Centrica Annual review and summary financial statement 2004

“Another important stage in the evolution of Centrica” Sir Roy Gardner, Chief Executive

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Financial highlights

12 months ended 31 December 2004 2003 Financial highlights Group turnover* up by Group turnover* £11.8bn £10.8bn 9% ** Operating profit £1,227m £1,058m AA successfully sold Adjusted basic earnings per share 20p 16.8p for a profit of Statutory results £740m Group turnover £18.3bn £17.9bn Total returned to Operating profit £1,000m £897m shareholders Basic earnings per share 33p 11.8p £1.5bn * from continuing operations, excluding Accord trading revenue ** before goodwill amortisation and exceptional items, including joint ventures and associates

Contents 01 Chairman’s statement Inside: Creating shareholder value lies at the heart of our 02 What we do strategy. Our increased investment in securing cost- 04 Chief executive’s review 05 Business review effective energy supplies underpins our continued 10 Corporate responsibility commitment to meeting customer needs. 11 Group financial review 12 Summary financial statement 14 Board of directors 15 Summary reports 18 Shareholder information

“We are playing a “Our investment “We have growing “Our focus key role in bringing in engineer training expertise in power on the needs new gas supplies is supporting our generation in of individual to Britain” home services Britain and in customers growth” the US” builds loyalty”

You can now cast your proxy vote electronically. For more information go to: www.centrica.com and click on Investor Relations, then Shareholders e-comms.

Throughout this review references to British Gas include Scottish Gas. Earnings and operating profit numbers are stated, including joint ventures and associates, before goodwill amortisation and exceptional items where applicable. The directors believe this measure assists with understanding the underlying performance of the group. The equivalent amounts after goodwill amortisation and exceptional items are reflected in the segmental analysis on page 13 and are reconciled at group level in the summary group profit and loss account on page 12. All current financial results listed are for the year ended 31 December 2004. All references to ‘the prior year’, ‘2003’ and ‘last year’ mean the year ended 31 December 2003. CT002_ifc-01_AW.qxd 13/3/05 10:32 am Page 1

Chairman’s statement

Focusing on our customers to create shareholder value

I was delighted to take over in May dividend growth clearly Outlook demonstrates our commitment The market outlook for 2005 as chairman and it is a great pleasure to shareholder value. is dominated by continued to report the group’s full year results uncertainty over wholesale The board of directors energy prices and the In July I outlined the guiding Ordinary dividend (pence) Sir Michael Perry retired in implications on pricing for principles which the board May, having overseen the all energy suppliers. We are believes are critical to the way 9 development of Centrica from committed to building in which Centrica carries out its difficult early days to its competitive edge and reversing

its business and ensures the 6 position today as a successful trends in customer churn. continued creation of and respected energy company. This will be achieved by We are indebted to him for his shareholder value: 3 greater innovation in our • Commercial flair, professional considerable contribution. customer offering, a vigorous competence, financial rigour We are also grateful to commitment to marketing and 0 and commitment to 00 01 02 03 04* Roger Wood, who stepped decisive action to reduce our customer satisfaction; down from the board of cost base. Alongside this, we • Customer focus underpinned Centrica following the sale aim to acquire further upstream by asset strength to maintain *excludes special dividend of 25p of the AA. Finally, having made assets whilst continuing to cost-effective supply; a valuable contribution to apply the financial rigour and • Acquisitions that create value, Centrica, non-executive director patience that has been our requiring patience in identifying Returns to shareholders Robert Tobin stepped down trademark. We will efficiently targets, skills in negotiation As a result of this performance, in order to focus on his other manage our existing assets and and availability of funds; the board is proposing a final interests in North America. external contracts to optimise • Cost control and operational dividend of 6.1 pence per share We continue to ensure the our energy procurement. efficiency to build competitive to be paid in June 2005. In line board’s composition fully meets We have a clear focus edge and a unique customer with our previously stated the needs of a forward-looking, on the challenges ahead with offering of bundled, branded commitment, the 2004 total international energy group. creation of shareholder value services; and ordinary dividend of 8.6 pence Mary Francis, Director General of at the top of our agenda. • Effective balance sheet per share represents a 40% the Association of British Insurers We will ensure cash generated management. payout of earnings* and is a and a director of the Bank of by the business is used wisely The principles that have 59% increase on the 2003 full- England, joined in May and Paul to maximise value creation. underpinned our positive 2004 year dividend. In addition to the Rayner, finance director of BAT, performance will continue to ordinary dividend, in November joined in September. guide our actions in 2005. we also paid shareholders Reflecting our renewed focus The group produced a £1.05 billion through a special on energy, Jake Ulrich, managing strong performance in 2004, dividend of 25 pence per share. director of Centrica Energy, particularly in the context of In August we started our became an executive board a year in which wholesale oil £500 million rolling share member from 1 January 2005. and gas prices reached buyback programme and, Roger Carr unprecedented levels. by the end of 2004, we had Our employees Chairman Operating profit* increased by bought back £205 million The commitment and 16%, and turnover** by 9%. of shares for cancellation. dedication of our employees In July we announced the We committed to pay a has, as always, been a sale of the AA, which dividend for 2005 equivalent crucial part of our success. crystallised the significant value to a 50% payout of earnings* I recognise that they faced in that business. The disposal under current UK accounting an extremely challenging year, was also an important part standards. We believe this and I am grateful to them of our strategic refocus on combination of immediate for their hard work and energy and related services. reward and longer-term commitment throughout.

* including joint ventures and associates, before goodwill and exceptional items ** from continuing operations, excluding Accord

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What we do Our business

Across Centrica our focus is now entirely on energy and home-related services. The needs of our customers lie at the heart of everything we do, from sourcing and securing energy to providing a broad range of distinctive services to homes and businesses.

Key markets We serve customers To find out more visit: in Britain, Spain, Belgium, www.centrica.com Canada and the USA.

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Centrica British Gas Centrica Business Energy Residential Services We source the gas and electricity Under the British Gas name in with maintenance and Centrica Business Services we need to supply our customers England, the Nwy Prydain and breakdown services provided aims to meet the specific in Britain through a team of British Gas names in Wales, under our HomeCare range. needs of its customers, from specialists working in Centrica and Scottish Gas in Scotland, We also provide HomeCare the largest industrial and Energy. The business consists we supply gas and electricity for plumbing and drains, home commercial operators to small of our upstream gas production, to residential customers electrics and kitchen appliances and medium-sized enterprises. electricity generation, wholesale throughout Britain. As well as and are a national installer of We market gas and and industrial gas sales activities energy, we offer customers a domestic, monitored home electricity to businesses under and our energy optimisation unit. wide choice of complementary security systems. the British Gas Business brand Our gas reserves in Morecambe home services. British Gas directly employs across Britain, offering the Bay are supplemented by We are the first choice gas over 8,000 engineers to carry flexibility of an open tariff or the production from several North supplier for millions of people, out its gas, plumbing and security of a fixed-term contract. Sea fields. Our interests in seven and since the market opened electrical services. We are now the number one gas-fired power stations help to competition in 1998 we’ve A range of on-demand supplier of energy to the meet the demand of our become the largest supplier drainage services are provided commercial sector in Britain electricity customers. In addition, of electricity to residential by Dyno-Rod, which became (measured by supply points). we are committed to investing customers in Britain. part of British Gas this year. It Apart from energy, we in renewable generation with Apart from supplying operates through a network of provide heating care for interests in offshore energy we are also the largest franchises covering the UK and businesses, ensuring central developments in the Irish Sea domestic central heating Ireland. In addition, there are a heating breakdowns are and North Sea, and onshore and gas appliance installation growing number of Dyno-Locks attended by a fully-qualified in Scotland. and maintenance company, and Dyno-Plumbing franchises. British Gas engineer.

