer (GBP) (1)       GBP299  GBP331     (10%) 
  Install and on-demand jobs ('000)             283     337     (16%) 
  Services complaints per customer (%) (2)     5.7%    6.0%  (0.3ppt) 
  Services Engineer NPS (3)                      66      60       6pt 
  Adjusted operating profit (GBPm)              201     180       12% 
-------------------------------------------  ------  ------  -------- 
 

1. 2019 restated following the treatment of Direct Energy as a discontinued operation and the reallocation of corporate costs.

2. A complaint is any oral or written expression of dissatisfaction.

3. Measured independently, through individual questionnaires, the customer's willingness to recommend British Gas following an engineer visit.

-- British Gas services customers fell 122,000, or 3%. Nearly all of the net losses came in the first half of the year, as a reduced number of customer visits during the lockdown period resulted in lower sales opportunities. However, sales picked up in the second half and customer retention overall for core insurance products remained in line with previous years. The number of services products per customer increased from 2.14 to 2.22 over the year and reflecting this the number of customer accounts ended the year higher than at the start.

-- The total number of installs and on demand jobs for the full year was down 16% compared to 2019, although were only down by 4% in the second half of the year as lockdown restrictions were eased. Within this, boiler installations were down 27%, with partial recovery in the second half of the year as they were 15% lower than in 2019.

-- Reflecting this reduction in higher revenue installation jobs, revenue per services customer fell by 7% to GBP359. However, this change in mix also led to a lower cost per customer and when combined with the impact of efficiencies, the cost per customer reduced by 10% to GBP299.

-- We continued to fulfil over 97% of UK services essential breakdown appointments on the scheduled day despite the impact of the Covid-19 pandemic. Reflecting this, services complaints were slightly down year-on-year despite the impacts of Covid-19, and engineer NPS increased with customers indicating greater appreciation for the care and work carried out during the pandemic.

-- British Gas Services & Solutions includes the activities previously in Centrica Home Solutions. The number of Home Solutions active customers increased by 13% in the year to 1,357,000.

-- British Gas Services and Solutions adjusted operating profit increased by 12% to GBP201m. Services profit increased slightly to GBP256m (2019: GBP252m), with the benefit of cost efficiencies offsetting the impacts of Covid-19 in the year, including from lower boiler installations. The loss in Solutions reduced to GBP55m (2019: loss of GBP72m), largely driven by cost efficiency measures and the decision to focus activity on the UK and Ireland and exit all other markets.

Customer service and retention improvements in Bord Gáis Energy

 
Bord Gáis Energy                    2020  2019    Change 
  Customers ('000)                        483   500      (3%) 
  Complaints per customer (%) (1)        1.8%  2.2%  (0.4ppt) 
  Journey NPS (2)                          38    31       7pt 
  Adjusted operating profit (GBPm) (3)     42    50     (16%) 
---------------------------------------  ----  ----  -------- 
 

1. Total consumer complaints of all types.

2. Weighted NPS for the main customer interaction channels.

3. 2019 restated following the treatment of Direct Energy as a discontinued operation and the reallocation of corporate costs.

-- Bord Gáis Energy customer retention improved, however the number of customers reduced by 17,000 or 3% in the year due to the impact of Covid-19 on services sales channels and a fiercely competitive pricing environment in energy markets.

-- Customer complaints improved to below 2% while Journey NPS showed significant improvement, reflecting an ongoing focus on improving the customer experience in part through investment in digital platforms. Customer adoption of self-service digital channels contributed to a 20% reduction in inbound contacts compared to 2019.

-- Bord Gáis Energy adjusted operating profit reduced by 16% to GBP42m, largely reflecting the impacts of Covid-19 on business energy demand and bad debts.

Strong performance in Energy Marketing & Trading

 
Energy Marketing & Trading                   2020  2019  Change 
  Renewable capacity under management (GW)   10.7   9.9      8% 
  Adjusted operating profit (GBPm) (1)        174   138     26% 
-------------------------------------------  ----  ----  ------ 
 

1. 2019 restated following the treatment of Direct Energy as a discontinued operation and the reallocation of corporate costs.

-- Trading and optimisation performance was strong in the year, in particular in LNG.

-- Energy Marketing & Trading renewable route-to-market capacity under management increased by 8% from 9.9GW to 10.7GW.

-- Energy Marketing & Trading adjusted operating profit increased by 26% to GBP174m due to the strong LNG trading performance and the decision in response to Covid-19 not to pay management bonuses relating to 2019 across Centrica, which resulted in an accrual release. This was partially offset by a loss from the one remaining legacy gas contract of GBP58m, compared to a profit of GBP3m in 2019.

Centrica Business Solutions heavily impacted by Covid-19

 
Centrica Business Solutions                         2020  2019    Change 
  Energy supply small customer sites ('000) 
   (1)                                               470   470        0% 
  Energy supply total gas and electricity volume 
   (TWh) (1)                                        25.0  25.0        0% 
  Energy supply complaints per customer (%) 
   (2)                                              3.4%  3.8%  (0.4ppt) 
  Energy supply transactional NPS (3)               (22)  (26)       4pt 
  New Energy Services order intake (GBPm)            350   392     (11%) 
  New Energy Services order book (GBPm)              697   663        5% 
  Adjusted operating (loss) (GBPm)                 (140)  (20)        nm 
-------------------------------------------------  -----  ----  -------- 
 

1. 2020 includes 67,000 small business customers on British Gas' low cost 'software as a service' third party platform.

2. Any oral or written expression of dissatisfaction where the customer claims to have suffered financial loss, material distress or material inconvenience.

3. Measured independently, through individual questionnaires, the customer's willingness to recommend.

-- In Centrica Business Solutions Energy Supply:

- The number of small business sites remained flat at 470,000 in the year. With the profile of these customers closely matching that of households, the intention is to migrate all these customers across to British Gas's 'software as a service' platform over the next couple of years.

- The total amount of energy supplied in the year was in line with 2019. A positive impact on volume from a number of new larger industrial and commercial customers was offset by the impact of businesses being closed during parts of the year due to Covid-19 lockdowns, which reduced full year demand by an estimated 12%.

- Customer complaints and transactional NPS both improved slightly in 2020, with a particular focus during the year on increasing first time resolution rates.

-- In Centrica Business Solutions New Energy Services:

- Order intake was 11% lower than in 2019, as companies delayed investment decisions on new technologies during the Covid-19 pandemic, exacerbated in the UK by Brexit uncertainty. However, order intake improved in the second half of 2020 and was 30% higher than in H2 2019. The forward order book of GBP697m was 5% higher than at the end of 2019.

-- Centrica Business Solutions reported an adjusted operating loss of GBP140m compared to a loss of GBP20m in 2019.

- Business energy supply reported an adjusted operating loss of GBP55m (2019: profit of GBP54m), with broadly all the movement estimated to be due to Covid-19. The reduction in energy consumption resulted in reduced revenue, commodity hedges having to be unwound at a loss and higher energy balancing costs, which are estimated to have impacted profit by around GBP90m in total. In addition, higher provisions for customer bad debt increased the bad debt charge by GBP34m.

-- New Energy Services reported an adjusted operating loss of GBP85m (2019: GBP74m) including a GBP16m provision related to the transfer of US solar liabilities previously in Direct Energy. Excluding the impact of the US solar provision, New Energy Services adjusted operating loss was flat versus 2019 despite the significant challenges posed by Covid-19.

E&P production broadly in line with expectations, Nuclear impacted by operational issues

 
Upstream                                 2020  2019  Change 
  E&P total production volumes (mmboe)   48.7  52.5    (7%) 
  Nuclear power generated (TWh)           9.1  10.2   (11%) 
  Adjusted operating profit (GBPm) (1)     90   178   (49%) 
  E&P free cash flow (GBPm)               170   301   (44%) 
=======================================  ====  ====  ====== 
 

1. 2019 restated following the treatment of Direct Energy as a discontinued operation and the reallocation of corporate costs.

-- Spirit Energy volumes were down 2% to 44.9mmboe compared to 2019, with natural field decline and lower Morecambe up-time only partially offset by the impact of new production wells at Chiswick and Chestnut, good production from the Cygnus field, and a first full year of production from the Oda field. Reduced capital expenditure compared to 2019 was also a factor in less new production coming on stream in 2020 and reflecting this, 2021 production is expected to be around 10% lower than in 2020.

-- Spirit Energy's 2P reserves were 37mmboe lower at the end of 2020 than at the end of 2019, with the impact of production only partially offset by 9mmboe of positive revisions in Norway during the year.

-- Production volumes from CSL's Rough field of 3.9mmboe were 42% lower than in 2019, reflecting the natural decline of the late-life field.

-- Centrica's share of nuclear generation volumes of 9.1TWh was 11% lower than in 2019, as an extended outage at Hinkley Point B took the plant offline for most of the year. As in 2019, outages at Dungeness B and Hunterston B continued to limit nuclear output.

-- Upstream adjusted operating profit reduced by 49% to GBP90m.

- Spirit Energy E&P adjusted operating profit decreased by 7% to GBP84m (2019: GBP90m) with the impact of reduced achieved gas and liquids sales prices reflecting lower wholesale market prices largely offset by lower depreciation resulting from previous impairments, lower dry hole costs, and reduced operating and corporate costs.

- CSL adjusted operating profit reduced by 67% to GBP23m (2019: GBP69m) reflecting lower production due to the natural decline in the Rough field and lower achieved gas prices.

- Nuclear reported an adjusted operating loss of GBP17m, compared to a profit of GBP19m in 2019, with lower generation volumes reflecting the extended outages at a number of power stations.

SUMMARY GROUP FINANCIAL PERFORMANCE

Operating profit and earnings impacted by Covid-19 and low commodity prices

-- In total, adjusted operating profit from continuing operations was down GBP203m, or 31%, to GBP447m, with the movements by business unit described in the previous section.

-- When including a lower net finance charge reflecting a lower interest rate environment, a reduced tax rate reflecting a change in profit mix away from more highly taxed E&P activities and earnings attributable to non-controlling interests, adjusted earnings from continuing operations attributable to shareholders fell by 33% to GBP165m and adjusted EPS from continuing operations fell by 35% to 2.8p.

-- When including earnings from Direct Energy, now classified as a discontinued operation, total Group adjusted earnings attributable to shareholders fell by 10% to GBP378m and adjusted EPS fell by 11% to 6.5p.

Significant exceptional charge due to restructuring costs and upstream impairments

-- A pre-tax exceptional charge of GBP1,593m was recognised in continuing operations in 2020, the majority in the first half of the year. This includes restructuring costs of GBP274m and impairments of GBP1,319m, largely on Upstream assets due to the reduction in price forecasts and Nuclear plant availability issues. After tax, the total net exceptional charge recognised in continuing operations was GBP1,320m, compared to GBP993m in 2019.

-- When including a total gain from certain net re-measurements after tax for continuing operations of GBP698m (2019: loss of GBP308m) and a loss attributable to non-controlling interests of GBP183m (2019: loss of GBP89m), the statutory loss from continuing operations attributable to shareholders was GBP274m in 2020 compared to a loss of GBP964m in 2019. The statutory EPS loss was 4.7p, compared to a loss of 17.8p in 2019.

-- When including earnings from Direct Energy, total statutory earnings attributable to shareholders were GBP41m (2019: loss of GBP1,023m) and the statutory EPS was 0.7p (2019: loss of 16.8p).

Dividend

-- In April, we announced the decision to cancel payment of the 2019 final dividend per share of 3.5p in response to the Covid-19 pandemic. No 2020 interim dividend was paid, and we are also proposing no 2020 final dividend. We recognise the importance of dividends to shareholders and intend to recommence dividends to shareholders when it is prudent to do so.

Robust cash flows

-- EBITDA from continuing operations fell by 25% to GBP1,336m, largely due to the effects of lower commodity prices and Covid-19. However, overall cash flows were robust, demonstrating the flexibility we have to manage our cash flows, and the prompt and prudent actions we took to reduce cash expenditure in response to the Covid-19 pandemic.

-- Net investment including disposals of under GBP500m was around 36% lower than in 2019, in line with guidance given at the time of our April Trading Update. Exceptional cash payments of GBP120m were significantly below 2019 spend of GBP264m, as we delivered restructuring more efficiently.

-- Reflecting the above, free cash flow from continuing operations of GBP685m was 45% higher than in 2019. Including discontinued operations, total Group free cash flow of GBP1,061m was 10% higher.

-- After including net interest and pension deficit payments, the impact of the decision to cancel the 2019 final dividend in response to the uncertainties caused by Covid-19, and non-cash increases to net debt of GBP245m, predominantly related to new leases on LNG vessels, net debt reduced by GBP412m over the year to under GBP2.8bn.

Balance sheet restructuring underway

-- Net proceeds of GBP2.7bn from the sale of Direct Energy were received on 5 January 2021. Although a portion of these proceeds will be used to make a contribution to the Group's defined benefit pension schemes, the Group's leverage is now much improved.

-- As a result, we have announced today we intend to redeem our EUR750m hybrid bond at its first call date of 10 April 2021 and have no plans to replace this with new hybrid capital. We still have a legacy of long-dated and relatively expensive debt, which we will look to address over time by retiring gross debt if we can do so in a value accretive way, once we have reached agreement with the pension trustees on the size of the contribution from the Direct Energy proceeds.

-- We also retain significant access to liquidity. As at the end of December 2020, the Company had GBP1.1bn of available cash and cash equivalents (net of bank overdrafts) and GBP3.6bn of undrawn credit facilities.

Focus on pension deficit continues

-- The IAS19 net pension deficit increased by GBP438m in the year to GBP601m, largely reflecting a reduction in the discount rate due to lower interest rates compared to the start of the year.

-- The technical pension deficit, which is based on more conservative discount rate and inflation assumptions and determines the level of cash contributions into the schemes, was agreed at GBP1.4bn based on the 2018 triennial review.

-- On a roll-forward basis using the same methodology from 2018, this technical provision deficit would be GBP1.9bn as at 31 December 2020. This is lower than the equivalent figure of GBP2.4bn as at 30 June 2020 and is before taking into account any additional contributions we intend to make from the Direct Energy proceeds.

-- The next triennial valuation is scheduled for 31 March 2021. Under UK pensions regulations we have 15 months from this date to reach agreement with the pension trustees on the level of the deficit and any repair plan. Conversations with the trustees have already commenced.

DIVESTMENTS OF NON-CORE BUSINESSES TO FURTHER SIMPLIFY THE GROUP

Intention remains to sell Spirit Energy and exit E&P

-- Our intention remains to exit oil and gas production in line with our strategic shift to simplify the Group, focus on the customer and decarbonise the Group's portfolio.

-- In line with this, in 2019 we announced our intention to divest our 69% shareholding in the Spirit Energy E&P business. We were due to receive initial bids around the end of March 2020. However, we took the decision to pause the disposal process due to the uncertain backdrop created by the Covid-19 pandemic. We still intend to sell the business.

-- While we still own Spirit Energy we will actively manage it. The steps we have taken with our partner and the Spirit management team mean the business was free cash flow positive in 2020 and assuming current commodity prices we expect it to be at least free cash flow neutral at 2021.

Nuclear divestment process currently paused

-- In 2018, we announced our intention to divest our 20% interest in the UK operating nuclear fleet of power stations. We continue to consider options for a sale however the divestment process is currently paused given operational issues on a number of the power stations.

-- We will also consider further divestments of other smaller assets or businesses if they help to simplify and de-risk the Group and we can realise good value for shareholders.

WELL POSITIONED TO NAVIGATE THROUGH CONTINUED UNCERTAINTIES IN 2021

-- The outlook remains uncertain and reflecting this we are not providing any specific earnings or cash flow guidance for 2021.

-- The return of tighter Covid-19 restrictions in the UK and Ireland continue to put additional pressure on business energy demand, and along with industrial action in our UK services business, is also impacting sales and our ability to complete services and solutions workload. The uncertain economic outlook and implications for unemployment also increase the potential for incremental working capital outflow and higher bad debt cost.

-- In addition, Bord Gáis Energy's Whitegate CCGT is currently offline having experienced a forced outage in December, which will leave the power station out of action until the second half of 2021. We currently estimate a negative impact to 2021 adjusted operating profit of GBP25-GBP40m from lost revenue and higher market power price exposure to meet customer demand. We also forecast that Energy Company Obligation (ECO) costs in British Gas Energy will be around GBP80m higher in 2021 than in 2020.

-- However, we expect to benefit materially from our significant restructuring programme, with year-on-year savings of more than GBP100m expected to drop through, in British Gas in particular. Along with an assumption of more normal weather conditions in the UK, we would expect to see some margin recovery in British Gas Energy in 2021 when compared to 2020.

-- The increase in wholesale commodity prices should benefit our Upstream business in 2021, albeit gas and oil production volumes are expected to be around 10% lower than in 2020 and the outlook for nuclear generation remains uncertain given ongoing plant outages.

-- Against this backdrop we will maintain a strong focus on free cash flow, in particular a tight discipline on operating costs, cash restructuring and capital expenditure, which is expected to be around GBP600m again in 2021.

-- With the reduction in net debt delivered over 2020 and with proceeds from the Direct Energy sale now received, the balance sheet has been significantly strengthened. Combined with our continued focus on cash flow discipline, we are in a strong position to manage through the uncertainties.

FOCUS REMAINS ON SIMPLIFYING AND MODERNISING THE GROUP

-- The sale of Direct Energy allows a greater focus on the core markets of the UK and Ireland, where we retain leading positions in energy supply and services. These businesses will be further strengthened by the actions we are taking to simplify the Group, improve the customer experience and reduce operating costs. This should position us to deliver longer-term customer-facing growth and add value for shareholders.

-- In addition to navigating the ongoing Covid-19 related uncertainties, a major priority in 2021 will be continuing the operational transformation of the Group through completion of the restructure, helping to improve our competitiveness and drive further improvements in customer experience and customer retention.

-- We will also look to improve the Group's strengthened balance sheet position and its efficiency. This includes continuing to pursue planned disposals and continuing the constructive conversations with the pension trustees regarding the 2021 triennial pensions valuation and subsequent funding plan.

-- Looking further out, we remain focused on becoming a wholly customer-focused energy services and solutions company. Our market positions leave us well positioned to support and benefit from new market opportunities in the decarbonisation of power, heat and transport, while supporting a green economic recovery.

-- However, we will pursue opportunities in a disciplined way and focus our attention on those that we believe will be beneficial to our customers and will add the most material value to the Group.

We intend to set out our longer-term growth strategy in the second half of 2021.

Group Financial Review

REVENUE

-- Business performance revenue arising from continuing and discontinuing operations reduced by 9% to GBP24.4bn (2019: GBP26.8bn). Group revenue from continuing operations included in business performance reduced by 6% to GBP14.9bn (2019: GBP16.0bn).

-- Gross segment revenue from continuing operations, which includes revenue generated from the sale of products and services between segments, reduced by 9% to GBP15.7bn (2019: GBP17.2bn). This was driven largely by the impact of lower commodity prices on Upstream achieved prices and British Gas retail prices, and lower demand for energy from businesses due to Covid-19.

-- A table reconciling different revenue measures is shown in the table below:

 
                                                                     2020                                    2019 
                                      Gross                                   Gross 
                                    segment  Less inter-segment     Group   segment  Less inter-segment     Group 
                                    revenue             revenue   revenue   revenue             revenue   revenue 
Year ended 31 December                 GBPm                GBPm      GBPm      GBPm                GBPm      GBPm 
================================   ========  ==================  ========  ========  ==================  ======== 
Continuing operations 
  British Gas                         7,887                 (2)     7,885     8,327                 (1)     8,326 
  Bord Gáis Energy                 820                   -       820       897                   -       897 
  Energy Marketing & Trading          2,917               (175)     2,742     3,357               (271)     3,086 
  Centrica Business Solutions         2,131                 (8)     2,123     2,331                 (9)     2,322 
  Upstream                            1,918               (539)     1,379     2,290               (963)     1,327 
=================================  ========  ==================  ========  ========  ==================  ======== 
Group revenue included 
 in business performance             15,673               (724)    14,949    17,202             (1,244)    15,958 
=================================  ========  ==================  ========  ========  ==================  ======== 
Discontinued operations 
  Direct Energy                       9,483                   -     9,483    10,867                   -    10,867 
=================================  ========  ==================  ========  ========  ==================  ======== 
Business performance revenue 
 arising from continuing 
 and discontinued operations         25,156               (724)    24,432    28,069             (1,244)    26,825 
=================================  ========  ==================  ========  ========  ==================  ======== 
  Less: revenue arising 
   on contracts in scope 
   of IFRS 9 included in 
   business performance                                           (2,700)                                 (2,964) 
  Less: Discontinued operations                                   (9,483)                                (10,867) 
Group statutory revenue                                            12,249                                  12,994 
=================================  ========  ==================  ========  ========  ==================  ======== 
 

OPERATING PROFIT/(LOSS)

-- Adjusted operating profit from continuing operations reduced by 31% to GBP447m (2019: GBP650m). The statutory operating loss from continuing operations was GBP362m (2019: loss of GBP783m). The difference between the two measures of profit relates to exceptional items and certain remeasurements. A table reconciling the different profit measures is shown below:

 
                                                                      2020                                        2019 
                                                   Exceptional                                 Exceptional 
                                                         items                                       items 
                                    Business       and certain   Statutory      Business       and certain   Statutory 
                                 performance   re-measurements      result   performance   re-measurements      result 
Year ended 31 December   Notes          GBPm              GBPm        GBPm          GBPm              GBPm        GBPm 
=======================  =====  ============  ================  ==========  ============  ================  ========== 
Continuing operations 
-----------------------  -----  ------------  ----------------  ----------  ------------  ----------------  ---------- 
  British Gas                            281                                         304 
    Energy                                80                                         124 
    Services                             256                                         252 
    Solutions                           (55)                                        (72) 
-----------------------  -----  ------------  ----------------  ----------  ------------  ----------------  ---------- 
  Bord Gáis Energy                   42                                          50 
-----------------------  -----  ------------  ----------------  ----------  ------------  ----------------  ---------- 
  Energy Marketing & 
   Trading                               174                                         138 
-----------------------  -----  ------------  ----------------  ----------  ------------  ----------------  ---------- 
  Centrica Business 
   Solutions                           (140)                                        (20) 
    Energy Supply                       (55)                                          54 
    New Energy Services                 (85)                                        (74) 
-----------------------  -----  ------------  ----------------  ----------  ------------  ----------------  ---------- 
  Upstream                                90                                         178 
    Spirit Energy                         84                                          90 
    CSL                                   23                                          69 
    Nuclear                             (17)                                          19 
=======================  =====  ============  ================  ==========  ============  ================  ========== 
Group operating 
 profit/(loss)            5(c)           447             (809)       (362)           650           (1,433)       (783) 
  Net finance cost           7         (215)                 -       (215)         (251)                 -       (251) 
  Taxation                   8          (42)               187         145         (142)               132        (10) 
=======================  =====  ============  ================  ==========  ============  ================  ========== 
Profit/(loss) from 
 continuing 
 operations                              190             (622)       (432)           257           (1,301)     (1,044) 
  Profit attributable 
   to 
   non-controlling 
   interests                            (25)               183         158           (9)                89          80 
=======================  =====  ============  ================  ==========  ============  ================  ========== 
Adjusted earnings from 
 continuing operations                   165             (439)       (274)           248           (1,212)       (964) 
=======================  =====  ============  ================  ==========  ============  ================  ========== 
  Discontinued 
   operations                            213               102         315           171             (230)        (59) 
Adjusted earnings 
 attributable 
 to shareholders                         378             (337)          41           419           (1,442)     (1,023) 
=======================  =====  ============  ================  ==========  ============  ================  ========== 
 

Adjusted operating profit

-- As initially flagged in our Trading Update in April and in the results for the first six months of the year, Covid-19 had a significant impact on adjusted operating profit in 2020.

- The impact from Covid-19 on adjusted operating profit from continuing operations is estimated at around GBP250m before mitigating actions, with approximately GBP90m of the impact related to the combined effects of reduced overall energy consumption, the related sell back to the market of commodity not required in the first half of the year, and higher balancing costs. Of the remainder, around GBP80m gross margin was lost due to reduced services and solutions activity with only essential work undertaken during lockdown periods, and around GBP80m relates to increased customer bad debt.

- Mitigating actions of approximately GBP150m meant the net impact of Covid-19 on adjusted operating profit from continuing operations was approximately GBP100m. The largest element of the mitigating actions was due to our decision not to pay senior management bonuses relating to 2019 performance, resulting in the release of an accrual made in 2019. The mitigating actions also included discretionary cost savings, while the Group received GBP27m under the UK Government's Coronavirus Job Retention Scheme. Further detail on government support received during the year is provided in note 1(c).

-- In addition, warmer than normal weather negatively impacted the energy supply businesses by an estimated GBP40m and the remaining legacy gas contract in Energy Marketing & Trading lost GBP58m in 2020 compared to a small profit in 2019. However, we benefited from the non-recurrence of a one-off cost of GBP70m incurred in 2019 in British Gas Energy due to an Ofgem revision to the default price cap methodology to calculate supplier wholesale costs during Q1 2019.

-- Underlying performance from the customer-facing business units was resilient overall despite continued gross margin pressures in British Gas Energy, with benefit from efficiency initiatives in all business units and strong trading and optimisation performance, in particular in LNG.

-- However, lower commodity prices and lower nuclear volumes impacted the Upstream division. These were only partly offset by lower E&P depreciation and field write off costs, and tight cost control. As a result Upstream adjusted operating profit was GBP88m lower than in 2019.

GROUP FINANCE CHARGE AND TAXATION

Finance costs

-- Net finance costs for continuing operations decreased to GBP215m (2019: GBP251m), with reduced interest costs on bonds, bank loans and overdrafts reflecting the impact of lower interest rates on floating debt.

Taxation

-- Business performance taxation on profit from continuing operations decreased to GBP42m (2019: GBP142m) reflecting the reduction in operating profit. After taking account of tax on joint ventures and associates, the adjusted tax charge was GBP67m (2019: GBP141m). The resultant adjusted tax rate for the Group was 26% (2019: 35%), which reflects a change in profit mix within the E&P business away from the more highly taxed Norwegian fields which were loss making in 2020.

-- This included a deferred tax adjustment following the UK Government's decision to cancel the proposed reduction in the future corporation tax rate below its current level of 19%, which increased the tax charge by GBP40m. It also includes a GBP29m PRT related credit in the year.

-- An effective tax rate calculation is shown below:

 
                                                                                   2020   2019 
Year ended 31 December                                                             GBPm   GBPm 
--------------------------------------------------------------------------------  -----  ----- 
Adjusted operating profit from continuing operations before impacts of taxation     447    650 
Add: JV/associate taxation included in adjusted operating 
 profit                                                                              25    (1) 
Net finance cost from continuing operations                                       (215)  (251) 
================================================================================  =====  ===== 
Adjusted profit before taxation                                                     257    398 
================================================================================  =====  ===== 
Taxation on profit from continuing operations                                      (42)  (142) 
Share of JV/associate taxation                                                     (25)      1 
================================================================================  =====  ===== 
Adjusted tax charge                                                                  67    141 
================================================================================  =====  ===== 
Adjusted effective tax rate                                                         26%    35% 
================================================================================  =====  ===== 
 

EXCEPTIONAL ITEMS

-- An exceptional pre-tax charge of GBP1,593m was included within the statutory Group operating loss from continuing operations in 2020 (2019: GBP1,123m) including:

- A GBP644m charge relating to the impairment of E&P assets and goodwill, predominantly due to the reduction in near-term prices and long-term price forecasts. The charge also includes a GBP135m write down of the Greater Warwick Area assets, reflecting significant uncertainty over field development.

- A GBP525m charge relating to the impairment of power assets, including GBP481m relating to the nuclear investment largely as a result of a reduction in price forecasts and availability issues at the Hunterston B, Dungeness B and Hinkley Point B power stations. It also includes a GBP23m charge relating to gas-fired and battery power assets as a result of lower price forecasts and a GBP21m charge relating to a forced outage at Whitegate power station.

- A GBP78m charge relating to the impairment of Centrica Business Solutions goodwill driven by reduced growth prospects in North America following the disposal of Direct Energy.

- A GBP72m charge relating to the impairment of intangible IT assets following the decision to merge Centrica Home Solutions activities into British Gas and reduce the scale and breadth of offers.

- GBP274m of restructuring charges relating to the Group's strategic restructure and headcount reduction, including a GBP120m pension strain charge. With only residual costs for the roll-off of existing projects expected in 2021, this will be the final material exceptional charge relating to the Group's restructuring programme which was planned to result in GBP2bn of annualised efficiencies between 2015-22 and has resulted in GBP1.2bn of exceptional restructuring costs since 2015.

