Annual Financial Report
Annual Financial Report
Centrica PLC
Centrica plc (the “Companyâ€)
Annual Report and Accounts 2010
Further to the release of the Company's Final Results announcement on 24 February 2011, the Company announces that it has today published its Annual Report and Accounts 2010 ("Annual Report 2010").
The Company also announces that it has today posted to shareholders Notice of an Annual General Meeting to be held at 2.00 p.m. on Monday 9 May 2011 at the Queen Elizabeth II Conference Centre, London SW1.
In accordance with Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism, which can be accessed at www.hemscott.com/nsm.do:
- Annual Report and Accounts 2010
- Annual Review and Summary Financial Statements 2010
- Notice of Annual General Meeting 2011
The above documents may be viewed online at www.centrica.com/report2010 and are also available to download at www.centrica.com/2010reportdownloads.
A condensed set of Centrica's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements, were included in Centrica's preliminary results announcement released on 24 February 2011. That information, together with the information set out below, which is extracted from the Annual Report 2010, constitute the material required by Disclosure and Transparency Rule 6.3.5 which is required to be communicated to the media in full unedited text through a Regulatory Information Service. This announcement is not a substitute for reading the full Annual Report 2010. Page and note references in the text below refer to page numbers in the Annual Report 2010.
Principal Risks and Uncertainties
“Risks and Uncertainties
Understanding and managing our risks
Nick Luff on the importance of strong risk management in achieving our strategic priorities
As we position our business to meet the emerging requirements of a new low carbon world, we face a wide range of risks representing both opportunities and challenges.
We have to consider the state of the global economy, the impact of climate change, energy security, the regulatory environment, new technologies, increasingly competitive markets, movements in commodity prices and the need for enormous infrastructure investment.
It is vital that we remain well positioned to capture the most value from opportunities in the rapidly changing and complex markets within which we operate, for example through the introduction of new products and services, the pursuit of new investments or the development of new skills. Our processes are designed to ensure that risks are identified and assessed in a timely manner and that we have plans in place to manage them.
Understanding risk is vital if we are to deliver superior returns.
Introduction
In the rapidly changing and complex markets within which we operate, it is important that risks are identified and assessed in a timely manner and that the controls designed to manage such risks are operating effectively.
Our risk processes are designed to make our day-to-day operations more sustainable and successful by ensuring that line managers have a clear understanding of:
- the opportunities and risks faced in delivering their business objectives; and
- the status of the key controls in place to manage these risks.
Each business unit has a ‘risk champion’ who coordinates regular line management assessment and reporting of that business unit’s risk profile. These reports are reviewed and challenged by the Group risk team who provide the Group Risk Management Committee, the Centrica Executive and the Audit Committee with regular updates on cross group trends and material changes in our business risk profile. The operational assessments are supplemented by regular contact with the Group strategy team to ensure that our assessments also reflect the latest risks attaching to the delivery of our strategic priorities.
Material risks are also subject to review and challenge by expert groups, whilst regular meetings are also held with Internal Audit to ensure that risk reports reflect the latest findings from audit activity.
During 2010 we reviewed our processes to ensure that they remained appropriate to provide the necessary insight and challenge. Key improvements included:
- the introduction of strategic, operational and compliance risk themes to provide a more consistent challenge of risk assessments; and
- enhanced coverage of the risks attaching to high impact, low probability events.
Whilst not intended to be exhaustive, a summary of the Group’s key risks is provided on the following pages.
External market factors
Legal and regulatory environment
The Group is subject to regulation and political oversight
Description: The UK Government has embarked on an Electricity Market Reform programme which will continue into 2011. As part of this review, the Government is looking to provide a floor on carbon price to provide greater certainty for investors.
There has been a renewed focus in the winter of 2010 on retail sector competitiveness, as higher wholesale commodity prices feed through to customer bills while the impact of the recession continues to be felt. The regulator launched a review into the market, only shortly after the completion of its earlier probe, which will report its findings in early 2011. The regulatory cycle of reviews of network price controls and transmission charging has also continued throughout 2010.