Turnover** Turnover Turnover £914m £6,906m £1,200m Operating profit* Operating profit* Operating profit* £512m £337m £64m www.centrica.com www.house.co.uk www.britishgasbusiness.co.uk

Centrica Storage One.Tel Centrica North America Europe Centrica Storage operates One.Tel is the largest indirect Direct Energy is North We are active participants in the Rough gas storage facility – fixed-line competitor to BT in America’s largest competitive the liberalising energy markets a partially-depleted gas field residential markets. Our fixed- energy and home services of Belgium and Spain. in the southern North Sea. line customer base can choose provider. In Canada we serve Our energy supply joint The business provides storage from the UKTalk range of call residential customers in Ontario, venture, Luminus, supplies services for a wide range of plans, offering a no monthly fee Manitoba and Alberta. customers in both the customers, including businesses and free weekend calls option In the US, Direct Energy residential and business within the Centrica group. or unlimited usage. UKTalk supplies customers in markets of Belgium. The facility lies approximately customers also enjoy One.Tel’s Pennsylvania, Ohio, Michigan Following the opening of the 18 miles off the coast of east free 118 111 directory enquiries and those parts of Texas not Spanish energy market at the Yorkshire, supported by an service. Mobile customers have served by our subsidiary start of 2003, Luseo Energía is onshore gas processing a broad choice of free handsets companies CPL Retail Energy focused on providing electricity terminal at Easington. and flexible tariffs and our and WTU Retail Energy. for small and medium-sized For regulatory reasons, internet service caters for Direct Energy Business businesses in Spain. Centrica Storage operates customers with a range of dial Services provides as a separate business from up and broadband packages. comprehensive energy the rest of the group. One.Tel also provides solutions to businesses telecoms services to British Gas throughout Canada and many customers. parts of the US.

Turnover Turnover Turnover Turnover*** £133m £218m £2,375m £287m Operating profit* Operating profit* Operating profit* Operating profit* £69m £16m £134m £4m www.centrica-sl.co.uk www.onetel.co.uk www.directenergy.com www.luminus.be www.cplretailenergy.com www.luseoenergia.com www.wturetailenergy.com

* operating profit is shown before goodwill amortisation and exceptional items, including joint ventures and associates ** excluding Accord trading revenue *** includes group share of Luminus joint venture turnover

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Chief executive’s review Maximising our energy expertise

The year saw another stage in the evolution and agree further long-term gas Summary and power contracts. Our strong In summary, the outlook for of Centrica as we refocused our business balance sheet, healthy supply commodity prices will continue on those core areas of expertise and value position, and existing energy to dominate the landscape. assets enable us to approach I am confident that the decisive which will drive our future growth this with the necessary discipline steps we are taking to meet this In reviewing 2004, one the influence of forward energy and patience. A number of and other challenges will enable particular theme dominates pricing that is, in our view, renewables projects will also us to continue creating the energy landscape – that not supported by market reach fruition during 2005. shareholder value. is wholesale gas prices, which fundamentals. Given the low levels of were as much as 29% higher storage capacity in the UK and than 2003. 2005 operating plan increasing dependency on It is particularly important, We expect 2005 to be no less imported gas, Centrica Storage therefore, that this document challenging than 2004, in terms remains in a very strong position. Sir Roy Gardner should achieve three things. of wholesale prices. We will Firm foundations Chief Executive Firstly, to demonstrate the continue to focus on the core We intend to take advantage, way that we managed our businesses of energy and related in 2005, of the firm foundations business within the context services. In the UK, in particular, we have built in North America of this uniquely challenging we will look to optimise our gross by extending our reach in retail environment to raise profitability margin by reinforcing the link markets, building our power and shareholder value. between the customer business generation portfolio, and by Secondly, to assess accurately and our upstream supply increasing our presence in the underlying performance of operation. By restructuring the business and home the individual businesses within our support operations around services markets. Centrica. And thirdly, to illustrate this single focus, we are already In telecoms we will continue to the measures we took to removing duplicated activities, work with Ofcom on its Telecoms strengthen the foundations on driving out inefficiencies and Strategic Review. And we will which our business is based. reducing our cost base. complete an internal restructure Key indicators Building our market designed to enhance our ability With last year’s wholesale price A number of measures have to build the One.Tel business. increases we faced markedly already been put in place to grow Despite the slow pace of higher customer churn than in the British Gas customer base. deregulation in Europe, there previous years. However, the We will intensify these efforts are opportunities for us to intrinsic strength of the business in 2005, alongside the wider create value as we build is reflected in our financial transformation of British Gas. out from our current performance: group operating Marketing under the British positions in Belgium and profit* in 2004 was 16% higher Gas Business brand, Centrica Spain. We will not hesitate than 2003, at £1,227 million, Business Services is already to move rapidly earnings* were up by 18% in the leading supplier of energy when we identify the year and we also raised our products to the commercial value-creating dividend payout ratio to 40% sector in Britain. Extending our opportunities. of earnings*. unique new service propositions We are now seeing the from British Gas Residential into positive impact of measures this sector will help us to build in British Gas which were put on our market leadership. in place to address churn. Centrica Energy will play an “It’s an exciting project which is playing The enhanced upstream increasingly important role in a key role in improving security of gas investment programme which the group as we continue, in we announced in 2004 will 2005, to seek opportunities to supplies for Centrica customers.” further help Centrica to mitigate acquire value-adding assets

John, Centrica project manager, Langeled terminal, Easington

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Business review Centrica Energy Centrica Storage Investing for Improving reliability the future for our customers