-- These charges in total generated a taxation credit of GBP336m (2019: GBP130m) and there was a separate GBP63m deferred tax asset write-off associated with E&P activities, related to the reduction in price forecasts. As a result, total net exceptional charges recognised in continuing operations after taxation were GBP1,320m (2019: GBP993m).

-- Further details on exceptional items, including on impairment accounting policy, process and sensitivities can be found in notes 6(b) and 6(c).

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 re-measurements, 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 profit for continuing operations of GBP784m (2019: loss of GBP310m) relating to these re-measurements. With the Group generally a net purchaser of commodity, the gain was due to both the unwind of out-of-the-money positions from December 2019, and a net positive revaluation of contracts due for delivery in future periods as commodity prices rose over the second half of 2020. These re-measurements generated a taxation charge of GBP86m (2019: credit of GBP2m). As a result, the total profit from net re-measurements after taxation for continuing operations was GBP698m (2019: loss of GBP308m).

-- 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 re-measurements.

-- Further details can be found in note 6(a).

DISCONTINUED OPERATIONS

-- The sale of Direct Energy was announced on 24 July 2020 and as such its activities are treated as a discontinued operation in the 2020 financial results.

-- Adjusted operating profit from discontinued operations increased slightly to GBP252m (2019: GBP251m), with a resilient result in residential energy supply and lower depreciation due to the cessation of depreciation from the announced date of the sale. These were offset by the impacts of lower volumes and hedging sell backs in periods of low business consumption during Covid-19 lockdowns.

-- Adjusted earnings from discontinued operations increased to GBP213m (2019: GBP171m) due to a lower tax charge arising from certain tax credits in the year. Adjusted EPS from discontinued operations increased from 3.0p to 3.7p.

-- After accounting for a post-tax exceptional charge of GBP36m (2019: credit of GBP6m), largely relating to disposal related costs, and positive post-tax certain re-measurements of GBP138m (loss of GBP236m), largely due to the unwind of out of the money positions from December 2019, the statutory profit from discontinuing operations after taxation was GBP315m (2019: loss of GBP59m).

GROUP EARNINGS

Adjusted earnings

-- Profit for the year from business performance from continuing operations after taxation was GBP190m (2019: GBP257m). When including discontinued operations earnings of GBP213m, total Group profit for the year from business performance after tax decreased to GBP403m (2019: GBP428m) and after adjusting for non-controlling interests, adjusted earnings decreased by 10% to GBP378m (2019: GBP419m).

-- Adjusted basic EPS was down 11% to 6.5p (2019: 7.3p). Adjusted basic EPS from continuing operations was 2.8p (2019: 4.3p).

Statutory earnings

-- The statutory profit attributable to shareholders for the period was GBP41m (2019: loss of GBP1,023m). 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 Group reported a statutory basic EPS of 0.7p (2019: loss of 17.8p) and a statutory EPS loss from continuing operations of 4.7p (2019: loss of 16.8p).

Dividend

-- The Group is proposing no 2020 final dividend having also paid no 2020 interim dividend.

GROUP CASH FLOW, NET DEBT AND BALANCE SHEET

Group cash flow

-- Free cash flow is the primary cash measure of cash flow as management believe it provides relevant information to show the cash generation of the business after taking account of the need to maintain its capital asset base. Free cash flow is reconciled to statutory net cash flow from operating and investing activities in the table below. See the explanatory note in note 5(f) for further details.

 
                                                            2020   2019 
Year ended 31 December                                      GBPm   GBPm 
Statutory cash flow from continuing operating activities     957    970 
Statutory cash flow from continuing investing activities   (263)  (651) 
---------------------------------------------------------  -----  ----- 
Statutory cash flow from continuing operating and 
 investing activities                                        694    319 
Add back/(deduct): 
  Sale and settlement of securities                        (121)   (50) 
  Interest received                                          (7)   (11) 
  Movements in collateral and margin cash included in 
   net debt                                                 (56)   (21) 
  Defined benefit pension deficit payment                    175    235 
Free cash flow from continuing operations                    685    472 
=========================================================  =====  ===== 
  Discontinued operations free cash flow                     376    494 
Free cash flow                                             1,061    966 
=========================================================  =====  ===== 
 

-- Net cash flow from continuing operating activities of GBP957m was broadly unchanged year-on-year (2019: GBP970m). EBITDA was significantly lower however this was largely offset by lower pension deficit payments and lower payments related to exceptional charges.

-- Net cash outflow from continuing investing activities reduced to GBP263m (2019: GBP651m), largely due to lower capital expenditure reflecting ongoing capital discipline during the Covid-19 pandemic and the receipt of a dividend from the Nuclear investment compared to no dividend in 2019.

-- Group total free cash flow was GBP1,061m (2019: GBP966m), including GBP685m of free cash flow from continuing operations (2019: GBP472m) and GBP376m of free cash flow from discontinuing operations (2019: GBP494m). The lower free cash flow from discontinuing operations reflects the impact of divestment proceeds received from the Clockwork home services portfolio sale in 2019.

-- Net cash outflow from continuing financing activities reduced to GBP466m in 2020 (2019: GBP1,058m) with no dividend paid to Centrica plc shareholders or Spirit Energy minority shareholders in 2020.

Net debt

-- All of the above resulted in a GBP633m increase in cash and cash equivalents over the year, and when also including non-cash movements and exchange adjustments, net debt reduced by GBP412m to GBP2,769m, including cash collateral posted or received in support of wholesale energy procurement.

-- Further details on the Group's net debt are included in note 11.

Pension deficit

-- The Group's IAS 19 net pension deficit increased by GBP438m to GBP601m in the period, with a reduction in the discount rate due to lower interest rates increasing obligations. The increase was partially offset by the effects of an increase in the value of the pension assets, inflation and agreed deficit payments.

-- Further details on the post-retirement benefits are included in note 14.

Balance sheet

-- Net assets decreased to GBP1,382m (31 December 2019: GBP1,795m), with the statutory profit in the year more than offset by the increase in retirement benefit obligations.

2020 ACQUISITIONS AND DISPOSALS

-- On 23 December 2019, the Group agreed to sell its 382MW King's Lynn combined cycle gas turbine power station to RWE Generation. The disposal was classified as held for sale as at 31 December 2019. The transaction completed on 12 February 2020, resulting in the receipt of consideration of GBP102m, after adjustments for final working capital balances and after transaction costs.

-- Further details on assets purchased, acquisitions and disposals are included in notes 5(e) and 15.

EVENTS AFTER BALANCE SHEET DATE

-- On 5 January 2021, the Group completed the sale of its North American energy supply, services and trading business, Direct Energy, to NRG for $3.625 billion on a debt free, cash free basis. This is expected to lead to a profit on disposal of approximately GBP0.6bn.

-- Details of events after the balance sheet date are described in note 18.

RISKS AND CAPITAL MANAGEMENT

-- Whilst the nature of the Group's principal risks and uncertainties are broadly unchanged from those set out in its 2019 Annual Report, the Group has actively responded to those risks heightened by Covid-19, with Centrica's approach to risk management enabling a rapid mobilisation of resources to react to the challenges caused by the pandemic. The extent to which the Group may be impacted by Covid-19 will in part depend on the degree of government support, in the form of direct aid and stimulus programmes, which will be a factor in the degree of customer bad debt we may see. It will also create implications in how we respond to debt management for vulnerable customers and will impact the speed of recovery in the commercial sector.

-- Our top three Principal Risks are Political & Regulatory Intervention, Commodity Risk and Asset Production. Falls in commodity prices and asset valuations have heightened our risks associated with Commodity Risk and Access to Sufficient Market Liquidity. Capability of People, Processes and Systems risk is also intensified as we progress through our programmes of change.

-- Details of how the Group has managed financial risks such as liquidity and credit risk are set out in note 4. Details of the Group's capital management processes are provided under sources of finance in note 11(a).

ACCOUNTING POLICIES

The consolidated Financial Statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The Group's specific accounting measures, including changes of accounting presentation and selected key sources of estimation uncertainty, are explained in notes 1, 2 and 3.

Appendix: Upstream performance metrics

Nuclear

 
Year ended 31 December                    2020    2019  Change 
Nuclear power generated (GWh)            9,134  10,199   (10%) 
=======================================  =====  ======  ====== 
Nuclear achieved power price (GBP/MWh)    51.3    49.2      4% 
=======================================  =====  ======  ====== 
 

Exploration & Production

 
Year ended 31 December                                                  2020   2019  Change 
Total recordable injury frequency rate (per 200,000 hours worked)       0.26   0.26      0% 
=====================================================================  =====  =====  ====== 
Process safety incident rate - tier 1 & 2 (per 200,000 hours worked)    0.00   0.05  (100%) 
=====================================================================  =====  =====  ====== 
Gas production volumes (mmth) 
  Spirit Energy                                                        1,705  1,942   (12%) 
  CSL(1)                                                                 238    410   (42%) 
=====================================================================  =====  =====  ====== 
Total gas production volumes (mmth)                                    1,943  2,352   (17%) 
=====================================================================  =====  =====  ====== 
Liquids production volumes (mmboe) 
  Spirit Energy                                                         17.0   14.1     21% 
  CSL                                                                    0.1    0.1      0% 
=====================================================================  =====  =====  ====== 
Total liquids production volumes (mmboe)                                17.0   14.2     20% 
=====================================================================  =====  =====  ====== 
Total production volumes (mmboe) 
  Spirit Energy                                                         44.9   45.8    (2%) 
  CSL(1)                                                                 3.9    6.7   (42%) 
=====================================================================  =====  =====  ====== 
Total production volumes (mmboe)                                        48.7   52.5    (7%) 
=====================================================================  =====  =====  ====== 
Average achieved gas sales prices (p/therm) 
  Spirit Energy                                                         35.4   42.0   (16%) 
  CSL                                                                   46.3   47.4    (2%) 
=====================================================================  =====  =====  ====== 
Average achieved liquid sales prices (GBP/boe) 
  Spirit Energy                                                         34.2   44.1   (22%) 
  CSL                                                                   21.5   40.6   (47%) 
=====================================================================  =====  =====  ====== 
Lifting and other cash production costs (GBP/boe) (2) 
  Spirit Energy                                                         13.2   15.7   (16%) 
  CSL(1,3)                                                              17.7   12.2     45% 
=====================================================================  =====  =====  ====== 
Gas and liquids realisations (GBPm) (4)                                1,297  1,610   (19%) 
=====================================================================  =====  =====  ====== 
Unit DDA rate (GBP/boe) 
  Spirit Energy                                                         11.3   14.1   (20%) 
  CSL                                                                    3.5    7.6   (54%) 
=====================================================================  =====  =====  ====== 
Net investment (GBPm) (5) 
  Capital expenditure (including small acquisitions)                     432    479   (10%) 
  Net disposals                                                         (32)   (64)   (50%) 
=====================================================================  =====  =====  ====== 
Net investment (GBPm)                                                    400    415    (4%) 
=====================================================================  =====  =====  ====== 
Free cash flow (GBPm) (5)                                                170    301   (44%) 
=====================================================================  =====  =====  ====== 
 

1. 2019 restated to include all production volumes

2. Lifting and other cash production costs are total operating costs and cost of sales excluding depreciation and amortisation, dry hole costs, exploration costs and profit on disposal.

3. 2019 restated following the treatment of Direct Energy as a discontinued operation and the reallocation of corporate costs.

4. Realisations are total revenues from sales of gas and liquids including hedging and net of Spirit NTS costs.

5. 2019 restated to be aligned to group methodology. See pages 75 to 77 for an explanation of the use of adjusted performance measures.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Group Financial Statements in accordance with applicable law, regulations and accounting standards. In preparing the Group Financial Statements, the Directors are required to:

-- select suitable accounting policies and then apply them consistently;

-- make judgements and accounting estimates that are reasonable and prudent;

-- state whether IAS in conformity with the requirements of the Companies Act 2006 and IFRS standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the Group Financial Statements; and

-- prepare the Group Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

Each of the Directors confirms that, to the best of their knowledge:

-- the Group Financial Statements, which have been prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006 and IFRS standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

-- the Strategic Report contained in the Annual Report and Accounts, from which this narrative is extracted, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board on 24 February 2021

   Chris O'Shea                           Kate Ringrose 
   Group Chief Executive           Group Chief Financial Officer 

Group Income Statement

 
                                                  2020                                2019 (restated) (i) 
                               ==========================================  ========================================= 
                                                   Exceptional                                Exceptional 
                                                         items    Results                           items    Results 
                                    Business       and certain        for      Business       and certain        for 
                                 performance   re-measurements   the year   performance   re-measurements   the year 
Year ended 31 December  Notes           GBPm              GBPm       GBPm          GBPm              GBPm       GBPm 
======================  =====  =============  ================  =========  ============  ================  ========= 
Continuing operations 
Group revenue               5         14,949           (2,700)     12,249        15,958           (2,964)     12,994 
Cost of sales                       (12,616)             4,118    (8,498)      (13,124)             4,766    (8,358) 
Re-measurement and 
 settlement 
 of energy contracts        6              -             (632)      (632)             -           (2,111)    (2,111) 
Gross profit/(loss)                    2,333               786      3,119         2,834             (309)      2,525 
                               =============  ================  =========  ============  ================  ========= 
  Operating costs 
   before 
   exceptional items 
   and credit 
   losses on financial 
   assets                            (1,714)                 -    (1,714)       (2,060)                 -    (2,060) 
  Credit losses on 
   financial 
   assets                  16          (195)                 -      (195)         (112)                 -      (112) 
  Exceptional items - 
   impairments              6              -           (1,319)    (1,319)             -             (919)      (919) 
  Exceptional items - 
   restructuring 
   costs                    6              -             (154)      (154)             -             (323)      (323) 
  Exceptional items - 
   net 
   pension change 
   (charge)/credit          6              -             (120)      (120)             -               152        152 
  Exceptional items - 
   net 
   loss on significant 
   disposals                6              -                 -          -             -              (33)       (33) 
Operating costs                      (1,909)           (1,593)    (3,502)       (2,172)           (1,123)    (3,295) 
Share of 
 profits/(losses) 
 of joint ventures and 
 associates, 
 net of interest and 
 taxation                6,12             23               (2)         21          (12)               (1)       (13) 
======================  =====  =============  ================  =========  ============  ================  ========= 
Group operating 
 profit/(loss)              5            447             (809)      (362)           650           (1,433)      (783) 
Net finance cost            7          (215)                 -      (215)         (251)                 -      (251) 
======================  =====  =============  ================  =========  ============  ================  ========= 
Profit/(loss) from 
 continuing 
 operations 
 before taxation                         232             (809)      (577)           399           (1,433)    (1,034) 
Taxation on 
 profit/(loss) 
 from continuing 
 operations                 8           (42)               187        145         (142)               132       (10) 
======================  =====  =============  ================  =========  ============  ================  ========= 
Profit/(loss) from 
 continuing 
 operations 
 after taxation                          190             (622)      (432)           257           (1,301)    (1,044) 
Discontinued 
 operations 
 (ii)                    6,15            213               102        315           171             (230)       (59) 
======================  =====  =============  ================  =========  ============  ================  ========= 
Profit/(loss) for the 
 year                                    403             (520)      (117)           428           (1,531)    (1,103) 
======================  =====  =============  ================  =========  ============  ================  ========= 
Attributable to: 
  Owners of the parent                   378             (337)         41           419           (1,442)    (1,023) 
  Non-controlling 
   interests                              25             (183)      (158)             9              (89)       (80) 
======================  =====  =============  ================  =========  ============  ================  ========= 
 
Earnings per ordinary 
share                                                               Pence                                      Pence 
======================  =====  =============  ================  =========  ============  ================  ========= 
From continuing and 
discontinued 
operations 
  Basic                    10                                         0.7                                     (17.8) 
  Diluted                  10                                         0.7                                     (17.8) 
From continuing 
operations 
  Basic                    10                                       (4.7)                                     (16.8) 
  Diluted                  10                                       (4.7)                                     (16.8) 
 
Interim dividend paid 
 per 
 ordinary share             9                                           -                                       1.50 
Final dividend per 
 ordinary 
 share                                                                  -                                          - 
======================  =====  =============  ================  =========  ============  ================  ========= 
 

(i) Prior year results have been restated to remove the Direct Energy business from continuing operations, as the business has been classified as a discontinued operation. See note 3.

(ii) Profit/(loss) from discontinued operations is entirely attributable to equity holders of the parent.

The notes on pages 26 to 71 form part of these Financial Statements.

Group Statement of Comprehensive Income

 
                                                                      2020     2019 
Year ended 31 December                                        Notes   GBPm     GBPm 
============================================================  =====  =====  ======= 
Loss for the year                                                    (117)  (1,103) 
Other comprehensive income/(loss) 
  Items that will be or have been reclassified to the 
   Group Income Statement: 
  Impact of cash flow hedging (net of taxation)                          9      (4) 
 
  Exchange differences on translation of foreign operations           (54)    (126) 
  Exchange differences reclassified to Group Income 
   Statement on disposal                                         15     12     (18) 
  Gains on net investment hedging (net of taxation) 
   (i)                                                                  40        - 
 
  Items that will not be reclassified to the Group Income 
   Statement: 
  Net actuarial losses on defined benefit pension schemes 
   (net of taxation)                                                 (379)    (387) 
 
  (Losses)/gains on revaluation of equity instruments 
   measured at fair value through other comprehensive 
   income (net of taxation)                                            (4)        2 
 
  Share of other comprehensive income of associates, 
   net of taxation                                               12     58       29 
============================================================  =====  =====  ======= 
Other comprehensive loss, net of taxation                            (318)    (504) 
============================================================  =====  =====  ======= 
Total comprehensive loss for the year                                (435)  (1,607) 
============================================================  =====  =====  ======= 
Attributable to: 
  Owners of the parent                                               (277)  (1,511) 
  Non-controlling interests                                          (158)     (96) 
============================================================  =====  =====  ======= 
Total comprehensive (loss)/income attributable to 
 owners of the parent arises from: 
  Continuing operations                                              (571)  (1,386) 
  Discontinued operations                                              294    (125) 
============================================================  =====  =====  ======= 
                                                                     (277)  (1,511) 
============================================================  =====  =====  ======= 
 

(i) The Group recommenced its strategy of net investment hedging in advance of the disposal of Direct Energy.

The notes on pages 26 to 71 form part of these Financial Statements.

Group Statement of Changes in Equity

 
                                      Share     Share   Retained    Other           Non-controlling    Total 
                                    capital   premium   earnings   equity    Total        interests   equity 
                                       GBPm      GBPm       GBPm     GBPm     GBPm             GBPm     GBPm 
=================================  ========  ========  =========  =======  =======  ===============  ======= 
1 January 2019                          354     2,240        725    (174)    3,145              803    3,948 
Loss for the year                         -         -    (1,023)        -  (1,023)             (80)  (1,103) 
Other comprehensive loss                  -         -          -    (488)    (488)             (16)    (504) 
Employee share schemes 
 and other share transactions             -         -       (10)       53       43                -       43 
Scrip dividend (note 
 9)                                       6        90          -        -       96                -       96 
Dividends paid to equity 
 holders (note 9)                         -         -      (561)        -    (561)                -    (561) 
Distributions to non-controlling 
 interests                                -         -          -        -        -            (124)    (124) 
=================================  ========  ========  =========  =======  =======  ===============  ======= 
31 December 2019                        360     2,330      (869)    (609)    1,212              583    1,795 
=================================  ========  ========  =========  =======  =======  ===============  ======= 
Profit/(loss) for the 
 year                                     -         -         41        -       41            (158)    (117) 
Other comprehensive loss                  -         -          -    (318)    (318)                -    (318) 
Employee share schemes 
 and other share transactions             1        17        (8)       12       22                -       22 
31 December 2020                        361     2,347      (836)    (915)      957              425    1,382 
=================================  ========  ========  =========  =======  =======  ===============  ======= 
 

The notes on pages 26 to 71 form part of these Financial Statements.

Group Balance Sheet

 
                                                                    31 December  31 December 
                                                                           2020         2019 
                                                             Notes         GBPm         GBPm 
===========================================================  =====  ===========  =========== 
Non-current assets 
Property, plant and equipment                                             2,643        3,133 
Interests in joint ventures and associates                      12          843        1,306 
Other intangible assets                                                   1,011        1,455 
Goodwill                                                                    929        2,578 
Deferred tax assets                                                         636          553 
Trade and other receivables, and contract-related assets        16          145          154 
Derivative financial instruments                                13          366          493 
Retirement benefit assets                                       14            -           56 
Securities                                                      11          134          131 
===========================================================  =====  ===========  =========== 
                                                                          6,707        9,859 
===========================================================  =====  ===========  =========== 
Current assets 
Trade and other receivables, and contract-related assets        16        2,801        4,839 
Inventories                                                                 324          431 
Derivative financial instruments                                13        1,224        1,320 
Current tax assets                                                          132          115 
Securities                                                      11            -          124 
Cash and cash equivalents                                       11        1,820        1,342 
===========================================================  =====  ===========  =========== 
                                                                          6,301        8,171 
===========================================================  =====  ===========  =========== 
Assets of disposal groups classified as held for sale           15        4,111          124 
===========================================================  =====  ===========  =========== 
                                                                         10,412        8,295 
===========================================================  =====  ===========  =========== 
Total assets                                                             17,119       18,154 
===========================================================  =====  ===========  =========== 
 
Current liabilities 
Derivative financial instruments                                13        (747)      (1,854) 
Trade and other payables, and contract-related liabilities              (3,722)      (5,533) 
Current tax liabilities                                                   (235)        (339) 
Provisions for other liabilities and charges                              (188)        (284) 
Bank overdrafts, loans and other borrowings                     11        (787)        (857) 
===========================================================  =====  ===========  =========== 
                                                                        (5,679)      (8,867) 
===========================================================  =====  ===========  =========== 
Liabilities of disposal groups classified as held for sale      15      (1,986)         (18) 
===========================================================  =====  ===========  =========== 
                                                                        (7,665)      (8,885) 
===========================================================  =====  ===========  =========== 
Non-current liabilities 
Deferred tax liabilities                                                  (149)        (151) 
Derivative financial instruments                                13        (181)        (291) 
Trade and other payables, and contract-related liabilities                (114)        (152) 
Provisions for other liabilities and charges                            (2,438)      (2,175) 
Retirement benefit obligations                                  14        (601)        (219) 
Bank loans and other borrowings                                 11      (4,589)      (4,486) 
===========================================================  =====  ===========  =========== 
                                                                        (8,072)      (7,474) 
===========================================================  =====  ===========  =========== 
Total liabilities                                                      (15,737)     (16,359) 
===========================================================  =====  ===========  =========== 
Net assets                                                                1,382        1,795 
===========================================================  =====  ===========  =========== 
Share capital                                                               361          360 
Share premium                                                             2,347        2,330 
Retained earnings                                                         (836)        (869) 
Other equity                                                              (915)        (609) 
===========================================================  =====  ===========  =========== 
Total shareholders' equity                                                  957        1,212 
===========================================================  =====  ===========  =========== 
Non-controlling interests                                                   425          583 
===========================================================  =====  ===========  =========== 
Total shareholders' equity and non-controlling interests                  1,382        1,795 
===========================================================  =====  ===========  =========== 
 

The Financial Statements on pages 21 to 71, of which the notes on pages 26 to 71 form part, were approved and authorised for issue by the Board of Directors on 24 February 2021 and were signed below on its behalf by:

   Chris O'Shea                         Kate Ringrose 
   Group Chief Executive        Group Chief Financial Officer 

Centrica plc Registered No: 03033654

Group Cash Flow Statement

 
                                                                             2019 (restated) 
                                                                       2020              (i) 
Year ended 31 December                                         Notes   GBPm             GBPm 
=============================================================  =====  =====  =============== 
Continuing operations: 
Group operating loss including share of results of 
 joint ventures and associates                                        (362)            (783) 
(Deduct)/add back share of (profits)/losses of joint 
 ventures and associates, net of interest and taxation            12   (21)               13 
=============================================================  =====  =====  =============== 
Group operating loss before share of results of joint 
 ventures and associates                                              (383)            (770) 
=============================================================  =====  =====  =============== 
Add back/(deduct): 
  Depreciation, amortisation, write-downs, impairments 
   and write-backs                                                    2,217            2,143 
  Loss/(profit) on disposals                                             28             (32) 
  Increase/(decrease) in provisions                                      46             (21) 
  Cash contributions to defined benefit schemes in excess 
   of service cost income statement charge                             (42)            (493) 
  Employee share scheme costs                                            34               30 
  Unrealised (gains)/losses arising from re-measurement 
   of energy contracts                                                (666)              207 
  Exceptional charges reflected directly in operating 
   profit                                                                49              220 
=============================================================  =====  =====  =============== 
Operating cash flows before movements in working capital 
 relating to business performance and payments relating 
 to taxes and exceptional charges                                     1,283            1,284 
Decrease/(increase) in inventories                                        4             (28) 
Decrease in trade and other receivables and contract-related 
 assets relating to business performance                                363              240 
Decrease in trade and other payables and contract-related 
 liabilities relating to business performance                         (571)            (182) 
=============================================================  =====  =====  =============== 
Operating cash flows before payments relating to taxes 
 and exceptional charges                                              1,079            1,314 
Taxes paid                                                              (2)             (80) 
Payments relating to exceptional charges in operating 
 costs                                                                (120)            (264) 
=============================================================  =====  =====  =============== 
Net cash flow from continuing operating activities                      957              970 
Net cash flow from discontinued operating activities                    443              280 
=============================================================  =====  =====  =============== 
Net cash flow from operating activities                               1,400            1,250 
=============================================================  =====  =====  =============== 
Continuing operations: 
Purchase of businesses, net of cash acquired                              -             (27) 
Sale of businesses                                                15     43               63 
Purchase of property, plant and equipment and intangible 
 assets                                                            5  (489)            (757) 
Sale of property, plant and equipment and intangible 
 assets                                                                   -                6 
Investments in joint ventures and associates                      12   (10)              (1) 
Dividends received from joint ventures and associates             12     62                1 
Receipt of sub-lease capital payments                             11      3                3 
Interest received                                                         7               11 
Settlement and sale of securities                                 11    121               50 
=============================================================  =====  =====  =============== 
Net cash flow from continuing investing activities                    (263)            (651) 
Net cash flow from discontinued investing activities                   (22)              148 
=============================================================  =====  =====  =============== 
Net cash flow from investing activities                               (285)            (503) 
=============================================================  =====  =====  =============== 
Continuing operations: 
Payments for own shares                                                (30)                - 
Proceeds from sale of forfeited share capital                             -                2 
Distribution to non-controlling interests                                 -            (124) 
Financing interest paid                                               (202)            (238) 
Repayment of borrowings and capital element of leases                 (234)            (227) 
Equity dividends paid                                                     -            (471) 
=============================================================  =====  =====  =============== 
Net cash flow from continuing financing activities                    (466)          (1,058) 
Net cash flow from discontinued financing activities                   (16)             (19) 
=============================================================  =====  =====  =============== 
Net cash flow from financing activities                               (482)          (1,077) 
=============================================================  =====  =====  =============== 
Net increase/(decrease) in cash and cash equivalents                    633            (330) 
Cash and cash equivalents including overdrafts at 
 1 January                                                              794            1,128 
Effect of foreign exchange rate changes                                (34)              (4) 
=============================================================  =====  =====  =============== 
Cash and cash equivalents including overdrafts at 
 31 December                                                      11  1,393              794 
=============================================================  =====  =====  =============== 
Included in the following line of the Group Balance 
 Sheet: 
  Cash and cash equivalents                                           1,820            1,342 
  Overdrafts included within current bank overdrafts, 
   loans and other borrowings                                         (534)            (548) 
  Assets of disposal groups classified as held for sale                 107                - 
=============================================================  =====  =====  =============== 
 

(i) Prior year results have been restated to remove the Direct Energy business from continuing operations, as the business has been classified as a discontinued operation. See note 3.

The notes on pages 26 to 71 form part of these Financial Statements.

Notes to the Financial Statements

1. General information, basis of preparation and summary of significant new accounting policies and reporting changes

 
 This section details new accounting standards, amendments to standards 
  and interpretations, whether these are effective in 2020 or later years, 
  and if and how these are expected to impact the financial position 
  and performance of the Group. 
 
   (a)        General information 

Centrica plc (the 'Company') is a public company limited by shares, domiciled and incorporated in the UK, and registered in England and Wales. The address of the registered office is Millstream, Maidenhead Road, Windsor, Berkshire, SL4 5GD. The Company, together with its subsidiaries comprise the 'Group'. The Company has its listing on the London Stock Exchange.

The Financial Statements for the year ended 31 December 2020 included in this announcement were authorised for issue in accordance with a resolution of the Board of Directors on 24 February 2021.