In the residential and business markets a positive regulatory environment still remains for encouraging products and services such as energy efficiency, microgeneration and smart meters. The UK Government introduced an Energy Bill creating the framework for their flagship energy efficiency programme: the ‘Green Deal’.
In Europe, the Commission continues to consider stricter regulation of over-the-counter (OTC) derivatives, whilst in North America the Commodity Futures Trading Commission is currently implementing similar legislation following the passing of the Dodd-Frank financial regulatory reform act in July 2010.
In North America, the prospects for any federal climate legislation have largely disappeared with the changed make-up of Congress following the mid-term elections. Climate change momentum has slowed at the state and provincial level as well. Moves towards market liberalisation continue, with those states and provinces that have already begun to open their markets continuing to do so, but many others remain cautious.
The picture varies on a state or provincial level; in some, such as Ontario, the regulatory environment remains uncertain, whereas in others, such as Texas, it remains positive.
Impact: A number of policy and regulatory factors will impact on the Group’s future investment decisions and the Group’s ability to meet its long-term growth aspirations.
In the UK, the Electricity Market Reform programme, including a minimum price for carbon, is likely to impact on all our power generation investment decisions. An appropriate enabling environment for energy efficiency, microgeneration and smart metering will impact on the scale and speed at which we are able to grow this element of our residential energy services business. Regulatory interventions in the retail market have the potential to restrict our ability to offer innovative customer propositions.
Network and transmission charges continue to be a significant cost for Centrica (second only to commodities) so we need to support the right balance between delivering secure, low carbon energy and maintaining cost efficiency, in the best interests of customers.
In North America, trends towards liberalisation will shape which markets we can grow in, and to what extent. And the degree to which regulators positively encourage energy efficiency will impact our energy services propositions.
Mitigation: Our activity to manage political and regulatory policy developments is ongoing and we are taking a number of steps to address these risks.
Internally, an executive level Policy Group meets monthly to discuss and agree Group-wide positions on each key issue. Externally, we have been continuing to engage with governments, the regulators and parliaments, and our media relations are designed to build knowledge and trust in the business among wider stakeholder audiences.
A notable example of this broader contribution to the debate was through the Chief Executive’s speech to the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) on ‘Transforming the energy sector’. This was intended to build a wider, deeper understanding of Centrica’s positioning in a low carbon world, to put forward our views for tackling the challenges facing the sector and to demonstrate our commitment to greater energy efficiency by announcing that we would ‘go early’ on the Green Deal.
In the US and Canada, we continue to engage with regulators, government ministers and senior officials through targeted contact programmes.
UK security of supply
The Group’s UK businesses rely on the maintenance of secure and reliable gas supply and transportation infrastructure
Description: As UK gas reserves have declined, the UK energy market has become increasingly reliant on gas supplies from Norway and other parts of mainland Europe, together with LNG supplies from other parts of the world. Accordingly, key elements of security of supply are access to these reserves and the reliability of the storage, pipeline and gas processing infrastructure operated by the Group and third parties both in the UK and abroad.
Impact: Any break in this supply chain could jeopardise the supply to customers and impact our earnings. We own a variety of gas and power assets in the UK and overseas and our profitability would be adversely impacted if there were to be long-term outages associated with those assets.
We depend on third-party supply and cannot guarantee the security of the supply chains. There is a risk of terrorist activity, including threats to the energy sector which may include sabotage of power stations or pipelines, which could in turn affect security of supply or cause a break in supply of gas to our customers. Any failure to supply gas to customers could have a material adverse impact on our business, results of operations and overall financial condition.
Mitigation: We continue to invest in a range of options to ensure flexible and reliable supply. These include the potential development of additional storage facilities and securing additional pipeline transportation capacity. We have underpinned investment in LNG importation infrastructure by negotiating contracts with the Isle of Grain terminal. We have also signed a three-year contract with Qatargas, securing gas volumes sufficient to meet approximately 10% of UK residential demand.
External market factors
Energy demand reduction
The Group is exposed to falling energy consumption
Description: The UK Government sees both domestic and commercial energy efficiency as a key part of meeting its carbon targets. UK energy consumption has been falling since 2005, driven by improved energy efficiency and changing customer behaviour as a result of greater environmental awareness, reaction to price changes and the general economic downturn.
