Company Announcements

Centrica plc Preliminary Results for the year ended 31 December 2022

Chris O'Shea, Group Chief Executive

"Our performance in 2022 demonstrates the benefits of our balanced portfolio and our strong balance sheet. The energy crisis and cost of living pressures have created a challenging environment for customers and communities, but we have been able to provide much needed stability and support. We invested £75m in supporting our energy customers in 2022, which was greater than the £8 post-tax profit per customer earned by British Gas Energy. Whilst customers may see some relief given recent easing of prices, it remains clear that some will continue to need help and we will do what we can to support them in the year ahead."

Helping customers and communities through the energy crisis

• Invested over £200m in customer service, support and pricing across the Company.

• Supported and helped 650,000 customers manage their energy bills since the start of the energy crisis.

• Paid ~£1bn in tax relating to 2022 profits.

• Materially helped UK energy security of supply with the reopening of Rough, and a new gas supply agreement with Equinor sufficient to heat 4.5m homes.

Strong operational and financial performance from a balanced portfolio

• Adjusted basic EPS of 34.9p (2021: 4.1p); 34.2p excluding Spirit Energy disposed assets.

-  Strong gas production and electricity generation against a backdrop of higher commodity prices.

-  Strong management of increased commodity volatility in Energy Marketing & Trading (EM&T).

-  Lower retail adjusted operating profit including a small loss in British Gas Services & Solutions, reflecting weak commercial performance and investment in customer service, support and pricing.

• Statutory basic EPS loss of 13.3p (2021: profit of 20.7p) including a £2.4bn loss on certain
re-measurements after taxation, largely reflecting the revaluation of UK energy supply hedging positions due to wholesale gas and power price falls towards the end of 2022.

• Group free cash flow from continuing operations of £2.5bn (2021: £1.2bn), including some big swings in working capital with £1.1bn inflow in British Gas Energy reflecting the short-term acceleration of cash flows from government support schemes and a £1.6bn build in EM&T and Centrica Storage.

• Statutory net cash flow from operating activities of £1.3bn (2021: £1.6bn) includes £1.2bn of margin cash and collateral outflow to support hedging and trading activity.

• Closing adjusted net cash of £1.2bn at the end of 2022 compared to £0.7bn at the end of 2021.

Positioning ourselves for growth through net zero

• Strong capabilities and positions in Retail and EM&T leave us well-placed for growth as core markets transition to net zero.

• Investing in flexible and transition assets for value; £400m of in-flight solar, battery and gas-peaking generation projects and progressing plans to repurpose Rough and Morecambe as net zero assets.

• Intention to provide more detail on longer-term investment plans and expected returns alongside Interim results in July 2023.

Delivering returns for shareholders

• Reinstated progressive dividend policy in July; 2022 full year dividend of 3.0p.

• Intention to extend existing £250m share buyback programme by an additional £300m, which at the current share price would result in Centrica buying back 10% of its issued share capital in total.

Financial summary

See notes 2, 5, 9, 10 and 11 to the Financial Statements and pages 88 to 92 for an explanation of the use of adjusted performance measures.

Group performance indicators

(i) Includes British Gas Energy, British Gas Services and Bord Gáis Energy households and small and medium business customer sites in British Gas Energy and Centrica Business Solutions.

Investor presentation

Centrica will hold its 2022 Preliminary Results presentation for analysts and institutional investors at 9.30am (UK) on Thursday 16 February 2023. There will be a live audio webcast of the presentation and slides. Please register to view the webcast at:

https://webcasts.centrica.com/centrica127/vip_connect

Enquiries

Group Overview

Strong operational and financial performance from our balanced portfolio

Centrica's operational performance was very good across 2022, against a backdrop of elevated and volatile commodity prices.

In our Upstream Infrastructure businesses, we saw good gas production volumes from Spirit Energy and higher availability and volumes from the Nuclear fleet, in addition to high levels of reliability from the re-opened Rough gas storage facility. In our Optimisation businesses, Energy Marketing & Trading (EM&T) delivered strong performance across its gas and power trading, route-to-market and LNG activities, while managing the Group's commodity exposure very well.

In our Retail businesses, we continued to invest in customer service and in preparing for the opportunities presented by the decarbonisation of homes in UK and Ireland. This resulted in higher net promoter scores in British Gas Energy and British Gas Services & Solutions, although adjusted operating profit was impacted in both these businesses by our investment in customer service, support and pricing, and weak commercial performance in British Gas Services & Solutions.

Reflecting this operational performance, underlying financial performance from our balanced portfolio was strong overall, with adjusted earnings per share up to 34.9p from 4.1p. The statutory loss per share was 13.3p, including a £2.4bn loss on certain re-measurements after taxation which reflects the revaluation of UK energy supply hedging positions due to falling wholesale gas and power prices towards the end of 2022. Free cash flow from continuing operations more than doubled to £2.5bn, and statutory net cash flow from operating activities reduced by £0.3bn to £1.3bn, which includes margin cash and collateral outflows of £1.2bn to support energy hedging and trading activity.

Having re-instated a progressive dividend with a 2022 interim payment of 1.0p per share, our first payment since 2019, we are proposing a final dividend per share of 2.0p which will take the full year dividend per share to 3.0p. In addition, in November we commenced a £250m share repurchase programme, in line with our approach to returning surplus structural capital to shareholders. With the existing programme projected to be completed by around May 2023, we intend to extend this by an additional £300m, which at the current share price would result in Centrica buying back approaching 10% of its issued shares in total since November 2022. The extension is subject to market conditions at the time the repurchase of the first £250m of shares is completed.

The turnaround of Centrica is well advanced

Since 2020, we have been on a major transformational journey to turn the Company around and rebuild shareholder value. We set out three overlapping phases of this turnaround:

1. Simplify and de-risk the portfolio and strengthen the balance sheet;

2. Stabilise the business and improve operational performance;

3. Deliver growth and position ourselves for net zero.

We completed the first phase of the turnaround in the first half of 2022. The sale of Spirit Energy's Norwegian and Statfjord UK oil and gas assets, including the transfer of material decommissioning liabilities, closed in May 2022. This followed the completion of the sale of Direct Energy in January 2021. The Group had adjusted net cash of £1.2bn at the end of 2022, compared to adjusted net debt of nearly £4bn three years ago, with the reduction reflecting our ongoing strong focus on capital discipline and cash generation.

We are now well into the second phase. A key enabler of this has been the completion of the significant Group restructure to simplify and delayer the organisation. We are seeing tangible benefits from the resulting increased colleague empowerment and customer focus, with colleague engagement increasing by 18 percentage points over 2022 to 73% and higher customer NPS scores. Although we still have areas in which we can improve, we have fixed the basics and are now able to move our focus to continuous improvement and delivering growth.

We are now increasingly engaging on the third phase - to deliver growth and position ourselves for net zero. We are continuing to build our capabilities across the Group, delivering net zero offers to customers, facilitating the build and operation of net zero assets through our EM&T route-to-market business, and investing in the energy transition - through both the construction of lower carbon flexible power generation assets and the progression of energy transition opportunities for our existing assets, such as Rough and Morecambe.

Acting responsibly through the energy crisis

Supporting customers

We are very aware of the difficult environment many customers are facing due to the high level of energy bills and wider inflationary impacts and we will continue to do what we can to support them.

We invested over £200m in customer service, support and pricing over 2022, including £50m of voluntary support to help domestic and business customers. We also recruited 700 additional UK-based customer service colleagues in British Gas Energy, allowing us to handle higher call volumes and be there when our customers need us.