The preliminary results for the year ended 31 December 2020 have been extracted from audited accounts which have not yet been delivered to the Registrar of Companies. The Financial Statements set out in this announcement do not constitute statutory accounts for the year ended 31 December 2020 or 31 December 2019. The financial information for the year ended 31 December 2019 is derived from the statutory accounts from that year. The report of the auditors on the statutory accounts for the year ended 31 December 2020 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

   (b)        Basis of preparation 

The accounting policies applied in these Financial Statements for the year ended 31 December 2020 are consistent with those of the Annual Financial Statements for the year ended 31 December 2019, as described in those financial statements, with the exception of standards, amendments and interpretations effective in 2020 and other presentational changes.

(c) New accounting policies, standards, amendments and interpretations effective or adopted in 2020

From 1 January 2020, the following standards and amendments are effective in the Group's consolidated Financial Statements:

-- Amendments to IFRS 3: 'Business combinations';

-- Amendments to IAS 1: 'Presentation of financial statements' and IAS 8: 'Accounting policies, changes in accounting estimates and errors'; and

-- Conceptual Framework for Financial Reporting 2018.

The amendments to IFRS 3 modify the definition of a business in order to assist entities in determining whether an acquisition falls within the scope of the standard.

The amendments to IAS 1 and IAS 8 clarify the definition and application of the materiality concept in financial reporting.

The amendments to the Conceptual Framework make a number of clarifications and modifications to the concepts underpinning IFRS.

These changes and other amendments effective during the year did not materially impact the consolidated Financial Statements.

As a result of the economic impacts of the COVID-19 pandemic, a number of government programmes have been put into place to support businesses and consumers. Examples of such initiatives include the UK's Coronavirus Job Retention Scheme. In accounting for the impacts of these measures, the Group has applied IAS 20: 'Government grants'. Under the Group's accounting policy, grants are recognised when there is reasonable assurance that the Group will comply with the conditions attaching to them, and that the grant will be received. Government grants are recognised in the Group Income Statement on a systematic basis over the periods in which the related costs that they are intended to compensate are recognised. Grants related to income are deducted in reporting the related expense and are therefore presented net in the Group Income Statement. Government grants received in advance of the Group meeting the criteria for recognition in the Group Income Statement are deferred and presented within Trade and other payables. There is no impact of this policy on prior periods.

During 2020, the Group recognised an amount totalling GBP27 million receivable under the UK Government's Coronavirus Job Retention Scheme. This has been presented net in Cost of sales and Operating costs before exceptional items and credit losses on financial assets in the Group Income Statement. Additionally, under a customer support programme introduced by the Government of Alberta in Canada, the Group recognised a reduction in credit losses for receivables amounting to GBP4 million. A further GBP1 million was received under a Texas customer support programme. The amounts relating to North America have been presented net in discontinued operations costs. In Denmark a mandatory, temporary deferral of sales tax payments gave rise to a delay in cash outflows amounting to GBP158 million during 2020. There was no impact of this deferral at 31 December 2020, with sales tax having been paid according to the normal requirements by the year end.

   (d)        Standards and amendments that are issued but not yet applied by the Group 

At the date of authorisation of these Financial Statements, the Group has not applied the following new and revised standards and amendments that have been issued but are not yet effective:

-- IFRS 17: 'Insurance contracts', effective from 1 January 2023;

-- Amendments to IAS 37; 'Provisions, contingent assets and contingent liabilities', effective from 1 January 2022;

-- Amendments to IAS 1: 'Presentation of financial statements', effective from 1 January 2023;

-- 'Annual Improvements to IFRS 2018-2020', effective 1 January 2022; and

-- 'Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16', effective from 1 January 2021.

IFRS 17 will not be effective before 1 January 2023. The Group currently has fixed-fee service contracts that it accounts for as insurance contracts under IFRS 4: 'Insurance contracts'. Under IFRS 17, subject to certain conditions, there is an accounting policy choice to account for these contracts under IFRS 17 or IFRS 15, which is being evaluated as part of the implementation project. Work is ongoing to determine the full impact of application.

The amendments to IAS 37 specify the costs that an entity should include when assessing whether a contract is onerous and therefore requires a provision.

The amendments to IAS 1 clarify the meaning of settlement in the context of liabilities, and the circumstances in which liabilities are classified as current or non-current.

The Group does not expect a significant financial reporting impact to arise as a result of the changes to IAS 1 and IAS 37 or the Annual Improvements to IFRS.

Amendments to IFRS made as a result of Phase 2 of the International Accounting Standards Board's project on interest rate benchmark reform provide relief from the discontinuation of hedge accounting that might otherwise be required on the transition to alternative rates in the hedged item or hedging instrument.

The amendments also provide relief from the immediate recognition of gains or losses in the income statement where changes to contractual cash flows in leases or financial assets and liabilities are required as a result of interest rate benchmark reform.

The Group holds interest rate derivatives in hedging relationships and is currently assessing the changes that will need to be made to these as a result of interest rate reform. The Group does not expect a significant financial reporting impact to arise as a result of these changes.

Management does not expect other issued but not effective amendments or standards, or standards not discussed above to have a material impact on the consolidated Financial Statements.

(e) Restatements

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:

-- British Gas;

-- Energy Marketing & Trading;

-- Centrica Business Solutions;

-- Bord Gais Energy; and

-- Upstream

The revised operating segments incorporate related products and services, as well as the major factors that influence the performance of these products and services. Following the restructuring of the Group these revised segments reflect the information and reporting Management receive to enable them to make decisions on performance and strategy. Further information on the operating segments of the Group is shown at note 5.

As described in note 3, the disposal of the Group's North American Direct Energy business, which completed on 5 January 2021, has led to the classification of Direct Energy as a discontinued operation. Comparatives in the Group Income Statement and Group Cash Flow Statement have been restated accordingly.

2. Centrica specific accounting measures

 
 This section sets out the Group's specific accounting measures applied 
  in the preparation of the consolidated Financial Statements. These 
  measures enable the users of the accounts to understand the Group's 
  underlying and statutory business performance separately. 
 
   (a)        Use of adjusted performance measures 

The Directors believe that reporting adjusted measures (revenue, margin, profit, earnings per share and cash flow) provides additional useful information on business performance and underlying trends. These measures are used for internal performance purposes, are not defined terms under IFRS and may not be comparable with similarly titled measures reported by other companies.

Management uses adjusted revenue, gross margin and adjusted operating profit to evaluate segment performance. They are defined as revenue/gross margin/operating profit before:

-- exceptional items; and

-- certain re-measurements.

Exceptional items and certain re-measurements are excluded because these items are considered by the Directors to distort the Group's underlying business performance. See section (b) of this note for further details.

Adjusted earnings is defined as earnings before:

-- exceptional items net of taxation; and

-- certain re-measurements net of taxation.

A reconciliation of adjusted earnings and adjusted earnings per share is provided in note 10.

Free cash flow is used by management to assess the cash generating performance of each segment. Segmental free cash flow is defined as net cash flow from operating and investing activities before:

-- deficit reduction payments made to the UK defined benefit pension schemes;

-- movements in variation margin and collateral that are included in net debt;

-- interest received;

-- sale, settlement and purchase of securities; and

-- taxes paid and refunded.

Segmental free cash flow as assessed by management excludes cash flows relating to tax. This is because the effect of group relief and similar reliefs could distort the measure of segment performance. As a Group-wide measure, free cash flow includes taxes paid and refunded.

Free cash flow gives a measure of the cash generation performance of the business after taking account of the need to maintain its capital asset base. By excluding deficit reduction payments and movements in variation margin and collateral, which are predominantly triggered by wider market factors and, in the case of collateral and margin movements, represent timing differences, free cash flow gives a measure of the underlying performance of the Group.

Interest received and cash flows from the sale, settlement and purchase of securities are excluded from Free Cash Flow as these items are included in the Group's net debt measure, and are therefore viewed by the Directors as related to the manner in which the Group finances its operations.

(b) Exceptional items and certain re-measurements

The Group reflects its underlying financial results in the business performance column of the Group Income Statement. To be able to provide users with this clear and consistent presentation, the effects of 'certain re-measurements' of financial instruments, and 'exceptional items', are reported in a different column in the Group Income Statement.

The Group is an integrated energy business. This means that it utilises its knowledge and experience across the gas and power (and related commodity) value chains to make profits across the core markets in which it operates. As part of this strategy, 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 contracts (and similar capacity or off-take arrangements), as well as to meet the future needs of its customers (downstream demand). These trades are designed to reduce the risk of holding such assets, contracts or downstream demand and are subject to strict risk limits and controls.

Primarily because some of these trades include terms that permit net settlement, they are prohibited from being designated as 'own use' and so IFRS 9: Financial Instruments requires them to be individually fair valued.

Fair value movements on these commodity derivative trades 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. Therefore, these certain re-measurements are reported separately and are subsequently reflected in business performance when the underlying transaction or asset impacts profit or loss.

The effects of these certain re-measurements are presented within either revenue or cost of sales when recognised in business performance depending on the nature of the contract. They are managed separately from proprietary energy trading activities where trades are entered into speculatively for the purpose of making profits in their own right. These proprietary trades are included in revenue in the business performance column of the Group Income Statement.

The Group's result for the year presents both realised and unrealised fair value movements on all derivative energy contracts within the

'Re-measurement and settlement of energy contracts' line item.

Exceptional items are those items that, in the judgement of the Directors, need to be disclosed separately by virtue of their nature, size or incidence. Again, to ensure the business performance column reflects the underlying results of the Group, these exceptional items are also reported in the separate column in the Group Income Statement. Items that may be considered exceptional in nature include disposals of businesses or significant assets, business restructurings (including property rationalisation costs), significant onerous contract charges/releases, debt repurchase costs, certain pension past service credits/costs, asset impairments/write-backs, the tax effects of these items and the effect of changes in UK upstream tax rates.

The Group distinguishes between business performance asset impairments/write-backs and exceptional impairments/write-backs on the basis of the underlying driver of the impairment, as well as the magnitude of the impairment. Drivers that are deemed to be outside of the control of the Group (e.g. commodity price changes) give rise to exceptional impairments. Additionally, impairment charges that are of a one-off nature (e.g. reserve downgrades or one-time change in intended use of an asset) and significant enough value to distort the underlying results of the business are considered to be exceptional. Other impairments that would be expected in the normal course of business, such as unsuccessful exploration activity (dry holes), are reflected in business performance.

3. Critical accounting judgements and key sources of estimation uncertainty

 
 This section sets out the key areas of judgement and estimation that 
  have the most significant effect on the amounts recognised in the consolidated 
  Financial Statements. 
 
   (a)        Critical judgements in applying the Group's accounting policies 

In addition to the judgements described above, management has made the following key judgements in applying the Group's accounting policies that have the most significant effect on the consolidated Group Financial Statements.

Spirit Energy consolidation

During 2017, the Group acquired Bayerngas Norge's exploration and production business and combined this with the Group's existing exploration and production business to form the Spirit Energy business (SE). The Group, through its board majority, can control decisions that represent Board Reserved Matters and the Directors consider that these rights provide control over the relevant activities that most significantly influence the variable returns of the SE business. The Group has concluded that it controls SE and consequently SE is fully consolidated with a non-controlling interest of 31%.

Metering contracts

In previous years, as part of the smart meter roll-out, the Group renewed meter rental arrangements with third parties. The Group assessed that these were not leases under IAS 17 and IFRIC 4 because at inception of the contract there were no specified assets, the Group did not have the right to physically or operationally control the smart meters and other parties took more than an insignificant amount of the output from the assets. This assessment was grandfathered on adoption of IFRS 16.

A reassessment of the contracts was performed in accordance with IFRS 16, following renegotiations of the meter rental arrangements during 2019 and 2020. On the basis that the asset has a predetermined use and the Group neither has the right to operate the asset, nor was involved in its design, the conclusion that these arrangements are not leases continues to be appropriate.

LNG contracts

The Group is active in the liquified natural gas (LNG) market, both procuring long-term LNG supply arrangements and transacting in shorter-term LNG cargoes. As part of its operations in the market, the Group optimises its contractual positions in order to meet customer demand for physical commodity. In response to the continuing development of the global LNG market which, consistent with prior years, is not considered to be active, the Group has reviewed its portfolio of LNG transactions and contracts. It has judged that its activities are carried out for the purpose of receipt or delivery of physical commodity in accordance with its expected purchase and sale requirements. As a result, the Group's contracts to buy and sell LNG are outside the scope of IFRS 9, and are accounted for on an accruals basis.

Assets held for sale and discontinued operations

On 24 July 2020, the Group announced that it had agreed to dispose of its North American supply, services and trading business, Direct Energy, to NRG for headline consideration of $3.6 billion (GBP2.7 billion) on a debt free, cash free basis. At the time of the announcement, the disposal was subject to shareholder and regulatory approvals, all of which were obtained before 31 December 2020.

In applying IFRS 5: 'Non-current assets held for sale and discontinued operations', the Group has judged that the assets and liabilities comprising the disposal group should be classified as held for sale as at 24 July 2020. This is on the basis that at that point, the disposal group was available for immediate sale, subject only to terms that are customary for sales of such assets, and the sale was highly probable.

Additionally, because the disposal group represents a separate major line of business and geographical operations, its results have been presented as discontinued operations in the Group Income Statement, Group Statement of Other Comprehensive Income and Group Cash Flow Statement. The transaction completed on 5 January 2021.

The Group's investments in Spirit Energy and Nuclear were not judged to be assets held for sale at 31 December 2020 because, at that date, their disposal was not considered highly probable within the next year.

(b) Key sources of estimation uncertainty

The sections below detail the assumptions the Group makes about the future and other major sources of estimation uncertainty when measuring its assets and liabilities at the reporting date. The information given relates to the sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to those assets and liabilities in the next financial year.

Estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, including current and expected economic conditions, and, in some cases, actuarial techniques. Although these estimates and associated assumptions are based on management's best knowledge of current events and circumstances, actual results may differ.

Impairment of long-lived assets

The Group makes judgements in considering whether the carrying amounts of its long-lived assets (principally Upstream gas and oil assets, Nuclear investment (20% economic interest accounted for as an investment in associate) and goodwill) or cash generating units (CGUs) are recoverable and estimates their recoverable amounts.

Upstream gas and oil assets

The recoverable amount of the Group's gas and oil assets is determined by discounting the post-tax cash flows expected to be generated by the assets over their lives taking into account those assumptions that market participants would consider when assessing fair value. The cash flows are derived from projected production profiles of each field, based predominantly on expected 2P reserves and take into account forward prices for gas and liquids over the relevant period. Where forward market prices are not available, prices are determined based on the median price of a collection of third-party comparator curves.

2020 has seen significant reductions in forward commodity prices, both in terms of observable market prices and forecast forward prices. This price suppression has been exacerbated by the reduction in demand for commodities experienced as a result of the COVID-19 pandemic. This has increased the level of estimation uncertainty in determining the value of gas and oil assets. Similarly, there is significant uncertainty around future investment by the Group in the Greater Warwick Area exploration and evaluation asset. As a result impairment charges have been booked.

Further details of the assumptions used in determining the recoverable amounts, the impairments booked during the year and sensitivity to the assumptions are provided in note 6.

Nuclear investment

The recoverable amount of the Nuclear investment is based on the value of the existing UK nuclear fleet operated by EDF. The existing fleet value is calculated by discounting pre-tax cash flows derived from the stations based on forecast power generation and power prices, whilst taking account of outages and the likely operational lives of the stations. Suppression of power prices as a result of the COVID-19 pandemic has increased the level of uncertainty in determining the value of the Group's investment in Nuclear.

Further details of the methodology, assumptions, impairment booked during the year and related sensitivities are provided in note 6.

Goodwill

Goodwill does not generate independent cash flows and accordingly is allocated at inception to specific CGUs or groups of CGUs for impairment testing purposes. The recoverable amounts of these CGUs are derived from estimates of future cash flows and hence the goodwill impairment tests are also subject to these key estimates. The results of these tests may then be verified by reference to external market valuation data.

The impact of the COVID-19 pandemic on commodity prices has increased the level of estimation uncertainty surrounding the valuation of goodwill in the Upstream segment in particular. As described above, there is estimation uncertainty in determining the value of gas and oil assets, leading to a write off in Upstream goodwill. Additionally, the disposal of the Group's Direct Energy business, along with the restructuring of the Group's operations and reduced earnings expectations as a result of COVID-19 has impacted the carrying value of goodwill associated with the Centrica Business Solutions business, subjecting the measurement of the asset to increased estimation uncertainty.

Further details on the goodwill balances, assumptions used in determining the recoverable amounts and impairment booked during the year are provided in note 6. Sensitivity to the assumptions is also found in note 6 for goodwill allocated to impaired CGUs in the year.

Centrica Home Solutions intangible assets

As a result of the restructuring of the Group's operations, management have reassessed the strategic interaction between the Centrica Home Solutions and British Gas supply and services businesses and as a result have reduced forecast cash flow for the Centrica Home Solutions operations that are now part of the British Gas operating segment. This has given rise to an impairment of certain software assets.

Further details of the methodology, assumptions, impairment booked during the year and related sensitivities are provided in note 6.

Credit provisions for trade and other receivables

The economic effects of the COVID-19 pandemic have impacted the ability of the Group's customers to pay amounts due. While the effect on customers has been mitigated by a number of government support and stimulus schemes, the level of estimation uncertainty in determining the credit provisions required for customers in different sectors and geographies has increased.

The methodology for determining provisions for credit losses on trade and other receivables and the level of such provision, along with associated sensitivities, are set out in note 16. Although the provisions recognised are considered appropriate, the use of different assumptions or changes in economic conditions could lead to movements in the provisions and therefore impact the Group Income Statement.

Pensions and other post-employment benefits

The cost of providing benefits under defined benefit pension schemes is determined separately for each of the Group's schemes under the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised in full in the period in which they occur. The key assumptions used for the actuarial valuation are based on the Group's best estimate of the variables that will determine the ultimate cost of providing post-employment benefits. The Group is permitted to recognise a pension scheme asset because it has an unconditional right to a refund on any winding up of the schemes or if gradual settlement of liabilities over time is assumed.

The Group's defined benefit schemes hold part of their plan asset portfolio as unquoted assets. These include private equity and property interests that are typically subject to valuation uncertainty. The economic uncertainty arising as a result of the COVID-19 pandemic has increased this level of uncertainty. The valuation of these assets is based on the latest asset manager views and other relevant benchmarks.

Further details, including sensitivities to these assumptions, are provided in note 14.

Cheniere LNG contract valuation

The Group's 20-year agreement with Cheniere, under which LNG is purchased from the Sabine Pass liquefaction plant in the US, has been assessed to determine if the contract should be considered onerous. As at 31 December 2020, the Group is committed to make minimum payments of $5.1 billion (GBP3.7 billion) over the remaining life of the arrangement. Further details of the Cheniere contract are provided in note 17. The combined intrinsic and extrinsic value of the arrangement is estimated to be positive and therefore no onerous contract provision has been recognised.

The intrinsic value is based on forecast future cash flows from the current optimal dispatch profile and based on the current forecast of gas price spreads between Henry Hub and NBP, and Henry Hub and the Asian LNG markets. The extrinsic value is based on the expected future cash flows from having contractual flexibility to deliver to alternate locations as demand changes, and from the potential that future gas price spreads could be higher than currently forecast due to volatility in market prices.

During the year, gas spreads have narrowed considerably, meaning that the estimated intrinsic value of the contract is negative based on forecast spreads as at 31 December 2020. The value of the contract is therefore reliant on the anticipated extrinsic value calculated using a complex model with set parameters, which increases the level of estimation uncertainty. The key parameters in the model include price volatilities and the bounded range of future gas spreads which are both set using historical price data. The valuation is sensitive to these assumptions, and the relationship between a change in the range of gas spreads and the potential change in value is not linear, and there is a risk of a material onerous contact provision. However, based on forecasts as at the reporting date, a reasonably possible change of 50 cents in the bounded range of future gas spreads coupled with a 10% change in future price volatility would impact the overall contract value by +/- c.$90m (c.GBP66m), and this level of reduction in these parameters would not give rise to a material charge to the Group Income Statement.

Revenue recognition - unread gas and electricity meters

Revenue for energy supply activities includes an assessment of energy supplied to customers between the date of the last meter reading and the year end (known as unread revenue). Unread gas and electricity comprises both billed and unbilled revenue. It is estimated through the billing systems, using historical consumption patterns, on a customer- by-customer basis, taking into account weather patterns, load forecasts and the differences between actual meter readings being returned and system estimates. Actual meter readings continue to be compared to system estimates between the balance sheet date and the finalisation of the accounts.

An assessment is also made of any factors that are likely to materially affect the ultimate economic benefits that will flow to the Group, including bill cancellation and re-bill rates. Estimated revenue is restricted to the amount the Group expects to be entitled to in exchange for energy supplied. The judgements applied, and the assumptions underpinning these judgements, are considered to be appropriate. However, a change in these assumptions would have an impact on the amount of revenue recognised. The primary source of estimation uncertainty relating to unread revenue arises in the respect of gas and electricity sales to UK downstream customers in British Gas and Centrica Business Solutions. At 31 December 2020 unread revenue arising from these customers amounted to GBP1,544 million (2019: GBP1,348 million). The judgements applied, and the assumptions underpinning these judgements in arriving at this estimated amount, are considered to be appropriate. However, a change in these assumptions would have an impact on the amount of revenue recognised. Based on prior experience of eventual outcomes, a change in assumptions made in reaching this estimate could impact the amount of unread revenue recognised by approximately GBP30 million.

Industry reconciliation process - cost of sales

Industry reconciliation procedures are required as differences arise between the estimated quantity of gas and electricity the Group deems to have supplied and billed customers, and the estimated quantity industry system operators deem the individual suppliers, including the Group, to have supplied to customers. The difference in deemed supply is referred to as imbalance. The reconciliation procedures can result in either a higher or a lower value of industry deemed supply than has been estimated as being supplied to customers by the Group, but in practice tends to result in a higher value of industry deemed supply. The Group reviews the difference to ascertain whether there is evidence that its estimate of amounts supplied to customers is inaccurate or whether the difference arises from other causes. The Group's share of the resulting imbalance is included within commodity costs charged to cost of sales. Management estimates the level of recovery of imbalance that will be achieved either through subsequent customer billing or through developing industry settlement procedures. The adjustments for imbalance at 31 December 2020 are not significant. Changes resulting from these management estimates can be material with adjustments of up to GBP30 million having been made in the last few years, although it could possibly be higher than these amounts in the future.

Decommissioning costs

The estimated cost of decommissioning at the end of the producing lives of gas and oil fields is reviewed periodically and is based on reserves, price levels and technology at the balance sheet date. Provision is made for the estimated cost of decommissioning at the balance sheet date. The payment dates of total expected future decommissioning costs are uncertain and dependent on the lives of the facilities, but are currently anticipated to be incurred until the 2040s.

The level of provision held is also sensitive to the discount rate used to discount the estimated decommissioning costs. The real discount rate used to discount the decommissioning liabilities at 31 December 2020 is 0% (2019: 1.2%). This change was made in response to the continued suppression of market risk-free rates and increased the provision by approximately GBP220 million. A 1% change in this discount rate would change the decommissioning liability by approximately GBP180 million.

Gas and liquids reserves

The volume of proven and probable (2P) gas and liquids reserves is an estimate that affects the unit of production method of depreciating producing gas and liquids property, plant and equipment (PP&E) as well as being a significant estimate affecting decommissioning and impairment calculations. The factors impacting gas and liquids estimates, the process for estimating reserve quantities and reserve recognition is described on page 72.

The impact of a change in estimated 2P reserves is dealt with prospectively by depreciating the remaining book value of producing assets over the expected future production. If 2P reserves estimates are revised downwards, earnings could be affected by higher depreciation expense or an immediate write-down (impairment) of the asset's book value. A change in reserves estimates could also change the timing of decommissioning activity, which could change the carrying value of the Group's provisions. The complex interaction of field-specific factors means that it is not possible to give a meaningful sensitivity of the Group's financial position or performance to gas and liquids reserves estimates. Details of the Group's 2P reserves are given on page 72. Details of impairments of exploration and production fields and goodwill, along with associated sensitivities, are given in note 6.

Determination of fair values - energy derivatives

Fair values of energy derivatives are estimated by reference in part to published price quotations in active markets and in part by using valuation techniques.

4. Risk management

The Group's normal operating, investing and financing activities expose it to a variety of risks. Risk management is fundamental to the way the Group is governed and managed. The system of risk management and internal control is set out in the 2019 Annual Reports and Accounts.

During 2020, the risks that were prioritised for leadership attention related to:

-- risk of political or regulatory intervention and changes, including those resulting from Brexit, or a failure to influence such changes;

-- risk of financial loss due to our exposure to market, credit and operational risk;

-- risk that failures in the development of integrity of our investments in operated and non-operated assets could compromise performance delivery;

-- risk that our balance sheet may not be resilient, limiting our ability to access funding with implications for our ability to withstand difficult market or trading conditions or financial stresses to the business;

-- risk of cyber-attack, security of IT systems and resilience to restore system availability;

-- the impact on present or future profitability resulting from deviations to normal weather;

-- risk that we are unable to attract and retain employees, fail to deliver the planned benefits from technological change or poor access controls leading to the business failing to have the appropriate capabilities to meet our strategic objectives;

-- risk that events in the external market or environment could hinder the delivery of our strategy;

-- 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; and

-- 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 respond to climate change.

COVID-19 has posed significant challenges to the risk management and resilience of businesses across the globe. Centrica has a robust approach to risk management which enabled a rapid mobilisation of resources to react and mitigate the potential impacts of the pandemic.

Financial risks are assessed at a Business Unit (BU) level to determine the impact and likelihood. During the BU and Group level risk reviews, the adequacy of mitigating actions are considered given the net residual risk scores in comparison to the Group risk appetite.

Bi-annually, the Group Financial Risks are presented to the Centrica Leadership Team (CLT) for review and challenge. These include the aggregate risk assessments from the BU 'bottom-up' process and any Group level risk assessments. All Group Principal Risks including Financial risks as updated by the Centrica Leadership Team are presented to the Audit Committee for review.

The four main areas of financial risk are managed as follows:

-- commodity price risk management is carried out in accordance with the individual business unit policies and directives including appropriate escalation routes;

-- treasury risk management, including management of currency risk, interest rate risk and liquidity risk is carried out by a central Group Treasury function in accordance with the Group's financing and treasury policy, as approved by the Board;

-- wholesale credit risks associated with commodity trading and treasury positions are managed in accordance with the Group's credit risk policy; and

-- downstream customer credit risk management is carried out in accordance with individual business unit credit policies.

Credit risk for financial assets

Credit risk is the risk of loss associated with a counterparty's inability or failure to discharge its obligations under a contract. The Group continually reviews its rating thresholds for relevant counterparty credit limits and updates these as necessary, based on a consistent set of principles. It continues to operate within its limits. In respect of trading activities across Europe there is an effort to maintain a balance between exchange-based trading and bilateral transactions. This allows for a reasonable balance between counterparty credit risk and potential liquidity requirements. In addition, the Group actively manages the trade-off between credit and liquidity risks by optimising the use of contracts with collateral obligations and physically settled contracts without collateral obligations.

Liquidity risk management and going concern

The Group has a number of treasury and risk policies to monitor and manage liquidity risk. Cash forecasts identifying the Group's liquidity requirements are produced regularly and are stress-tested for different scenarios, including, but not limited to, reasonably possible increases or decreases in commodity prices and the potential cash implications of a credit rating downgrade. The Group seeks to ensure that sufficient financial headroom exists for at least a 12-month period to safeguard the Group's ability to continue as a going concern, and as at the reporting date, the analysis performed by the Group extends to 31 December 2022. It is the Group's policy to maintain committed facilities and/or available surplus cash resources of at least GBP1,200 million, raise at least 75% of its gross debt (excluding non-recourse debt) in the capital market and to maintain an average term to maturity in the recourse long-term debt portfolio greater than five years.

At 31 December 2020, the Group had undrawn committed credit facilities of GBP3,637 million (2019: GBP3,072 million) and GBP1,139 million (2019: GBP619 million) of unrestricted cash and cash equivalents, net of outstanding overdrafts. A further GBP107 million of cash and cash equivalents is included in assets held for sale. 93% (2019: 91%) of the Group's gross debt has been raised in the long-term debt market and the average term to maturity of the long-term debt portfolio was 10.3 years (2019: 11.1 years). The completion of the disposal of the Direct Energy business on 5 January 2021 led to a cash receipt of $3.6 billion (2019: GBP2.7 billion), significantly improving the Group's net debt position.