Continuing reduction in energy demand will, on a per customer basis, significantly reduce the profitability from British Gas’ energy business. Reductions are driven by a number of factors, the most significant of which are energy efficiency measures, new boiler installations and behavioural changes. Underlying average gas consumption amongst our customers has reduced by 22% over the past five years.
Long-term UK gas demand will ultimately be driven by industry decisions around generation mix and the impact of Government climate change initiatives, as well as general economic activity.
The decline in consumption in North America is more gradual than seen in the UK and varies across our chosen markets due to weather and market factors.
Impact: Continuing reduction in consumption of gas and electricity by residential and business customers could have a significant impact on the Group’s revenues and profits over the next decade.
New profit streams may prove to be insufficient to offset the reduction in profits, whilst our ability to recover any reduction in profits may be restricted by government, regulators, public opinion or competitor activity.
Mitigation: The Group is closely monitoring its forecasts for gas and electricity demand. The growth in demand for energy efficiency is in turn creating demand for such products as microgeneration, insulation and smart metering. We are well placed to grow in these markets over the next few years and are taking a number of steps to capitalise on these new opportunities.
To ensure sufficient capability to deliver energy efficient measures in the UK our 10,000 engineers are working in partnership with local authorities, as well as integrating the delivery of energy efficiency packages. These include the national roll-out of smart meters, and the development of innovative schemes such as ‘pay as you save’ which allows customers to pay for energy efficiency measures through their bills under long-term payment plans.
In North America, we continue to seek acquisition opportunities such as Clockwork completed in July 2010, in order to create a platform for sales of more integrated services offerings.
Commodity prices
The Group is exposed to unexpected movements in wholesale commodity markets and prices
Description: A significant proportion of the Group’s profitability depends on our ability to manage our exposure to wholesale commodity prices for gas, oil, coal, carbon and power. The price of gas in the UK is particularly important, as we produce substantially less gas from our own resources than we need to meet retail demand and demand from our fleet of gas fired power stations.
The Group must assess the risk of procuring commodities at fixed prices to meet uncertain levels of demand that are subject to seasonal fluctuations.
In addition, strategic investment decisions, particularly in respect of upstream assets such as gas fields or power stations, are based on evaluations underpinned by forecasts of longer-term commodity price development. These reflect prevailing market prices and are supplemented by assessments of underlying industry fundamentals.
Impact: There is a risk that surplus commodity positions cannot be sold to the wholesale markets profitably and that any commodity shortages cannot be covered at a cost lower than end sales price. In particular, we offer a number of fixed-price products, which are fully hedged at the start of the contract.
These products are competitive when prices increase but when prices fall we experience customer losses, and could be exposed to surplus commodity positions.
Significant longer-term price increases or decreases may require us to change the price at which we sell to our customers on variable tariffs. Where we do pass increased commodity prices through to our customers or fail to pass on decreased commodity prices, those customers may switch to our competitors, which could have an adverse effect on our business.
The Group may also suffer significant loss of value in the event that commodity prices fall significantly from levels prevailing at the time of asset acquisition, leading to lower profits and lower than expected returns.
Mitigation: We hedge a proportion of our exposures for a number of years ahead, linked to the underlying profiles of our customers’ energy requirements. This is achieved through the purchase and development of upstream assets such as gas fields, power stations and wind farms, bilateral agreements for gas and power, purchases of commodities on recognised exchanges and the use of financial instruments such as oil and gas swaps.
We regularly review our forecasts of commodity prices and customer demand to provide senior management with a clear perspective on our profit position and pricing requirements.
Investment decisions are made within a capital allocation framework designed to ensure that proposals are rigorously evaluated prior to acquisition and that they meet Board approved financial criteria over the life of the project. Recent acquisitions of gas assets in Trinidad and Tobago, Wildcat Hills and the North Sea are examples of how we continue to develop our asset portfolio.