Protecting vulnerable customers is a priority for us, and we have committed to donate 10% of both British Gas Energy and Bord Gáis adjusted operating profits to help until the current crisis is over. Therefore, we were extremely disappointed by the allegations surrounding one of our third-party contractors and their approach to pre-payment customers. We immediately took action to address this and are completing a thorough independent investigation.

We have been bolstering security of supply for our customers, with our EM&T business securing increased volumes of gas and renewable power, having announced our intention to exit gas supply agreements with Russian counterparties in March. New agreements include one with Equinor to deliver an additional 1 billion cubic metres of gas supplies to the UK for this winter and the following two, sufficient to heat a total of 4.5m homes. The reopening of Rough has also provided additional energy security over the current winter, while the strong operational performance of the Whitegate CCGT has been important for security of supply in Ireland.

Supporting colleagues

We continue to support our colleagues through these challenging times. Pay deals have taken prevailing inflationary pressures into account, including two significant one-off cost of living support payments during the year, while we accelerated a portion of our 'profit share' employee payment from 2023 into 2022.

We continue to create new well paid jobs in our core markets. In addition to the recruitment of the 700 new customer service colleagues in British Gas Energy, 1,000 new apprentices have joined us since the start of 2021.

Supporting communities

We take our responsibilities to our communities seriously. We provided £130m of support to vulnerable customers through the Warm Homes Discount, and with the pandemic over and public finances under pressure, we felt it was important we repaid £27m received under the Coronavirus Job Retention Scheme from the UK government. We have now paid nearly £1bn in tax related to 2022 profits, while we continue to encourage colleagues to use their skills and experience to help charities through volunteering, and in 2022 colleagues donated over 2,000 days. We also made further charitable donations, including to the Ukraine war appeal.

Engaging constructively to help stabilise the UK energy market

Stepping in to protect customers under the Supplier of Last Resort process

Over the past 18 months over half of the UK's energy suppliers have ceased to trade, impacting over 4m customers and costing energy consumers billions of pounds. We have continued to play our part in supporting those affected customers, taking on over 150,000 in 2022 in addition to approximately 550,000 taken on in 2021.

Under Ofgem's regulatory framework, relevant costs, including costs of buying energy incurred by suppliers that they are not able to recover directly as a result of taking on Supplier of Last Resort (SoLR) customers, are recoverable through the industry levy. In December 2021 our claim for an initial £361m was accepted by Ofgem and a further claim for £172m was accepted in December 2022. £258m was paid to Centrica during 2022, meaning the remaining £275m recoverable has been recognised as a receivable in the 2022 financial statements.

Supportive of aspects of regulatory change

Ofgem have made a number of positive regulatory changes in response to the energy crisis.

In February, it was confirmed that the default tariff caps effective from 1 April 2022 would include additional allowances not only for the recovery of SoLR-related costs, but also other additional costs incurred by suppliers as a result of rising wholesale prices and volatility over the 2021/22 winter.

In April, Ofgem introduced the Market Stabilisation Charge (MSC) and a ban on acquisition-only tariffs. Both of these policies are aimed at protecting responsible and well-hedged energy suppliers if wholesale costs fall. Under the current parameters set by Ofgem, the MSC is triggered if wholesale prices fall by at least 10% compared to the cap index. In November 2022 the MSC was triggered for the first time. If a customer switches supplier when this happens the new supplier would need to reimburse the previous supplier for 85% of the hedged cost.

In February 2023, Ofgem extended the MSC and the ban on acquisition-only tariffs to 31 March 2024.

Some further areas need addressing

However, there are some areas of current regulation that need addressing. We believe more needs to be done to protect customers and give them full confidence in the robustness of the UK energy market.

Consumers ultimately pay for supplier failures through future energy tariffs or taxation, so we believe the energy retail market requires stronger prudential regulation to ensure those involved in the industry are fit and proper, companies have adequate capital and monitored risk management procedures, and customer deposits are fully protected. As a responsible supplier, we voluntarily separate gross customer deposits and held £643m in a separate account on 31 December 2022.

We believe a fundamental review of energy regulation is required to ensure the system is ready for the energy transition, works for consumers and allows well run suppliers to make an appropriate return to compensate for the risks taken.

Simplifying and de-risking the portfolio

Sale of Spirit Energy Norway and Statfjord field completed

The sales of Spirit Energy's Norwegian E&P business and its interests in the Statfjord field to Sval Energi and Equinor respectively completed on 31 May 2022. The transactions resulted in a 98% reduction in Spirit Energy's 2021 closing oil and liquids proven and probable (2P) reserves, a 39% reduction in its 2021 closing gas 2P reserves and a £0.8bn reduction in its gross decommissioning liabilities to £1.2bn.

The headline consideration was $1,076m (approximately £800m), with a commercial effective date of 1 January 2021. The final consideration after adjusting for net cash flows generated by the disposed businesses since the commercial effective date was £69m, including deferred commodity price linked consideration and a tax indemnity provided to Sval Energi.

Centrica owns 69% of Spirit Energy but fully consolidates Spirit Energy in the Group's financial statements. In 2022, Spirit Energy distributed the final consideration and post-tax net cash flows generated by the sale businesses since 1 January 2021 to Centrica and its joint venture partners, SWM Group, in proportion to their ownership. This was after adjusting for certain transaction taxes and costs, and amounts in respect of certain liabilities to be retained by the Spirit Energy Group. SWM Group's share of this distribution from Spirit Energy was £273m.

Under an amended shareholders' agreement with SWM Group, Spirit Energy's future strategy will be to realise value from its remaining portfolio of assets in the UK and the Netherlands, including pursuing opportunities to leverage infrastructure for net zero projects, while minimising further investment in oil and gas exploration and development. It will utilise cash from its operations to meet and de-risk decommissioning obligations in respect of its remaining portfolio, with future cash flows retained within Spirit Energy until projected future pre-tax decommissioning costs are 1.5 times covered. As at the end of 2022, Spirit Energy pre-tax decommissioning liabilities were £1.2bn, with decommissioning costs 0.9 times covered.

Further non-core divestments

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

In 2022, we sold our interest in Driivz, an electric vehicle charging software provider, while Centrica Business Solutions also agreed to exit two small positions in the United States and Mexico.

Business unit operational, commercial and financial performance

Improved operational metrics but weak commercial performance in British Gas Services & Solutions, with increased challenges from cost of living and inflationary pressures

All 2022 metrics and 2021 comparators are for the 12 months ended 31 December unless otherwise stated.

(i) Services customers are defined as single households having a contract with British Gas.

(ii)   Total complaints, measured as any oral or written expression of dissatisfaction, as a percentage of average customers over the year.

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

We continued to focus on fixing operational delivery in British Gas Services & Solutions in 2022, to improve the experience for our customers. We have been focused on recruitment, to enable us to complete a greater proportion of jobs using our own workforce, and in 2022 recruited over 800 engineers. This, coupled with a reduction in average sickness rates, resulted in improved capacity. Reflecting this, the number of rescheduled appointments fell from 11% to 6%, while Engineer NPS increased by 4 points to +64 over the year. Complaints per customer increased slightly to 12.6% as we still let some customers down, but improved in H2 2022 relative to H1 and further improvements in customer experience remains a focus for 2023.

Customer retention increased 1ppt to 83%, as we remained mindful of price changes that customers can absorb in the current economic environment, despite inflationary pressures on our own cost base.