The Group's liquidity is impacted by the cash posted or received under margin and collateral agreements. The terms and conditions of these agreements depend on the counterparty and the specific details of the transaction. Cash is generally returned to the Group or by the Group within two days of trade settlement. Refer to note 11 for the movement in cash posted or received as collateral.

The level of undrawn committed bank facilities and available cash resources has enabled the Directors to conclude that the Group has sufficient headroom to continue as a going concern.

5. Segmental analysis

 
 The Group's reporting segments are those used internally by management 
  to run the business and make decisions. The Group's segments are based 
  on products and services as well as the major factors that influence 
  the performance of these products and services across the geographical 
  locations in which the Group operates. 
 
   (a)        Segmental structure 

During the year the Group's reportable operating segments have been amended due to a change in the way management review and make decisions about the business.

The types of products and services from which each reportable segment derived its income during the year are detailed below. Income sources are reflected in Group revenue unless otherwise stated:

 
Segment                      Description 
===========================  ========================================================================================= 
British Gas                  (i) The supply of gas and electricity to residential customers in the UK; 
                             (ii) the installation, repair and maintenance of domestic central heating and related 
                             appliances, 
                             and the provision of fixed-fee maintenance/breakdown service and insurance contracts in 
                             the 
                             UK; and 
                             (iii) the supply of new technologies and energy efficiency solutions in the UK. 
===========================  ========================================================================================= 
Bord Gais Energy             (i) The supply of gas and electricity to residential and commercial and industrial 
                             customers 
                             in the Republic of Ireland; 
                             (ii) the installation, repair and maintenance of domestic central heating and related 
                             appliances 
                             in the Republic of Ireland; and 
                             (iii) power generation in the Republic of Ireland (i) . 
===========================  ========================================================================================= 
Energy Marketing             (i) The procurement, trading and optimisation of energy in the UK and Europe (i) ; 
 & Trading                   (ii) the global procurement and sale of LNG; and 
                             (iii) the generation of power from the Spalding combined cycle gas turbine tolling 
                             contract. 
===========================  ========================================================================================= 
Centrica Business            (i) The supply of gas and electricity and provision of energy-related services to 
 Solutions                   business 
                             customers in the UK (i) ; and 
                             (ii) the supply of energy efficiency solutions, flexible generation and new technologies 
                             to 
                             commercial and industrial customers in all geographies in which the Group operates. 
                             Flexible 
                             merchant generation is also provided to the UK system operator. 
===========================  ========================================================================================= 
Upstream                     (i) The production and processing of gas and oil and the development of new fields, 
                             principally 
                             within Spirit Energy, to maintain reserves in the UK and Europe (i) ; and 
                             (ii) the sale of power generated from nuclear assets in the UK. 
===========================  ========================================================================================= 
Direct Energy (Discontinued  (i) The supply of gas and electricity, and provision of energy-related services to 
 operation)                  residential 
                             and business customers in North America; 
                             (ii) the installation, repair and maintenance of domestic central heating and cooling 
                             systems 
                             and related appliances, and the provision of fixed-fee maintenance/breakdown service and 
                             insurance 
                             contracts in North America; and 
                             (iii) the procurement, trading and optimisation of energy in North America (i) . 
===========================  ========================================================================================= 
 

(i) Where income is generated from contracts in the scope of IFRS 9, this is included in re-measurement and settlement of energy contracts.

   (b)        Revenue 
 
 Gross segment revenue includes revenue generated from the sale of 
  products and services to other reportable segments of the Group. 
  Group revenue reflects only the sale of products and services to 
  third parties. Sales between reportable segments are conducted on 
  an arm's length basis. 
 
 
                                                      2020                  2019 (restated) (i) 
                                          ============================  ============================ 
                                                        Less                          Less 
                                             Gross    inter-               Gross    inter- 
                                           segment   segment     Group   segment   segment     Group 
                                           revenue   revenue   revenue   revenue   revenue   revenue 
Year ended 31 December                        GBPm      GBPm      GBPm      GBPm      GBPm      GBPm 
========================================  ========  ========  ========  ========  ========  ======== 
Continuing operations 
  British Gas                                7,887       (2)     7,885     8,327       (1)     8,326 
  Bord Gais Energy                             820         -       820       897         -       897 
  Energy Marketing & Trading                 2,917     (175)     2,742     3,357     (271)     3,086 
  Centrica Business Solutions                2,131       (8)     2,123     2,331       (9)     2,322 
  Upstream                                   1,918     (539)     1,379     2,290     (963)     1,327 
========================================  ========  ========  ========  ========  ========  ======== 
  Group revenue included in business 
   performance                              15,673     (724)    14,949    17,202   (1,244)    15,958 
========================================  ========  ========  ========  ========  ========  ======== 
Discontinued operations 
  Direct Energy                              9,483         -     9,483    10,867         -    10,867 
========================================  ========  ========  ========  ========  ========  ======== 
Business performance revenue 
 arising from continuing and 
 discontinued operations                    25,156     (724)    24,432    28,069   (1,244)    26,825 
========================================  ========  ========  ========  ========  ========  ======== 
     Less: revenue arising on contracts 
      in scope of IFRS 9 included 
      in business performance                                  (2,700)                       (2,964) 
     Less: Discontinued operations                             (9,483)                      (10,867) 
========================================  ========  ========  ========  ========  ========  ======== 
Group Revenue                                                   12,249                        12,994 
========================================  ========  ========  ========  ========  ========  ======== 
 

(i) Segmental revenues have been restated to reflect the new operating structure of the Group, and to treat Direct Energy as a discontinued operation (see note 3). As a result of the change in segments gross segment revenue has been restated to reflect the updated inter-segment trading.

The table below shows the Group revenue arising from contracts with customers, and therefore in the scope of IFRS 15, and revenue arising from contracts in the scope of other standards. The key economic factors impacting the nature, timing and uncertainty of revenue and cash flows are considered to be driven by the type and broad geographical location of the customer. The analysis of IFRS 15 revenue below reflects these factors.

 
                                                                          2020 
                                        ========================================================================= 
                                                                 Revenue 
                                                          from fixed-fee 
                                                                 service 
                                                           and insurance 
                                                               contracts 
                                                                in scope                    Revenue 
                                                                 of IFRS                in business 
                                                Revenue           4, and                performance 
                                         from contracts          leasing                    arising         Group 
                                         with customers        contracts             from contracts       Revenue 
                                               in scope         in scope                   in scope      included 
                                                of IFRS          of IFRS     Group          of IFRS   in business 
                                                     15               16   Revenue                9   performance 
Year ended 31 December                             GBPm             GBPm      GBPm             GBPm          GBPm 
======================================  ===============  ===============  ========  ===============  ============ 
Continuing operations 
  Energy supply - UK                              6,386 
  Energy services                                   545 
British Gas                                       6,931              954     7,885                -         7,885 
                                        =============== 
  Energy supply - Republic of Ireland               725 
Bord Gais Energy                                    725                -       725               95           820 
                                        =============== 
  Energy sales to trading and energy 
   procurement counterparties                     1,317 
                                        =============== 
Energy Marketing & Trading                        1,317                -     1,317            1,425         2,742 
                                        =============== 
  Energy supply - UK                              1,380 
  Energy services and solutions                     262 
                                        =============== 
Centrica Business Solutions                       1,642                8     1,650              473         2,123 
  Gas and oil production                            672 
Upstream                                            672                -       672              707         1,379 
======================================  ===============  ===============  ========  ===============  ============ 
                                                 11,287              962    12,249            2,700        14,949 
======================================  ===============  ===============  ========  ===============  ============ 
 
 
                                                                   2019 (restated) (i) 
                                        ========================================================================= 
                                                                 Revenue 
                                                          from fixed-fee 
                                                                 service 
                                                           and insurance 
                                                               contracts 
                                                                      in 
                                                                   scope                    Revenue 
                                                                 of IFRS                in business 
                                                                  4, and                performance 
                                                Revenue          leasing                    arising 
                                         from contracts        contracts             from contracts         Group 
                                         with customers               in                         in       Revenue 
                                               in scope            scope                      scope      included 
                                                of IFRS          of IFRS     Group          of IFRS   in business 
                                                     15               16   Revenue                9   performance 
Year ended 31 December                             GBPm             GBPm      GBPm             GBPm          GBPm 
======================================  ===============  ===============  ========  ===============  ============ 
Continuing operations 
  Energy supply - UK                              6,629 
  Energy services                                   699 
British Gas                                       7,328              998     8,326                -         8,326 
                                        =============== 
  Energy supply - Republic of Ireland               779 
Bord Gais Energy                                    779                -       779              118           897 
                                        =============== 
  Energy sales to trading and energy 
   procurement counterparties                     1,256 
                                        =============== 
Energy Marketing & Trading                        1,256                -     1,256            1,830         3,086 
                                        =============== 
  Energy supply - UK                              1,574 
  Energy services and solutions                     269 
                                        =============== 
Centrica Business Solutions                       1,843               11     1,854              468         2,322 
  Gas and oil production                            779 
Upstream                                            779                -       779              548         1,327 
======================================  ===============  ===============  ========  ===============  ============ 
                                                 11,985            1,009    12,994            2,964        15,958 
======================================  ===============  ===============  ========  ===============  ============ 
 

(i) Segmental revenues have been restated to reflect the new operating structure of the Group, and to treat Direct Energy as a discontinued operation (see note 3).

Geographical analysis of revenue and non-current assets

The Group monitors and manages performance by reference to its operating segments and not solely on a geographical basis. However, provided below is an analysis of revenue and certain non-current assets by geography.

 
                             Group revenue           Non-current 
                           (based on location           assets 
                              of customer)        (based on location 
                             (restated) (i)        of assets) (ii) 
                         =====================  ===================== 
                               2020       2019        2020       2019 
Year ended 31 December         GBPm       GBPm        GBPm       GBPm 
=======================  ==========  =========  ==========  ========= 
Continuing operations 
  UK                          9,787     10,437       3,691      4,653 
  Republic of Ireland           725        777         114        135 
  Norway                        265        322       1,149      1,474 
  North America                 266        205          34      1,903 
  Rest of the world           1,206      1,253         552        421 
=======================  ==========  =========  ==========  ========= 
                             12,249     12,994       5,540      8,586 
=======================  ==========  =========  ==========  ========= 
 

(i) Group revenues have been restated to treat Direct Energy as a discontinued operation (see note 3).

(ii) Non-current assets comprise goodwill, other intangible assets, PP&E, interests in joint ventures and associates and non-financial assets within trade and other receivables, and contract-related assets. In 2020 assets of disposal groups held for sale are not included, and 2019 has been re-presented.

   (c)        Adjusted gross margin and adjusted operating profit 
 
 The measure of profit used by the Group is adjusted operating profit. 
  Adjusted operating profit is operating profit before exceptional 
  items and certain re-measurements. This includes business performance 
  results of equity-accounted interests. 
  This note also details adjusted gross margin. Both measures are reconciled 
  to their statutory equivalents. 
 
 
                                                           Adjusted gross         Adjusted operating 
                                                               margin                   profit 
                                                       ======================  ======================== 
                                                              2019 (restated)           2019 (restated) 
                                                        2020              (i)     2020              (i) 
Year ended 31 December                                  GBPm             GBPm     GBPm             GBPm 
=====================================================  =====  ===============  =======  =============== 
Continuing operations 
  British Gas                                          1,473            1,591      281              304 
  Bord Gais Energy                                       154              149       42               50 
  Energy Marketing & Trading                             281              305      174              138 
  Centrica Business Solutions                            181              282    (140)             (20) 
  Upstream                                               244              507       90              178 
  Adjusted gross margin/adjusted operating 
   profit                                              2,333            2,834      447              650 
=====================================================  =====  ===============  =======  =============== 
Discontinued operations 
  Direct Energy                                          862            1,018      252              251 
  Total Group adjusted gross margin/adjusted 
   operating profit                                    3,195            3,852      699              901 
     Less Discontinued operations                      (862)          (1,018)    (252)            (251) 
  Business performance gross margin/operating 
   profit from continuing operations                   2,333            2,834      447              650 
     Certain re-measurements (continuing operations)     786            (309)      786            (309) 
     Share of re-measurement of certain associates' 
      energy contracts (net of taxation)                   -                -      (2)              (1) 
  Gross profit                                         3,119            2,525 
=====================================================  =====  ===============  =======  =============== 
     Exceptional items in operating profit 
      (continuing operations)                                                  (1,593)          (1,123) 
=====================================================  =====  ===============  =======  =============== 
  Operating loss after exceptional items 
   and certain re-measurements                                                   (362)            (783) 
=====================================================  =====  ===============  =======  =============== 
 

(i) Segmental results have been restated to reflect the new operating structure of the Group, and to treat Direct Energy as a discontinued operation (see note 3).

   (d)        Included within adjusted operating profit 
 
 Presented below are certain items included within adjusted operating 
  profit, including a summary of impairments of property, plant and 
  equipment and write-downs relating to exploration and evaluation 
  assets. 
 
 
                                                            Amortisation, 
                                   Depreciation and         write-downs and 
                                    impairments of          impairments of 
                                         PP&E                 intangibles 
                                ======================  ====================== 
                                       2019 (restated)         2019 (restated) 
                                 2020              (i)   2020              (i) 
Year ended 31 December           GBPm             GBPm   GBPm             GBPm 
==============================  =====  ===============  =====  =============== 
Continuing operations 
  British Gas                    (49)             (55)  (122)            (113) 
  Bord Gais Energy                (5)              (7)   (12)             (10) 
  Energy Marketing & Trading     (30)             (47)   (12)             (11) 
  Centrica Business Solutions    (16)             (13)   (37)             (30) 
  Upstream                      (519)            (690)   (26)             (63) 
  Other (ii)                     (40)             (39)   (44)             (38) 
==============================  =====  ===============  =====  =============== 
                                (659)            (851)  (253)            (265) 
==============================  =====  ===============  =====  =============== 
Discontinued operations 
  Direct Energy                  (15)             (29)   (32)             (61) 
==============================  =====  ===============  =====  =============== 
 

(i) Segmental results have been restated to reflect the new operating structure of the Group, and to treat Direct Energy as a discontinued operation (see note 3).

(ii) The Other segment includes corporate functions, subsequently recharged.

Impairments of PP&E

During 2020, GBP2 million of impairments of PP&E were recognised within business performance in British Gas and Upstream. During 2019, a GBP73 million impairment charge was recognised within business performance (GBP39 million within Upstream and GBP34 million within Energy Marketing & Trading).

Write-downs and impairments of intangible assets

During 2020, GBP24 million of write-downs (2019: GBP60 million) relating to exploration and evaluation assets were recognised in the Upstream segment. All such current and prior year write-downs were recognised within business performance as they were not deemed exceptional in nature. During 2020, GBP3 million of other intangible assets were impaired within business performance in British Gas and Other (2019: GBPnil).

The recoverable amount of these assets was GBPnil.

   (e)        Capital expenditure 
 
 Capital expenditure represents additions, other than assets acquired 
  as part of business combinations, to property, plant and equipment 
  and intangible assets. Capital expenditure has been reconciled to 
  the related cash outflow. 
 
 
                                                                        Capital expenditure 
                                                Capital expenditure         on intangible 
                                                    on property,            assets other 
                                                 plant and equipment        than goodwill 
                                               ======================  ====================== 
                                                      2019 (restated)         2019 (restated) 
                                                2020              (i)   2020              (i) 
Year ended 31 December                          GBPm             GBPm   GBPm             GBPm 
=============================================  =====  ===============  =====  =============== 
Continuing operations 
  British Gas                                     19               26    546              493 
  Bord Gais Energy                                 4                2      7               12 
  Energy Marketing & Trading (ii)                206                4     61               59 
  Centrica Business Solutions                     17               46    354              249 
  Upstream                                       275              328     62              218 
  Other                                            8               17      5               23 
=============================================  =====  ===============  =====  =============== 
                                                 529              423  1,035            1,054 
Discontinued operations 
  Direct Energy (iii)                             13               16    303              295 
=============================================  =====  ===============  =====  =============== 
  Group total capital expenditure                542              439  1,338            1,349 
     Less Discontinued operations               (13)             (16)  (303)            (295) 
  Related to continuing operations: 
     Capitalised borrowing costs (note 7)        (7)             (11)    (6)              (2) 
     Inception of new leases and movements 
      in payables and prepayments related 
      to capital expenditure                   (230)             (35)     43             (20) 
     Purchases of emissions allowances and 
      renewable obligation certificates (iv)       -                -  (875)            (652) 
=============================================  =====  ===============  =====  =============== 
  Net cash outflow (continuing operations)       292              377    197              380 
=============================================  =====  ===============  =====  =============== 
 

(i) Segmental results have been restated to reflect the new operating structure of the Group, and to treat Direct Energy as a discontinued operation (see note 3).

(ii) During the year the Group commenced the lease of two new LNG vessels. See note 17 for further details.

(iii) A portion of Direct Energy capital expenditure occurred after it was classified as a disposal group held for sale. This amounted to GBP6 million of property, plant and equipment and GBP122 million of intangible assets.

(iv) Purchases of emissions allowances and renewable obligation certificates of GBP482 million (2019: GBP384 million) in British Gas, GBP55 million (2019: GBP45 million) in Energy Marketing & Trading, and GBP338 million (2019: GBP223 million) in Centrica Business Solutions.

(f) Free cash flow

 
 Free cash flow is used by management to assess the cash generating 
  performance of each segment, after taking account of the need to 
  maintain its capital asset base. By excluding deficit reduction payments 
  and movements in collateral and margin cash, which are predominantly 
  triggered by wider market factors, and in the case of collateral 
  and margin movements, represent timing movements, free cash flow 
  gives a measure of the underlying cash generation of the business. 
  Free cash flow excludes investing cash flows that are related to 
  net debt. This measure is reconciled to the net cash flow from operating 
  and investing activities. 
 
 
                                                                               2020   2019 
Year ended 31 December                                                         GBPm   GBPm 
============================================================================  =====  ===== 
Continuing operations 
  British Gas                                                                   271    177 
  Bord Gais Energy                                                               35     60 
  Energy Marketing & Trading                                                    241     41 
  Centrica Business Solutions                                                  (90)   (74) 
  Upstream                                                                      193    329 
  Other (i)                                                                      37     19 
============================================================================  =====  ===== 
  Segmental free cash flow excluding tax                                        687    552 
============================================================================  =====  ===== 
Discontinued operations 
  Direct Energy                                                                 401    506 
============================================================================  =====  ===== 
  Group total segmental free cash flow excluding tax                          1,088  1,058 
     Taxes paid from continuing operations                                      (2)   (80) 
     Taxes paid from discontinued operations                                   (25)   (12) 
============================================================================  =====  ===== 
  Group total free cash flow                                                  1,061    966 
============================================================================  =====  ===== 
     Less Discontinued operations free cash flow (including tax)              (376)  (494) 
============================================================================  =====  ===== 
  Free cash flow from continuing operations                                     685    472 
     UK Pension deficit payments (note 14)                                    (175)  (235) 
     Movements in variation margin and collateral included in net debt (ii)      56     21 
     Interest received                                                            7     11 
     Sale and settlement of securities                                          121     50 
============================================================================  =====  ===== 
                                                                                694    319 
============================================================================  =====  ===== 
  Net cash flow from continuing operating activities                            957    970 
============================================================================  =====  ===== 
  Net cash flow used in continuing investing activities                       (263)  (651) 
============================================================================  =====  ===== 
  Total cash flow from continuing operating and investing activities            694    319 
============================================================================  =====  ===== 
 

(i) The Other segment includes corporate functions.

(ii) Excludes movement in variation margin and collateral from discontinued operations of GBP45 million (2019: GBP(66) million).

6. Exceptional items and certain re-measurements

   (a)        Certain re-measurements 
 
 Certain re-measurements are the fair value movements on energy contracts 
  entered into to meet the future needs of our customers or to sell the 
  energy produced from our upstream assets. These contracts are economically 
  related to our upstream assets, capacity/off-take contracts or downstream 
  demand, which are typically not fair valued, and are therefore separately 
  identified in the current period and reflected in business performance 
  in future periods when the underlying transaction or asset impacts 
  the Group Income Statement. 
 
 
                                                                   2020   2019 
Year ended 31 December                                             GBPm   GBPm 
================================================================  =====  ===== 
Certain re-measurements recognised in relation to energy 
 contracts: 
  Net gains arising on delivery of contracts                        520    143 
  Net gains/(losses) arising on market price movements and 
   new contracts                                                    266  (452) 
================================================================  =====  ===== 
Net re-measurements included within gross profit                    786  (309) 
Net losses arising on re-measurement of certain associates' 
 contracts (net of taxation)                                        (2)    (1) 
================================================================  =====  ===== 
Net re-measurements included within Group operating profit          784  (310) 
Taxation on certain re-measurements (note 8)                       (86)      2 
================================================================  =====  ===== 
Net re-measurements after taxation for continuing operations        698  (308) 
================================================================  =====  ===== 
Discontinued operations 
Net re-measurements from discontinued operations before 
 taxation                                                           184  (337) 
================================================================  =====  ===== 
Taxation on certain re-measurements in discontinued operations     (46)    101 
================================================================  =====  ===== 
Net re-measurements after taxation from discontinued operations     138  (236) 
================================================================  =====  ===== 
Total certain re-measurements                                       836  (544) 
================================================================  =====  ===== 
 
 
                                                                 2020     2019 
Year ended 31 December                                           GBPm     GBPm 
==========================================================  =========  ======= 
Total re-measurement and settlement of derivative energy 
 contracts                                                      (632)  (2,111) 
  Less: IFRS 9 business performance revenue                 (2 , 700)  (2,964) 
  Less: IFRS 9 business performance cost of sales               4,118    4,766 
==========================================================  =========  ======= 
Unrealised certain re-measurements recognised in relation 
 to energy contracts included in gross profit                     786    (309) 
==========================================================  =========  ======= 
 
   (b)        Exceptional items 
 
 Exceptional items are those items that, in the judgement of the Directors, 
  need to be disclosed separately by virtue of their nature, size or 
  incidence. Items which may be considered exceptional in nature include 
  disposals of businesses or significant assets, business restructurings, 
  significant onerous contract charges and releases, pension change 
  costs or credits, significant debt repurchase costs and asset write-downs/impairments 
  and write-backs. 
 
 
                                                                  2020     2019 
Year ended 31 December                                            GBPm     GBPm 
=============================================================  =======  ======= 
Exceptional items recognised in continuing operations 
  Impairment of exploration and production assets (including 
   the disposal of Danish fields) (i)                            (644)    (476) 
  Impairment and derecognition of power assets (ii)              (525)    (381) 
  Impairment of Centrica Home Solutions (iii)                     (72)     (62) 
  Impairment of Centrica Business Solutions goodwill (iv)         (78)        - 
  Restructuring costs (v)                                        (154)    (323) 
  Net pension change (charge)/credit (vi)                        (120)      152 
  Net loss on significant disposals (including impairment 
   of assets sold or held for sale)                                  -     (33) 
Exceptional items included within Group operating profit       (1,593)  (1,123) 
Net taxation on exceptional items (note 8)                         273      130 
Net exceptional items recognised in continuing operations 
 after taxation                                                (1,320)    (993) 
=============================================================  =======  ======= 
Net exceptional items recognised in discontinued operations 
 after taxation                                                   (36)        6 
=============================================================  =======  ======= 
Total exceptional items recognised after taxation              (1,356)    (987) 
=============================================================  =======  ======= 
 
 
Exceptional items recognised in discontinued operations 
  Direct Energy disposal related costs (vii)                  (29)     - 
  Impairment of Centrica Home Solutions                          -  (15) 
  Restructuring costs (v)                                        7  (33) 
  Net gain on significant disposals (including impairment 
   of assets sold or held for sale)                              -    68 
============================================================  ====  ==== 
Exceptional items before taxation                             (22)    20 
============================================================  ====  ==== 
  Net taxation on exceptional items (vii)                     (14)  (14) 
============================================================  ====  ==== 
Net exceptional items recognised in discontinued operations 
 after taxation                                               (36)     6 
============================================================  ====  ==== 
 

(i) In the Upstream segment, impairments of exploration and production assets have been booked relating to the value of certain UK and Norwegian gas and oil fields and to Goodwill. This amounted to GBP580 million (post-tax GBP313 million) of field assets and GBP62 million (post-tax GBP62 million) of Goodwill and was predominantly due to the impact of a reduction in both near-term liquid prices and long-term price forecasts. Also included is the net reduction of decommissioning provisions (pre-tax GBP2 million, post-tax GBPnil) related to assets previously impaired through exceptional items. Separately, in the taxation line, a net write-off of GBP63 million of deferred tax positions associated with exploration and production tax losses, decommissioning carry-back and PRT has also been recorded related to the reductions in forecast prices. The disposal of the Danish gas and oil assets gave rise to an initial GBP8 million impairment write-back (post-tax GBP8 million) immediately prior to the transfer to Assets Held for Sale and then an actual loss on disposal of GBP12 million (post-tax GBP12 million) predominantly from the recycling of the foreign currency translation reserve (see note 15).

(ii) In the Upstream segment, an impairment of the nuclear investment has been booked as a result of a reduction in price forecasts, and lower output following generation issues at Hunterston, Hinkley and Dungeness. The pre and post-tax impact was GBP481 million. Similarly, in the Centrica Business Solutions segment, an impairment of gas-fired and battery power assets has also been recorded as a result of forecast price reductions. This gave rise to a charge of GBP23 million (post-tax GBP19 million). In the Bord Gais Energy segment, an outage at the Whitegate power station led to the derecognition of GBP21 million (post-tax GBP18 million) of component parts.

(iii) The Centrica Home Solutions business impaired intangible software assets by GBP72 million (post-tax GBP59 million). This was as a result of the decision to merge the business into the British Gas segment's services and solutions arm and to reduce the scale and breadth of technology products offered in the portfolio.

(iv) The Centrica Business Solutions customer cash generating unit impaired its Goodwill by GBP78 million (post-tax GBP78 million), as a result of reduced growth prospects, particularly in North America following the disposal of Direct Energy in January 2021.

(v) The Group's strategic restructure and headcount reduction has led to redundancy costs being recognised in relation to both incurred and expected future severance costs (excluding pension strains) of GBP94 million (post-tax GBP76 million). In addition, costs associated with projects in the Group's cost efficiency programme principally related to property rationalisation costs and other transformational activity have also been incurred amounting to GBP42 million (post-tax GBP35 million). The project to modernise employee terms and conditions across the business saw one-off transition payments of GBP18 million (post-tax GBP15 million) also recognised. In discontinued operations, a reversal of previously booked redundancy provisions and property impairments of GBP7 million (post-tax GBP6 million) was recorded due to the change in circumstances with the Direct Energy business now being disposed in January 2021.

(vi) A pension strain charge has been reflected in relation to redundancies arising as a result of Group's restructuring programme (post-tax GBP97 million).

(vii) In connection with the disposal of Direct Energy, which completed on 5 January 2021, GBP17 million (post-tax GBP13 million) of costs were incurred during the year related to professional assistance and assurance activities. At the same time, GBP12 million (post-tax GBP9 million) of other costs, predominantly related to Group intangible IT software assets write offs that were considered obsolete as a result of the imminent change in the wider business make-up. Separately, a historic Canadian exploration and production deferred tax asset of GBP20 million was also written-off as it would no longer be recoverable in the absence of a profitable Canadian business.

   (c)        Impairment accounting policy, process and sensitivities 

The information provided below relates to the assets and CGUs (or groups of CGUs) that have been subject to impairment during the year.

Exceptional impairments of assets measured on a FVLCD basis

 
                                                                                 Recoverable 
                                                                                      amount 
             Asset/CGU (or group                                                         (i)                Impairment 
Segment       of CGUs)                  Basis for impairment                            GBPm  FV hierarchy        GBPm 
===========  =========================  =======================================  ===========  ============  ========== 
                                        Significant deterioration 
                                         in forecast commodity prices, 
                                         and reduced forecast value 
                                         on exploration and 
Upstream     Goodwill (ii)               evaluation prospects                            585            L3          62 
===========  =========================  =======================================  ===========  ============  ========== 
 Greater Warwick 
  Area exploration 
  and evaluation            Significant uncertainty over 
  asset                      the field development                                         -            L3         135 
 =========================  ===================================================  ===========  ============  ========== 
 UK and Norwegian           Significant deterioration 
  fields (iii)               in forecast commodity prices                                135            L3         445 
 =========================  ===================================================  ===========  ============  ========== 
                            Re-measurement prior to reclassification 
                             to disposal group held for 
 Danish fields (disposal)    sale                                                        N/A            L3         (8) 
 =========================  ===================================================  ===========  ============  ========== 
Centrica 
 Business                               Reduced growth prospects, 
 Solutions   Customer CGU goodwill       particularly in North America                   220            L3          78 
===========  =========================  =======================================  ===========  ============  ========== 
                                        Change in usage of assets 
Other        Property                    (including right-of-use assets)                  45            L3          15 
===========  =========================  =======================================  ===========  ============  ========== 
 

(i) The recoverable amounts are for the specific assets impaired, or in the case of goodwill to the wider CGU to which it relates.