Strengthening our position in the wholesale markets through Centrica Storage is a carefully planned acquisitions and strategic alliances has been real success story for a major theme of 2004 the group, reporting excellent levels of Across Centrica Energy, Electricity generation given the huge swings in day-to-day business was The total electricity generated commodity prices in both performance and dominated by the rising and by our own plants rose by 33% the UK and continental Europe profitability in 2004 fluctuating wholesale prices in 2004, giving us the ability to as well as the continuing lack of both electricity and gas. meet more than a quarter of of market liquidity. Operating profit* fell by 9%. residential demand. Centrica Storage At a strategic level, we We acquired the Killingholme Renewables Increase in price reinforced our ability to manage power station, taking the Between April 2003 and March per storage unit wholesale price volatility to electricity generating capacity 2004, 4.3% of all the electricity support our downstream of plants in which Centrica has that we supplied was from energy businesses. a stake to 2,910MW. renewable sources, thus meeting 23% In August, we completed the government target. We also Gas production the 100% acquisition of a made positive progress on With higher differentials During the year we acquired company which owns land and developments that will guarantee between winter and summer a 33% interest in the UK side consents to develop a gas-fired our ability to continue meeting prices Centrica Storage of the Statfjord oil and gas field power station of up to 1,000MW renewable energy obligations. achieved a 72% increase in and 50% ownership of the in the south-west of England – We expect to see the operating profit* to £69 million. Horne and Wren development. an area which has little existing first power from the Barrow We have already sold 100% We also began an infrastructure generation capacity. offshore wind farm by the end of standard bundled units for project which will reduce the of 2005. We acquired a 26MW the storage year 2005/06, operating costs at the South Industrial sales and onshore wind farm project in at prices significantly higher Morecambe field, resulting in wholesaling Aberdeenshire, which will than the previous year (which a slight increase in future This business suffered its first deliver green energy in 2005. themselves were up 23% profitability. year of operating losses* at on 2003). In the overall context of £38 million as selling prices Centrica Energy The £13 million investment the market-place, a 19% rise in in our 18 industrial supply Gas production that we made in the field and operating profit* to £573 million contracts fell, whilst the input facilities contributed to good – helped by an increase in the price of gas rose, during 2004. volumes (therms) injection reliability throughout price we charge to our the spring, summer and autumn. downstream businesses, Energy trading 3,938m but offset by a 63% increase Accord operating profit* Power generated (GWh) in the petroleum revenue tax – was down 18% at £14 million. represents a strong The trading environment performance. was particularly challenging, 11,554

Centrica won the contract to develop a gas terminal in East “It’s good to know that Yorkshire on behalf of a consortium of energy companies. a company with The terminal will land gas from the huge Norwegian Ormen Lange field, which together with a 745-mile pipeline to Britain Centrica’s experience will be one of the world’s largest gas development projects. is helping bring new The project takes advantage of the strengths of the team at Easington to bring in additional revenue without the need gas supplies to Britain.” for capital outlay. Alison, British Gas customer

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Business review continued British Gas Offering customers grea

Our wide-ranging transformation about our results in this area. These partly reflect the fact programme is already delivering that the preceding year, 2003, the benefits of operational efficiency, saw profits that were substantially depressed as improved customer service and a result of the unforecast strong business performance wholesale price increases.

To date British Gas has Residential Energy invested £361 million in this Operating profit* in the programme. The new system energy business rose by 83% improves understanding of to £249 million in 2004. customer needs and has led Whilst our financial results for to a 2.5% increase in average the year were extremely positive product holdings. New format overall, our Residential Energy bills are expected in the middle business was hard hit by the of 2005. And, with the wholesale gas and power price restructuring of our support increases. In net terms, we lost services we are well positioned just over one million gas and to achieve our business goals. electricity accounts. With operating profit* up by Our retention campaign, 64% on increased turnover designed to decisively address of 12%, we are rightly positive this situation, started to take effect towards the end of 2004. A new three-winter capped- price dual fuel product, launched in October 2004, has been well received by our customers, with sales reaching 345,000 by the end of the year.

Residential Energy Gas customers 11.8m Electricity customers 6.0m

Manage your account online: www.house.co.uk

For residential sales call: 0845 607 0200

“I received excellent training and now, as a fully qualified engineer, I have the skills and confidence to help customers with all types of repairs.”

Sue, British Gas service engineer

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Centrica Business Services Maintaining eater choice our number

Within the year our costs emergency call-out proposition, one position included £88 million, as we which gives all our energy prepare to meet the next stage customers access to our highly of the government’s Energy skilled and trusted engineers. Efficiency Commitment (EEC). We expect this to be a valuable tool for customer retention Overall operating profit* rose by 25% Home Services and cross-selling products. to £64 million in 2004 British Gas Home Services With 10,000 engineers, qualified or in training, planned Centrica Business Services continues to develop both Centrica Business financially and commercially. by the end of 2006, our business is the number one supplier is well positioned to meet all of energy to the commercial Services challenges and competition. sector in Britain (measured by Gas supply points Home Services October’s acquisition of supply points). We maintained Product holdings the Dyno group gives us access this position in 2004, with 368k increased by to the on-demand plumbing increased turnover (up 7% to Electricity supply points and drains business, allowing £1.2 billion) and profitability, as us to grow our market share well as the roll-out of a number 7% more quickly. of initiatives designed to further 515k Number of consolidate our position. This engineers employed Communications has, of course, been a year of expertise of British Gas Home Having developed sales unprecedented volatility in the Services to deliver the service. 8,033 of £62 million in a highly- wholesale energy market. Initial take-up rates are very competitive market place, all The year-on-year encouraging, with 2,500 signed British Gas Communications improvement was heightened up by the middle of February. We made substantial products will now be placed by the fact that 2003 was With an eye to the future investments in new product under the umbrella of One.Tel. hit by wholesale prices efficiency of our business, we development, equipment, In future, British Gas will sell movements, particularly in successfully completed high- training and systems in 2004 One.Tel branded products. the fourth quarter. level systems design on our and still showed a 13% rise in The level of contract sales new invoice and billing system operating profit* to £95 million, in electricity fell during 2004 which will underpin customer on 11% greater turnover. Communications with signs of the market service enhancements and Our core central heating Number of customers maturing. This was partially reduce our cost to serve. care product continues to grow. offset by an increase in retention We will invest £40 million And it is also satisfying to see 384k levels, resulting in only a slight over the next two years with excellent sales of our newer decline in customer numbers. roll-out of the system due to kitchen appliance, home Average monthly revenue start in 2006. electrical, plumbing and drains per user (fixed line) New developments As with British Gas care products. In August we launched a Residential, telecoms will be We anticipate good take- £12.97 central heating care product, sold under the One.Tel brand up of our newly-launched leveraging the resources and in the future.

Continued investment in the training of our engineers is “I know I can trust underpinning the growth of the British Gas Home Services British Gas engineers business. More than 5,000 engineers have graduated from the British Gas Engineering Academy, helping meet demand to do a thoroughly for a growing range of services. New recruits are training at good job.” the rate of 1,000 a year to become domestic gas engineers, plumbers and electricians. Equipped with the latest laptop technology, our 8,000 engineers handled around eight million Pete (and Holly), British Gas jobs last year. plumbing and drains care customer

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Business review continued One.Tel Centrica North America Gearing up for future growth Strengthenin In a highly competitive marketplace, customer pr One.Tel delivered a 300% increase in operating profit*