However, sales remained challenging against the weak economic backdrop, and there was also an impact of our decision to pause proactive selling for a period earlier in the year to focus on delivery for our existing customers. Reflecting this, total customer numbers fell by 287,000, or 8%, over the year. We also continue to see a trend of more customers trading down to lower priced products within our HomeCare range, with the number of services products per customer dropping to 2.17 compared with 2.23 at the start of the year and 33% of HomeCare products now coming with an excess compared with 31% at the start of the year.

The total number of installs and on-demand jobs for the year fell by 4% compared with 2021. Within this boiler installations increased by 9%, but a changed sales mix resulted in a lower average gross margin per installation. However, with our focus on catching up on a backlog of Annual Service Visits, we completed nearly 600,000 more in 2022 than in 2021, which reduced capacity for on-demand work and resulted in a 10% fall in these type of jobs.

British Gas Services & Solutions adjusted operating loss was £(9)m in 2022 against an adjusted operating profit of £121m in 2021. 

• The reversal of Covid-19 and industrial action impacts from 2021 totalling £50m was partially offset by temporary factors seen in the first half of 2022, specifically increased workload that we believe was a function of customers choosing to have non-urgent work completed which they had delayed during the Covid-19 pandemic, temporary higher absence rates and an increase in the payment of compensation to customers. These factors negatively impacted adjusted operating profit by approximately £25m.

• We continued to invest in the future of the business, through increasing our direct engineer capacity and upgrading core IT systems, to ensure we are able to better serve customers today and well placed to capture longer-term opportunities arising from the decarbonisation of heating in the UK. This investment in service resulted in a negative impact on operating profit of approximately £45m in 2022. Having now stabilised our operational metrics, we would expect recruitment costs to reduce in 2023, while we expect to start benefiting from our investments through improved engineer productivity and increased sales of net zero products. 

• We also continue to see inflationary cost pressures, on both direct labour as we support our colleagues through the cost of living crisis, and on third party costs. We chose not to fully pass these through in pricing to our customers, resulting in a negative impact on adjusted operating profit of approximately £50m.

• Lower contract customer numbers coupled with customers trading down to lower priced products was a factor in the financial result, as was a changed boiler sales mix. These factors negatively impacted adjusted operating profit by approximately £60m. Improving commercial performance remains a focus and we have a clear commercial plan for 2023.

Helping customers in British Gas Energy in a volatile and high price environment

All 2022 metrics and 2021 comparators are for the 12 months ended 31 December unless otherwise stated.

(i) Residential energy customers are defined as single households buying energy from British Gas.

(ii)   Total complaints, measured as an expression of dissatisfaction in line with submissions made to Ofgem, as a percentage of average customers over the year.

(iii)  2021 restated to reflect the average weighted score by channel across the year. Measured independently, through individual questionnaires and the customer's willingness to recommend British Gas following contact.

We continued to focus on helping our customers in British Gas Energy in 2022, choosing to invest as much in customer service and support than we made in profits for the year, including through the UK's biggest ever energy support package totalling £50m.

Residential customer numbers increased by 256,000, or 4%, over 2022. This included a net increase of 158,000 customers who joined us through Ofgem's Supplier of Last Resort Process from Together Energy, while we also saw organic net growth of 98,000 in the year, against a backdrop of low levels of market switching. We also delivered a 25,000, or 5%, increase in the number of small business customers we serve, to 480,000, including organic net growth of 18,000.

With higher wholesale commodity prices resulting in significantly higher customer bills, we saw customer contact increase by almost a third compared to 2021, with greater customer focus on the level of their bill and direct debit payments. This led to a higher number of complaints, although almost 70% were resolved within a day, while Energy Touchpoint NPS improved to +13. We remain focused on ensuring we are able to handle an increased level of customer contact at this challenging time for many customers, and have now completed the recruitment of an additional 700 UK-based contact centre colleagues.

We continue to make good progress in migrating customer accounts in a controlled manner onto our new 'software as a service' IT platform. Around 2.2m customers have now been migrated onto the platform, more than double the amount at the half year, which combined with more modern ways of working is intended to enable a lower cost to serve and improved levels of customer service.

Cost per customer (excluding bad debt) decreased by £1 to £83 per customer, despite the impacts of inflation, a £3 impact of dual running IT costs and our investment in additional call centre agents, as we continue our drive to become more efficient. This figure excludes incremental voluntary support and donations.

British Gas Energy adjusted operating profit decreased by 39% to £72m, which largely reflects voluntary donations made to support customers and the repayment of furlough funds received by the Group in 2020.

• Rising wholesale commodity prices for much of the year meant that default tariffs remained cheaper than new fixed-price tariffs, resulting in more customers on default tariffs than we had hedged for. This required us to purchase more commodity at prices above the allowance in the price cap in Q1 2022, although with allowances introduced into the price cap from April 2022 to allow recovery for suppliers, the impact was broadly neutral in the year.

• Warmer than normal temperatures in H1 2022 resulted in lower demand and allowed the sale of surplus gas and power back into a high-priced market at a profit. Temperatures were also warmer in H2 2022, particularly in October and November. However, this came alongside a material fall in near-term commodity prices to levels below which we had forward purchased gas and power for our customers, and resulted in us selling surplus gas and power into the market at a loss. We also saw changing customer behaviour against a backdrop of higher customer bills, leading to a reduction in underlying consumption. Overall, the net impact of these factors on adjusted operating profit was slightly positive.

• The positive impact of increased residential customer numbers and average unit gross margins, and demand recovery from small business customers following the removal of Covid-19 restrictions, were more than offset by a £213m increase in the bad debt charge reflecting higher customer bills and the wider economic uncertainty.

• We also made a number of voluntary choices, including the repayment of £27m received by the Group under the UK Government's Coronavirus Job Retention Scheme, and investments totalling over £70m to support customers who need it most and in building our contact centre capacity to improve customer service resilience.

Bord Gáis Energy retail energy supply was loss making in 2022, but we delivered good operational performance, including from the Whitegate CCGT which was back online

All 2022 metrics and 2021 comparators are for the 12 months ended 31 December unless otherwise stated.

(i) Total complaints, measured as any oral or written expression of dissatisfaction, as a percentage of average customers over the year.

(ii)   Weighted NPS for the main customer interaction channels.

While Bord Gáis Energy saw the return to service of Whitegate CCGT, the retail energy supply business was loss making in 2022, reflecting our decision to protect customers and absorb higher commodity costs. We have committed to donate 10% of Bord Gáis adjusted operating profit to our energy support fund to help vulnerable customers for the duration of the current crisis.

The number of customers grew by 17,000 in 2022, with the addition of customers from failed suppliers, and good retention rates reflecting the support we provided for existing customers. Customer complaints increased slightly and Journey NPS fell by 11 points over the year, which reflects market-wide customer concerns over the sharp rise in retail tariffs due to the significant increase in global commodity prices.

Despite the loss in retail energy, which also includes the impact of higher bad debt and lower customer consumption from warmer weather and changing customer behaviour, Bord Gáis Energy adjusted operating profit increased by 11% to £31m, reflecting good wholesale trading performance and strong availability from the Whitegate CCGT, which was offline for most of 2021. This demonstrates the value of an integrated business model in Ireland.

As part of the push for increased security of supply and decarbonisation in Ireland, we have also taken a positive final investment decision on two 100MW flexible gas peaking plants in Athlone and Dublin, at an expected cost of over €250m.