(ii) The recoverable amount stated for Upstream goodwill relates to the CGU associated with gas and oil fields and exploration and evaluation assets. This amount excludes working capital and non field-specific deferred tax assets.

(iii) Relates to 6 individual fields that were impaired. Recoverable amount disclosed relates to those 6 fields.

Fair value less costs of disposal (FVLCD) is determined by discounting the post-tax cash flows expected to be generated by the assets or CGU, net of associated selling costs, taking into account those assumptions that market participants would use in estimating fair value. Post-tax cash flows used in the FVLCD calculation are based on the Group's Board-approved business plans and strategic shape assumptions, together with, where relevant, long-term production and cash flow forecasts.

Upstream gas and oil assets (including goodwill)

For Upstream gas and oil assets post-tax cash flows are derived from projected production profiles of each field, taking into account forward prices for gas and liquids over the relevant period. Where forward market prices are not available (i.e. outside the active period for each commodity), prices are determined based on the median of third-party market comparator curves. The date of cessation of production depends on the interaction of a number of variables, such as the recoverable quantities of hydrocarbons, production costs, the contractual duration of the licence area and the selling price of the gas and liquids produced. As each field has specific reservoir characteristics and economic circumstances, the post-tax cash flows for each field are computed using individual economic models. Price assumptions are critical and use liquid market prices for 2021 to 2024, blended over a one-year period to long-term price forecasts. Long-term price assumptions derived from third-party market comparator median curves are deemed best aligned with pricing that a reasonable market participant would use.

The future post-tax cash flows are discounted using a post-tax nominal discount rate of 10.0% (2019: 9.0%).

The recoverable amount for Goodwill is then assessed by taking the headroom on the individual field assessments (including exploration and evaluation prospects), calculated as described above and deducting the forecast general administration and corporate running costs of the business over the life of the fields.

As forward commodity prices are a key assumption in these valuations, average prices and associated impairment sensitivities for the Group's upstream gas and oil assets (including Goodwill) for the relevant periods are shown below.

 
                                                                Change in post-tax headroom/(impairment) 
                                                                                  (ii) 
                                                             ============================================== 
                  Five-year liquid      Ten-year long-term 
                  and blended-period       average price 
                      price (i)                 (i)                   +10%                    -10% 
                =====================  ====================  ======================  ====================== 
                 2021-2025  2020-2024  2026-2035  2025-2034 
                ==========  =========  =========  ========= 
                                                                   2020        2019        2020        2019 
                      2020       2019       2020       2019        GBPm        GBPm        GBPm        GBPm 
==============  ==========  =========  =========  =========  ==========  ==========  ==========  ========== 
NBP (p/th)              40         43         46         58         289         180       (266)       (197) 
==============  ==========  =========  =========  =========  ==========  ==========  ==========  ========== 
Brent ($/bbl)           47         62         65         81 
==============  ==========  =========  =========  =========  ==========  ==========  ==========  ========== 
 

(i) Prices are shown in 2019 real terms.

(ii) Sensitivity relates to Upstream exploration and production assets and CGUs. A 10% change is deemed to represent a reasonably possible variation across the entire period covered by the liquid market and comparator curves used in upstream gas and oil impairment tests. In the -10% scenario an impairment of GBP199 million of goodwill would arise. This is included in the sensitivity given above.

Furthermore, there is also uncertainty due to climate change and international governmental intervention to reduce CO(2) emissions and the likely impact this will have on both gas and oil demand and forecast prices. As a result, a further sensitivity is disclosed below based on forecast prices aligned to the International Energy Agency's ('IEA') Sustainable Development Scenarios, which assumes governmental policies are put in place to achieve the temperature goals under the Paris Agreement. This sensitivity retains the prices for the liquid period (4 years) but replaces the longer term thereafter with the IEA's forecast prices for Sustainable Development.

 
                                     Change 
                  Ten-year               in 
                 long-term             post 
                   average   -tax headroom/ 
                     price     (impairment) 
                       (i)             (ii) 
                ==========  =============== 
                 2026-2035 
                ==========  =============== 
                      2020             GBPm 
==============  ==========  =============== 
NBP (p/th)              33            (132) 
==============  ==========  =============== 
Brent ($/bbl)           55 
==============  ==========  =============== 
 

(i) Prices shown in 2019 real terms

(ii) Change in impairment would all relate to Goodwill.

Centrica Business Solutions customer CGU

A FVLCD calculation has been used to assess the recoverable amount of Centrica Business Solutions customer CGU, with the disposal of Direct Energy in early 2021 reducing growth prospects in North America. Cashflows have been projected over a 5-year period for each region and a terminal value has been applied to the 2025 cashflows using a growth rate in the range 1.7-2.2% which is jurisdictional and product specific. The future post-tax cashflows are predominantly discounted using a post-tax nominal discount rate of 7.5% (2019: 7.5%). The forecast assumes that the customer CGU achieves positive cash inflows by 2025. Were the cashflows used in the terminal value calculation reduced by 10%, a further impairment of Goodwill of GBP36 million would be required. Were the discount rate to be increased by 1% a further impairment of Goodwill of GBP66 million would be required.

Exceptional impairments of assets measured on a VIU basis

 
                                                                                Recoverable 
              Asset/CGU (or                                                          amount  Impairment 
Segment        group of CGUs)         Basis for impairment                             GBPm        GBPm 
============  ======================  ========================================  ===========  ========== 
                                      Reduction in baseload power prices 
                                       and lower output assumptions following 
                                       the generation issues at Dungeness, 
Upstream      Nuclear                  Hunterston and Hinkley.                          830         481 
============  ======================  ========================================  ===========  ========== 
Centrica      Gas-fired power 
 Business      and Battery 
 Solutions     storage assets         Decline in forecast prices                         49          23 
============  ======================  ========================================  ===========  ========== 
              Centrica Home           Reduction in scale and breadth of 
               Solutions intangible    products and consequent reduction 
British Gas    software assets         in forecast future profitability                   2          72 
============  ======================  ========================================  ===========  ========== 
 

Nuclear

A VIU calculation has been used to determine the recoverable amount of the Group's investment in Nuclear. The post-tax cash flows incorporated in the valuation are derived from board approved forecasts, based on the expected generation profile of the fleet for its remaining life. Assumptions include forward commodity prices, capacity rates, transportation and fuel costs and balancing system charges. Price assumptions are based on liquid market prices for 2021 to 2024 which are then blended over a one-year period to long-term price forecasts. Long-term price assumptions derived from third-party market comparator median curves are used due to alignment with pricing that a reasonable market participant would use, and the inclusion of certain data points (e.g. impact of climate change).

The VIU calculation assumes that the Sizewell plant operates until 2055, reflecting a 20-year extension beyond its original design life. In the absence of this extension, the Group's investment in Nuclear would be impaired by a further GBP233 million.

The VIU calculation is also sensitive to changes in outage assumptions. A 1% increase in the unplanned outages rate applied to volume across the nuclear fleet would increase impairment by GBP27 million.

The future pre-tax cash flows generated by the investment in the associate are discounted using a pre-tax nominal discount rate 8.0% (2019: 8.4%). This is equivalent to post-tax nominal rate 6.5% (2019: 6.5%). A 1% increase in the post-tax discount rate would increase impairment by GBP68 million. A 1% reduction in the post-tax discount rate would lead to impairment write-back of GBP82 million.

The asset is particularly sensitive to changes in commodity price and the table below details average prices for the relevant periods and associated sensitivities.

 
                                                                 Change in pre/post-tax headroom/(impairment) 
                                                                                     (ii) 
                                                              ================================================== 
                   Five-year liquid      Ten-year long-term 
                   and blended-period       average price 
                       price (i)                 (i)                    +10%                      -10% 
                 =====================  ====================  ========================  ======================== 
                  2021-2025  2020-2024  2026-2035  2025-2034 
                 ==========  =========  =========  ========= 
                       2020       2019       2020       2019         2020         2019         2020         2019 
                    GBP/MWh    GBP/MWh    GBP/MWh    GBP/MWh         GBPm         GBPm         GBPm         GBPm 
===============  ==========  =========  =========  =========  ===========  ===========  ===========  =========== 
Baseload power           48         47         52         59          295          376        (293)        (376) 
===============  ==========  =========  =========  =========  ===========  ===========  ===========  =========== 
 

(i) Prices are shown in 2019 real terms.

(ii) A 10% change is deemed to represent a reasonably possible variation across the entire period covered by the liquid market and comparator curves used in the nuclear impairment test.

Whilst there is uncertainty in the future forecast commodity prices due to climate change and the impact international government intervention to reduce CO(2) emissions will have, there is no consensus on the likely effect on baseload power prices under sustainable development scenarios (Paris Agreement compliant). Nuclear is a carbon-free, firm power source and further sensitivities have not been provided to the base case and price sensitivities above as the Group does not currently believe that the prices obtained for such carbon-free output would be significantly reduced in a Paris-compliant scenario.

Centrica Home Solutions software intangibles

The VIU calculation for the Centrica Home Solutions CGU incorporates growth assumptions to generate positive cash inflows of GBP8 million in 2025, and includes a terminal value based on this final year. If the 2025 cash flow reduced by 10%, with a consequent fall in terminal value, a further impairment of the software intangibles of GBP2 million would be required.

Other impairments

Within discontinued operations GBP8 million (2019: GBPnil) of Group assets were impaired. A GBP2 million impairment was booked in relation to other joint ventures. The recoverable amounts of these assets have been calculated as GBPnil on the basis of VIU.

7. Net finance cost

 
 Financing costs mainly comprise interest on bonds and bank debt, 
  the results of hedging activities used to manage foreign exchange 
  and interest rate movements on the Group's borrowings, and notional 
  interest arising on discounting of decommissioning provisions and 
  pensions. An element of financing cost is capitalised on qualifying 
  projects. 
  Investment income predominantly includes interest received on short-term 
  investments in money market funds, bank deposits and government bonds. 
 

Continuing operations

 
                                                         2020                  2019 (restated) (i) 
                                             ============================  ============================ 
                                             Financing  Investment         Financing  Investment 
                                                 costs      income  Total      costs      income  Total 
Year ended 31 December                            GBPm        GBPm   GBPm       GBPm        GBPm   GBPm 
===========================================  =========  ==========  =====  =========  ==========  ===== 
Cost of servicing net debt: 
                                             =========  ==========  =====  =========  ==========  ===== 
  Interest income                                    -           7      7          -          13     13 
  Interest cost on bonds, bank loans 
   and overdrafts                                (206)           -  (206)      (232)           -  (232) 
  Interest cost on lease liabilities              (10)           -   (10)       (12)           -   (12) 
                                             =========  ==========  =====  =========  ==========  ===== 
                                                 (216)           7  (209)      (244)          13  (231) 
Net gains on revaluation                             -           4      4          -           -      - 
Notional interest arising from discounting        (23)           -   (23)       (33)           -   (33) 
===========================================  =========  ==========  =====  =========  ==========  ===== 
                                                 (239)          11  (228)      (277)          13  (264) 
Capitalised borrowing costs (ii)                    13           -     13         13           -     13 
===========================================  =========  ==========  =====  =========  ==========  ===== 
Financing (cost)/income                          (226)          11  (215)      (264)          13  (251) 
===========================================  =========  ==========  =====  =========  ==========  ===== 
 

(i) Comparatives have been restated to present the Direct Energy business as a discontinued operation. See note 3 for details.

(ii) Borrowing costs have been capitalised using an average rate of 4.47% (2019: 4.77%).

8. Taxation

 
 The taxation note details the different tax charges and rates, including 
  current and deferred tax arising in the Group. The current tax charge 
  is the tax payable on this year's taxable profits together with amendments 
  in respect of tax provisions made in earlier years. This tax charge 
  excludes the Group's share of taxation on the results of joint ventures 
  and associates. Deferred tax represents the tax on differences between 
  the accounting carrying values of assets and liabilities and their 
  tax bases. These differences are temporary and are expected to unwind 
  in the future. 
 

Analysis of tax charge

 
                                                  2020                                2019 (restated) (i) 
                                =========================================  ========================================= 
                                                   Exceptional                                Exceptional 
                                                         items    Results                           items    Results 
                                    Business       and certain        for      Business       and certain        for 
                                 performance   re-measurements   the year   performance   re-measurements   the year 
Year ended 31 December                  GBPm              GBPm       GBPm          GBPm              GBPm       GBPm 
------------------------------  ------------  ----------------  ---------  ------------  ----------------  --------- 
Continuing operations: 
Current tax 
UK corporation tax                      (12)                 7        (5)          (37)                37          - 
UK petroleum revenue tax                  71                 -         71            17                 -         17 
Non-UK tax                                47               (7)         40         (102)                 1      (101) 
Adjustments in respect of 
 prior years - UK                         42                 8         50            16              (34)       (18) 
Adjustments in respect of 
 prior years - non-UK                      7                 -          7             4                 -          4 
==============================  ============  ================  =========  ============  ================  ========= 
Total current tax                        155                 8        163         (102)                 4       (98) 
==============================  ============  ================  =========  ============  ================  ========= 
Deferred tax 
Origination and reversal of 
 temporary differences - UK             (38)               102         64            15                15         30 
UK petroleum revenue                    (22)                 1       (21)           (5)                22         17 
Origination and reversal of 
 temporary differences - 
 non-UK                                 (38)                77         39          (14)                57         43 
Change in UK tax rate                   (28)                 8       (20)             -                 -          - 
Adjustments in respect of 
 prior years - UK                       (52)               (9)       (61)          (34)                34          - 
Adjustments in respect of 
 prior years - non-UK                   (19)                 -       (19)           (2)                 -        (2) 
==============================  ============  ================  =========  ============  ================  ========= 
Total deferred tax                     (197)               179       (18)          (40)               128         88 
==============================  ============  ================  =========  ============  ================  ========= 
Total taxation on 
 profit/(loss) 
 from continuing operations 
 (ii)                                   (42)               187        145         (142)               132       (10) 
------------------------------  ------------  ----------------  ---------  ------------  ----------------  --------- 
Discontinued operations: 
Current tax - Non-UK                    (23)                 6       (17)          (58)              (33)       (91) 
Deferred tax - origination 
 and reversal of temporary 
 differences - Non-UK                   (10)              (66)       (76)          (18)               120        102 
==============================  ============  ================  =========  ============  ================  ========= 
Total taxation on 
 profit/(loss) 
 from discontinued operations           (33)              (60)       (93)          (76)                87         11 
==============================  ============  ================  =========  ============  ================  ========= 
Total taxation on 
 profit/(loss) 
 for the year                           (75)               127         52         (218)               219          1 
==============================  ============  ================  =========  ============  ================  ========= 
 

(i) Prior year results have been restated to remove the Direct Energy business from continuing operations, as the business has been classified as a discontinued operation. See note 3.

(ii) Total taxation on profit/(loss) excludes taxation on the Group's share of profits of joint ventures and associates.

UK tax rates

Most activities in the UK are subject to the standard rate for UK corporation tax of 19% (2019: 19%). Upstream gas and oil production activities are taxed at a rate of 30% (2019: 30%) plus a supplementary charge of 10% (2019: 10%) to give an overall rate of 40% (2019: 40%). Certain upstream assets in the UK under the petroleum revenue tax (PRT) regime have a current rate of 0% (2019: 0%).

The UK corporation tax rate was scheduled to reduce to 17% from 1 April 2020 but the Government halted the reduction, to maintain the rate at 19%. During 2020, the relevant UK deferred tax assets and liabilities included in these consolidated Group Financial Statements were rebased to 19% accordingly.

Non-UK tax rates

Norwegian upstream profits are taxed at the standard rate of 22% (2019: 22%) plus a special tax of 56% (2019: 56%) resulting in an aggregate tax rate of 78% (2019: 78%). Profits earned in the US are taxed at a Federal rate of 21% (2019: 21%) together with state taxes at various rates dependent on the state, and in Canada at a Federal rate of 15% (2019: 15%) with provincial taxes at rates dependent on the province. Taxation for other jurisdictions is calculated at the rate prevailing in those respective jurisdictions, with rates ranging from 12.5% in the Republic of Ireland to 50% in the Netherlands. The tax charges were not material in such jurisdictions.

Prior year adjustments reflect changes made to estimates or to judgements when further information becomes available.

9. Dividends

 
 Dividends represent the return of profits to shareholders and are paid 
  twice a year; in June and November. Dividends are paid as an amount 
  per ordinary share held. The Group retains part of the profits generated 
  to meet future investment plans or to fund share repurchase programmes. 
 
 
                                         2020                    2019 
                                ======================  ====================== 
                                       Pence                   Pence 
                                         per   Date of           per   Date of 
                                GBPm   share   payment  GBPm   share   payment 
==============================  ====  ======  ========  ====  ======  ======== 
                                                                        27 Jun 
Prior year final dividend (i)      -       -         -   474    8.40      2019 
                                                                        21 Nov 
Interim dividend                   -       -         -    87    1.50      2019 
==============================  ====  ======  ========  ====  ======  ======== 
                                   -       -         -   561 
==============================  ====  ======  ========  ====  ======  ======== 
 

(i) Included within the prior year final dividend are forfeited dividends of GBPnil (2019: GBP5 million) older than 12 years that were written back in accordance with Group policy.

On 2 April 2020 the Directors announced that the Board had taken the decision to cancel the 2019 final dividend payment of 3.5p per share, or GBP204 million, which was due to be paid in June 2020. The Directors do not propose the payment of an interim or final dividend for 2020.

In prior years the Company offered a scrip dividend alternative to its shareholders. GBP96 million of the GBP474 million prior year final dividend was in the form of ordinary shares to shareholders opting in to the scrip dividend alternative. The market value per share at the date of payment was 94 pence per share resulting in the issue of 102 million new shares and GBP90 million of share premium. The scrip dividend alternative is no longer offered.

The Group has sufficient distributable reserves to pay dividends to its ultimate shareholders. Distributable reserves are calculated on an individual legal entity basis and so, despite the consolidated Group Balance Sheet containing negative retained earnings, the ultimate parent company, Centrica plc, currently has adequate levels of realised profits within its retained earnings to support dividend payments. At 31 December 2020, Centrica plc's company-only distributable reserves were c.GBP1.5 billion (2019: c.GBP2.7 billion). On an annual basis, the distributable reserve levels of the Group's subsidiary undertakings are reviewed and dividends paid up to Centrica plc as appropriate to replenish its reserves.

10. Earnings per ordinary share

 
 Earnings per share (EPS) is the amount of profit or loss attributable 
  to each share. Basic EPS is the amount of profit or loss for the 
  year divided by the weighted average number of shares in issue during 
  the year. Diluted EPS includes the impact of outstanding share options. 
 

Basic earnings per ordinary share has been calculated by dividing the profit attributable to equity holders of the Company for the year of GBP41 million (2019: GBP1,023 million loss) by the weighted average number of ordinary shares in issue during the year of 5,825 million (2019: 5,758 million). The number of shares excludes 11 million ordinary shares (2019: 22 million), being the weighted average number of the Company's own shares held in the employee share trust and treasury shares purchased by the Group as part of the share repurchase programme.

The Directors believe that the presentation of adjusted basic earnings per ordinary share, being the basic earnings per ordinary share adjusted for certain re-measurements and exceptional items, assists with understanding the underlying performance of the Group, as explained in note 2.

Information presented for diluted and adjusted diluted earnings per ordinary share uses the weighted average number of shares as adjusted for 91 million (2019: 44 million) potentially dilutive ordinary shares as the denominator, unless it has the effect of increasing the profit or decreasing the loss attributable to each share.

Continuing and discontinued operations

 
                                                      2020                 2019 
                                              ====================  ================== 
                                                                                 Pence 
                                                             Pence                 per 
                                                      per ordinary            ordinary 
Year ended 31 December                         GBPm          share     GBPm      share 
============================================  =====  =============  =======  ========= 
Earnings - basic                                 41            0.7  (1,023)     (17.8) 
Net exceptional items after taxation (notes 
 2 and 6) (i)                                 1,220           21.0      862       15.0 
Certain re-measurement (gains)/losses after 
 taxation (notes 2 and 6) (i)                 (883)         (15.2)      580       10.1 
============================================  =====  =============  =======  ========= 
Earnings - adjusted basic                       378            6.5      419        7.3 
============================================  =====  =============  =======  ========= 
 
Earnings - diluted                               41            0.7  (1,023)     (17.8) 
============================================  =====  =============  =======  ========= 
 
Earnings - adjusted diluted                     378            6.4      419        7.2 
============================================  =====  =============  =======  ========= 
 

Continuing operations

 
                                                      2020                2019 
                                              ====================  ================ 
                                                                               Pence 
                                                             Pence               per 
                                                      per ordinary          ordinary 
Year ended 31 December                         GBPm          share   GBPm      share 
============================================  =====  =============  =====  ========= 
Earnings - basic                              (274)          (4.7)  (964)     (16.8) 
Net exceptional items after taxation (notes 
 2 and 6) (i)                                 1,184           20.3    868       15.1 
Certain re-measurement (gains)/losses after 
 taxation (notes 2 and 6) (i)                 (745)         (12.8)    344        6.0 
============================================  =====  =============  =====  ========= 
Earnings - adjusted basic                       165            2.8    248        4.3 
============================================  =====  =============  =====  ========= 
 
Earnings - diluted (ii)                       (274)          (4.7)  (964)     (16.8) 
============================================  =====  =============  =====  ========= 
 
Earnings - adjusted diluted                     165            2.8    248        4.3 
============================================  =====  =============  =====  ========= 
 

Discontinued operations

 
                                                      2020               2019 
                                              ====================  =============== 
                                                                              Pence 
                                                             Pence              per 
                                                      per ordinary         ordinary 
Year ended 31 December                         GBPm          share  GBPm      share 
============================================  =====  =============  ====  ========= 
Earnings - basic                                315            5.4  (59)      (1.0) 
Net exceptional items after taxation (notes 
 2 and 6)                                        36            0.7   (6)      (0.1) 
Certain re-measurement (gains)/losses after 
 taxation (notes 2 and 6)                     (138)          (2.4)   236        4.1 
============================================  =====  =============  ====  ========= 
Earnings - adjusted basic                       213            3.7   171        3.0 
============================================  =====  =============  ====  ========= 
 
Earnings - diluted                              315            5.3  (59)      (1.0) 
============================================  =====  =============  ====  ========= 
 
Earnings - adjusted diluted                     213            3.6   171        2.9 
============================================  =====  =============  ====  ========= 
 

(i) Net exceptional items after taxation and certain re-measurement (gains)/losses after taxation are adjusted to reflect the share attributable to non-controlling interests.

(ii) Potential ordinary shares are not treated as dilutive when they would decrease a loss per share.

11. Sources of finance

   (a)        Capital structure 

The Group seeks to maintain an efficient capital structure with a balance of net debt and equity as shown in the table below:

 
                        2020   2019 
31 December             GBPm   GBPm 
=====================  =====  ===== 
Net debt               2,769  3,181 
Shareholders' equity     957  1,212 
=====================  =====  ===== 
Capital                3,726  4,393 
=====================  =====  ===== 
 

Debt levels are restricted to limit the risk of financial distress and, in particular, to maintain a strong credit profile. The Group's credit standing is important for several reasons: to maintain a low cost of debt, limit collateral requirements in energy trading, hedging and decommissioning security arrangements, and to ensure the Group is an attractive counterparty to energy producers and long-term customers.

The Group monitors its current and projected capital position on a regular basis, considering a medium-term view of at least three years, and different stress case scenarios, including the impact of changes in the Group's credit ratings and significant movements in commodity prices. A number of financial ratios are monitored, including those used by the credit rating agencies.

The level of debt that can be raised by the Group is restricted by the Company's Articles of Association. Borrowings is limited to the higher of GBP10 billion and a gearing ratio of three times adjusted capital and reserves. The Group funds its long-term debt requirements through issuing bonds in the capital markets and taking bank debt. Short-term debt requirements are met primarily through commercial paper or short-term bank borrowings. The Group maintains substantial committed facilities and uses these to provide liquidity for general corporate purposes, including short-term business requirements and back-up for commercial paper.

British Gas Insurance Limited (BGIL) is required under PRA regulations to hold a minimum capital amount and has complied with this requirement in 2020 (and 2019). BGIL's capital management policy and plan is subject to review and approval by the BGIL board. Reporting processes provide relevant and timely capital information to management and the board. A medium-term capital management plan forms part of BGIL's planning and forecasting process, embedded into approved timelines, management reviews and board approvals.

   (b)        Net debt summary 
 
 Net debt predominantly includes capital market borrowings offset 
  by cash, cash posted or received as collateral, securities and certain 
  hedging financial instruments used to manage interest rate and foreign 
  exchange movements on borrowings. 
  Presented in the derivatives and current and non-current borrowings, 
  leases and interest accruals columns shown below are the assets and 
  liabilities that give rise to financing cash flows. 
 
 
                                                                    Other assets and liabilities 
                                                         =================================================== 
                                                                  Cash 
                          Current                             and cash 
                  and non-current                         equivalents,                    Current 
                      borrowings,                               net of                        and 
                           leases                                 bank   Collateral   non-current 
                     and interest                 Gross     overdrafts      posted/    securities  Sub-lease 
                         accruals  Derivatives     debt       (i) (ii)   (received)         (iii)     assets  Net debt 
                             GBPm         GBPm     GBPm           GBPm         GBPm          GBPm       GBPm      GBPm 
================  ===============  ===========  =======  =============  ===========  ============  =========  ======== 
1 January 2019 
 post-adoption 
 of IFRS 16               (5,016)          233  (4,783)          1,128          290           307          8   (3,050) 
Net cash inflow 
 from sale 
 and purchase of 
 securities                     -            -        -             50            -          (51)          -       (1) 
Cash outflow for 
 payment 
 of capital 
 element of 
 leases                       155            -      155          (155)            -             -          -         - 
Cash outflow for 
 repayment 
 of borrowings                 86            -       86           (86)            -             -          -         - 
Remaining cash 
 inflow and 
 movement in 
 cash 
 posted/received 
 under margin 
 and collateral 
 agreements                     -            -        -            104           46             -        (3)       147 
Revaluation                  (57)           11     (46)              -            -             6          -      (40) 
Financing 
 interest paid                220         (10)      210          (243)            -             -          -      (33) 
Increase in 
 interest 
 payable 
 and 
 amortisation of 
 borrowings                 (229)            -    (229)              -            -             -          -     (229) 
New lease 
 agreements and 
 re-measurement 
 of existing 
 lease 
 liabilities                 (47)            -     (47)              -            -             -          -      (47) 
Business 
 disposals and 
 asset 
 purchases                      3            -        3              -            -           (6)          -       (3) 
Exchange 
 adjustments                   90            -       90            (4)         (10)           (1)          -        75 
================  ===============  ===========  =======  =============  ===========  ============  =========  ======== 
31 December 2019          (4,795)          234  (4,561)            794          326           255          5   (3,181) 
================  ===============  ===========  =======  =============  ===========  ============  =========  ======== 
Cash inflow from 
 settlement 
 and purchase of 
 securities                     -            -        -            121            -         (121)          -         - 
Cash outflow for 
 payment 
 of capital 
 element of 
 leases                       184            -      184          (184)            -             -          -         - 
Cash outflow for 
 repayment 
 of borrowings                 63            -       63           (63)            -             -          -         - 
Remaining cash 
 inflow and 
 movement in 
 cash 
 posted/received 
 under margin 
 and collateral 
 agreements                     -            -        -            963        (101)             -        (3)       859 
Revaluation                  (79)          132       53              -            -             5          -        58 
Financing 
 interest paid                213         (20)      193          (204)            -             -          -      (11) 
Increase in 
 interest 
 payable 
 and 
 amortisation of 
 borrowings                 (218)            -    (218)              -            -             -          -     (218) 
New lease 
 agreements and 
 re-measurement 
 of existing 
 lease 
 liabilities                (239)            -    (239)              -            -             -          -     (239) 
Exchange 
 adjustments                  (6)            -      (6)           (34)            4           (1)          -      (37) 
================  ===============  ===========  =======  =============  ===========  ============  =========  ======== 
Group net debt 
 at 31 December 
 2020                     (4,877)          346  (4,531)          1,393          229           138          2   (2,769) 
================  ===============  ===========  =======  =============  ===========  ============  =========  ======== 
Less assets and 
 liabilities 
 held for sale 
 (iv)                          35            -       35          (107)        (155)           (4)          -     (231) 
================  ===============  ===========  =======  =============  ===========  ============  =========  ======== 
Net debt 
 excluding 
 disposal 
 groups held for 
 sale at 
 31 December 
 2020                     (4,842)          346  (4,496)          1,286           74           134          2   (3,000) 
================  ===============  ===========  =======  =============  ===========  ============  =========  ======== 
 

(i) Cash and cash equivalents includes GBP147 million (2019: GBP175 million) of restricted cash. This includes cash totaling GBP11 million (2019: GBP48 million) within the Spirit Energy business that is not restricted by regulation but is managed by Spirit Energy's own treasury department.