A combination of profitable In such an active and Acquisitions and organic growth helped revenue from Telco Global, aggressive marketplace it is which we acquired in September essential that the playing field build our energy and home services 2004, cost reductions and should be absolutely level, capability in North America increased revenue from existing and we remain determined customers underpinned a very to ensure that customers get In North America overall, We are hopeful that new successful year. the best possible deal. we achieved a 3% growth in legislation will allow marketing Operating profit, turnover We welcomed the findings operating profit*, up from to small commercial customers and average revenue per user of Ofcom’s investigation into £130 million in 2003 to £134 to recommence so we can all rose. We were the first BT’s pricing, following our million. This is despite the develop this business further. company to bundle a 512k complaint, which resulted in a adverse impact of exchange Operating profit* in this broadband product with rebalancing of the cost of local rate movements – accounting segment fell by 9% to unlimited local and national call conveyancing, backdated for a reduction in profit of £30 million. fixed-line calls within the UK, to July 2004. We also £10 million. and this innovative approach welcomed phase two of the As in Britain, our strategic Texas residential and small helped quadruple our broadband focus has been on ensuring commercial electricity numbers to 50,000. Our overall a balance between upstream Operating profit* in this segment customer base now consists One.Tel capacity and downstream remained stable at £60 million, of a good mixture of residential Number of customers demand that will provide solid despite a 20% reduction in and corporate accounts, fixed- foundations for our future turnover to £744 million. line and mobile users. 1.3m ambitions in this market place. In 2004 we began to underpin our retail position Looking forward Average monthly revenue Canada residential and in Texas with our own power There are further reasons per user (fixed line) small commercial energy generation assets. In April we to have confidence in the Turnover in this segment acquired the Bastrop Energy performance of Centrica’s £16.74 increased by 94% to Center followed by the Frontera telecoms business. By the £819 million, mainly reflecting power station in December, end of 2004, we had more than the acquisition, in May, of giving us just over 1GW 1.3 million customers delivering Telecoms Strategic Review, around one million gas and of generation capacity and operating profit* of £16 million. published on 1 November, electricity customers from the ability to meet around We also initiated a consolidation which highlighted the the ATCO Group in Alberta. 25% of our projected 2005 of all group telecoms activity. shortcomings which have We achieved a much peak demand. One.Tel will manage all the held back competition in this improved renewal rate of infrastructure and customer sector. We are particularly 89% for existing gas customers Other USA Energy support functions. It will develop, pleased to see that the in Ontario, against 50% in In our US gas markets we brand and market telecoms proposals now place the 2003, whereas the electricity moved into profit for the first products, and take advantage onus on BT to provide market remained effectively time, although turnover was of British Gas residential and solutions in all of the areas closed to new sales under down by 22% to £191 million. business distribution channels lacking equivalence between the price cap introduced in The regulatory climate and to maximise sales opportunities. BT and its competitors. November 2002. volatile gas prices continue

Manage your account online: www.onetel.co.uk

For residential sales call: 0800 957 0000 “We are an important link in the chain to deliver power to our customers across the state.”

Brad, power station shift engineer, Bastrop Energy Center

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Europe Extending our ing our reach into Europe proposition Our businesses in Belgium and Spain are now contributing to group profits and turnover

Business Markets We continued to develop our Centrica The development of our retail businesses in Belgium North America Business Services proposition and Spain in 2004, while Energy customers has been very encouraging, seeking opportunities to build delivering a £4 million out from this base. 3.3m operating profit* after Luminus in Belgium produced meeting the first year costs its first full year results since Home Services of entry. We signed high- the market opened in the middle customers profile energy contracts in of 2003 and made an all key states, and with operating profit* of £7 million 1.8m continued growth in Ontario (2003: £3 million). As anticipated, and the start-up of operations however, customer numbers in Texas and Alberta, declined in the year with new to make it difficult to add value- turnover reached £204 entrants beginning to compete creating customers. million, up 62% year-on-year. in the market. In Spain, Luseo doubled its Home Services sites-on-supply to 4,000 in the An operating profit* of second half of the year. £36 million reflects a year of decisive action in the home services market. We grew sales of our core cover products and developed our waterheater rental and maintenance business. We acquired a home services business which operates in Texas and nine other states. We transformed our operations in Ontario, including the closure of nine retail stores, and withdrew from the loss-making Pennsylvania operations.

Securing cost-effective supplies of energy to support our “By choosing Direct customer businesses is as important in North America as Energy as my supplier, it is in Britain. The acquisition of power generation in Texas is helping support the large customer base we have in the I’m getting a great state, where electricity consumption per head is significantly value deal.” higher than in Britain.

Roxanne, Direct Energy Business Services customer

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Corporate responsibility Tur ning strategy into action

We are committed to the highest Using new technology, our Employee volunteers WorkWise programme, for making a real difference ethical standards and are working hard example, provided flexible Encouraging and supporting to embed responsibility in all aspects working arrangements for more employee involvement in the than 1,000 employees in 2004. community is at the heart of our business activities of our approach to corporate Supporting vulnerable citizenship. We believe that Centrica’s operations touch and business partners to customers the involvement of employees millions of lives and we believe work with us. This will help At the heart of our service in local communities helps that meeting and exceeding our us to become an employer ethic is our commitment to help address issues of social responsibilities to society as a of choice for the best people make life better for some of concern, provides important whole contributes to long-term, in the marketplace and Britain’s most disadvantaged development opportunities sustainable commercial success. motivates communities individuals and communities. and benefits us as a business. Our innovative corporate to welcome us. The British Gas ‘here to HELP’ At the beginning of 2004, responsibility strategy helps to programme – a unique we launched a volunteering shape the way we do business. WorkWise means programme in British Gas, Translating this strategy into greater flexibility encouraging employees to action builds customer loyalty, Because our people play a vital Unclaimed benefits spend up to two days a year encourages investors to put role in the creation of shareholder identified for vulnerable working in their local their trust in us, and suppliers value, we aim to help them households communities. In total, during enjoy a work/life balance that’s the year, Centrica employees right for them and enables them £5.6m invested around 13,000 hours to give of their best. in community activity. Our policy is to explore Staff fundraising for and encourage new ways Cancer Research UK Reducing our carbon profile of working that enhance We have a responsibility productivity and morale, £690k to manage the impact of our increase diversity, develop activities on the environment talent and reduce costs, and to help our customers use provided always that both collaboration between the our products and services in an business performance and public, voluntary and private environmentally responsible way. high-quality service to customers sectors – is providing simple, In 2004, we made significant are maintained or improved. practical ways to make homes improvements in our own warm, safe and comfortable. energy management, waste We have committed £290 million reduction and recycling. over the next three years to And we began the process assist our vulnerable customers of involving our customers and tackle the issue of by, for example, offering them fuel poverty. online billing and energy from An independent trust fund – renewable sources. set up in 2004 with initial British Currently, about 5% of the Gas funding of £10 million over electricity we supply comes from three years – is providing grants renewable sources, and we plan to customers who are to increase this percentage experiencing difficulty paying every year, in order to meet their bills. our target of 15% by 2015/16.

For more information on our corporate responsibility activities see our corporate responsibility report 2004 or visit: www.centrica.com/responsibility

“Customers have been surprised British Gas has set up an in-house language line service to help customers whose first language is not English. and delighted to be dealt with in The company has a network of more than 200 staff their mother tongue, and as a who speak a total of 35 languages. Callers welcome the chance to explain their query in their native language. result they recommend us to Surveys show this service, launched in 2003, has brought their family and friends.” high levels of customer satisfaction and improves customer retention. The company recognised how the diversity of its own staff could benefit its diverse Mandeep, British Gas customer service adviser customer base.