External market factors
Competitive environment
The Group operates in competitive retail markets
Description: We operate in highly competitive energy supply markets in the UK and North America where customers switch suppliers based on price and service levels. We also operate in the home services market. These competitive markets have consistently delivered lower prices to consumers than their regulated counterparts.
The retail energy environment is highly competitive across residential and business energy as well as energy services. In residential energy, the limited scope for differentiation, consequent price competition, high and growing rates of customer switching, and diverse hedging strategies means there is always a risk of substantial customer losses if we lose our competitiveness.
Competitive pressures have also increased since many energy and other service providers have entered the services market and are seeking to strengthen their positions. In North America the economic environment is making trading more difficult, particularly in the new home construction business.
Impact: As a result of competitor activities the Group could lose market share which could affect profitability and the ability of the Group to meet its growth aspirations. Uncompetitive pricing could lead to customer losses and could have an adverse impact on profitability.
Mitigation: To retain our competitive position, we aim to be competitive on price and combine attractive products and propositions with high quality customer service. We continue to review and refine our hedging approaches to ensure that we continue to source energy competitively.
In the UK, British Gas has recently launched the ‘Customer Promise’ to further differentiate Homecare as a premium product, and have now appointed a Customer Board to build on the very successful ‘We’re Listening’ panel.
We monitor customer satisfaction and have increased competitor intelligence activity. We are now able to respond to changing circumstances by developing new customer offerings more effectively, whilst maintaining tight operational cost control.
Delivering the future business model
The Group’s future profitability may be affected by the emergence of new markets and competitors supported by new technologies
Description: The retail energy business is about to enter the digital age, increasing the value of customer data and making possible a far wider range of virtual interactions with customers.
The emergence of new technologies in the form of smart meters and smart grids creates new ways of reaching the customer. In addition, new markets are opening up in relation to the provision of energy related services to homes and businesses in areas such as energy efficiency, microgeneration and energy management/automation.
Whilst representing new opportunities these developments also create threats to the future profitability of the Group.
The UK Government has announced that every home will have gas and electricity smart meters by 2020. Centrica, and other leading energy suppliers, will have the responsibility for the installation and maintenance, at an estimated cost of £38 billion.
In North America, the business remains well placed to build on the 2010 acquisition of Clockwork and we aim to achieve a leading position in energy and related services provision.
Impact: The future profitability of the Group will be dependent on its success in continuing to play a leading role in the introduction of new technologies and in implementing the necessary operational and organisational changes to meet the requirements of the new markets.
Mitigation: Although new smart technologies represent a threat to the current business model, they also represent a substantial opportunity from servicing, appliance and home automation sales and customised tariff pricing. British Gas remains committed to leading the industry in driving energy efficiency and enabling new technologies.
In the UK, we have continued to build our capabilities in new technologies both through acquisition of businesses such as AlertMe (a provider of homes services), through the creation of an insulation business, and the installation of smart meters in homes and businesses. To date we have installed over 250,000 smart meters toward our target of installing two million smart meters by 2012.
Our existing interests in solar, biomass heating and fuel cell boilers support our position in microgeneration, with the opening of the UK’s first plant to inject biomethane into the Grid in October 2010. We are also working with local authorities and the governments of Scotland and Wales to deliver energy efficiency in the social housing sector.
In North America, as we build the integrated business we will look to capitalise on opportunities around new technologies and energy efficiency.
Business specific factors
Health, safety and environment
The Group’s operations are subject to extensive environmental, health and safety risks and regulations
Description: There are significant health, safety and environment (HS&E) hazards associated with our operations, and our policy is to put safety, health and wellbeing at the heart of all that we do, so as to minimise the associated risks. We are also committed to understanding, managing and reducing the environmental and ecological impacts of our activities through innovation, technology and cultural change.
There are four principal health, safety and environment risks:
- a major incident in the operation of our onshore and offshore gas production, exploration, gas storage and power generation assets (including our share of British Energy);
- an incident that results in a fatality or major injury to a member of the public;
- an intolerable number of employee injuries or an employee fatality; and
- a major incident that results in significant environmental damage.
Impact: An incident related to any of the principal risks could result in widespread distress and harm, damage to the environment, significant disruption to operations and damage to our reputation.