(ii) Cash and cash equivalents are net of GBP534 million bank overdrafts (2019: GBP548 million).

(iii) Securities balances include GBP84 million (2019: GBP77 million) debt instruments and GBP50 million (2019: GBP54 million) equity instruments, all measured at fair value. Assets held for sale include GBP4 million of equity instruments measured at fair value. In the prior period securities balances also included GBP124 million index-linked gilts that the Group used for short-term liquidity management purposes.

(iv) Included in the 31 December 2020 closing balance is GBP231 million, relating to Direct Energy and presented within assets and liabilities held for sale.

Collateral is posted or received to support energy trading and procurement activities. It is posted when contracts with marginable counterparties are out of the money and received when contracts are in the money. These positions reverse when contracts are settled and the collateral is returned. Collateral received or posted is included in the following lines of the Group Balance Sheet:

 
                                                 2020   2019 
31 December                                      GBPm   GBPm 
==============================================  =====  ===== 
Collateral posted/(received) included within: 
  Trade and other payables                       (68)   (35) 
  Trade and other receivables                      56    155 
  Net derivative liabilities                       86    199 
  Inventories                                       -      7 
Net collateral posted                              74    326 
==============================================  =====  ===== 
 

(c) Borrowings, leases and interest accruals summary

 
                                                             2020                           2019 
                                                 =============================  ============================= 
                              Coupon 
                                rate  Principal  Current  Non-current    Total  Current  Non-current    Total 
31 December                        %          m     GBPm         GBPm     GBPm     GBPm         GBPm     GBPm 
==========================  ========  =========  =======  ===========  =======  =======  ===========  ======= 
Bank overdrafts                                    (534)            -    (534)    (548)            -    (548) 
Bank loans (> 5 year 
 maturity)                                             -        (144)    (144)        -        (144)    (144) 
Bonds (by maturity date): 
                                                 =======  ===========  =======  =======  ===========  ======= 
  25 September 2020         Floating      US$80        -            -        -     (60)            -     (60) 
  22 February 2022             3.680     HK$450        -         (42)     (42)        -         (44)     (44) 
  10 March 2022 (i)            6.375     GBP246        -        (253)    (253)        -        (254)    (254) 
  16 October 2023 (i)          4.000     US$302        -        (233)    (233)        -        (234)    (234) 
  4 September 2026 (i)         6.400      GBP52        -         (59)     (59)        -         (57)     (57) 
  16 April 2027                5.900      US$70        -         (51)     (51)        -         (52)     (52) 
  13 March 2029 (i)            4.375     GBP552        -        (604)    (604)        -        (574)    (574) 
  5 January 2032 (ii)           Zero      EUR50        -         (65)     (65)        -         (59)     (59) 
  19 September 2033 (i)        7.000     GBP770        -        (823)    (823)        -        (790)    (790) 
  16 October 2043              5.375     US$367        -        (264)    (264)        -        (272)    (272) 
  12 September 2044            4.250     GBP550        -        (538)    (538)        -        (538)    (538) 
  25 September 2045            5.250      US$50        -         (36)     (36)        -         (37)     (37) 
  10 April 2075 (i) (iii)      5.250     GBP450        -        (472)    (472)        -        (460)    (460) 
  10 April 2076 (iv)           3.000     EUR750        -        (671)    (671)        -        (634)    (634) 
                                                 =======  ===========  =======  =======  ===========  ======= 
                                                       -      (4,111)  (4,111)     (60)      (4,005)  (4,065) 
Obligations under lease 
 arrangements                                      (171)        (334)    (505)    (166)        (337)    (503) 
Interest accruals                                   (82)            -     (82)     (83)            -     (83) 
==========================  ========  =========  =======  ===========  =======  =======  ===========  ======= 
                                                   (787)      (4,589)  (5,376)    (857)      (4,486)  (5,343) 
==========================  ========  =========  =======  ===========  =======  =======  ===========  ======= 
 

(i) Bonds or portions of bonds maturing in 2022, 2023, 2026, 2029, 2033 and 2075 have been designated in a fair value hedge relationship.

(ii) EUR50 million of zero coupon notes have an accrual yield of 4.200%, which will result in a EUR114 million repayment on maturity.

(iii) The Group has the right to repay at par on 10 April 2025 and every interest payment date thereafter.

(iv) The Group has the right to repay at par on 10 April 2021 and every interest payment date thereafter.

12. Joint ventures and associates

 
 Investments in joint ventures and associates represent businesses where 
  we exercise joint control or significant influence and generally have 
  an equity holding of up to 50%. Share of results of joint ventures 
  and associates represents the Group's share of the results of these 
  businesses. 
 
   (a)        Share of results of joint ventures and associates 

The Group's share of results of joint ventures and associates for the year ended 31 December 2020 principally arises from its interest in Nuclear - Lake Acquisitions Limited, an associate, reported in the Upstream segment.

 
                                                  2020                                       2019 
                                =========================================  ========================================= 
                                                                                                    Share 
                                                                                                       of 
                                                         Share      Share                     exceptional      Share 
                                                of exceptional         of         Share             items         of 
                                       Share             items    results            of               and    results 
                                 of business       and certain        for      business           certain        for 
                                 performance   re-measurements   the year   performance   re-measurements   the year 
Year ended 31 December                  GBPm              GBPm       GBPm          GBPm              GBPm       GBPm 
==============================  ============  ================  =========  ============  ================  ========= 
Income                                   557                 -        557           505                 -        505 
Expenses before exceptional 
 items and re-measurement of 
 certain contracts                     (501)                 -      (501)         (508)                 -      (508) 
Exceptional items and 
 re-measurement 
 of certain contracts                      -               (2)        (2)             -               (1)        (1) 
Operating profit/(loss)                   56               (2)         54           (3)               (1)        (4) 
Financing costs                          (8)                 -        (8)          (10)                 -       (10) 
Taxation on profit/(loss)               (25)                 -       (25)             1                 -          1 
Share of post-taxation results 
 of joint ventures 
 and associates                           23               (2)         21          (12)               (1)       (13) 
==============================  ============  ================  =========  ============  ================  ========= 
 
   (b)        Interests in joint ventures and associates 
 
                                           2020             2019 
                                      ===============  =============== 
                                          Investments      Investments 
                                             in joint         in joint 
                                             ventures         ventures 
                                       and associates   and associates 
                                                 GBPm             GBPm 
====================================  ===============  =============== 
1 January                                       1,306            1,661 
Additions                                          10                1 
Impairment                                      (483)            (372) 
Share of profit/(loss) for the year                21             (13) 
Share of other comprehensive income                58               29 
Dividends (i)                                    (72)              (1) 
Other movements                                     3                1 
====================================  ===============  =============== 
31 December                                       843            1,306 
====================================  ===============  =============== 
 

(i) In 2020, a non-cash GBP10 million tax credit was received in lieu of payment of a dividend.

(c) Share of joint ventures' and associates' assets and liabilities

 
                                                        2020                2019 
                                             ==========================  ======= 
                                             Associates 
                                                Nuclear  Other    Total    Total 
31 December                                        GBPm   GBPm     GBPm     GBPm 
===========================================  ==========  =====  =======  ======= 
Share of non-current assets                       4,440     17    4,457    4,425 
Share of current assets                             751      4      755      697 
===========================================  ==========  =====  =======  ======= 
                                                  5,191     21    5,212    5,122 
===========================================  ==========  =====  =======  ======= 
Share of current liabilities                      (202)    (3)    (205)    (138) 
Share of non-current liabilities                (2,720)      -  (2,720)  (2,717) 
===========================================  ==========  =====  =======  ======= 
                                                (2,922)    (3)  (2,925)  (2,855) 
===========================================  ==========  =====  =======  ======= 
Cumulative impairment                           (1,439)    (5)  (1,444)    (961) 
===========================================  ==========  =====  =======  ======= 
Interests in joint ventures and associates          830     13      843    1,306 
===========================================  ==========  =====  =======  ======= 
 
Net cash included in share of net assets            105      -      105       56 
===========================================  ==========  =====  =======  ======= 
 

13. Derivative financial instruments

 
 The Group generally uses derivative financial instruments to manage 
  the risk arising from fluctuations in the value of certain assets 
  or liabilities associated with treasury management and energy sales 
  and procurement, and for proprietary energy trading purposes. During 
  2020 the Group also used derivatives to hedge the exchange risk arising 
  on the net assets of its US dollar Direct Energy subsidiaries. Derivatives 
  are held at fair value. 
  For accounting purposes, derivatives are either classified as held 
  for trading, in which case changes in their fair value are recognised 
  in the Group Income Statement, or they are designated in hedging 
  relationships. Where derivatives are in hedging relationships, the 
  treatment of changes in their fair value depends on the nature of 
  that relationship, and whether it represents a fair value hedge, 
  a cash flow hedge, or a net investment hedge.Purpose                       Classification   Accounting treatment 
  ============================  ===============  ========================================= 
  Proprietary energy trading    Held for         Changes in fair value recognised in the 
   and treasury management.      trading          Group's business performance results 
                                 and fair         for the year. 
                                 value hedges. 
  ============================  ===============  ========================================= 
  Treasury management and       Cash flow        Effective portion of hedge initially 
   hedging of                    and             recognised in the Group Statement of 
   exchange risk on net          net investment  Other Comprehensive Income. Gains and 
   assets of US dollar           hedges.         losses are recycled to the Group Income 
   Direct Energy subsidiaries.                   Statement when the hedged item impacts 
                                                 profit or loss. Ineffective portions 
                                                 of the hedge are recognised immediately 
                                                 in the Group's business performance 
                                                 results 
                                                 for the year. 
  ============================  ===============  ========================================= 
  Energy procurement and        Held for         Changes in fair value recognised in 
   optimisation.                 trading.        certain 
                                                 re-measurements. 
  ============================  ===============  ========================================= 
 

The carrying values of derivative financial instruments by product type for accounting purposes are as follows:

 
                                                             2020                 2019 
                                                      ===================  =================== 
                                                      Assets  Liabilities  Assets  Liabilities 
31 December                                             GBPm         GBPm    GBPm         GBPm 
====================================================  ======  ===========  ======  =========== 
Derivative financial instruments - held for 
 trading under IFRS 9: 
  Energy derivatives - for procurement/optimisation      585        (445)     553      (1,245) 
  Energy derivatives - for proprietary trading           726        (667)     917        (769) 
  Interest rate derivatives                                3            -       3         (23) 
  Foreign exchange derivatives                            49         (46)     104        (104) 
Derivative financial instruments in hedge 
 accounting relationships: 
  Interest rate derivatives                              182          (1)     105          (2) 
  Foreign exchange derivatives                           204          (9)     131          (2) 
====================================================  ======  ===========  ======  =========== 
Total derivative financial instruments                 1,749      (1,168)   1,813      (2,145) 
====================================================  ======  ===========  ======  =========== 
Included within: 
  Derivative financial instruments - current           1,224        (747)   1,320      (1,854) 
  Derivative financial instruments - non-current         366        (181)     493        (291) 
  Assets and liabilities held for sale                   159        (240)       -            - 
====================================================  ======  ===========  ======  =========== 
 

Included in derivative liabilities above is GBP77 million (2019: GBP12 million) relating to virtual gas storage arrangements. These contracts give the parties rights to put and call gas volumes over their term, economically mirroring physical storage arrangements. Optimisation of virtual storage contracts under related commodity sale and purchase arrangements with the same parties has given rise to net operating cash inflows of GBP40 million during 2020 (2019: GBP21 million). These cash flows arise from the normal commodity trading activities of the Group, and are therefore operating in nature, but are separately disclosed because the timing of cash flows under the arrangements can give rise to a cash flow benefit akin to a financing arrangement.

The contracts included within energy derivatives are subject to a wide range of detailed specific terms, but comprise the following general components, analysed on a net carrying value basis:

 
                                                            2020   2019 
31 December                                                 GBPm   GBPm 
=========================================================  =====  ===== 
Short-term forward market purchases and sales of gas and 
 electricity: 
  UK and Europe                                             (26)    249 
  North America (i)                                         (81)  (165) 
Other derivative contracts including structured gas sale 
 and purchase arrangements                                   306  (628) 
=========================================================  =====  ===== 
Net total                                                    199  (544) 
=========================================================  =====  ===== 
 

(i) Derivatives held by the Direct Energy business are classified as assets and liabilities held for sale at 31 December 2020.

14. Post-retirement benefits

 
 The Group manages a number of final salary and career average defined 
  benefit pension schemes. It also has defined contribution schemes. 
  The majority of these schemes are in the UK. 
 
   (a)        Summary of main post-retirement benefit schemes 
 
                                                                                                 Number 
                                                                                                     of 
                                                                                                 active         Total 
                                                                                                members    membership 
                                                                                                  as at         as at 
                                                                                            31 December   31 December 
Name of scheme            Type of benefit            Status                  Country               2020          2020 
========================  =========================  ======================  ============  ============  ============ 
                          Defined benefit final      Closed to new members 
Centrica Engineers         salary pension             in 2006                UK                   2,416         8,429 
                          Defined benefit career     Open to service 
Pension Scheme             average pension            engineers only         UK                   2,959         5,552 
========================  =========================  ======================  ============  ============  ============ 
Centrica Pension          Defined benefit final      Closed to new members 
 Plan                      salary pension             in 2003                UK                   1,775         8,368 
========================  =========================  ======================  ============  ============  ============ 
Centrica Pension          Defined benefit final      Closed to new members 
 Scheme                    salary pension             in 2003                UK                       2        10,356 
 Defined benefit career     Closed to new members 
  average pension            in 2008                UK                                              866         4,050 
 Defined contribution 
  pension                   Open to new members     UK                                           10,318        18,504 
 =========================  ======================  =====================================  ============  ============ 
Bord Gáis 
 Energy Company 
 Defined Benefit          Defined benefit final      Closed to new members   Republic 
 Pension Scheme            salary pension             in 2014                 of Ireland            121           172 
========================  =========================  ======================  ============  ============  ============ 
Bord Gáis 
 Energy Company 
 Defined Contribution     Defined contribution                               Republic 
 Pension Plan              pension                   Open to new members      of Ireland            244           329 
========================  =========================  ======================  ============  ============  ============ 
Direct Energy Marketing 
 Limited Pension          Defined benefit final      Closed to new members 
 Plan                      salary pension             in 2004                Canada                   6           361 
========================  =========================  ======================  ============  ============  ============ 
Direct Energy Marketing                              Closed to new members 
 Limited                  Post-retirement benefits    in 2012                Canada                  10           254 
========================  =========================  ======================  ============  ============  ============ 
 

The Centrica Engineers Pension Scheme (CEPS), Centrica Pension Plan (CPP) and Centrica Pension Scheme (CPS) form the significant majority of the Group's defined benefit obligation and are referred to below as the 'Registered Pension Schemes'. The other schemes are individually, and in aggregate, immaterial.

Independent valuations

The Registered Pension Schemes are subject to independent valuations at least every three years, on the basis of which the qualified actuary certifies the rate of employer contributions, which together with the specified contributions payable by the employees and proceeds from the schemes' assets, are expected to be sufficient to fund the benefits payable under the schemes.

The latest full actuarial valuations were carried out at the following dates: the Registered Pension Schemes at 31 March 2018, the Bord Gáis Energy Company Defined Benefit Pension Scheme at 1 January 2020 and the Direct Energy Marketing Limited Pension Plan at 1 January 2018. These have been updated to 31 December 2020 for the purpose of meeting the requirements of IAS 19. Investments held in all schemes have been valued for this purpose at market value.

Governance

The Registered Pension Schemes are managed by trustee companies whose boards consist of both company-nominated and member-nominated Directors. Each scheme holds units in the Centrica Combined Common Investment Fund (CCCIF), which holds the majority of the combined assets of the Registered Pension Schemes. The board of the CCCIF is currently comprised of nine directors: three independent directors, three directors appointed by Centrica plc (including the Chairman) and one director appointed by each of the three Registered Pension Schemes.

Under the terms of the Pensions Act 2004, Centrica plc and each trustee board must agree the funding rate for its defined benefit pension scheme and a recovery plan to fund any deficit against the scheme-specific statutory funding objective. This approach was first adopted for the triennial valuations completed at 31 March 2006, and has been reflected in subsequent valuations, including the 31 March 2018 valuation.

   (b)        Risks 

The Registered Pension Schemes expose the Group to the following risks:

Asset volatility

The pension liabilities are calculated using a discount rate set with reference to AA corporate bond yields. If the growth in plan assets is lower than this, this will create an actuarial loss within other equity. The CCCIF is responsible for managing the assets of each scheme in line with the risk tolerances (which were updated in 2019) that have been set by the trustees of the schemes, and invests in a diversified portfolio of assets. The schemes are relatively young in nature (the schemes opened in 1997 on the formation of Centrica plc on demerger from BG plc (formerly British Gas plc)), and only took on past service liabilities in respect of active employees. The trustees significantly reduced their risk tolerance in 2019, increasing inflation and interest rate hedges from one third to two thirds. This has resulted in a significant reduction of return-seeking assets within the portfolio, as well as a higher weighting to assets that better manage downside risk.

Interest rate

A decrease in bond interest rates will increase the net present value of the pension liabilities. The relative immaturity of the schemes means that the duration of the liabilities is longer than average for typical UK pension schemes, resulting in a relatively higher exposure to interest rate risk. The trustees took further action to reduce this risk in 2020.

Inflation

Pensions in deferment, pensions in payment and pensions accrued under the career average schemes increase in line with the Retail Prices Index (RPI) and the Consumer Prices Index (CPI). Therefore, scheme liabilities will increase if inflation is higher than assumed, although in some cases caps are in place to limit the impact of significant movements in inflation. Furthermore, a pension increase exchange (PIE) option implemented in 2015 is available to future retirees, which gives the choice to receive a higher initial pension in return for giving up certain future increases linked to RPI, again limiting the impact of significant movements in inflation.

Longevity

The majority of the schemes' obligations are to provide benefits for the life of scheme members and their surviving spouses; therefore increases in life expectancy will result in an increase in the pension liabilities. The relative immaturity of the schemes means that there is comparatively little observable mortality data to assess the rates of mortality experienced by the schemes, and means that the schemes' liabilities will be paid over a long period of time, making it particularly difficult to predict the life expectancy of the current membership. Furthermore, pension payments are subject to inflationary increases, resulting in a higher sensitivity to changes in life expectancy.

Salary

Pension liabilities are calculated by reference to the future salaries of active members, and hence salary rises in excess of assumed increases will increase scheme liabilities. During 2011, changes were introduced to the final salary sections of CEPS and CPP such that annual increases in pensionable pay are capped to 2%, resulting in a reduction in salary risk. During 2016, a salary cap on pensionable pay for the CPS career average and CPP schemes was implemented, and in 2019 a similar change took place for CEPS. All of the 2011, 2016 and 2019 changes result in a reduction in salary risk.

Foreign exchange

Certain assets held by the CCCIF are denominated in foreign currencies, and hence their values are subject to exchange rate risk.

The CCCIF has long-term hedging policies in place to manage interest rate, inflation and foreign exchange risks.

The table below analyses the total liabilities of the Registered Pension Schemes, calculated in accordance with accounting principles, by type of liability, as at 31 December 2020.

 
Total liabilities of the Registered Pension Schemes           2020 
 31 December                                                     % 
============================================================  ==== 
Actives - final salary - capped                                 18 
Actives - final salary - uncapped and crystallised benefits      4 
Actives - career average                                         6 
Deferred pensioners                                             33 
Pensioners                                                      39 
============================================================  ==== 
                                                               100 
============================================================  ==== 
 
   (c)        Accounting assumptions 

The accounting assumptions for the Registered Pension Schemes are given below:

 
Major assumptions used for the actuarial valuation   2020  2019 
 31 December                                            %     % 
===================================================  ====  ==== 
Rate of increase in employee earnings: 
  Subject to 2% cap                                   1.6   1.6 
  Other not subject to cap                            2.2   2.1 
Rate of increase in pensions in payment               2.8   2.9 
Rate of increase in deferred pensions: 
  In line with CPI capped at 2.5%                     2.0   1.9 
  In line with RPI                                    2.8   2.9 
Discount rate                                         1.5   2.2 
===================================================  ====  ==== 
 

The assumptions relating to longevity underlying the pension liabilities at the balance sheet date have been based on a combination of standard actuarial mortality tables, scheme experience and other relevant data, and include an allowance for future improvements in mortality. The impact of COVID-19 has not been factored into the mortality assumptions, as the future impact is not yet reliably known. The longevity assumptions for members in normal health are as follows:

 
Life expectancy at age 65 for a member        2020            2019 
                                         ==============  ============== 
                                           Male  Female    Male  Female 
31 December                               Years   Years   Years   Years 
=======================================  ======  ======  ======  ====== 
Currently aged 65                          22.6    24.0    22.6    24.1 
Currently aged 45                          24.0    25.2    23.9    25.6 
=======================================  ======  ======  ======  ====== 
 

The other demographic assumptions have been set having regard to the latest trends in scheme experience and other relevant data. The assumptions are reviewed and updated as necessary as part of the periodic actuarial valuations of the pension schemes.

For the Registered Pension Schemes, marginal adjustments to the assumptions used to calculate the pension liability, or significant swings in bond yields or stock markets, can have a large impact in absolute terms on the net assets of the Group. Reasonably possible changes as at

31 December to one of the actuarial assumptions would have affected the scheme liabilities as set out below:

 
Impact of changing material assumptions                     2020                          2019 
                                                ============================  ============================ 
                                                                  Indicative                    Indicative 
                                                                      effect                        effect 
                                                     Increase/     on scheme       Increase/     on scheme 
                                                      decrease   liabilities        decrease   liabilities 
31 December                                      in assumption             %   in assumption             % 
==============================================  ==============  ============  ==============  ============ 
Rate of increase in employee earnings subject 
 to 2% cap                                               0.25%          +/-0           0.25%          +/-0 
Rate of increase in pensions in payment and 
 deferred pensions                                       0.25%          +/-4           0.25%          +/-5 
Discount rate                                            0.25%          -/+6           0.25%          -/+6 
Inflation assumption                                     0.25%          +/-5           0.25%          +/-5 
Longevity assumption                                    1 year          +/-4          1 year          +/-3 
==============================================  ==============  ============  ==============  ============ 
 

The indicative effects on scheme liabilities have been calculated by changing each assumption in isolation and assessing the impact on the liabilities. For the reasonably possible change in the inflation assumption, it has been assumed that a change to the inflation assumption would lead to corresponding changes in the assumed rates of increase in uncapped pensionable pay, pensions in payment and deferred pensions.

The remaining disclosures in this note cover all of the Group's defined benefit schemes.

(d) Amounts included in the Group Balance Sheet

 
                                                             2020     2019 
31 December                                                  GBPm     GBPm 
=======================================================  ========  ======= 
Fair value of plan assets                                  10,070    8,999 
Present value of defined benefit obligation              (10,671)  (9,162) 
=======================================================  ========  ======= 
Net liability recognised in the Group Balance Sheet         (601)    (163) 
=======================================================  ========  ======= 
Pension liability presented in the Group Balance Sheet 
 as: 
  Retirement benefit assets                                     -       56 
  Retirement benefit liabilities                            (601)    (219) 
=======================================================  ========  ======= 
 

The Trust Deed and Rules for the Registered Pension Schemes provide the Group with a right to a refund of surplus assets assuming the full settlement of scheme liabilities. No asset ceiling restrictions have been applied in the consolidated Financial Statements.

   (e)        Movements in the year 
 
                                                                 2020                   2019 
                                                         =====================  ===================== 
                                                              Pension  Pension       Pension  Pension 
                                                          liabilities   assets   liabilities   assets 
                                                                 GBPm     GBPm          GBPm     GBPm 
=======================================================  ============  =======  ============  ======= 
1 January                                                     (9,162)    8,999       (8,566)    8,487 
  Items included in the Group Income Statement: 
                                                         ============  =======  ============  ======= 
     Current service cost                                        (79)        -          (87)        - 
     Contributions by employer in respect of 
      employee salary sacrifice arrangements (i)                 (28)        -          (29)        - 
                                                         ============  =======  ============  ======= 
     Total current service cost                                 (107)        -         (116)        - 
     Past service credit (ii)                                       -        -           260        - 
     Interest (expense)/income                                  (197)      197         (242)      241 
     Termination benefit                                        (120)        -             -        - 
  Items included in the Group Statement of 
   Comprehensive Income: 
     Returns on plan assets, excluding interest 
      income                                                        -      936             -      204 
     Actuarial gain from changes to demographic 
      assumptions                                                  55        -           229        - 
     Actuarial loss from changes in financial 
      assumptions                                             (1,434)        -       (1,286)        - 
     Actuarial (loss)/gain from experience adjustments           (58)        -           388        - 
  Items included in the Group Cash Flow Statement: 
     Employer contributions                                         -      241             -      320 
     Contributions by employer in respect of 
      employee salary sacrifice arrangements                        -       28             -       29 
  Other movements: 
     Benefits paid from schemes                                   286    (286)           285    (285) 
     Other                                                        (3)        3           (3)        3 
     Transfers from provisions for other liabilities 
      and charges                                                   -        -         (111)        - 
     Transferred to held for sale                                  69     (48)             -        - 
=======================================================  ============  =======  ============  ======= 
31 December                                                  (10,671)   10,070       (9,162)    8,999 
=======================================================  ============  =======  ============  ======= 
 

(i) A salary sacrifice arrangement was introduced on 1 April 2013 for pension scheme members. The contributions paid via the salary sacrifice arrangement have been treated as employer contributions and included within the current service cost, with a corresponding reduction in salary costs.

(ii) A GBP252 million past service credit was recognised in the prior year in relation to a rule amendment during December 2019 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 retirement age, and an GBP8 million past service credit was recognised in relation to changes made to future service benefits from June 2019.

In addition to current service cost on the Group's defined benefit pension schemes, the Group also charged GBP64 million (2019: GBP75 million) to operating profit in respect of defined contribution pension schemes. This included contributions of GBP20 million (2019: GBP20 million) paid via a salary sacrifice arrangement.

(f) Pension scheme assets

The market values of plan assets were:

 
                                      2020                     2019 
                            ========================  ======================= 
                            Quoted  Unquoted   Total  Quoted  Unquoted  Total 
31 December                   GBPm      GBPm    GBPm    GBPm      GBPm   GBPm 
==========================  ======  ========  ======  ======  ========  ===== 
Equities                        19       396     415     188       346    534 
Corporate bonds              2,649         -   2,649   2,646         -  2,646 
High-yield debt              2,069     1,286   3,355   1,015     1,288  2,303 
Liability matching assets    2,192     1,069   3,261   1,430     1,075  2,505 
Property                         -       352     352       -       316    316 
Cash pending investment         38         -      38     695         -    695 
==========================  ======  ========  ======  ======  ========  ===== 
                             6,967     3,103  10,070   5,974     3,025  8,999 
==========================  ======  ========  ======  ======  ========  ===== 
 

Unquoted assets are valued by the fund managers with reference to the expected cash flows associated with the assets. These valuations are reviewed annually as part of the CCCIF audit. Included within equities are GBPnil of ordinary shares of Centrica plc (2019: GBPnil) via pooled funds that include a benchmark allocation to UK equities. Included within corporate bonds are GBPnil (2019: GBPnil) of bonds issued by Centrica plc, albeit minor exposure may be held within pooled funds over which the CCCIF has no ability to direct investment decisions. Apart from the investment in the Scottish Limited Partnerships which form part of the asset-backed contribution arrangements described in section (g) of this note, no direct investments are made in securities issued by Centrica plc or any of its subsidiaries or property leased to or owned by Centrica plc or any of its subsidiaries.

Included within the Group Balance Sheet within non-current securities are GBP108 million (2019: GBP103 million) of investments, held in trust on behalf of the Group, as security in respect of the Centrica Unfunded Pension Scheme. Of the pension scheme liabilities above, GBP66 million (2019: GBP62 million) relate to this scheme.