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Group financial review Returning more value to shareholders

During the year we returned over pence compared to 5.4 pence Cash flow in 2003. This is consistent with Group operating cash flow £1.5 billion to shareholders and our share our previous commitment to from continuing operations price outperformed the FTSE 100 Index increase our payout ratio to was £1,234 million for 2004, 40% of earnings before goodwill up from £1,216 million last year. by more than 4% and exceptional items in 2004. Total capital expenditure and financial investment was £351 Centrica’s aim is to achieve a Earnings before exceptional Exceptional items and million this year, up from £282 total shareholder return (TSR) items and goodwill amortisation goodwill amortisation million in 2003, with spending ranking in the first quartile of the were up 18% to £839 million Operating exceptional charges on acquisitions totalling £591 UK FTSE 100 Index. Centrica (2003: £714 million). This of £104 million (2003: £nil) arose million (2003: £117 million). promotes continuing growth in represents a return on capital in the year as a result of business earnings and cash flow and seeks employed over the year of restructuring costs (£105 million) Balance sheet to maximise the return on capital nearly 32% and nearly 9.4% and an impairment cost as a The net assets of the group it achieves in excess of its cost on our average market result of water ingress into a gas decreased during the year from of capital, within a prudent risk capitalisation. Basic earnings well (£50 million), offset in part by £2,737 million to £2,571 million management framework. per share grew from 11.8 the release of a provision (£51 as a result of the payment of The group’s closing share pence to 33.0 pence and million) in respect of a long-term the special dividend and the price on 31 December 2004 was adjusted earnings per share take-or-pay contract. In addition, share buyback programme. 236.25 pence (31 December from 16.8 pence to 20.0 pence. an after tax non-operating The group’s net cash 2003: 211 pence), resulting in Over the last three years, the exceptional profit of £740 million balances at 31 December 2004 a market capitalisation of £8.9 adjusted earnings per share arose from the disposal of the were £296 million (2003: £163 billion (2003: £9.0 billion). This is have grown by a compound AA (2003: £41 million charge million) excluding £217 million after returning over £1.5 billion to annual average of over 18% after tax). The group’s goodwill of non-recourse debt (2003: shareholders by way of special facilitating a progressive dividend amortisation charge for the year £216 million of non-recourse and ordinary dividends and the policy. The total ordinary reduced to £123 million from debt). Cash and money market commencement of a share dividend for this year is 8.6 £161 million in 2003. investments increased by buyback programme. £181 million to £1,207 million. Centrica share performance (pence) Net interest and taxation The group is well placed to Earnings and dividends 300 Net interest charged to the implement International Financial Earnings increased by £882 profit and loss account was Reporting Standards from million to £1,382 million in 2004 250 £19 million compared with January 2005. Our annual (2003: £500 million). This 200 £52 million in 2003 and was report to shareholders for reflected improved operating covered 64 times by operating 2005 will be presented under 150 profit, up £103 million, offset profit*, compared with 20 times these conventions. by taxation up from £266 million 100 a year earlier. to £306 million, lower goodwill 50 The tax charge of £349 million amortisation and the Jan 1999 Dec 2004 in 2004 represented an effective exceptional items discussed 29% rate on profits adjusted for below. Operating profits goodwill amortisation and improved in all areas except Weekly close exceptional items (2003: Phil Bentley Centrica Energy’s industrial Centrica plc £282 million, representing Group Finance Director and wholesaling division. FTSE 100 relative an effective rate of 28%).

“This company is making a big effort to be helpful... it feels like I’m getting great value for money.”

Jaswinder, British Gas customer

*including joint ventures and associates, before goodwill amortisation and exceptional items Annual review 2004 Centrica plc 11 CT002_12-13_AW.qxd 11/3/05 3:33 pm Page 12

Summary financial statement

Summary group profit and loss account

Glossary 2004 2003 Results Results Group turnover for the year Goodwill for the year Goodwill Turnover represents amounts before goodwill amortisation before goodwill amortisation amortisation and and amortisation and and receivable for goods and services exceptional exceptional Results for exceptional exceptional Results for provided, excluding the group’s items items the year items items the year share of turnover from joint Year ended 31 December £m £m £m £m £m £m ventures and associates. Group turnover 18,303 – 18,303 17,931 – 17,931 Profit attributable to the group Cost of sales (14,712) – (14,712) (14,572) – (14,572) Profit earned in the year available Gross profit 3,591 – 3,591 3,359 – 3,359 to pay dividends and to re-invest Operating costs (2,432) (221) (2,653) (2,367) (155) (2,522) in the business. Group operating profit 1,159 (221) 938 992 (155) 837 Transfer (from)/to reserves Share of operating profit/(loss) (Loss)/profit retained in the group and transferred to capital in joint ventures and associates 68 (6) 62 66 (6) 60 employed, representing funds Operating profit including joint available to re-invest in the business ventures and associates 1,227 (227) 1,000 1,058 (161) 897 less distributions to shareholders. Loss on closure of business ––– – (16) (16) Earnings per ordinary share Profit/(loss) on disposal basic of business – 727 727 – (51) (51) Profit earned of £1,382 million Net interest payable (19) – (19) (52) – (52) divided by the average number of shares in issue during the year Profit on ordinary activities of 4,184 million. before taxation 1,208 500 1,708 1,006 (228) 778 diluted Taxation (349) 43 (306) (282) 16 (266) As per basic but assuming the issue of new ordinary shares on exercise Profit on ordinary activities of all the share options which have after taxation 859 543 1,402 724 (212) 512 been granted. Minority interests adjusted basic (equity and non-equity) (20) – (20) (10) (2) (12) Profit, adjusted to remove exceptional items and goodwill Profit attributable to the group 839 543 1,382 714 (214) 500 amortisation, of £839 million divided by the average number of shares Dividends (1,387) (229) in issue. Transfer (from)/to reserves (5) 271

Pence Pence Pence Pence Earnings per ordinary share basic 33.0 11.8 diluted 32.5 11.6 adjusted basic 20.0 16.8

£000 £000 Directors’ emoluments 4,603 4,327

Shareholders’ funds Summary group balance sheet The total interest of shareholders 2004 2003 in the group’s net assets. 31 December £m £m

Minority interests Fixed assets 3,950 4,441 (equity and non-equity) Current assets 4,701 4,237 The interests of others who Creditors (amounts falling due within one year) (4,253) (3,996) hold shares in the group’s subsidiary companies. Net current assets 448 241

Capital employed Total assets less current liabilities 4,398 4,682 Cumulative retained profits Creditors (amounts falling due after more than one year) (753) (885) and capital required to support Provisions for liabilities and charges (1,074) (1,060) the business. Net assets 2,571 2,737 Shareholders’ funds 2,352 2,520 Minority interests (equity and non-equity) 219 217 Capital employed 2,571 2,737

12 Annual review 2004 Centrica plc CT002_12-13_AW.qxd 11/3/05 3:33 pm Page 13

Summary group cash flow statement

2004 2003 Year ended 31 December £m £m Glossary Cash inflow from continuing operating activities 1,234 1,216 Equity dividends paid Cash inflow/(outflow) from discontinued operating activities 120 (224) Dividends paid to shareholders Cash inflow from operating activities 1,354 992 in the year. Includes final 2003 dividend of 3.7p per share, interim Dividends received from joint ventures and associates 28 28 2004 dividend of 2.5p per share and Returns on investments and servicing of finance 6 (15) special dividend of 25p per share. Taxation paid (239) (181) Cash inflow before use of liquid Capital expenditure and financial investment (351) (282) resources and financing Disposals and acquisitions 998 292 Cash generated in the year used to Equity dividends paid (1,314) (182) finance the business, after payment Cash inflow before use of liquid resources and financing 482 652 of dividends and re-investment in the business. Management of liquid resources (377) (669) Financing (130) (13) Liquid resources Short-term deposits with banks Decrease in net cash (25) (30) which mature within one year of the date of deposit.