Strong management of commodity market volatility in Energy Marketing & Trading

All 2022 metrics and 2021 comparators are for the 12 months ended 31 December unless otherwise stated.

Our EM&T business has a diverse portfolio of contracted positions and is very well positioned when commodity prices are high and/or volatile, given our in-depth understanding of energy markets and ability to manage system complexity. We deployed more working capital, with an outflow of £1.2bn relating to investment in gas inventory for our storage and LNG positions and unrealised profit on derivative positions. However, this investment was well rewarded, with material in-year profits from our Gas & Power trading, Route-to-Market and LNG activities.

In Gas & Power Trading, our contracted pipeline and interconnector positions across Europe allowed us to move gas and power between markets and benefit during periods of significant price dislocations. In addition, our significant gas storage positions meant we were able to benefit from volatility in seasonal spreads.

In Route-to-Market, we've grown one of Europe's largest third-party renewable energy portfolios, creating an advanced, cross-European virtual power plant, and in 2022 we also benefited from the higher power price environment. Capacity under management, including renewables and optimisation assets such as battery and CHP, increased to 15.4GW from 14.6GW of which approximately 75% are renewable technologies. The diverse range of markets we serve and technologies we offer are proving increasingly valuable, as more intermittent generation comes online across Europe to increase the importance of balancing services. We remain focused on growing our route-to-market capacity as more renewable assets come online across Europe.

Our LNG business was profitable in 2022, despite us having forward sold all cargoes from our Cheniere contract for 2022 delivery in times of lower geographical price spreads, as large differentials between US and European gas prices provided opportunity to capture additional value. In total we traded 284 physical cargoes in 2022 and we continue to look to build on our contractual positions. During the year, we signed a Heads of Agreement with Delfin to take 1 million tonnes of LNG from their floating facility in the Gulf of Mexico, with a final agreement being worked up and operations expected to commence in 2026.

The remaining legacy gas contract delivered a profit for the year of £19m (2021: loss of £85m). At current forward prices we expect adjusted operating losses to total around £100m across the period 2023 to 2025 when the contract ends, an improvement of £50m from our expectation at the time of the Interim Results last July.

Reflecting the strong management of high and volatile commodity markets, EM&T adjusted operating profit was £1,400m (2021: £70m).

Delivering improved gross margin and building lower carbon and flexible generation assets in Centrica Business Solutions

All 2022 metrics and 2021 comparators are for the 12 months ended 31 December unless otherwise stated.

(i) Total complaints, measured as any oral or written expression of dissatisfaction, as a percentage of average customers over the year.

(ii)   2021 restated as previously shown on a per site basis.

(iii)  Measured independently, through individual questionnaires and the customer's willingness to recommend.

(iv)  2021 restated following re-segmentation of activity to EM&T.

The amount of energy supplied by Centrica Business Solutions to medium and large sized businesses was flat at 22.3TWh compared to 2021, with the easing of Covid-19 restrictions and underlying growth in medium sized business volumes being offset by the impacts of warmer weather and lower underlying customer demand in response to higher prices and the economic climate. Customer complaints increased, reflecting increased customer concern around higher energy prices, however Touchpoint NPS increased to +31 reflecting investments to improve overall customer service.

Services order intake of £212m was 43% lower than in 2021, driven by actions taken to focus the business and weaker uptake in the UK. The Services order book of £670m was broadly stable, ending the year 2% lower than in 2021.

Centrica Business Solutions operates a portfolio of flexible generation assets, principally a 49MW battery at Roosecote and a 49MW gas-peaking plant at Brigg. These assets performed well in the year, playing important roles for UK security of supply during times of high demand or reduced system availability. A further five large scale projects totalling nearly 150MW are currently under construction, including a 18MW solar farm at Codford, a 50MW battery at Brigg and a 30MW battery at Dyce.

Centrica Business Solutions reported an adjusted operating profit of £44m (2021: loss of £52m). Energy supply reported a significant improvement in adjusted operating profit to £73m (2021: £1m) driven by strong gross margins, which included gains from the sell back of excess hedged volumes in periods of warmer weather and lower underlying customer demand. These impacts were partially offset by an increase in the bad debt charge reflecting the current weaker economic environment.

Energy Services and Assets reported a reduced adjusted operating loss of £29m (2021: loss of £53m), reflecting higher gross margin capture due to improved operational focus and lower operating costs due to recent efforts to refocus the business.

Strong gas production and nuclear generation volumes and Rough reopened as a storage asset

All 2022 metrics and 2021 comparators are for the 12 months ended 31 December.

Please note that profit and inventory from Rough operations are reported under Centrica Storage Limited for presentational purposes only. Centrica Storage Limited does not produce, supply or trade gas, except to the extent necessary for the efficient operation of the storage facility. In accordance with the Gas Act 1986, such production, supply and trading of gas is carried out wholly independently of Centrica Storage Limited by other Centrica group companies.

Total E&P production was down 32% to 27.0mmboe. When excluding the disposed Spirit Energy assets, production was flat at 20.7mmboe.

• Total volumes from the retained Spirit Energy were down 2% to 17.5mmboe. Liquids volumes fell from 2.1mmboe to 1.2mmboe, with remaining 2P liquids reserves now only 1mmboe. Gas production volumes business increased by 3% to 16.3mmboe, reflecting strong operational performance at the Greater Markham Area and Cygnus.

• Production volumes from Centrica Storage's Rough field increased by 9% to 3.2mmboe, reflecting strong operational performance as a production asset in the first half of the year, with the asset then returning to gas storage operations in September 2022.

Centrica's share of nuclear generation volumes of 8.7TWh was 5% higher than 2021, despite the end of generation at Hunterston B in January and Hinkley Point B in August, reflecting improved plant reliability.

Upstream adjusted operating profit increased to £1,793m (2021: £663m). Excluding the disposed Spirit Energy assets, adjusted operating profit was £1,308m (2021: £107m).

• The retained Spirit Energy business reported an adjusted operating profit of £245m (2021: £68m), with higher wholesale commodity prices resulting in a higher achieved price, despite the impact of hedging. This was partially offset by a higher depreciation charge following impairment write-backs in 2021.

• Centrica Storage adjusted operating profit was £339m (2021: £77m). This reflects strong production from Rough in the first half of 2022 during periods of high commodity prices, and capture of higher seasonal gas price spreads in the second half of the year following Rough's return to storage operations.

• Nuclear reported adjusted operating profit was £724m (2021: loss of £38m), reflecting strong generation volumes and higher achieved prices.

Delivering a strong financial performance

Strong adjusted operating profit and earnings

Adjusted EBITDA increased to £3,993m (2021: £1,850m) and adjusted operating profit increased to £3,308m (2021: £948m), reflecting the movements in business unit adjusted operating profit as described in the previous section.

The net finance charge fell to £143m (2021: £187m) reflecting the impact of higher interest rates on cash deposits. The effective tax rate on adjusted operating profit decreased to 34% (2021: 59%), largely due to the change in profit mix towards Energy Marketing & Trading and Nuclear.

Reflecting the above, adjusted earnings attributable to shareholders increased to £2,050m (2021: £237m) and adjusted basic EPS from continuing operations was 34.9p (2021: 4.1p). Excluding earnings from the disposed Spirit Energy assets, adjusted basic EPS was 34.2p (2021: 2.8p).