Actual incidents, precautionary closures of plant or a suspension of activities on HS&E grounds may lead to loss of production or service and impact our profits. The operations of the Group have many inherent hazards, particularly related to the exploration and production of gas, power generation and offshore activities.
The public and regulatory focus on offshore activities increased significantly following the high profile Deepwater Horizon incident in 2010; the potential risk to brand and reputation has therefore been heightened.
Mitigation: Activities involving such risks are heavily regulated and strict control regimes are in place throughout the Group.
The Board is responsible for ensuring that the Group has the appropriate culture and arrangements for meeting its HS&E responsibilities, and the Chief Executive is accountable to the Board for delivery. Our risk management and governance processes meet internationally recognised standards, with monthly reports to the Executive (specifically including process safety), and regular HS&E performance reports by the Chief Executive to the Board.
We also target HS&E risk reduction in all our operations through local plans, many of which have been externally recognised. Further details of our 2010 activity are provided on page 27. In addition, we performed a detailed review of our upstream operations in light of the Deepwater Horizon incident.
Regarding British Energy, our role as a joint venture partner provides access to all information produced by EDF Energy in support of Board governance and oversight for both the existing operations and new nuclear projects. However, ultimate responsibility for the safe operation of the nuclear plants remains with EDF Energy.
Outsourcing and offshoring
The Group depends on third parties for certain aspects of its operations
Description: We have outsourced several activities, including information technology services, back office and processing functions which support our businesses in the UK and North America. Some of the Group’s outsourcing contracts are in offshore locations such as India, South Africa, Poland and Portugal.
In addition, a number of our North Sea assets are reliant on third-party infrastructure such as pipelines, operational support and platforms.
There is a risk that the Group’s outsourcing initiatives do not deliver the projected benefits as a result of:
- loss of service or inadequate service from the offshore service provider;
- insufficient skilled resources to manage the relationship;
- inadequate levels of retained knowledge to drive process improvements;
- loss of service and risk to the Group’s employees as a result of terrorist, and/or social or political events in offshore locations; or
- ineffective exit strategy, limiting our ability to move to alternative service providers either at the end of a contract or because of a breach situation.
Impact: The failure of our outsourcing partners to deliver the appropriate level of service to the Group could have a detrimental impact on our costs, our reputation or our levels of customer service and could consequently have a negative impact on the Group’s revenues and profits.
Mitigation: New outsourcing and offshoring initiatives are challenged and reviewed by senior management in business performance reviews. We have robust project governance policies for all new and existing outsourcing and offshoring initiatives. We have been recognised as thought leaders in the development of outsourcing/offshoring best practice for the last two years by the National Outsourcing Association, which demonstrates our maturity in this area. We have also developed Group contract management processes and tools designed to ensure robust day-to-day management of outsourced relationships, as well as encouraging the capture of lessons learned and the promotion of best practice transfer.
We regularly review country risk and have business contingency plans in place in the event of terrorist or social/political events in offshore locations.
In addition, we have also developed a Group approach to managing key supplier risk and, in light of the continuing global economic conditions, have performed a risk-based review of the financial health of our key outsourcing partners.
As with any contractual relationship, there are inherent risks to be mitigated, and these are actively managed on a day-to-day basis by business unit management.
Business specific factors
Nuclear
The Group is exposed to the performance of existing ageing nuclear plant and the risk of developing new nuclear facilities
Description: We have a 20% equity interest in British Energy, the operator of eight existing nuclear power stations in the UK. The existing fleet is ageing with the majority of nuclear reactors of the Advanced Gas Reactor (AGR) design. All of the AGR reactors have already been granted life extensions (most recently in December 2010 when it was decided to extend the lives of Hartlepool and Heysham 1 power stations).
We are exposed to potential losses of production as a consequence of emergent technical issues, component failure, outage over-runs or other operational considerations. In addition, stations may close earlier than expected due to technical problems.