Financing Includes net cash inflow on Segmental analysis borrowings of £18 million, issue of ordinary share capital £24 million, Operating profit/(loss) Operating profit/(loss) before goodwill after goodwill share buyback cash outflow of amortisation and amortisation and £205 million, distribution to minority exceptional items, including exceptional items, including shareholders of £18 million and a share of results of joint share of results of joint Turnover ventures and associates ventures and associates realised gain on foreign exchange of £51 million. 2004 2003 2004 2003 2004 2003 Year ended 31 December £m £m £m £m £m £m Continuing operations: British Gas Residential 6,906 6,192 337 206 326 205 Centrica Business Services 1,200 1,125 64 51 54 40 Centrica Energy 6,823 7,081 512 561 461 561 Centrica Storage 133 82 69 40 69 40 One.Tel 218 178 16 4 10 1 Centrica North America 2,375 2,369 134 130 71 50 Other operations 11 6 5 – (43) (6) 17,666 17,033 1,137 992 948 891 Discontinued operations: The AA 637 797 90 93 52 44 Goldfish Bank – 101 – (27) – (38) 18,303 17,931 1,227 1,058 1,000 897

Discontinued operations relate to the disposal of the group’s interest in the AA on 30 September 2004 and of the group’s interest in the Goldfish credit card and loan business on 30 September 2003.

The summary financial statement on pages 12 and 13 was approved by the board of directors on 24 February 2005 and was signed on its behalf by:

Sir Roy Gardner Phil Bentley Chief Executive Group Finance Director

Annual review 2004 Centrica plc 13 CT002_14-17_AW.qxd 11/3/05 3:34 pm Page 14

Board of directors

12345

678910

1. Roger Carr 4. Mark Clare plc. He is chairman of Manchester 9. Jake Ulrich Chairman (58) N. Deputy chief executive United plc, president of Carers UK, Managing director, Centrica Roger Carr joined the board as and managing director, president of the Employers’ Forum Energy (52) E. US citizen a non-executive director in 2001 British Gas (47) E. on Disability and chairman of the Jake Ulrich was appointed to the and was appointed chairman in Mark Clare joined British Gas plc National Apprenticeship Task Force. board on 1 January 2005. He was May 2004. He is chairman of in 1994 as group financial controller, appointed managing director of Mitchells & Butlers plc, deputy and was appointed finance director 7. Patricia Mann OBE Centrica Energy in 1997. Between chairman of Cadbury Schweppes plc of Centrica in 1997. In 2000, he was Senior non-executive director (67) 1994 and 1997 he was managing and a senior adviser to Kohlberg appointed deputy chief executive, A.N.R. director of Accord Energy Ltd, a Kravis Roberts & Co Ltd. He was and from January 2002, managing Patricia Mann was a non-executive joint venture between Natural Gas previously chief executive of Williams director of British Gas. He is a non- director of British Gas plc from Clearinghouse (NGC) and British plc and chairman of Thames Water executive director of BAA plc, The December 1995 until Centrica Gas. He previously worked for NGC, plc and Chubb plc. Energy Saving Trust Ltd and The was demerged in February 1997. Union Carbide Corporation and the Energy Retail Association Ltd. She was a vice president OXY/Mid Con/Peoples Energy Group. 2. Helen Alexander CBE international of J Walter Thompson Non-executive director (48) A.N.R. 5. Mary Francis Co Ltd and remains a director of 10. Paul Walsh Helen Alexander joined the board Non-executive director (56) A.R. JWT Trustees Ltd. She is on the Non-executive director (49) A.N.R. in January 2003. She is chief Mary Francis joined the board in board of the UK Centre for Paul Walsh joined the board in executive of The Economist Group, June 2004. She is Director General Economic and Environmental March 2003. He is chief executive a trustee of the Tate Gallery and an of the Association of British Insurers Development and National Trust of Diageo plc, having previously been honorary fellow of Hertford College, until 31 March 2005 and was Enterprises, is a trustee of the AA its chief operating officer and served Oxford. Formerly, she was a non- formerly a senior civil servant in the Motoring Trust and was formerly in a variety of finance roles. He is a executive director of BT Group plc Treasury and the Prime Minister’s a director of the Woolwich Building non-executive director of Federal and Northern Foods plc. office. She is a director of the Bank Society and Yale and Valor plc. Express Corporation and a governor of England, a member of the Press of the Henley Management Centre. 3. Phil Bentley Complaints Commission and a 8. Paul Rayner Group finance director (46) E. trustee of the Almeida Theatre. Non-executive director (50) A.R. Phil Bentley joined Centrica plc Australian citizen as group finance director in 2000. 6. Sir Roy Gardner Paul Rayner joined the board Prior to that, he was finance director Chief executive (59) E.N. in September 2004. He has been of UDV Guinness from 1999 and Sir Roy Gardner was appointed finance director of British American group treasurer and director of finance director of British Gas plc Tobacco plc since January 2002. risk management of Diageo plc in 1994. From 1995 he had In 1991 he joined Rothmans Holdings Note from 1997. Previously, he spent responsibility for the business units Ltd in Australia, holding senior Sir Michael Perry (chairman), 15 years with BP in several which subsequently formed Centrica executive appointments, and became Robert Tobin and Roger Wood international finance roles. He plc. Prior to joining British Gas chief operating officer of British were directors of the company is also a non-executive director he was managing director of GEC- American Tobacco Australasia Ltd until 10 May, 23 September and of Kingfisher plc. Marconi Ltd and a director of GEC in September 1999. 30 September 2004 respectively.

Key to membership of committees A Audit committee N Nominations committee E Centrica executive committee R Remuneration committee

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Summary reports

Independent auditors’ statement to the members of Centrica plc Directors We have examined the summary financial statement of Centrica plc. The biographical details of the directors appear on page 14.