Statutory loss largely reflects negative re-measurements of energy contracts

Total exceptional items recognised in continuing operations after tax generated a loss of £362m (2021: profit of £997m), with a loss on disposal on the Spirit Energy Norway assets and the recognition of higher deferred tax liability balances related to the implementation of the Energy Profits Levy, partially offset by a write-back of our nuclear investment related to higher forecast power prices.

A loss from net re-measurements after tax of £2,393m (2021: loss of £755m) was recognised, largely relating to the re-measurements of UK energy supply forward purchases, with commodity prices having fallen towards the end of 2022. These should unwind over future periods.

Reflecting these exceptional items and certain remeasurements, a statutory loss after taxation of £636m was recognised (2021: profit of £1,173m). After non-controlling interests, the statutory loss was £782m (2021: profit of £1,210m) with a basic EPS loss of 13.3p (2021: profit of 20.7p).

Further robust cash flow generation and continued balance sheet strength

Although adjusted EBITDA increased by £2,143m, free cash flow from continuing operations was only £1,313m higher, at £2,487m. This is largely growth related, in that it reflects £434m of higher tax payments related to the increased adjusted operating profit, and a £515m increase in working capital, with unrealised profit on derivative positions in Energy Marketing & Trading and increased gas inventory value in Energy Marketing & Trading and in Centrica Storage, partly offset by the acceleration of cash flows received in British Gas Energy due to the implementation of Government customer support schemes.

Statutory net cash flow from continuing operating activities was £1,314m, £297m lower than in 2021, with the difference between this reduction and the increase in free cash flow largely related to a £1,173m negative movement in margin cash, compared to a £481m inflow in 2021. This reflects commodity purchases for our UK energy supply customers being out the money as prices fell towards the end of the year.

Interest and pension deficit payments were both lower in 2022 than in 2021. A payment of £273m was made to the minority shareholders of Spirit Energy, representing their share of cash flows generated since 1 January 2021 from the disposed Spirit Energy businesses. Reflecting these movements the Group had adjusted net cash of £1,199m at the end of 2022 compared to adjusted net cash of £680m at the end of 2021.

We retain significant access to liquidity. At the end of 2022, the Company had £3.7bn of unrestricted cash and cash equivalents (net of bank overdrafts) and £4.0bn of undrawn credit facilities.

Pensions triennial valuation

The Group's IAS 19 net pension surplus was £40m at the end of 2022, compared to £nil at 31 December 2021, with the impact of pension deficit contributions during the year being partially offset by net actuarial losses.

The technical provisions deficit is based on more conservative assumptions and is used to determine the agreed level of cash contributions into the schemes. In September 2022, we reached agreement with the pension trustees on a March 2021 technical provisions deficit of £944m, with annual deficit contributions remaining unchanged. On a roll-forward basis using the same methodology, consequent assumptions and contributions paid, the technical provision deficit would be in the region of £850m at 31 December 2022.

Having proactively managed the volatile gilts market during the second half of 2022 and with interest rate and hedging levels above 90%, we see pensions as an area of much reduced volatility in the future.

A progressive dividend policy and returning surplus structural capital to shareholders 

The ordinary dividend was reinstated at the Interim Results, with an interim dividend per share of 1.0p. We are declaring a 2022 final dividend of 2.0p per share, which takes the full year dividend to 3.0p. Longer term, we expect the dividend to be progressive and dividend cover from earnings to move to around 2x over time, recognising the ratio is likely to vary each year dependent on the business cycle.

Reflecting the 2022 performance and outlook, together with the work undertaken in recent years to strengthen the balance sheet and ensure appropriate liquidity, we announced in November 2022 the commencement of a £250m share repurchase programme. As at 15 February, we had repurchased £113m of shares. With the existing programme projected to be completed by around May 2023, we intend to extend this by an additional £300m, which at the current share price would result in Centrica buying back approaching 10% of its issued share capital in total since November 2022. The extension is subject to market conditions at the time the repurchase of the first £250m of shares is nearing completion.

2023 outlook 

As always there are a range of external factors outside of our control, most materially weather, commodity prices, the economic backdrop and any changes to regulation of government policy. This results in a range of outcomes for many of our business units.

However, a lot of focus over the past few years has been on creating a balanced portfolio and improving the foundations of the Group. This leaves us well placed to profitably manage a range of external environments. We have also developed good growth options and would expect capital expenditure to increase in 2023 compared with 2022.

In our Retail businesses, we will continue to invest in further improvement in our operations. In British Gas Services & Solutions in particular, our focus is on improving commercial performance and we are looking to drive some financial recovery in 2023.

In Optimisation, although we do not plan for conditions seen in 2022 to repeat in 2023, we have sold forward LNG cargoes at a profit on average, and where volatility remains a factor, our strong capabilities and contractual positions should enable us to capture value in physical storage, pipelines, LNG and generation off-take. We expect to continue to invest working capital in this area.

In our Upstream Infrastructure businesses, although wholesale prices have been falling since towards the end of 2022, they remain elevated compared to historic levels. With hedges rolling off, we would expect to see higher captured prices in our gas production and nuclear activities, albeit earnings will be significantly impacted year on year by the implementation of additional upstream levies. As of 31 December 2022, Spirit Energy had sold forward 640mmth of gas for 2023 at an average price of 106p/therm and 361mmth of gas forward for 2024 at an average price of 184p/therm. As at the same date, we had sold 5.0TWh of electricity forward for 2023 in Nuclear at an average price of £203/MWh and 1.4TWh forward for 2024 at an average price of £240/MWh, while Centrica Storage had forward sold 165mmth of gas in store at a price that generates an average spread of 161p/therm.

Delivering growth and positioning ourselves for net zero

Centrica is a uniquely integrated energy company. We have a balanced portfolio, in what are increasingly imbalanced energy systems across the world and we have significant growth and investment opportunities across the energy value chain.

We will invest in our retail businesses to deliver net zero propositions for customers. We will utilise our world class energy trading and optimisation capabilities to support the build out of our own and third party renewable and flexible assets across Europe. We will also invest in existing assets, repurposing carbon emitting assets into net zero infrastructure.

Growth potential in Retail

We are well positioned to deliver growth in Retail. The decarbonisation of heat will drive substantial demand for new heating systems and as the UK's largest installer and servicing provider of such systems, this is a real opportunity. There are 28 million homes in the UK and 3 million in the Republic of Ireland - and the majority of them will require some form of change to their heating systems to ensure net zero is achieved.

We have the largest energy services field force of around 7,000 engineers in the UK and our award-winning in-house training academies provide us with a competitive advantage, allowing us to both train and certify our own apprentices and upskill our engineers to install heat pumps, electric vehicle charging points, smart meters and hydrogen-ready boilers.

We will need to continue to improve our operational and commercial performance to take maximum advantage of these opportunities. That is why we are investing in customer service and productivity, which should over time drive improved retention and market share growth.

We are already taking steps to prepare ourselves for the future. We have set up a Net Zero business within British Gas Services & Solutions, whose mission will be to support our customers on their journey to net zero, and in January 2023 we launched the cheapest heat pump offer in the UK market, having already installed more heat pumps in the UK than any other company.

In addition, our investment in the new energy supply platform will ensure that we can give our customers demand response possibilities. A number of our British Gas Energy customers have been invited to sign up for our "Peak Save" trial initiative, which provides financial incentives for using less electricity during times of peak usage. We intend to roll this initiative out more widely in the future.