The joint venture with EDF Energy also provides us with the option to participate in EDF Energy’s UK new nuclear build (NNB) programme. We currently hold a 20% interest in a joint venture with EDF Energy (NNB Holding Company Limited) to undertake the pre-development activities for a planned nuclear new build programme, with the intention of constructing, operating and decommissioning four European Pressurised Reactors. We have committed to fund the project pre-development costs up to a maximum of £200 million. Centrica will not operate any of the nuclear facilities – this remains the responsibility of EDF which is a world leader in nuclear generation.
A number of key planning and consenting issues, consultations and environmental impact assessments could either significantly delay or even prevent the construction of new nuclear facilities. Whilst we welcome the recent publication of the Electricity Market Reform, and carbon floor for consultation, there remains a risk that the Electricity Market Reform will not deliver the required support to enable new build.
We have the right to opt out or reduce our interest in the new-build joint venture once consents have been obtained. If we elect to maintain our interest in the joint venture, this would involve substantial financial commitments without any guarantee that the power stations would be completed or become operational. We would only begin to realise returns on these investments when the reactors become operational. The returns would also be dependent on the future price of electricity and commodities.
The developers of new nuclear facilities will also be responsible for the cost of decommissioning such facilities and must set aside sufficient funds to cover waste disposal costs incurred by the government.
Impact: Operational problems with the existing fleet of British Energy nuclear power stations may result in reduced dividends from the joint venture and imbalance charges for Centrica.
In addition, should the business case for new nuclear not support investment, withdrawal from the joint venture would result in the loss of any funds invested to date as well as the write off of any value attributed to new build on our balance sheet.
Mitigation: We have a minority interest in Lake Acquisitions Limited and NNB Holding Company Limited and board representation. Although we will enjoy veto rights over certain decisions to be taken by Lake Acquisitions Limited or NNB Holding Company Limited (or their respective affiliates) and the nuclear new build joint venture, EDF Energy will have majority management control of such entities. In 2010, we continued to strengthen our relationships with EDF Energy, but ultimately, if we disagree with its management, we will have limited rights to dispute and seek compensation in relation to such decisions.
Information systems security
The Group’s reputation and operations are critically dependent on the maintenance of robust and secure information systems
Description: Effective and secure information systems are essential for the efficient management and accurate billing of our customers, effective power generation and successful energy trading and hedging activities.
The confidentiality, integrity and availability of our information systems could be affected by factors that include human error, ineffective design or operation of key controls or through malfunction or deliberate attack.
Impact: Any compromise in the confidentiality of customer information could impact our reputation with current and potential customers and could result in legal action against the Group.
Outages and interruptions could affect our ability to conduct day-to-day operations and cause us to suffer financial loss.
Mitigation: Controls are in place to manage this risk, including network segregation, monitoring, access restrictions on storage systems, regular third-party security reviews and vulnerability assessments of infrastructure and applications. In addition, there is a dedicated Group Information Systems (IS) risk team tasked with monitoring and reviewing adherence across the Group to the IS risk policy.
Business continuity plans are in place to help recover from significant outages or interruptions. To improve efficiency, we continue to invest in our systems, supported by strong project management to minimise the associated implementation risk.
Business specific factors
Our reputation with key stakeholders
The Group’s operations are dependent on the maintenance of its reputation and brands
Description: Our brand and reputation are vital assets for the future success and prosperity of our businesses. Recent high profile cases in the media such as the Deepwater Horizon incident show how reputation and brand can be quickly and fundamentally damaged. As a diverse group of businesses we have a number of different stakeholders. Maintaining a positive reputation for the Group is of vital importance to ensure the smooth operation of the existing business and to protect profitability.
Customers expect high levels of service and a positive consumer experience from leading brands. As a leading integrated energy company our corporate responsibility strategy aims to show leadership in response to pressing environmental and social challenges. We are also a major contributor to policy debates in the markets in which we operate.
It is equally important to actively manage the Group’s reputation with our other stakeholders including opinion formers in the Government, the media and trade unions. There has been increased governmental and regulatory focus on our growth agenda and new business models, entering into a period of rising wholesale prices.
There has also been an increased media focus after recent UK residential price increases. At British Gas and Direct Energy we are committed to supporting all our customers. We prioritise our vulnerable customers who are unable to safeguard their personal welfare or the personal welfare of other members of their household for reasons of age, disability or severe financial insecurity.