Respective responsibilities of directors and auditors Principal activities The directors are responsible for preparing the annual review and The principal activities during the year were: summary financial statement in accordance with applicable law. • the provision of gas, electricity and energy-related products Our responsibility is to report to you our opinion on the consistency and services in Great Britain, North America and Europe; of the summary financial statement with the annual financial • the operation of gas fields and power stations in Great Britain statement, directors’ report and the directors’ remuneration report and North America; and its compliance with the relevant requirements of section 251 • gas storage in Great Britain; of the United Kingdom Companies Act 1985 and the regulations • energy trading in the UK, European and North American markets; made thereunder. We also read the other information contained in • financial services in Great Britain; and the annual review and summary financial statement and consider • the provision of telecommunications services in the UK. the implications for our report if we become aware of any apparent The provision of roadside assistance in the UK and Ireland ceased misstatements or material inconsistencies with the summary on 30 September 2004 on completion of the sale of the AA. financial statement. This report, including the opinion, has been prepared for and Post balance sheet events only for the company’s members as a body in accordance with Details of share repurchases carried out from 1 January to section 251 of the Companies Act 1985 and for no other purpose. 21 February 2005 are disclosed in the full annual report and accounts. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report Dividends is shown or into whose hands it may come save where expressly An interim dividend for 2004 of 2.5 pence per ordinary share and agreed by our prior consent in writing. a special dividend of 25 pence per ordinary share were paid on 17 November 2004. The directors recommend that, subject to Basis of opinion approval at the annual general meeting, a final dividend of 6.1 pence We conducted our work in accordance with Bulletin 1999/6, ‘The per ordinary share will be paid on 15 June 2005 to those shareholders auditors’ statement on the summary financial statement’ issued registered on 29 April 2005. This would make a total ordinary by the Auditing Practices Board for use in the United Kingdom. dividend for the year of 8.6 pence per share (2003: 5.4 pence per share) in addition to the special dividend of 25 pence per share. Opinion In our opinion the summary financial statement is consistent Charitable and political donations with the annual financial statements, the directors’ report and the An outline of the group’s involvement in the community appears directors’ remuneration report of Centrica plc for the year ended on page 10. Charitable donations in the UK during the year 31 December 2004 and complies with the applicable requirements amounted to £5.8 million (2003: £5.3 million). In line with group of section 251 of the Companies Act 1985, and the regulations policy, no donations were made for political purposes. made thereunder. Corporate governance PricewaterhouseCoopers LLP The group is committed to the highest standards of corporate Chartered Accountants and Registered Auditors governance. During 2003, the board reviewed its governance London arrangements in the light of the new Combined Code on Corporate 24 February 2005 Governance (the Code) and the Guidance on Audit Committees (the Smith Report) and made changes as necessary and appropriate at The auditors have issued an unqualified report on the full financial the time. Although the company did not fully comply with all the statements and remuneration report containing no statement under provisions of the Code throughout 2004, further governance section 237 (2) or section 237 (3) of the Companies Act 1985. changes were approved by the board in the year that will ensure full compliance throughout 2005 and beyond. Details of these changes Full report and accounts and of non-compliance during the year, together with a report on This summary financial statement is a summary of the full how the principles of the Code were applied, are set out in the Centrica annual report and accounts. It does not contain sufficient report on corporate governance in the full report and accounts for information to allow as full an understanding of the results and the year ended 31 December 2004 and are summarised below. state of affairs of the group and of its policies and arrangements concerning the directors’ remuneration as would be provided by The board the full report and accounts. 2003 comparatives have been restated An effective board of directors leads and controls the group. following the adoption of UITF 38. If you would like a copy of the The board, which met 11 times during the year, has a schedule Centrica annual report and accounts for 2004 and/or future years, of matters reserved for its approval. This schedule and the terms free of charge, please contact the Centrica shareholder helpline (see of reference for the board committees have been made available page 18 for contact details). The report can also be downloaded on request throughout the year and, since December 2004, from our website at www.centrica.com. on our website www.centrica.com. The board is responsible for: • the development of strategy and major policies; Summary directors’ report • the review of management performance; This is a summary of the full directors’ report, which is contained • the approval of the annual operating plan, the financial in the annual report, copies of which are available from the Centrica statements and major acquisitions and disposals; website at www.centrica.com or the Centrica shareholder helpline • the system of internal control; and (see page 18 for contact details). • corporate governance.

Annual review 2004 Centrica plc 15 CT002_14-17_AW.qxd 11/3/05 3:34 pm Page 16

Summary reports continued

One board meeting each year is substantially devoted to the Framework and policy on executive directors’ remuneration development of strategy. Comprehensive briefing papers including The group’s remuneration policy is designed to provide competitive financial information are circulated to each director one week prior reward for its executive directors and other senior executives, to board meetings. taking into account the company’s performance, the markets The board has delegated authority to a number of committees in which the group operates and pay and conditions elsewhere to deal with specific aspects of the management and control of the in the group. group. They are the executive, audit, remuneration and nominations In constructing the remuneration packages, the committee committees. Directors’ membership of these committees is shown aims to achieve a balance between fixed and variable on page 14. Full details of their respective terms of reference can compensation for each director. Accordingly, a significant be found in the annual report and accounts and on our website at proportion of the remuneration package depends on the www.centrica.com. attainment of demanding performance objectives, both short and long-term. In agreeing the level of base salaries and the Board appointments, evaluation and training annual performance bonus scheme, the committee takes There is a formal, rigorous and transparent procedure for the into consideration the total remuneration that executives appointment of new directors to the board which is described in the could receive. The committee reviews the packages and full report and accounts. During the year, the board conducted, with varies individual elements when appropriate from year to year. the assistance of an independent external facilitator, Spencer Stuart, As a matter of policy, the notice periods of the executive a formal and rigorous evaluation of its own performance and that of directors’ service contracts do not exceed one year. It is its committees and individual directors, including the chairman. intended that the current remuneration policy, of which the The directors receive ongoing training including an induction executive share option scheme (ESOS) and the long term programme tailored to meet the needs of the individual and they incentive scheme (LTIS) elements have been approved by also receive regular updates on changes and developments to shareholders, will continue for 2005 and succeeding years. the business, legislative and regulatory environments. Components of remuneration Internal control and business assurance The components of remuneration for each executive director The board of directors, with the advice of the audit committee, has include a base salary and an annual performance bonus. reviewed the effectiveness of the internal control system operated For 2004 and 2005, the maximum bonus payable should (as described above) throughout the period from 1 January 2004 every single element of every objective be achieved in full to the date of this report and is satisfied that the group complies is 100% of base salary. The objectives comprise targets for with the Turnbull Guidance on Internal Control. personal performance, customer and employee satisfaction The business assurance function undertakes internal audit reviews and financial performance and are heavily weighted towards according to a plan approved by the audit committee. The results of the latter. A bonus will be forfeited if the committee considers their work are reported to the audit committee on a quarterly basis. overall performance to have been unsatisfactory. In addition, an annual grant of options is made under the ESOS and an Summary remuneration report allocation of shares is made under the LTIS, both of which This is a summary of the full remuneration report, which is are subject to performance conditions. contained in the annual report, copies of which are available The performance conditions for LTIS awards are based on the from the Centrica website at www.centrica.com or the Centrica company’s total shareholder return (TSR) relative to the returns shareholder helpline (see page 18 for contact details). of FTSE 100 companies over a three-year performance period. The committee has determined that, for the purpose of the LTIS, Composition and role of the remuneration committee the most appropriate comparator group for the company is the The board’s remuneration committee comprises the independent companies comprising the FTSE 100 at the start of the relevant non-executive directors and is chaired by Patricia Mann. Helen performance period (the LTIS comparator group). The committee Alexander and Paul Walsh were members of the committee reviews the appropriateness of the performance measure and throughout 2004. Mary Francis and Paul Rayner became members the specific target set when considering each new allocation of of the committee when they joined the board. Roger Carr was a shares under the LTIS. In addition, prior to the release of share member until he became chairman of the company in May 2004 allocations, the committee reviews whether the extent to which and Sir Michael Perry and Robert Tobin were members until they the performance condition has been achieved is a genuine stepped down from the board. reflection of the company’s performance. The committee makes recommendations to the board, within The performance conditions for the ESOS are based on the formal terms of reference, on the policy and framework of executive extent to which growth in the company’s earnings per share remuneration and its cost to the company. The committee is exceeds growth in the Retail Prices Index over a three-year also responsible for the implementation of remuneration policy performance period. The committee continues to believe that, and determining specific remuneration packages for each of in relation to the ESOS, EPS growth in excess of RPI growth the executive directors. It has access to advice provided by the is the most appropriate measure for determining the increase group head of reward (Mike New), the group human resources in value delivered to shareholders by the company’s executive director (Anne Minto), the general counsel & company secretary directors and other senior executives. The committee reviews (Grant Dawson), the chief executive (Sir Roy Gardner) and the appropriateness of the performance measure and the external consultants. specific targets set when considering each new grant of options.