Optimisation capabilities aligned to the energy transition

We have always had a requirement to manage our commodity exposure and risk in core markets, given the scale of our retail and infrastructure positions, and the expertise we have gained through doing this is very valuable. We have strong people and technology capabilities in gas and power balancing and trading, and with European energy markets increasingly interlinked, we have expanded our activities outside our core markets of the UK and Ireland.

In total, we now trade in 24 countries across Europe and employ over 600 colleagues across our main offices in Aalborg, London and Antwerp. Our activity is generally underpinned by contractual positions, including for pipeline and interconnector capacity, and 11TWh of gas storage across the UK and Continental Europe. We also manage over 16GW of third party renewable and flexible assets in our route-to-market business, which provides market access and balancing services for customer owned assets. With an increased proportion of renewables coming online this creates a great opportunity for us, both due to the growing size of the market and due to the volatility in prices created by the increased intermittency of renewable generation.

We also manage a global LNG portfolio. In addition to capacity at the Isle of Grain regassification facility and our long term US export contract with Cheniere, we have been building up a number of medium term positions that de-risk and optimise the overall LNG portfolio. We have a strong team with a deep understanding of the LNG market and its logistics and will continue to seek options to de-risk and potentially grow, enabled by our stronger balance sheet and deep knowledge of global gas markets.

We already build and maintain customer assets as well as our own through Centrica Business Solutions. Combined with our world class optimisation capability and access to huge amounts of market data, this gives us confidence that we can compete across the value chain, investing Centrica's capital in assets and monetising them.

Deploying capital in infrastructure for value

Investment in the UK and Ireland energy systems is expected to increase materially in the next decade, with nearly £200 billion expected to be spent between 2021 and 2030 driven by government decarbonisation targets and the push for increased security of supply.

The majority of this investment is projected to come from intermittent renewable technologies such as wind and solar. However, a combination of technologies will be required, creating opportunities for companies with strong balance sheets, flexible business models and detailed knowledge of markets.

This creates opportunities for Centrica, and we currently see our main areas of investment focus are likely to be battery storage, gas peaking generation, solar, hydrogen and carbon capture utilisation and storage (CCUS). The focus will be on our core markets of the UK and Ireland.

Investing in small scale flexible generation

Potential investments in small scale, flexible generation will be aligned to our existing capabilities and we will focus on sites which are already connected to the electricity grid. We own operational assets in the UK and Ireland, including a battery at Roosecote, a gas peaking plant at Brigg and the Whitegate CCGT in Ireland. We have also been progressing a number of new projects over 2022 and now have over £400m of in-train projects.

An 18MW solar farm in Wiltshire in the UK is already operational, while in the second half of 2022 we made positive final investment decisions on three new battery storage investments which are expected to cost around £100m in total - a 50MW project on the site of the now closed Brigg CCGT; a 30MW project in Dyce, near Aberdeen, which will help manage load from North Sea offshore wind farms; and, a 24MW project in Ostend in Belgium. In January 2023, we acquired the site of a former gas-fired power plant at Knapton in North Yorkshire, with plans to develop a 28MW battery.

We have now made a positive final investment decision on two 100MW gas peaking plants in Dublin and Athlone in the Republic of Ireland, at an expected cost of around €250m. And in the UK, we have approved the build of a further two gas peaking plants for an expected cost of around £70m, an additional 48MW gas peaking plant at Brigg and a 20MW plant at Redditch.

Including these projects, we have brownfield sites across the UK and Ireland that could support over 1GW of new flexible generation capacity over the next five years.

We also have the potential to deploy capital into renewables with partners, which can also provide market access for our route-to-market activities.

Repurposing existing assets for net zero and preparing for hydrogen

We own E&P and Nuclear assets today, however their lifespan is limited. We have a great opportunity to reinvest cash flows generated by these assets to turn them into net zero assets, which will continue to provide the balance our portfolio benefits from today.

Centrica Storage has a 10 year gas storage licence and in the second half of the year we reopened Rough as a gas storage asset, with the asset having played an important role in supporting energy security of supply over the 2022/23 winter. We retain optionality to invest capital to increase capacity beyond the current 30bcf level and longer term we have the option to convert Rough into a hydrogen storage asset. We currently estimate that this project would cost in the region of £2bn and believe it will require an appropriate support mechanism from the UK Government.

We also continue to assess longer-term options for the Spirit Energy-owned Morecambe gas field, which could prove to be an attractive asset for CCUS. We continue to develop plans and have now submitted an application for a carbon storage licence.

We are also looking to build out further expertise in both hydrogen and carbon capture, taking a number of small and nascent positions. We have a minority stake in HiiROC, whose proprietary technology converts gas into clean hydrogen, and in November 2022 signed a Memorandum of Understanding with Ryze Hydrogen to look at jointly building and operating hydrogen production facilities, and a co-operation agreement with Equinor to explore developing a low-carbon production hub at the Easington site.

These assets will help accelerate the energy transition while also improving security of supply in core markets. We will continue to assess opportunities against a robust framework, with each project needing to deliver suitable returns commensurate with the risk undertaken.

We intend to provide more detail on our longer-term investment plans and expected returns alongside the 2023 Interim Results in July.

A simpler, de-risked, more efficient company with attractive net zero opportunities

Centrica is a uniquely integrated energy company, with strong positions, capabilities and growth opportunities across retail, optimisation and infrastructure.

We have significantly simplified and de-risked Centrica over the past three years, eliminating net debt, reducing decommissioning liabilities and reducing pension liabilities, and our strong balance sheet and balanced portfolio has served us well through the ongoing energy crisis.

We have made good progress in improving operational performance. We are on a much more stable footing now, with the focus on continuous improvement and better commercial performance.

We have the capability and financial strength to invest in attractive net zero opportunities, subject to appropriate returns.

We will continue to focus on delivering simply, sustainably and affordably for our customers and on delivering attractive cash returns for our shareholders, through our progressive dividend and, where appropriate, additional returns of structural capital through share repurchases.

Group Financial Review

Revenue

Group statutory revenue increased by 61% to £23.7bn (2021: £14.7bn). Group revenue included in business performance, which includes revenue arising on contracts in scope of IFRS9 (see note 5b for further details), increased by 84% to £33.6bn (2021: £18.3bn).

Gross segment revenue, which includes revenue generated from the sale of products and services between segments, increased by 82% to £37.2bn (2021: £20.5bn). This was driven largely by the impact of higher wholesale commodity prices on Energy Marketing & Trading and Upstream, and the impact of higher wholesale prices on retail tariffs in British Gas Energy, Bord Gáis Energy and Centrica Business Solutions.

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

Operating profit / (loss)

Adjusted operating profit increased to £3,308m (2021: £948m). Excluding the disposed Spirit Energy assets, adjusted operating profit increased to £2,823m (2021: £392m). The statutory operating loss from continuing operations was £240m (2021: profit of £954m). The difference between the two measures of profit relates to exceptional items and certain remeasurements, which are explained on pages 20-22. A table reconciling the different profit measures is shown below:

Group operating profit from business performance (adjusted operating profit)

The increase in adjusted operating profit was primarily in Energy Marketing & Trading, with our diverse range of contractual gas storage, pipeline and power generation capacity proving very valuable in elevated and volatile commodity markets, and in Upstream, reflecting strong gas production and nuclear generation volumes against a backdrop of higher commodity prices and the return of Rough to gas storage operations.

In Retail, British Gas Energy profit fell, as we provided £50m of additional support to customers struggling in the current environment, while British Gas Services & Solutions reported a small loss, as we invested in improving customer service and pricing, and saw weak commercial performance against a challenging external backdrop.