Impact: Consistently delivering high service levels is vital to building trust and therefore retaining and increasing the customer base. Failure to do so would damage our brand, lead to customer losses and impact the Group’s revenues.
Failure to maintain our reputation with key stakeholders could lead to more direct intervention by Government or the regulator in the Group’s business or industrial action by our workforce.
Mitigation: We have a clearly defined set of business principles, which apply to all of our employees and business partners. These business principles (listed on page 3) set out our commitment to operate professionally, fairly and with integrity wherever we work in the world. A combination of awareness training and targeted controls (including fraud and data protection) is in place to encourage and monitor adherence to our business principles.
We also have a programme of relationship management with stakeholders such as Government, Ofgem, Ofcom, the Advertising Standards Authority and relevant North American State and Federal regulators. We also manage the risk of non-compliance on matters which could lead to prosecutions, fines and reputational damage. Reputational management is reviewed more formally on a quarterly basis by the Executive Committee.
We monitor customer service throughout our retail operations. Continued focus in this area has resulted in service improvements and fewer customer complaints. We are constantly developing products and services to meet the needs of our customers.
British Gas held down its prices over the winter for 340,000 of the most vulnerable households. Our programmes also help vulnerable customers with lower tariffs and advice on efficiency measures, including a home energy audit, free home insulation and free energy saving products.
During 2010 we contributed a total of £80 million to provide help for those most in need, including an additional £50 reduction off the winter fuel bills of each of our most vulnerable customers and a £20 million donation to the British Gas Energy Trust (BGET), an independent charitable organisation we set up in 2004 to fight fuel poverty. The BGET makes grants to individuals and families to help them meet arrears in energy and other household bills.
Direct Energy is also committed to a range of projects, such as its Neighbor-to-Neighbor programme, providing assistance for customers in financial difficulties in our Texas market, and support for Raising the Roof, Canada’s only national charity solely dedicated to finding long-term solutions for homelessness.â€
Related Party Transactions
“During the year, the Group entered into the following arm’s length transactions with related parties who are not members of the Group:
| Â | Â | Â | Â | Â | Â | Â | 2010 | Â | Â | Â | Â | Â | Â | Â | 2009 | Â | Â | |
| Â | Â | Â |
Sale of goods £m |
 |  |  |
Purchase £m |
 |  |  |
Sale of £m |
 |  |  |
Purchase £m |
|||
| Joint ventures: | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | |||
| Barrow Offshore Wind Limited |  |  | – |  |  |  | 21 |  |  |  | – |  |  |  | 22 | |||
| Braes of Doune Wind Farm (Scotland) Limited |  |  | – |  |  |  | 13 |  |  |  | – |  |  |  | 17 | |||
| Glens of Foundland Wind Farm Limited |  |  | – |  |  |  | 3 |  |  |  | – |  |  |  | – | |||
| GLID Wind Farms TopCo Limited |  |  | – |  |  |  | 8 |  |  |  | – |  |  |  | 9 | |||
| Inner Dowsing Wind Farm Limited |  |  | – |  |  |  | 19 |  |  |  | – |  |  |  | – | |||
| Lynn Wind Farm Limited |  |  | – |  |  |  | 18 |  |  |  | – |  |  |  | – | |||
| Associates: | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | |||
| Alertme.com Limited |  |  | – |  |  |  | 1 |  |  |  | – |  |  |  | – | |||
| Lake Acquisitions Limited |  |  | 278 |  |  |  | 284 |  |  |  | – |  |  |  | 1 | |||
| North Sea Infrastructure Partners Limited |  |  | – |  |  |  | 24 |  |  |  | – |  |  |  | 34 | |||
| Sevan Production General Partnership (i) |  |  | – |  |  |  | 13 |  |  |  | – |  |  |  | – | |||
| Other investments: | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | |||
| Point Fortin LNG Exports Limited |  |  | 12 |  |  |  | – |  |  |  | – |  |  |  | – | |||
|  |  |  | 290 |  |  |  | 404 |  |  |  | – |  |  |  | 83 |
(i) Sevan Production General Partnership is an associate of Hummingbird Oil Pte Ltd, which was disposed of by the Group on 11 August 2010 (see note 38).