Estimation uncertainty (Asset valuation)

Within the plan asset portfolio, the proportion of unquoted assets remains broadly unchanged from last year. Within these assets, private equity and property have always exhibited the most valuation uncertainty, but they remain under the 10% of the portfolio at 31 December 2020. A 10% reduction in the value of private equity and property assets would result in a GBP75 million reduction in the fair value of plan assets. Given the impact of COVID-19 versus more normal market conditions, there is potentially a greater level of uncertainty around these valuations. These asset values have been updated based on the latest asset manager views and other benchmarks where relevant, but no further adjustments have been deemed necessary.

(g) Pension scheme contributions

The Group estimates that it will pay GBP54 million of ordinary employer contributions during 2021 for its defined benefit schemes, at an average rate of 19% of pensionable pay, together with GBP27 million of contributions paid via a salary sacrifice arrangement. At 31 March 2018 (the date of the latest full agreed actuarial valuations) the weighted average duration of the liabilities of the Registered Pension Schemes was 22 years.

For the Registered Pension Schemes the latest actuarial valuation agreed with the Pension Trustees was as at 31 March 2018. The technical provisions deficit (funding basis) at that time was GBP1,402 million. The Group committed to additional annual cash contributions to fund this pension deficit. The overall deficit contributions, including the previously disclosed asset-backed contribution arrangements, totalled GBP235 million in 2019 (including GBP12 million of pension strain payments), GBP175 million in 2020 and will amount to GBP175 million per annum from 2021 to 2025, with a balancing payment of GBP93 million in 2026. As part of this agreement, a deferral arrangement was also agreed for pension strain liabilities resulting from redundancies made between 1 July 2019 and 30 June 2021, up to a limit of GBP240 million. A security package over the Group's equity shareholding in the Direct Energy business, enforceable in the unlikely event the Group was unable to meet its obligations, was also provided and amounted to GBP1,235 million.

In January 2021, as part of the Direct Energy disposal, this security package was released by the Pension Trustees. In exchange, the Group provided replacement security of GBP745 million of letters of credit and GBP250 million cash in escrow. The pension strain liability deferral arrangement was cancelled, resulting in a payment of GBP115 million to the Schemes in January 2021, with further amounts expected later in the year as other redundancies are finalised.

On a pure roll-forward basis, from 31 March 2018, using the same methodology and consequent assumptions, the technical provisions deficit (funding basis) would be c.GBP1.9 billion at the reporting date. Note that the next triennial review is scheduled for 31 March 2021, and the valuation methodology and assumptions may differ from those previously used.

15. Acquisitions, disposals and disposal groups classified as held for sale

 
 This section details acquisitions and disposals made by the Group. 
 

(a) Business combinations and asset acquisitions

On 16 September 2020, the Group acquired certain customers and assets from Robin Hood Energy Limited for headline consideration and initial cash payment of GBP8 million, with further amounts receivable or payable based on final working capital balances and the number of customers who transition to the Group. The transaction was accounted for as an asset acquisition and gave rise to the recognition of an intangible asset in respect of customer relationships valued at GBP9 million, trade receivable balances of GBP16 million and customer credit balances and other financial liabilities of GBP8 million. The assets acquired form part of the British Gas segment.

No material measurement period adjustments have been made to acquisitions completed in prior periods.

(b) Disposals

On 23 December 2019 the Group agreed to sell its 382MW King's Lynn combined cycle gas turbine power station to RWE Generation. The disposal group was classified as held for sale as at 31 December 2019. The transaction completed on 12 February 2020, resulting in the receipt of consideration of GBP102 million, after adjustments for final working capital balances and after transaction costs. Prior to disposal the results of the disposed business were presented in the Centrica Business Solutions segment.

In March 2020 the Group announced the sale of its Danish gas and oil fields to INEOS and this completed on 19 November 2020. The Group received initial cash consideration of GBP25 million, and is required to make a contingent payment to the purchaser of GBP73 million in the event that the development of the fields does not progress. This contingent payment has been provided for and is included in consideration in the table below. The transaction resulted in a loss on disposal of GBP12 million after recycling of the foreign currency translation balance. Additional contingent consideration valued at GBP47 million could be due from INEOS based on the future development of the fields. No amount has been recognised in respect of this due to the level of uncertainty over any amount to be received. Immediately before the disposal, the Group settled an existing capital creditor by making a cash payment of GBP89 million. This has been included in cash flows from sales of businesses in the Group Cash Flow Statement. Prior to disposal the results of the disposed business were presented in the Upstream segment.

Neither disposal group is deemed to be a discontinued operation as they did not represent a separate major line of business or geographical area of operation that was material to the Group's results.

 
                                                                     King's   Danish 
                                                                 Lynn power   fields 
                                                                    station      (i) 
                                                                       GBPm     GBPm 
==============================================================  ===========  ======= 
Non-current assets                                                      111        7 
Current assets                                                            2        5 
Current liabilities                                                     (4)      (6) 
Non-current liabilities                                                 (7)     (54) 
==============================================================  ===========  ======= 
Net assets/(liabilities) disposed of                                    102     (48) 
==============================================================  ===========  ======= 
Recycling of foreign currency translation reserve on disposal             -     (12) 
Consideration received/(paid)                                           102     (48) 
==============================================================  ===========  ======= 
Loss on disposal before and after taxation                                -     (12) 
==============================================================  ===========  ======= 
 

(i) In June 2020 the Danish fields were reported as a disposal group and classified as held for sale. Immediately prior to classification as held for sale an impairment reversal of GBP8 million was recognised within Exceptional operating costs, arising from the re-measurement of the disposal group to fair value less costs of disposal. The loss recognised on disposal arises primarily due to the recycling of the foreign currency translation reserve relating to the business.

Additionally, within the Upstream segment the disposal of the Group's interest in a North Sea gas and oil field for cash consideration of GBP5 million gave rise to a profit on disposal of GBP2 million.

All other disposals undertaken by the Group were immaterial, both individually and in aggregate.

(c) Discontinued operations and assets and liabilities of disposal groups held for sale

On 24 July 2020 the Group announced that it had agreed to sell its North American energy supply, services and trading business, Direct Energy, to NRG Energy Inc, for $3.6 billion in cash on a debt free, cash free basis. The transaction received all necessary approvals prior to 31 December 2020 and completed on 5 January 2021.

The assets and liabilities of the disposal group have been classified as held for sale and are presented separately on the face of the Group Balance Sheet with effect from 24 July 2020. This is the date at which the disposal group was available for immediate sale, subject only to terms that are customary for sales of such assets, and from which the sale was considered highly probable.

Details of the assets and liabilities of the disposal group at 31 December 2020 are shown below.

 
                                                              Direct 
                                                              Energy 
                                                                GBPm 
===========================================================  ======= 
Non-current assets 
Property, plant and equipment                                     82 
Other intangible assets                                          227 
Goodwill                                                       1,487 
Deferred tax assets                                              341 
Derivative financial instruments                                  92 
Other non-current financial assets                                14 
===========================================================  ======= 
                                                               2,243 
===========================================================  ======= 
Current assets 
Trade and other receivables, and contract-related assets       1,536 
Inventories                                                       80 
Derivative financial instruments                                  67 
Current tax assets                                                78 
Cash and cash equivalents                                        107 
===========================================================  ======= 
                                                               1,868 
===========================================================  ======= 
Assets of disposal groups classified as held for sale          4,111 
===========================================================  ======= 
Current liabilities 
Derivative financial instruments                               (180) 
Trade and other payables, and contract-related liabilities   (1,231) 
Current tax liabilities                                         (21) 
Provisions for other liabilities and charges                    (23) 
Lease liabilities                                               (12) 
===========================================================  ======= 
                                                             (1,467) 
===========================================================  ======= 
Non-current liabilities 
Deferred tax liabilities                                       (402) 
Derivative financial instruments                                (60) 
Provisions for other liabilities and charges                    (13) 
Retirement benefit obligations                                  (21) 
Lease liabilities                                               (23) 
===========================================================  ======= 
                                                               (519) 
===========================================================  ======= 
Liabilities of disposal groups classified as held for sale   (1,986) 
===========================================================  ======= 
Net assets of disposal groups classified as held for sale      2,125 
===========================================================  ======= 
 

Included within the Group's foreign currency translation and cash flow hedging reserves are GBP61 million and GBP5 million of credits respectively in respect of the disposal group. These amounts have previously been recognised in the Group Statement of Comprehensive Income and will be recycled to the Group Income Statement on disposal of the Direct Energy business. In addition, the Group's actuarial gains and losses reserve includes accumulated losses of GBP30 million relating to the disposal group.

Because the disposal group represents a separate major line of business and geographical operations, its results have been presented as discontinued operations in the Group Income Statement, Group Statement of Other Comprehensive Income and Group Cash Flow Statement.

The results of the Direct Energy business for 2020 and 2019 are as follows:

 
                                                  2020                                       2019 
                                =========================================  ========================================= 
                                                   Exceptional                                Exceptional 
                                                         items    Results                           items    Results 
                                    Business       and certain        for      Business       and certain        for 
                                 performance   re-measurements   the year   performance   re-measurements   the year 
Year ended 31 December                  GBPm              GBPm       GBPm          GBPm              GBPm       GBPm 
==============================  ============  ================  =========  ============  ================  ========= 
Revenue                                9,483             (912)      8,571        10,867           (1,187)      9,680 
Cost of sales                        (8,621)             1,495    (7,126)       (9,849)             2,412    (7,437) 
Re-measurement and settlement 
 of energy contracts                       -             (399)      (399)             -           (1,562)    (1,562) 
==============================  ============  ================  =========  ============  ================  ========= 
Gross profit/(loss)                      862               184      1,046         1,018             (337)        681 
Operating costs                        (610)              (22)      (632)         (767)                20      (747) 
==============================  ============  ================  =========  ============  ================  ========= 
Operating profit/(loss)                  252               162        414           251             (317)       (66) 
Finance costs                            (6)                 -        (6)           (4)                 -        (4) 
==============================  ============  ================  =========  ============  ================  ========= 
Profit/(loss) before taxation            246               162        408           247             (317)       (70) 
Taxation on profit/(loss) 
 (i)                                    (33)              (60)       (93)          (76)                87         11 
==============================  ============  ================  =========  ============  ================  ========= 
Profit/(loss) from 
 discontinued 
 operations, net of tax                  213               102        315           171             (230)       (59) 
==============================  ============  ================  =========  ============  ================  ========= 
 

(i) During 2020 a historic Canadian exploration and production deferred tax asset was written off. The associated charge of GBP20 million is included as an exceptional item within discontinued operations. See note 6 for further details.

16. Trade and other receivables, and contract-related assets

 
 Trade and other receivables include accrued income, and are amounts 
  owed by our customers for goods we have delivered or services we have 
  provided. These balances are valued net of provisions for bad debt. 
  Other receivables include payments made in advance to our suppliers. 
  Contract-related assets are balances arising as a result of the Group's 
  contracts with customers in the scope of IFRS 15. 
 
 
                                                            2020                  2019 
                                                    ====================  ==================== 
                                                    Current  Non-current  Current  Non-current 
31 December                                            GBPm         GBPm     GBPm         GBPm 
==================================================  =======  ===========  =======  =========== 
Financial assets: 
  Trade receivables                                   1,379            -    2,138            2 
  Unbilled downstream energy income                     532            -    1,342            - 
  Other accrued energy income                           791            -    1,003            - 
  Other accrued income                                  114            -      131            - 
  Cash collateral posted (note 11)                       56            -      155            - 
  Other receivables (including loans and contract 
   assets)                                              219           31      301           38 
==================================================  =======  ===========  =======  =========== 
                                                      3,091           31    5,070           40 
Less: provision for credit losses                     (591)            -    (589)            - 
==================================================  =======  ===========  =======  =========== 
                                                      2,500           31    4,481           40 
==================================================  =======  ===========  =======  =========== 
Non-financial assets: prepayments, other 
 receivables and costs to obtain or fulfill 
 a contract 
 with a customer                                        301          114      358          114 
==================================================  =======  ===========  =======  =========== 
                                                      2,801          145    4,839          154 
==================================================  =======  ===========  =======  =========== 
 

The amounts above include gross amounts receivable arising from the Group's IFRS 15 contracts with customers of GBP1,302 million (2019: GBP2,019 million). Additionally, accrued income of GBP624 million (2019: GBP1,481 million) arising under IFRS 15 contracts is included.

Trade and other receivables include financial assets representing the contractual right to receive cash or other financial assets from residential customers, business customers and treasury, trading and energy procurement counterparties as follows:

 
                                                     2020                  2019 
                                             ====================  ==================== 
                                             Current  Non-current  Current  Non-current 
31 December                                     GBPm         GBPm     GBPm         GBPm 
===========================================  =======  ===========  =======  =========== 
Financial assets by class: 
  Residential customers                        1,249            -    1,722           12 
  Business customers                             930           25    2,104           26 
  Treasury, trading and energy procurement 
   counterparties                                912            6    1,244            2 
===========================================  =======  ===========  =======  =========== 
                                               3,091           31    5,070           40 
Less: provision for credit losses              (591)            -    (589)            - 
===========================================  =======  ===========  =======  =========== 
                                               2,500           31    4,481           40 
===========================================  =======  ===========  =======  =========== 
 

Credit losses and provisions for Trade and other receivables

Receivables from residential and business customers are generally considered to be credit impaired when the payment is past the contractual due date. The Group applies different definitions of default for different groups of customers, ranging from 60 days past the due date to six to twelve months from the issuance of a final bill. Receivables are generally written off only once a period of time has elapsed since the final bill. Contractual due dates range from falling due upon receipt to falling due in 30 days from receipt.

The table below shows credit impaired balances in gross receivables (those that are past due) and those that are not yet due and therefore not considered to be credit impaired. The disclosure includes trade and other receivables in the Direct Energy business which are presented as assets held for sale on the face of the Group Balance Sheet.

 
Gross trade and other receivables (including those classified 
 as assets held for sale)                                                                   2020   2019 
 31 December                                                                                GBPm   GBPm 
=========================================================================================  =====  ===== 
Balances that are not past due 
Included in trade and other receivables                                                    2,029  3,718 
Included in assets held for sale                                                           1,276      - 
=========================================================================================  =====  ===== 
                                                                                           3,305  3,718 
=========================================================================================  =====  ===== 
Balances that are past due 
Included in trade and other receivables                                                    1,062  1,352 
Included in assets held for sale                                                             238      - 
=========================================================================================  =====  ===== 
                                                                                           1,300  1,352 
=========================================================================================  =====  ===== 
Total gross financial assets within trade and other receivables and assets held for sale   4,605  5,070 
=========================================================================================  =====  ===== 
Included in: 
=========================================================================================  =====  ===== 
  Trade and other receivables                                                              3,091  5,070 
=========================================================================================  =====  ===== 
  Assets held for sale                                                                     1,514      - 
=========================================================================================  =====  ===== 
 

The IFRS 9 impairment model is applicable to the Group's financial assets including trade receivables, contract assets and other financial assets. As the majority of the relevant balances are trade receivables and contract assets to which the simplified model applies, this disclosure focuses on these balances.

The provision for credit losses for trade receivables and contract assets is based on an expected credit loss model that calculates the expected loss applicable to the receivable balance over its lifetime. Expected credit losses on receivables due from treasury, trading and energy procurement counterparties are not significant. For residential and business customers default rates are calculated initially by operating segment considering historical loss experience and applied to trade receivables within a provision matrix. The matrix approach allows application of different default rates to different groups of customers with similar characteristics. These groups are determined by a number of factors including; the nature of the customer, the payment method selected and where relevant, the sector in which they operate. The characteristics used to determine the groupings of receivables are the factors that have the greatest impact on the likelihood of default. The rate of default increases once the balance is 30 days past due.

Concentration of credit risk in Trade and other receivables

Treasury, trading and energy procurement counterparty receivables are typically with customers with external, published credit ratings. Such receivables have typically much lower credit risk than downstream counterparties, and that risk is assessed primarily by reference to the credit ratings rather than to the ageing of the relevant balance.

The majority of the Group's credit exposure arises in the British Gas and Centrica Business Solutions segments and relates to residential and business energy customers. The credit risk associated with these customers is assessed as described above, using a combination of the age of the receivable in question, internal ratings based on a customer's payment history, and external data from credit rating agencies. The disclosures below reflect the information that is reported internally for credit risk management purposes in these segments.

British Gas residential energy credit risk

Of the Group total of GBP1,379 million billed trade receivables, the British Gas reporting segment contributes GBP801 million. As described above, credit risk is concentrated in receivables from residential energy customers who pay in arrears. Gross receivables from these customers amount to GBP562 million and are analysed below.

 
Trade receivables due from 
 British Gas residential 
 energy customers as at 31 
 December (i)                                     2020                           2019 
                                      =============================  ============================= 
                                       < 30  30-90                    < 30  30-90 
Days beyond invoice date               days   days  >90 days  Total   days   days  >90 days  Total 
 (ii)                                  GBPm   GBPm      GBPm   GBPm   GBPm   GBPm      GBPm   GBPm 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Risk profile 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Direct debits (iii) 
  Gross receivables                      28     20        34     82     37     19        38     94 
  Provision                               -      -       (2)    (2)      -      -       (1)    (1) 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
  Net                                    28     20        32     80     37     19        37     93 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Payment on receipt of bill 
 (iii) 
  Gross receivables                      76     21       222    319     95     19       171    285 
  Provision                             (2)    (3)     (106)  (111)    (3)    (3)      (65)   (71) 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
  Net                                    74     18       116    208     92     16       106    214 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Final bills (iv) 
  Gross receivables                      11     10       140    161      9     10       139    158 
  Provision                             (2)    (5)     (114)  (121)    (2)    (5)     (105)  (112) 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
  Net                                     9      5        26     40      7      5        34     46 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Total net British Gas residential 
 energy customers trade receivables     111     43       174    328    136     40       177    353 
====================================  =====  =====  ========  =====  =====  =====  ========  ===== 
 

(i) The receivables information presented in this table relates to downstream customers who pay energy bills using the methods presented. It excludes low residual credit risk amounts, such as balances in the process of recovery through pay-as-you-go energy (PAYGE) arrangements and amounts receivable from PAYGE energy vendors. Gross amounts in the process of recovery through PAYGE arrangements at 31 December 2020 are GBP168 million (2019: GBP195 million), against which a provision of GBP126 million is held (2019: GBP139 million).

(ii) This ageing analysis is presented relative to invoicing date, and presents receivables according to the oldest invoice outstanding with the customer. There are a range of payment terms extended to residential energy customers. Amounts paid on receipt of a bill (PORB), which are settled using bank transfers, cash or cheques are typically due within 14 days of invoicing. Direct debit customers typically pay in equal installments over a twelve-month period.

(iii) Receivables settled by direct debit are deemed to present a lower credit risk than PORB amounts. This is reflected in the relative level of provision held for these types of receivables.

(iv) Final bill customers are those who are no longer customers of the Group and have switched energy supplier. These balances are deemed to have the highest credit risk.

Unbilled downstream energy income at 31 December 2020 includes gross balances of GBP324 million in respect of British Gas residential energy customers (2019: GBP342 million), against which a provision of GBP17 million is held (2019: GBP7 million).

Centrica Business Solutions energy credit risk

Of the Group total of GBP1,379 million billed trade receivables, the Centrica Business Solutions reporting segment contributes GBP451 million. As described above, credit risk is concentrated in receivables from business energy customers who pay in arrears. Gross receivables from these customers amount to GBP375 million and are analysed below.

 
Trade receivables due from 
 Centrica Business Solutions 
 business energy customers 
 as at 31 December                            2020                           2019 
                                  =============================  ============================= 
                                   < 30  30-90                    < 30  30-90 
Days beyond invoice date           days   days  >90 days  Total   days   days  >90 days  Total 
 (i)                               GBPm   GBPm      GBPm   GBPm   GBPm   GBPm      GBPm   GBPm 
================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Risk profile 
================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Commercial and industrial 
 (ii) 
  Gross receivables                  18     35        76    129     27     16       124    167 
  Provision                           -      -      (27)   (27)      -      -      (42)   (42) 
================================  =====  =====  ========  =====  =====  =====  ========  ===== 
  Net                                18     35        49    102     27     16        82    125 
================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Small and medium-sized entities 
 (SME) 
  Gross receivables                  36     19       191    246     56     21       182    259 
  Provision                           -    (1)     (132)  (133)    (1)    (3)     (106)  (110) 
================================  =====  =====  ========  =====  =====  =====  ========  ===== 
  Net                                36     18        59    113     55     18        76    149 
================================  =====  =====  ========  =====  =====  =====  ========  ===== 
Total net Centrica Business 
 Solutions business energy 
 customers trade receivables         54     53       108    215     82     34       158    274 
================================  =====  =====  ========  =====  =====  =====  ========  ===== 
 

(i) This ageing analysis is presented relative to invoicing date, and presents receivables according to the oldest invoice outstanding with the customer. There are a range of payment terms extended to business energy customers. Average credit terms for SME customers are 10 working days. Credit terms for Commercial and Industrial customers are bespoke and are set based on the commercial agreement with each customer.

(ii) This category includes low credit risk receivables, including those from public sector and customers with high turnover (greater than GBP100 million).

Unbilled downstream energy income at 31 December 2020 includes gross balances of GBP167 million in respect of Centrica Business Solutions business energy customers (2019: GBP216 million), against which a provision of GBP8 million is held (2019: GBP7 million).

Credit loss charge for trade and other receivables

The impairment charge in trade receivables is stated net of credits for the release of specific provisions made in previous years, which are no longer required. These relate primarily to residential customers in the UK. Movements in the provision for credit losses by class are as follows:

 
                                         2020                                             2019 
                    ===============================================  =============================================== 
                                                   Treasury,                                        Treasury, 
                                                     trading                                          trading 
                                                  and energy                                       and energy 
                    Residential    Business      procurement         Residential    Business      procurement 
                      customers   customers   counterparties  Total    customers   customers   counterparties  Total 
                           GBPm        GBPm             GBPm   GBPm         GBPm        GBPm             GBPm   GBPm 
==================  ===========  ==========  ===============  =====  ===========  ==========  ===============  ===== 
1 January                 (387)       (198)              (4)  (589)        (343)       (222)              (4)  (569) 
Increase in 
 impairment of 
 trade receivables 
 (predominantly 
 related to credit 
 impaired trade 
 receivables) (i) 
 (ii) (iii) (iv)          (174)       (126)                -  (300)        (145)        (58)                -  (203) 
Receivables 
 written off 
 (v)                        129          87                -    216          101          82                -    183 
==================  ===========  ==========  ===============  =====  ===========  ==========  ===============  ===== 
31 December (vi)          (432)       (237)              (4)  (673)        (387)       (198)              (4)  (589) 
==================  ===========  ==========  ===============  =====  ===========  ==========  ===============  ===== 
 

(i) GBP90m of this impairment relates to discontinued operations (2019: 85m).

(ii) Includes GBP269 million (2019: GBP190 million) of credit losses related to trade receivables resulting from contracts in the scope of IFRS 15.

(iii) All loss allowances reflect the lifetime expected credit losses on trade receivables and contract assets.

(iv) Excludes recovery of previously written-off receivables of GBP15 million (2019: GBP6 million). Due to the large number of individual receivables and the matrix approach employed, any reduction in provision is reflected in a reduced charge for the relevant period, rather than in separately identifiable reversals of previous provisions.

(v) Materially all write-offs relate to trade receivables where enforcement activity is ongoing.

(vi) Included in the 31 December 2020 closing balance is GBP82m, relating to Direct Energy and within assets held for sale.

 
                                                                2020   2019 
Year ended 31 December                                          GBPm   GBPm 
=============================================================  =====  ===== 
Increase in impairment provision for trade receivables 
 (per above)                                                   (300)  (203) 
Less discontinued operations                                      90     85 
Less recovery of previously written-off receivables               15      6 
=============================================================  =====  ===== 
Credit losses on financial assets from continuing operations 
 (per Group Income Statement)                                  (195)  (112) 
=============================================================  =====  ===== 
 

Enforcement activity continues in respect of balances that have been written off unless there are specific known circumstances (such as bankruptcy) that render further action futile. COVID-19 restrictions caused a hiatus in enforcement activity during the second and third quarters of 2020.

Sensitivity to changes in assumptions

Typically, the most significant assumption included within the expected credit loss provisioning model that gives rise to estimation uncertainty is that future performance will be reflective of past performance and that there will be no significant change in the payment profile or recovery rates within each identified group of receivables. To address this risk, the Group reviews and updates default rates, by group, on a regular basis to ensure they incorporate the most up to date assumptions along with forward-looking information where available and relevant. The Group also considers regulatory changes and customer segment specific factors that may have an impact, now or in the future, on the recoverability of the balance.

The specific consideration of forward-looking information in the impairment model does not usually give rise to significant changes in the levels of credit losses. However, the impacts of the global COVID-19 pandemic and associated government responses in geographies in which the Group operates have caused a significant deterioration in economic outlook. This has increased the level of estimation uncertainty inherent in determining credit loss provisions for the Group's trade receivables.

Where customers experience difficulties in settling balances, the increased ageing of these amounts results in an increase in provisions held in respect of them under the provision matrix approach employed. The Group has also considered changes in customer payment patterns, such as direct debit cancellations and, in the case of business counterparties, the specific circumstances of the customers and the economic impacts of COVID-19 on the sectors in which they operate.

The Group has considered macroeconomic forecasts in determining the level of provisions for credit losses. Government support schemes currently in place for the benefit of customers are expected to mitigate, to some degree, the near-term impacts of any forecast economic decline on billed financial assets recognised at 31 December 2020. However, unbilled energy income is more susceptible to credit risk from such forward-looking factors due to the length of time between the balance sheet date and collection of the amounts in cash.

During 2020 the Group recognised impairment charges of GBP195 million (2019: GBP112 million) in respect of financial assets, representing 1.6% of Group revenue (2019: 0.9%) and 1.3% of Group revenue from business performance (2019: 0.7%). As described above, the majority of the Group's credit exposure arises in respect of downstream energy receivables in British Gas and Centrica Business Services. Credit losses in respect of these assets amounted to GBP179 million (2019: GBP105 million). This represents 2.2% (2019: 1.2%) of total UK downstream energy supply revenue from these segments of GBP8,239 million (2019: GBP8,671 million). Further details of segmental revenue are provided in note 5. This increase in credit loss charges reflects the increase in losses incurred by the Group as a result of the COVID-19 pandemic, and losses expected in the future as a result of a generally worsening macroeconomic outlook.

Due to the different level of risks presented by billed and unbilled receivables, these asset groups are considered separately in the analysis below.

Billed trade receivables

 
                                                                                                          31 December 
                                                                                             31 December         2019 
                                                                                                    2020         GBPm 
                                                                                                    GBPm         (ii) 
===========================================================================================  ===========  =========== 
Gross billed receivables                                                                           1,379        1,395 
Provision                                                                                          (566)        (502) 
Net balance                                                                                          813          893 
===========================================================================================  ===========  =========== 
                                                                                             31 December  31 December 
                                                                                                    2020         2019 
                                                                                                       %            % 
===========================================================================================  ===========  =========== 
Provision coverage                                                                                    41           36 
===========================================================================================  ===========  =========== 
Sensitivity                                                                                         GBPm 
===========================================================================================  ===========  =========== 
Impact on billed receivables/ operating profit from 1 percentage point (increase)/decrease 
 in provision coverage (i)                                                                       (14)/14 
===========================================================================================  ===========  =========== 
 

(i) Credit risk in the Group is impacted by a large number of interacting factors.

(ii) Figures as at 31 December 2019 exclude the Direct Energy business, which is classified as a disposal group held for sale at 31 December 2020, therefore providing a meaningful comparison.

Cash collection relative to billing has remained generally strong throughout the pandemic to date. While any delays in payment and changes to payment methods by customers in the Group's downstream operations have driven some increase in provisions in the relevant segments, credit risk increases arising from macroeconomic conditions are expected to be mitigated by government support schemes in place for the benefit of customers. The average cash collection cycle of the Group means that significant amounts are expected to be collected before the mitigation offered by such schemes ends. However, as part of management's assessment of the adequacy of the bad debt provision, a high-level increase of GBP30 million (for both billed and unbilled debt) was booked in addition to the initial matrix model output, which also gave rise to an increase. This was deemed to reflect the possible increase in bad debt as a result of an increase in forecast unemployment (using the Office for Budget Responsibility's unemployment forecast peaking at 8% by mid-2021). It is highly uncertain when unemployment might peak and at what rate, how much debt recorded as at 31 December 2020 remains outstanding at that point, and how unemployment might ultimately reduce the collection of such debt. The table above and the unbilled section below provides details of the sensitivity of moving the bad provision by a further 1%.