More detail on specific business unit adjusted operating profit performance is provided in the Group Overview on pages 6 to 12.

Group finance charge and taxation

Finance costs

Net finance costs from continuing operations decreased to £143m (2021: £187m), largely due to an increase in interest income on cash balances reflecting higher UK interest rates. Interest costs on bonds, bank loans and overdrafts were slightly down, with the impact of the decision to redeem the €750m hybrid bond at its first call date in April 2021 and the further maturity of two bonds in early 2022 largely offset by the impact of the higher interest rate environment on floating debt.

Taxation

Business performance taxation on profit from continuing operations increased to £1,046m (2021: £454m). After taking account of tax on joint ventures and associates, the adjusted tax charge was £1,077m (2021: £433m).

The resultant adjusted effective tax rate for the Group was 34% (2021: 59%), with the profit mix moving away from highly taxed E&P activities.

The adjusted effective tax rate calculation is shown below:

Exceptional items and certain re-measurements

Total certain re-measurements and exceptional items from continuing operations included within Group operating profit generated a pre-tax loss of £3,548m (2021: profit of £6m), made up of a loss on certain re-measurements of £3,393m (2021: loss of £1,241m) and an exceptional loss of £155m (2021: profit of £1,247m).

Total certain re-measurements and exceptional items from continuing operations generated a tax credit of £793m (2021: £236m), with a credit of £1,000m (2021: £486m) related to certain re-measurements and a charge of £207m (2021: £250m) related to exceptional items from continuing operations.

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.

As a result of significant commodity price increases, since 2021 the Group has also recognised an onerous contract provision for its UK downstream energy supply contract portfolio. Although gains and losses on the commodity derivative hedge trades are already separately recognised in the income statement, the Group must assess whether downstream customer contracts have become onerous, taking into account the reversal of any mark to market gains. Movement in the amount provided is recognised in certain re-measurements, as the supply contracts are economically related to both the hedges and forecast future profitability of supply and therefore do not reflect underlying performance.

The operating profit in the statutory results includes a net pre-tax loss for continuing operations of £3,393m (2021: loss of £1,241m) relating to re-measurements, comprising:

• A net loss of £5,160m on the re-measurement of derivative energy contracts. With the Group generally a net purchaser of commodity, we saw a negative revaluation of energy supply contract hedge purchases entered into over 2022 due for delivery in future periods given the reductions in forward commodity prices towards the end of the year, after the contracts were entered into. These re-measurements should unwind as the commodity is delivered to customers, mostly in H1 2023. In addition there was an unwind of in-the-money positions for the UK downstream energy supply business from December 2021 as the commodity was delivered to customers in 2022. The net negative impact of these two factors was £6,364m. This was partially offset by the unwind of Upstream and Energy Marketing & Trading out-the-money positions from December 2021, together with the revaluation of their sell trades due for delivery in future periods. The net positive impact of these two factors was £1,204m.

• A £1,766m release from the onerous energy supply contract provision. As the Group purchases the commodity required for future supply in advance, the decline in commodity prices towards the end of 2022 meant the costs of fulfilling residential downstream customer contracts would now be lower than the fixed/capped charges recoverable from customers. As a result, this portion of the provision has been reversed. The remaining provision of £999m relates to non-domestic customers on longer-term fixed contracts agreed at levels below the current forward commodity prices. The gain from releasing this provision will offset losses from the ultimate unwinding of in-the-money hedge positions, without affecting the ultimate profitability of the underlying transactions.

• There was also a £1m net gain arising on re-measurement of certain associates' contracts (net of taxation).

These re-measurements generated a taxation credit of £1,000m (2021: credit of £486m), including £473m associated with re-basing deferred tax on certain relevant derivatives for the Energy Profits Levy. As a result, the total loss from net re-measurements after taxation for continuing operations was £2,393m (2021: loss of £755m).

The Group recognises the realised gains and losses on commodity derivative and onerous supply 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).

Exceptional items

An exceptional pre-tax charge of £155m was included within the statutory Group operating profit from continuing operations in 2022. In 2021, an exceptional pre-tax profit of £1,247m was recognised, largely relating to the write-back of Upstream gas production and electricity generation assets.

The 2022 pre-tax exceptional charge was made up of:

• A charge of £362m relating to the Spirit Energy Norwegian E&P and Statfjord disposal, which completed on 31 May 2022. See note 15 for further details.

• A £207m write-back of power assets, predominantly relating to the write-back of the nuclear investment as a result of higher forecast forward commodity prices, largely offset by the projected impact of the Electricity Generator's levy announced in November 2022 and applicable from 1 January 2023.

The taxation charge on exceptional items was £207m (2021: £250m), which includes a £121m credit associated with deferred tax provisions related to E&P tax losses and decommissioning carry-back, due to the increase in forecast commodity prices and an exceptional £325m charge from the recognition of higher deferred tax liability balances due to the implementation of the Energy Profits Levy.

As a result, the total post-tax exceptional loss recognised in continuing operations after taxation was £362m (2021: profit of £997m).

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

Discontinued operations

There was no adjusted operating profit or adjusted earnings from discontinued operations in 2021 or 2022. Statutory earnings of £624m from discontinued operations in 2021 are related to the profit on disposal and release of a tax provision following the disposal of Direct Energy, which completed on 5 January 2021.

Group earnings

Adjusted earnings

Profit for the year from business performance from continuing operations after taxation was £2,119m (2021: £307m). After adjusting for non-controlling interests relating to Spirit Energy, adjusted earnings were £2,050m (2021: £237m). Excluding the disposed Spirit Energy assets, adjusted earnings were £2,005m (2021: £162m).

Adjusted basic EPS was 34.9p (2021: 4.1p). Excluding Spirit Energy assets, adjusted basic EPS was 34.2p (2021: 2.8p).

Statutory earnings

After including exceptional items, certain re-measurements and earnings from discontinued operations, the statutory loss attributable to shareholders for the period was £782m (2021: profit of £1,210m).

The Group reported a statutory basic EPS loss of 13.3p (2021: profit of 20.7p, of which 10.0p related to continuing operations).

Dividend

In addition to the interim dividend of 1.0p per share, the proposed final dividend is 2.0p per share, giving a total full year dividend of 3.0p per share (2021: nil).

Group cash flow, net debt and balance sheet

Group cash flow

Free cash flow is the Group's primary 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.

Net cash flow from continuing operating activities of £1,314m was down 18% (2021: £1,611m), with the impact of higher adjusted EBITDA partially offset by higher tax payments, and material working capital and collateral and margin cash outflows.

These significant working capital movements were largely a reflection of the higher commodity price environment and UK Government initiatives to address this. British Gas Energy saw a working capital inflow of £1.1bn in the year reflecting the introduction of the Energy Price Guarantee and Energy Bill Support Scheme, which resulted in earlier payment than under standard consumer payment patterns. EM&T saw a large working capital outflow of £1.2bn driven by a higher volume of gas inventory and by the timing of settlements on trading cash flows. In addition, we invested £0.4bn of working capital in Rough, having injected 16bcf into gas storage.

We saw a £1.2bn outflow of collateral and margin cash. In an elevated and volatile commodity price environment, initial margin requirements are greater and the likelihood of large movements on variation margin are also increased. At the end of 2022, commodity purchases made for our retail customers were out the money as prices fell towards the end of the year. We would expect these outflows to reverse in future periods, as we deliver the commodity to customers.