Investment and funding transactions for joint ventures and associates are disclosed in note 19.
Balances outstanding with related parties at 31 December were as follows:
| Â | Â | Â | Â | Â | Â | Â | Â | 2010 | Â | Â | Â | Â | Â | Â | Â | 2009 | Â | Â | |
| Â | Â | Â | Â |
Amounts £m |
 |  |  |
Amounts £m |
 |  |  |
Amounts £m |
 |  |  |
Amounts £m |
|||
| Joint ventures: | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | |||
| Bacton Storage Company Limited |  |  |  | 14 |  |  |  | – |  |  |  | 2 |  |  |  | – | |||
| Barrow Offshore Wind Limited |  |  |  | – |  |  |  | 5 |  |  |  | 11 |  |  |  | 5 | |||
| Braes of Doune Wind Farm (Scotland) Limited | Â | Â | Â | 15 | Â | Â | Â | 3 | Â | Â | Â | 21 | Â | Â | Â | 3 | |||
| Lincs Wind Farm Limited |  |  |  | 128 |  |  |  | – |  |  |  | – |  |  |  | – | |||
| Glens of Foundland Wind Farm Limited |  |  |  | – |  |  |  | 1 |  |  |  | – |  |  |  | – | |||
| GLID Wind Farms TopCo Limited | Â | Â | Â | 49 | Â | Â | Â | 19 | Â | Â | Â | 41 | Â | Â | Â | 26 | |||
| Inner Dowsing Wind Farm Limited |  |  |  | – |  |  |  | 5 |  |  |  | – |  |  |  | – | |||
| Lynn Wind Farm Limited |  |  |  | – |  |  |  | 4 |  |  |  | – |  |  |  | – | |||
| Associates: | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | |||
| Lake Acquisitions Limited |  |  |  | 33 |  |  |  | 53 |  |  |  | – |  |  |  | – | |||
| North Sea Infrastructure Partners Limited |  |  |  | – |  |  |  | 2 |  |  |  | – |  |  |  | 3 | |||
| Other investments: | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | |||
| Point Fortin LNG Exports Limited |  |  |  | 5 |  |  |  | – |  |  |  | – |  |  |  | – | |||
| Â | Â | Â | Â | 244 | Â | Â | Â | 92 | Â | Â | Â | 75 | Â | Â | Â | 37 |
The terms of the outstanding balances related to trade receivables from related parties are typically 30 to 120 days. The balances are unsecured and will be settled in cash. No provision for bad or doubtful debts owed by related parties was required (2009: £nil).
Key management personnel comprise members of the Board and Executive Committee, a total of 14 individuals at 31 December 2010 (2009: 13). Key management personnel and their families purchase gas, electricity and home services products from the Group for domestic purposes on terms equal to those for other employees of the Group.
| Remuneration of key management personnel | Â | Â | Â |
2010
£m |
 |  |  |
2009
£m |
 |  | |
| Short-term benefits | Â | Â | Â | 10 | Â | Â | Â | 10 | |||
| Post-employment benefits | Â | Â | Â | 1 | Â | Â | Â | 1 | |||
| Share-based payments | Â | Â | Â | 10 | Â | Â | Â | 9 | |||
|  |  |  |  | 21 |  |  |  | 20†|
Directors’ responsibility statement
As set out above, this statement is repeated here solely for the purposes of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from the 2010 Annual Report. It is not connected to the extracted information presented in this announcement or the preliminary results announcement released on 24 February 2011.
"The Directors, who are named on pages 38 and 39, are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company Financial Statements respectively; and
- prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Each of the Directors, whose names and functions are listed in pages 38 and 39 confirm that, to the best of their knowledge: the Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and the Directors’ Report contained in pages 4 to 63 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.â€
Enquiries:
Centrica Investor Relations: +44 (0)1753 494900
Centrica Media
Relations: +44 (0)800 107 7014
Centrica Media
Relations: +44 (0)800 107 7014
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