The Group's services, upstream and trading operations are less susceptible to credit risk. No significant deterioration of credit risk has been experienced or is expected in the relevant segments in respect of billed trade receivables recognised at 31 December 2020, taking into account cash collection cycles in those areas of the Group and credit rating information.

Unbilled downstream energy income

The table below shows the impact of the worsening economic conditions and outlook on unbilled downstream energy income for the Group as a whole.

 
                                                                                                           31 December 
                                                                                              31 December         2019 
                                                                                                     2020         GBPm 
                                                                                                     GBPm         (ii) 
============================================================================================  ===========  =========== 
Gross unbilled receivables                                                                            532          606 
Provision                                                                                            (25)         (13) 
Net balance                                                                                           507          593 
============================================================================================  ===========  =========== 
                                                                                              31 December  31 December 
                                                                                                     2020         2019 
                                                                                                        %            % 
============================================================================================  ===========  =========== 
Provision coverage                                                                                      5            2 
============================================================================================  ===========  =========== 
Sensitivity                                                                                          GBPm 
============================================================================================  ===========  =========== 
Impact on unbilled receivables/ operating profit from 1 percentage point (increase)/decrease 
 in provision coverage ((i)                                                                         (5)/5 
============================================================================================  ===========  =========== 
 

(i) Credit risk in the Group is impacted by a large number of interacting factors.

(ii) Figures as at 31 December 2019 exclude the Direct Energy business, which has been classified as a disposal group held for sale at 31 December 2020, therefore providing a meaningful comparison.

Unbilled downstream energy income is typically provided at a significantly lower rate than billed debt. This is because a large proportion of this debt once billed will be subject to the very short cash collection cycles of the Group's downstream energy supply businesses. However, negative forward-looking macroeconomic information, coupled with the expected cessation of government support schemes for customers is reflected in a significantly increased rate of provision for unbilled downstream energy income when compared to the prior year.

Assets held for sale

The Direct Energy business has been classified as a disposal group held for sale. Assets held for sale on the Group Balance Sheet includes gross billed trade receivables of GBP712 million, against which a provision of GBP82 million was held, reflecting a provision coverage of 12%. In 2019 the Direct Energy business held trade receivables of GBP743 million against which a provision of GBP74 million was held, reflecting a provision coverage of 10%.

Assets held for sale also includes gross unbilled downstream energy income of GBP635 million. In 2019 the Direct Energy business held unbilled downstream energy income of GBP736 million.

North America trade and other receivables are typically subject to much lower credit risk than similar UK assets. This is reflected in the lower provision rates in the Direct Energy segment. In determining required provisions for expected credit losses for receivables at 31 December 2020, the methodology used by management has been updated to reflect current and forecast macroeconomic conditions, and no further provisions were deemed necessary. Trade and other receivables classified as held for sale were disposed of on completion of the sale of Direct Energy to NRG on 5 January 2021.

17. Commitments and contingencies

   (a)        Commitments 
 
 Commitments are not held on the Group's Balance Sheet as these are 
  executory arrangements, and relate to amounts that we are contractually 
  required to pay in the future as long as the other party meets its 
  contractual obligations. 
 

The Group's commitments in relation to commodity purchase contracts disclosed below are stated net of amounts receivable under commodity sales contracts where there is a right of offset with the counterparty, and are based on the expected minimum quantities of gas and other commodities that the Group is contracted to buy at estimated future prices.

The Group's 20-year agreement with Cheniere to purchase 89bcf per annum of LNG volumes for export from the Sabine Pass liquefaction plant in the US commits the Group to capacity payments of GBP3.7 billion (included in 'LNG capacity' below) between 2021 and 2039. It also allows the Group to make up to GBP4.8 billion of commodity purchases based on market gas prices and foreign exchange rates as at the balance sheet date.

During 2019, the Group signed a 20-year agreement to purchase LNG volumes from Mozambique LNG1 Company. The commercial start date is 2025 and under this agreement the Group is committed to make commodity purchases expected to amount to GBP6.6 billion based on market gas and oil prices at the reporting date.

 
                                                           2020 (i)    2019 
31 December                                                    GBPm    GBPm 
=========================================================  ========  ====== 
Commitments in relation to the acquisition of PP&E:             146     299 
Commitments in relation to the acquisition of intangible 
 assets: 
Renewable obligation certificates                             3,624   3,756 
Other intangible assets                                         827     762 
=========================================================  ========  ====== 
Other commitments: 
Commodity purchase contracts                                 34,819  46,411 
LNG capacity                                                  4,086   4,282 
Transportation capacity                                       1,093   1,117 
Other long-term commitments (ii)                                600     747 
=========================================================  ========  ====== 
 

(i) Of the commitments at 31 December 2020 GBP5,649 million relates to discontinued operations, predominantly from commodity purchase contracts.

(ii) Other long-term commitments include amounts in respect of executory contracts, power station tolling fees and the smart meter roll-out programme.

The maturity analysis for commodity purchase contract commitments at 31 December is given below:

 
                         Commodity purchase contract 
                                  commitments 
              ================================================== 
                                         Commodity commitments 
                    Fixed price                that float 
                commodity commitments         with indices 
              ========================  ======================== 
                     2020         2019         2020         2019 
31 December    GBPbillion   GBPbillion   GBPbillion   GBPbillion 
============  ===========  ===========  ===========  =========== 
<1 year               5.2          6.8          4.4          4.5 
1-2 years             1.8          2.3          3.3          3.9 
2-3 years             0.6          0.7          3.0          3.4 
3-4 years             0.2          0.3          2.5          3.4 
4-5 years             0.1          0.1          2.1          3.1 
>5 years              0.4          0.2         11.2         17.7 
============  ===========  ===========  ===========  =========== 
                      8.3         10.4         26.5         36.0 
============  ===========  ===========  ===========  =========== 
 
   (b)        Guarantees and indemnities 
 
 This section discloses any guarantees and indemnities that the Group 
  has given, where we may have to provide security in the future against 
  existing and future obligations that will remain for a specific period. 
 

In connection with the Group's energy trading, transportation and upstream activities, certain Group companies have entered into contracts under which they may be required to prepay, provide credit support or provide other collateral in the event of a significant deterioration in creditworthiness. The extent of credit support is contingent upon the balance owing to the third party at the point of deterioration.

As at 31 December 2020, GBP665 million (2019: GBP651 million) of letters of credit and on-demand payment bonds have been issued in respect of decommissioning obligations included in the Group Balance Sheet.

(c) Contingent liabilities

The Group has no material contingent liabilities.

18. Events after the balance sheet date

 
 The Group updates disclosures in light of new information being received, 
  or a significant event occurring, in the period between 
  31 December 2020 and the date of this report. 
 

Sale of Direct Energy

On 5 January 2021, Centrica completed the sale of its North American energy supply, services and trading business, Direct Energy, to NRG Energy Inc for $3.6 billion (GBP2.7 billion). This is expected to lead to a profit on disposal of c. GBP0.6 billion.

Immediately prior to the disposal, the Pension Trustees for the UK Registered Pensions Schemes released the security they held over the shares in the Direct Energy business. In exchange, the Group provided replacement security of GBP745 million of letters of credit and GBP250 million cash in escrow.

Gas and Liquids Reserves (Unaudited)

The Group's estimates of reserves of gas and liquids are reviewed as part of the full year reporting process and updated accordingly.

A number of factors affect the volumes of gas and liquids reserves, including the available reservoir data, commodity prices and future costs. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of reserves are subject to change as additional information becomes available.

The Group discloses 2P gas and liquids reserves, representing the central estimate of future hydrocarbon recovery. Reserves for Centrica operated fields are estimated by in-house technical teams composed of geoscientists and reservoir engineers. Reserves for non-operated fields are estimated by the operator, but are subject to internal review and challenge.

As part of the internal control process related to reserves estimation, an assessment of the reserves, including the application of the reserves definitions, is undertaken by an independent technical auditor. An annual reserves assessment has been carried out by Gaffney, Cline & Associates for the Group's global reserves. Reserves are estimated in accordance with a formal policy and procedure standard.

The Group has estimated 2P gas and liquids reserves in Europe.

The principal fields in Spirit Energy are Kvitebjørn, Statfjord, Ivar Aasen, Cygnus, Maria, South and North Morecambe, Rhyl and Chiswick. The principal non-Spirit Energy field is Rough. The European reserves estimates are consistent with the guidelines and definitions of the Society of Petroleum Engineers, the Society of Petroleum Evaluation Engineers and the World Petroleum Council's Petroleum Resources Management System using accepted principles.

 
                                        Spirit 
Estimated net 2P reserves of gas        Energy 
 (billion cubic feet)                      (i)  Rough  Total 
=====================================  =======  =====  ===== 
1 January 2020                             683     63    746 
Revisions of previous estimates (ii)         7      5     12 
Disposals of reserves in place (iii)       (6)      -    (6) 
Production (iv)                          (111)   (23)  (134) 
=====================================  =======  =====  ===== 
31 December 2020                           573     45    618 
=====================================  =======  =====  ===== 
 
 
                                        Spirit 
Estimated net 2P reserves of liquids    Energy 
 (million barrels)                         (i)  Rough  Total 
=====================================  =======  =====  ===== 
1 January 2020                              82      -     82 
Revisions of previous estimates (ii)         4      -      4 
Production (iv)                           (12)      -   (12) 
=====================================  =======  =====  ===== 
31 December 2020                            74      -     74 
=====================================  =======  =====  ===== 
 
 
                                        Spirit 
Estimated net 2P reserves               Energy 
 (million barrels of oil equivalent)       (i)  Rough  Total 
=====================================  =======  =====  ===== 
31 December 2020 (v)                       170      7    177 
=====================================  =======  =====  ===== 
 

(i) The movements represent Centrica's 69% interest in Spirit Energy.

(ii) Revision of previous estimates include those associated with North and South Morecambe, North Sea fields and Norwegian fields.

(iii) Reflects the disposal of interests in the Babbage assets.

(iv) Represents total sales volumes of gas and oil produced from the Group's reserves.

(v) Includes the total of estimated gas and liquids reserves at 31 December 2020 in million barrels of oil equivalent.

Liquids reserves include oil, condensate and natural gas liquids.

Five Year Summary (Unaudited)

 
                                            2016 (restated) 
                                                   (i) (ii)  2017 (restated)  2018 (restated)  2019 (restated) 
                                                      (iii)        (i) (iii)        (i) (iii)            (iii)    2020 
Year ended 31 December                                 GBPm             GBPm             GBPm             GBPm    GBPm 
==========================================  ===============  ===============  ===============  ===============  ====== 
Group revenue from continuing operations 
 included in business performance (i)                16,558           17,126           16,465           15,958  14,949 
Operating profit from continuing 
operations 
before exceptional items and certain 
re-measurements: 
  British Gas (iii) (iv)                                764              744              591              304     281 
  Bord Gais Energy (iii) (iv)                            46               47               44               50      42 
  Centrica Business Solutions (iii) (iv)                 26             (45)             (40)             (20)   (140) 
  Energy Marketing &Trading (iii) (iv)                  124               77               35              138     174 
  Upstream (iii) (iv)                                   199              256              567              178      90 
                                                      1,159            1,079            1,197              650     447 
Operating profit from discontinued 
 operations before exceptional items 
 and certain re-measurements (iii) (iv)                 308              161              195              251     252 
Exceptional items and certain 
 remeasurements 
 after taxation                                         777            (407)            (416)          (1,531)   (520) 
==========================================  ===============  ===============  ===============  ===============  ====== 
Profit/(loss) attributable to equity 
 holders of the parent                                1,672              328              183          (1,023)      41 
==========================================  ===============  ===============  ===============  ===============  ====== 
 
 
                                       Pence  Pence  Pence   Pence  Pence 
=====================================  =====  =====  =====  ======  ===== 
Earnings per ordinary share             31.4    5.9    3.3  (17.8)    0.7 
Adjusted earnings per ordinary share    16.8   12.5   11.2     7.3    6.5 
Dividend per share in respect of the 
 year                                   12.0   12.0   12.0     1.5      - 
=====================================  =====  =====  =====  ======  ===== 
 

Assets and liabilities

 
                                            2016     2017     2018     2019     2020 
31 December                                 GBPm     GBPm     GBPm     GBPm     GBPm 
======================================  ========  =======  =======  =======  ======= 
Goodwill and other intangible assets       4,383    4,326    4,456    4,033    1,940 
Other non-current assets (ii) (v)          8,218    7,190    7,435    5,826    4,767 
Net current assets/(liabilities) (ii)      1,220    1,705      284    (696)      622 
Non-current liabilities (v)             (11,173)  (9,789)  (8,227)  (7,474)  (8,072) 
Net assets of disposal groups held 
 for sale                                    196        -        -      106    2,125 
======================================  ========  =======  =======  =======  ======= 
Net assets                                 2,844    3,432    3,948    1,795    1,382 
======================================  ========  =======  =======  =======  ======= 
Net debt                                 (3,473)  (2,596)  (2,656)  (3,181)  (2,769) 
======================================  ========  =======  =======  =======  ======= 
 

Cash flows

 
                                             2016   2017     2018   2019   2020 
Year ended 31 December                       GBPm   GBPm     GBPm   GBPm   GBPm 
==========================================  =====  =====  =======  =====  ===== 
Cash flow from operating activities 
 before exceptional payments                2,669  2,016    2,182  1,548  1,532 
Payments relating to exceptional charges 
 in operating costs                         (273)  (176)    (248)  (298)  (132) 
Net cash flow from investing activities     (803)     32  (1,007)  (503)  (285) 
==========================================  =====  =====  =======  =====  ===== 
Cash flow before cash flow from financing 
 activities                                 1,593  1,872      927    747  1,115 
==========================================  =====  =====  =======  =====  ===== 
 

(i) 2018 Group revenue included in business performance has been restated to include the net result of certain commodity purchases and sales trades that are deemed to be speculative in nature. Earlier periods have not been restated and therefore are not presented on a comparable basis.

(ii) Results for the year ended 2016 have not been restated in accordance with IFRS 15: 'Revenue from contracts with customers' and therefore are not presented on a comparable basis.

(iii) Results have been restated to reflect the new operating structure of the Group. See note 1 for further details.

(iv) Adjusted operating profit has been restated to include the impact of business performance interest and taxation of joint ventures and associates.

(v) Results from the years ended 2016, 2017 and 2018 figures have not been presented in line with IFRS 16: 'Leases'.

Ofgem Consolidated Segmental Statement

The Ofgem Consolidated Segmental Statement (CSS) segments our Supply and Generation activities and provides a measure of profitability, weighted average cost of fuel and volumes, in order to increase energy market transparency for consumers and other stakeholders.

The following is an extract from the audited CSS and is prepared in accordance with Standard Condition 19A of the Electricity and Gas Supply Licences and Standard Condition 16B of the Electricity Generation Licences. This extract should be read in conjunction with the full CSS which includes the Statement, the audit opinion and the basis of preparation. This is available at www.centrica.com/2020-prelims.

Ofgem consolidated segmental statement

 
Year ended 31 
December 2020 
=================  =========  ================  ==========  =======================  ====================  ========= 
                                Electricity                       Electricity 
                                 Generation                          Supply               Gas Supply 
                              ================  ==========  =======================  ====================  ========= 
                                                 Aggregate                                                 Aggregate 
                                                Generation                                           Non-     Supply 
                        Unit  Nuclear  Thermal    Business   Domestic  Non-Domestic   Domestic   Domestic   Business 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
Total revenue           GBPm    511.4    199.2       710.6    3,181.9       1,528.7    3,193.3      428.0    8,331.9 
Sales of 
 electricity & 
 gas                    GBPm    462.8    176.4       639.2    3,130.8       1,528.7    3,151.6      428.0    8,239.1 
Other revenue           GBPm     48.6     22.8        71.4       51.1             -       41.7          -       92.8 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
Total operating 
 costs                  GBPm  (354.1)  (170.7)     (524.8)  (3,122.6)     (1,585.8)  (3,043.8)    (418.0)  (8,170.2) 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
Direct fuel costs       GBPm   (82.5)   (90.6)     (173.1)    (984.0)       (581.6)  (1,382.1)    (240.4)  (3,188.1) 
Direct costs            GBPm  (230.3)   (72.8)     (303.1)  (1,664.8)       (852.5)  (1,087.2)    (118.1)  (3,722.6) 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
  Transportation 
   costs                GBPm   (52.1)    (0.6)      (52.7)    (769.9)       (360.3)    (924.4)     (94.5)  (2,149.1) 
  Environmental 
   and social 
   obligation 
   costs                GBPm        -   (47.5)      (47.5)    (809.3)       (455.3)     (76.8)          -  (1,341.4) 
  Other direct 
   costs                GBPm  (178.2)   (24.7)     (202.9)     (85.6)        (36.9)     (86.0)     (23.6)    (232.1) 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
Indirect costs          GBPm   (41.3)    (7.3)      (48.6)    (473.8)       (151.7)    (574.5)     (59.5)  (1,259.5) 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
                    GBP/MWh, 
WACOF/E/G               P/th    (9.1)   (44.5)         N/A     (58.2)        (56.5)     (51.4)     (48.0)        N/A 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
EBITDA                  GBPm    157.3     28.5       185.8       59.3        (57.1)      149.5       10.0      161.7 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
DA                      GBPm  (141.3)   (17.8)     (159.1)     (43.7)        (12.7)     (53.3)      (5.2)    (114.9) 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
EBIT                    GBPm     16.0     10.7        26.7       15.6        (69.8)       96.2        4.8       46.8 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
                        TWh, 
Volume                 MThms      9.1      3.1         N/A       16.9          10.3    2,686.5      501.0        N/A 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
Average customer 
 numbers/sites         '000s      N/A      N/A         N/A    5,250.4         464.9    6,402.5      179.7        N/A 
=================  =========  =======  =======  ==========  =========  ============  =========  =========  ========= 
 
                              Supply EBIT           margin       0.5%        (4.6)%       3.0%       1.1%       0.6% 
                              ================  ==========  =========  ============  =========  =========  ========= 
                              Supply PAT              GBPm       12.6        (56.5)       77.9        3.8       38.0 
                              ================  ==========  =========  ============  =========  =========  ========= 
                              Supply PAT            margin       0.4%        (3.7)%       2.4%       0.9%       0.5% 
                              ================  ==========  =========  ============  =========  =========  ========= 
 

2019 Summarised CSS

 
Year ended 31 
 December 2019 
===============  =====  =======  =======  ===========  ======================  ===================  ========= 
                          Electricity                       Electricity 
                           Generation                          Supply              Gas Supply 
                        ================  -----------  ======================  ===================  --------- 
                                            Aggregate                                               Aggregate 
                                           Generation                                         Non-     Supply 
                  Unit  Nuclear  Thermal     Business  Domestic  Non-Domestic  Domestic   Domestic   Business 
---------------  -----  -------  -------  -----------  --------  ------------  --------  ---------  --------- 
Total revenue     GBPm    534.8    262.5        797.3   3,166.3       1,574.1   3,642.0      467.2    8,849.6 
===============  =====  =======  =======  ===========  ========  ============  ========  =========  ========= 
EBIT              GBPm     27.1   (31.8)        (4.7)    (35.6)          15.8     172.1       38.5      190.8 
===============  =====  =======  =======  ===========  ========  ============  ========  =========  ========= 
 
                        Supply EBIT            margin    (1.1)%          1.0%      4.7%       8.2%       2.2% 
                        ================  ===========  ========  ============  ========  =========  ========= 
                        Supply PAT               GBPm    (28.7)          12.7     139.1       31.2      154.3 
                        ================  ===========  ========  ============  ========  =========  ========= 
                        Supply PAT             margin    (0.9)%          0.8%      3.8%       6.7%       1.7% 
                        ================  ===========  ========  ============  ========  =========  ========= 
 

Additional Information - Explanatory Notes (Unaudited)

Definitions and reconciliation of adjusted performance measures

Centrica's 2020 Preliminary Results include a number of non-GAAP measures. These measures are chosen as they provide additional useful information on business performance and underlying trends. They are also used to measure the Group's performance against its strategic financial framework. They are not however, defined terms under IFRS and may not be comparable with similarly titled measures reported by other companies. Where possible they have been reconciled to the statutory equivalents from the primary statements (Group Income Statement ('I/S'), Group Balance Sheet ('B/S'), Group Cash Flow Statement ('C/F')) or the notes to the Financial Statements.

Adjusted revenue, adjusted gross margin, adjusted operating profit, adjusted earnings and adjusted cash flow have been defined and reconciled separately in notes 2, 5 and 10 to the Financial Statements where further explanation of the measures is given. Additional performance measures are used within this announcement to help explain the performance of the Group and these are defined and reconciled below.

EBITDA

EBITDA is a business performance measure of operating profit, after adjusting for depreciation and amortisation. It provides a performance measure in its own right, and provides a bridge between the Income Statement and the Group's key cash metrics.

 
                                                                                                   2020   2019 
Year ended 31 December                                                                     Notes   GBPm   GBPm  Change 
=========================================================================================  =====  =====  =====  ====== 
Continuing group operating loss                                                              I/S  (362)  (783) 
Exceptional items included within Group operating profit and certain re-measurements 
 before taxation                                                                               6    809  1,433 
Share of (profits)/losses of joint ventures and associates, net of interest and taxation 
 (i)                                                                                         I/S   (23)     12 
Depreciation and impairments of PP&E (i)                                                       5    659    851 
Amortisation, write-downs and impairments of intangibles (i)                                   5    253    265 
Continuing EBITDA                                                                                 1,336  1,778   (25%) 
=========================================================================================  =====  =====  =====  ====== 
Discontinued operations EBITDA                                                                      299    341 
=========================================================================================  =====  =====  =====  ====== 
Group total EBITDA                                                                                1,635  2,119   (23%) 
=========================================================================================  =====  =====  =====  ====== 
 

(i) These line items relate to business performance only.

Group net investment

With an increased focus on cash generation, capital discipline and reducing net debt, Group net investment provides a measure of the Group's capital expenditure from a cash perspective and allows the Group's capital discipline to be assessed.

 
                                                                2020   2019 
Year ended 31 December                                          GBPm   GBPm  Change 
=======================================================  ====  =====  =====  ====== 
Capital expenditure (including small acquisitions) (i)           489    784 
Net disposals (ii)                                              (33)   (68) 
=============================================================  =====  =====  ====== 
Group net investment                                             456    716   (36%) 
=============================================================  =====  =====  ====== 
Dividends received from joint ventures and associates     C/F   (62)    (1) 
Receipt of sub-lease capital payments                     C/F    (3)    (3) 
Interest received                                         C/F    (7)   (11) 
Sale and settlement of securities                         C/F  (121)   (50) 
=======================================================  ====  =====  =====  ====== 
Net cash flow used in continuing investing activities     C/F    263    651   (60%) 
=======================================================  ====  =====  =====  ====== 
 

(i) Capital expenditure is the net cash flow on capital expenditure and purchases of businesses (less than GBP100 million). See table (a).

(ii) Net disposals is the net cash flow from sales of businesses, property, plant and equipment and intangible assets, net of investments in joint ventures and associates. See table (b).

Group net investment is capital expenditure including acquisitions less net disposals. It excludes cash flows from investing activities not associated with capital expenditure as detailed in the table above.

(a) Capital expenditure (including small acquisitions)

 
                                                                         2020   2019 
Year ended 31 December                                                   GBPm   GBPm  Change 
================================================================  ====  =====  =====  ====== 
Purchase of property, plant and equipment and intangible assets    C/F    489    757 
Purchase of businesses, net of cash acquired                       C/F      -     27 
Less: material acquisitions (>GBP100 million)                               -      - 
================================================================  ====  =====  =====  ====== 
Capital expenditure (including small acquisitions)                        489    784   (38%) 
======================================================================  =====  =====  ====== 
 

(b) Net disposals

 
                                                                     2020   2019 
Year ended 31 December                                               GBPm   GBPm   Change 
============================================================  ====  =====  =====  ======= 
Sale of businesses                                             C/F   (43)   (63) 
Sale of property, plant and equipment and intangible assets    C/F      -    (6) 
Investments in joint ventures and associates                   C/F     10      1 
============================================================  ====  =====  =====  ======= 
Net disposals                                                        (33)   (68)      51% 
==================================================================  =====  =====  ======= 
 

Definitions and reconciliation of adjusted performance measures

The following tables provide additional information to help readers when reconciling between different parts of the consolidated Financial Statements, and the Group Cash Flow Statement.

Payments relating to exceptional charges in operating costs

 
                                                                      2020   2019 
Year ended 31 December                                                GBPm   GBPm 
=============================================================  ====  =====  ===== 
Restructuring costs incurred during the year and utilisation 
 of prior year liabilities                                             117    249 
Sales/purchase contract loss provision and other exceptional 
 costs                                                                   3     15 
Payments relating to exceptional charges in continuing 
 operating costs                                                C/F    120    264 
=============================================================  ====  =====  ===== 
 

Depreciation, amortisation, write-downs, impairments and write-backs

 
                                                                                                         2020     2019 
Year ended 31 December                                                                          Note     GBPm     GBPm 
==============================================================================================  ====  =======  ======= 
PP&E depreciation                                                                                         672      807 
PP&E impairments                                                                                          482      569 
Joint venture impairments                                                                                 483      372 
Intangible write-down                                                                                      24      178 
Intangible amortisation                                                                                   258      266 
Intangible impairments                                                                                    353      107 
==============================================================================================  ====  =======  ======= 
Group total cash flow from depreciation, amortisation, 
 write-downs, impairments and write-backs                                                               2,272    2,299 
==============================================================================================  ====  =======  ======= 
Less cash flow from discontinued operations depreciation, amortisation, write-downs, 
impairments 
and write-backs in: 
Business Performance                                                                               5     (47)     (90) 
Exceptional items                                                                                  6      (8)     (66) 
==============================================================================================  ====  =======  ======= 
Cash flow depreciation, amortisation, write-downs, impairments and write-backs (continuing)      C/F    2,217    2,143 
==============================================================================================  ====  =======  ======= 
Continuing: 
Exceptional item impairments                                                                       6  (1,305)  (1,027) 
Business Performance PP&E depreciation                                                             5    (657)    (778) 
Business Performance PP&E impairments                                                              5      (2)     (73) 
Business Performance intangibles amortisation                                                      5    (226)    (205) 
Business Performance intangibles impairments and write-downs                                       5     (27)     (60) 
==============================================================================================  ====  =======  ======= 
 

Reconciliation in receivables and payables to Group Cash flow Statement

 
                                                                    2020     2019 
Year ended 31 December                                              GBPm     GBPm 
=========================================================  ====  =======  ======= 
Receivables opening balance                                 B/S    4,993    5,662 
Less receivables closing balance                            B/S  (2,946)  (4,993) 
Payables opening balance                                    B/S  (5,685)  (6,398) 
Less payables closing balance                               B/S    3,836    5,685 
=========================================================  ====  =======  ======= 
Net reduction in receivables and payables                            198     (44) 
===============================================================  =======  ======= 
Non-cash changes, and other reconciling items: 
  Transferred to held for sale and business disposals              (281)        2 
  Movement related to discontinued operations prior 
   to transfer to held for sale                                     (48)     (75) 
  Movement in capital creditors                                       61       18 
  Movement in ROCS and emission certificate intangible 
   assets                                                           (92)      106 
  Other movements (including foreign exchange movements)            (46)       51 
Non-cash charges, and other reconciling items                      (406)      102 
===============================================================  =======  ======= 
Movement in trade and other receivables, trade and 
 other payables and contract related assets relating 
 to business performance                                    C/F    (208)       58 
=========================================================  ====  =======  ======= 
 

Pensions

 
                                                                2020   2019 
Year ended 31 December                                          GBPm   GBPm 
========================================================  ===  =====  ===== 
Cash contributions to defined benefit schemes in excess 
 of service cost income statement charge                  C/F   (42)  (493) 
========================================================  ===  =====  ===== 
Employer contributions                                     14    241    320 
Contributions by employer in respect of employee salary 
 sacrifice arrangements                                    14     28     29 
Total current service cost                                 14  (107)  (116) 
Past service credit                                        14      -    260 
Termination benefit                                        14  (120)      - 
========================================================  ===  =====  ===== 
 

Discontinued operations Free Cash Flow

 
                                                              2020   2019 
Year ended 31 December                                 Note   GBPm   GBPm 
=====================================================  ====  =====  ===== 
Discontinued operations Free Cash Flow                    5    376    494 
Movement in variation margin and collateral                     45   (66) 
=====================================================  ====  =====  ===== 
                                                               421    428 
=====================================================  ====  =====  ===== 
 
Net cash flow from discontinued operating activities    C/F    443    280 
Net cash flow from discontinued investing activities    C/F   (22)    148 
=====================================================  ====  =====  ===== 
                                                               421    428 
=====================================================  ====  =====  ===== 
 

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