Net cash outflow from continuing investing activities increased to £566m (2021: £325m), with lower net investment in gas production more than offset by higher net investment in non-E&P activities and a £400m loan to the pension schemes in October 2022 to help them manage through volatile market conditions.

Group total free cash flow from continuing operations was £2,487m (2021: £1,174m), as reconciled to statutory cash flow measures in the table above.

Net cash outflow from continuing financing activities remained broadly unchanged at £917m (2021: £938m) with the two bond repayments in February and March 2022 resulting in lower cash outflow than from the hybrid redemption in 2021, offset by the impacts of the distribution of £273m to Spirit Energy's minority partner relating to the disposal of Spirit Energy's Norway assets and the recommencement of returns to shareholders through the payment of a 2022 interim dividend and the buyback of shares as part of the Group's £250m share repurchase programme.

Group adjusted net cash

The above resulted in a £169m decrease in cash and cash equivalents over the year, and when including the impact of reduced gross debt resulting from the bond repayments, the loan to the pension schemes and lease adjustments, the Group's adjusted net cash position at the end of December 2022 was £1,199m, compared to £680m on 31 December 2021.

Further details on the Group's sources of finance and net debt are included in note 11.

Pension deficit

The Group's IAS19 net pension position improved to a £40m surplus as at the year-end, from £nil at 31 December 2021, with the impact of pension deficit contributions during the year being partially offset by net actuarial losses.

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

Balance sheet

Net assets decreased to £1,280m (2021: £2,750m). This largely reflects the impact of the statutory loss in the year, in particular the net re-measurements in relation to energy supply contracts, the impact of the share repurchase programme, IAS19 pension losses from our equity accounted Nuclear investment and the minority dividend payment.

2022 acquisitions, disposals and disposal groups classified as held for sale

On 8 December 2021, Centrica announced that the Spirit Energy Group, of which the Group owns 69%, had agreed to dispose of its Norwegian oil and gas exploration and production business and its interests in the Statfjord field for headline consideration of $1,076m (approximately £800m) on a debt-free cash-free basis, plus a deferred commodity price-linked contingent payment. The commercial effective date of the transaction was 1 January 2021, with the transaction approved by Centrica shareholders at a General Meeting on 13 January 2022 and completed on 31 May 2022.

After adjustments for the net post-tax cash flows generated by the sale business and interests after the commercial effective date, less any remaining tax payable on these cash flows, net consideration was £69m, including a deferred commodity price-linked receivable and a tax indemnity provided to Sval Energi. Spirit Energy has distributed the net cash flow generated since 1 January 2021 and the net consideration to Centrica and its joint venture partners in proportion to their ownership, with £233m distributed to Centrica's non-controlling interest in June 2022 and a further £40m distributed in the second half of 2022.

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

Events after balance sheet date

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

Risks and capital management

The nature of the Group's principal risks and uncertainties are broadly unchanged from those set out in its 2021 Annual Report. However, the Group's top three Principal Risks are now Credit & Liquidity Risk, Market Risk (including the outage risk of financial loss due to impact of lost asset production) and Weather Risk, reflecting the potential impacts of gas and electricity prices reaching record levels during 2022 together with extreme volatility.

The Group has actively responded to those risks heightened by global wholesale energy prices. Centrica's approach to risk management includes agile hedging policies and effective demand forecasting processes. The extent to which the Group may continue to be impacted by the consequences of the high level of commodity prices will, in part, depend on further government and regulatory policy, including setting of future levels of default tariff caps, levies on profits and any extension to customer support schemes.

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.

Accounting policies

The Group's accounting policies and specific accounting measures, including changes of accounting presentation and selected key sources of estimation uncertainty, are explained in notes 1, 2 and 3.

Nuclear

Spirit Energy

(i) 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.

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

Statement of Directors' Responsibilities

Directors are responsible for preparing the Group Financial Statements in accordance with applicable law, regulations and accounting standards. In preparing the Group Financial Statements, International Accounting Standard 1 required the Directors to:

·  properly select and apply accounting policies;

·  present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·  provide additional disclosures when compliance with the specific requirements in IFRS Standards are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

·  make an assessment of the company's ability to continue as a going concern.

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

·  the Group Financial Statements, which have been prepared in accordance with the United Kingdom adopted International Accounting Standards, with International Financial Reporting Standards as issued by the IASB, give a true and fair view of the assets, liabilities, financial position and profit or 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 15 February 2023

Group Income Statement

(i)  Cost of sales includes a £1,766 million credit (2021: £2,530 million charge) relating to a reversal of the onerous energy supply contract provision within the certain re‑measurements column. See note 6.

(ii)  Profit from the disposal of Direct Energy reflected in discontinued operations is entirely attributable to equity holders of the parent. See note 6.

The notes on pages 33 to 84 form part of these Financial Statements.

Group Statement of Comprehensive Income

(i)  Exchange differences on translation of foreign operations includes £95 million (2021: £46 million) of losses attributable to the equity holders of the parent, and £5 million of gains (2021: £3 million of losses) attributable to non-controlling interests. Exchange differences reclassified to Group Income Statement on disposal includes a £272million loss (2021: £20 million gain) attributable to the equity holders of the parent, and £nil (2021: £nil) attributable to non-controlling interests.

The notes on pages 33 to 84 form part of these Financial Statements.

Group Statement of Changes in Equity

The notes on pages 33 to 84 form part of these Financial Statements.

Group Balance Sheet

The Financial Statements on pages 28 to 84, of which the notes on pages 33 to 84 form part, were approved and authorised for issue by the Board of Directors on 15 February 2023 and were signed below on its behalf by:

Notes to the Financial Statements

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

(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 2022 included in this announcement were authorised for issue in accordance with a resolution of the Board of Directors on 15 February 2022.

The preliminary results for the year ended 31 December 2022 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 2022 or 31 December 2021. The financial information for the year ended 31 December 2021 is derived from the statutory accounts from that year. The report of the auditors on the statutory accounts for the year ended 31 December 2022 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 2022 are consistent with those of the Annual Financial Statements for the year ended 31 December 2021, as described in those financial statements, with the exception of standards, amendments and interpretations effective in 2022 and other presentational changes.

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future, which reflects a period of twelve months from the date of approval of the accounts, with modelled analysis extending to 31 December 2024. The scenarios considered as part of the going concern assessment are consistent with those used in the longer-term viability statement. In particular, cash forecasts for the Group have been stress-tested for different scenarios including reasonably possible increases/decreases in commodity prices and the risk scenarios described in the viability statement, assessing reasonably possible combinations of risks, the largest of which is the increased margin outflows in our trading and upstream businesses.  Risks considered also include the impact of significant adverse weather events, increased bad debt charges due to the cost of living crisis, the risk of financial loss due to counterparty default and production falls in the Group's upstream business. Due to the elevated and more volatile commodity prices in 2022, the Group has established enhanced processes in the trading business and in respect of Upstream to plan for and manage possible increases in margin cash requirements. The largest margin outflow modelled in the going concern scenarios is significantly in excess of actual margin requirements experienced in 2021 and 2022. Following this work, the level of undrawn committed bank facilities and available cash resources has enabled the Directors to conclude that there are no material uncertainties relating to going concern. As a result, the Group continues to adopt the going concern basis of accounting in preparing the financial statements. Further information on the Group's strong liquidity position, including its indebtedness and available committed facilities are provided in note 11.

(c) New accounting policies, standards, amendments and interpretations effective or adopted in 2022