16 Annual review 2004 Centrica plc CT002_14-17_AW.qxd 17/3/05 11:42 am Page 17

The following table compares the company’s TSR performance Other employment benefits with that of the FTSE 100 Index for the five years ended In common with other senior management, executive directors 31 December 2004. are entitled to a range of benefits, including participation in a contributory final-salary pension scheme, a company car, life TSR – Centrica and FTSE 100: 2000-2004 assurance, private medical insurance and a financial counselling

200 scheme. They are also eligible, on the same basis as other employees, to participate in the company’s Inland Revenue- 150 approved sharesave and share incentive plans. These are open to all eligible employees and provide a long-term savings and 100 investment opportunity. 50

0 99 00 01 02 03 04

Years ended 31 December Centrica TSR index 30 December 1999 = 100 FTSE 100 TSR index Source: Alithos Ltd

Directors’ emoluments, pension benefits and interests in shares

Total Total Total Total emoluments emoluments Beneficial Total options options allocations excluding excluding Accrued annual interests in under under the under the pension 2004 pension 2003 pension 2004 ordinary shares Sharesave ESOS(iii) LTIS(iv) As at 31 December 2004 £000(i) £000(i) £ p.a.(ii) 2004 2004 2004 2004 Executive directors Phil Bentley 931 843 70,000 188,454 5,161 1,634,257 663,501 Mark Clare 870 787 123,100 641,118 9,318 1,693,360 702,190 Sir Roy Gardner 1,623 1,480 335,800 2,175,014 9,318 2,791,495 1,157,644 Roger Wood (v) 750 757 153,700 n/a n/a 1,198,573 354,564 4,174 3,867 Non-executive directors Helen Alexander 39 35 – 2,520––– Roger Carr 173 35 – 19,230––– Mary Francis 22 – – 981––– Patricia Mann 41 35 – 1,927––– Sir Michael Perry 72 200 – n/a––– Paul Rayner (vi) 17–––––– Robert Tobin 26 35 – n/a––– Paul Walsh 39 29 – 4,500––– 429 369 Directors who stood down in 2003 Mike Alexander –71n/an/a––– Sir Brian Shaw – 20 n/a n/a––– Total emoluments 4,603 4,327

(i) Total emoluments include all taxable benefits arising from employment by the company, mainly the provision of a company car. (ii) Accrued pension is that which would be paid annually on retirement at age 62, based on eligible service to 31 December 2004. As reported last year, individual accrual rates in respect of past and future service were increased to take account of the change in normal retirement age from age 65 in the previous scheme to age 62. Full details of the directors’ pension scheme arrangements can be found in the annual report. (iii) Options were granted under the ESOS on 31 May 2001, 2 April 2002, 24 March 2003 and 18 March 2004. (iv) Total allocations held under the LTIS shown above include allocations of shares that are subject to performance conditions and allocations that have reached the conclusion of the performance period but are subject to a two-year retention period. (v) Roger Wood stepped down as a director and left the company on 30 September 2004. He has six months from this date in which to exercise his share options, after which time they will lapse. The LTIS allocations still in their performance period have been reduced to reflect the proportion of the performance period for which he was employed. The total number of shares eventually released to him (at the end of the relevant performance period) will depend on the extent to which the relevant performance conditions are satisfied. (vi) Fees in respect of Paul Rayner’s non-executive directorship are paid to his employer, British American Tobacco plc. (vii) The aggregate of the amount of gains made by executive directors on the exercise of share options was £258,854; and the aggregate value of shares vested to executive directors under the LTIS was £1,862,490. As at 21 February 2005, the beneficial shareholdings of Phil Bentley, Mark Clare and Sir Roy Gardner had each increased by 144 shares.

Designed by Black Sun Plc. Photography by Simon Kreitem. Printed by St Ives Burrups on paper which contains 30% post consumer recycled waste, the remainder is sourced from managed renewable resources. Annual review 2004 Centrica plc 17 Shareholder information

How would I benefit? How do I participate? Four great 1. A lump-sum buy or sell facility – • Your first step is to call the Centrica FlexiShare participants have the shareholder helpline on 0870 600 reasons to join opportunity to use low-cost share 3985. You will be sent a joining dealing facilities provided by a panel pack including details of the of independent brokers. FlexiShare service and all the 2. Dividend reinvestment plan – your relevant forms and contacts that cash dividend can be used to buy you will require. You can also visit additional Centrica shares (for a www.centrica.com/flexishare for small dealing charge) which are then these forms. There is no ‘closing a modern way credited to your account. date’ and you can join at any time. • Instructions to join the dividend to manage your 3. Quicker settlement periods. reinvestment plan must be received 4. No certificates to lose. at least 28 days before the Centrica shares payment date. Services for shareholders

What’s happened dividend of 2.5 pence, making 0870 600 3985 Financial Calendar to my shares? a total dividend of 27.5 pence To find out more visit: 27 April 2005 – Ex-dividend In October 2004, following per share held before the www.centrica.com/ date for 2004 final dividend the sale of the AA, we paid a consolidation. Shareholders shareholders 29 April 2005 – Record date special dividend of 25 pence who joined FlexiShare and You may view a fully for 2004 final dividend per share. At the same time, had signed up for the dividend accessible online version 9 May 2005 – Annual general there was a share consolidation reinvestment plan before of this annual review on our meeting, Queen Elizabeth II on the basis of 9 new shares 19 October had their dividends website www.centrica.com. Conference Centre, for every 10 shares held. reinvested on 17 November. It can be customised to suit London SW1 Shareholders were sent Following a review of your own viewing preferences. 15 June 2005 – Final dividend a new orange certificate FlexiShare service charges, payment date (or FlexiShare notification) the £10 exit fee has been 15 September 2005 – 2005 on 5 November; the old blue abolished. There is no charge If you would like interim results announced certificate became invalid. for holding your shares in the this annual review 16 November 2005 – Interim If your shareholding wasn’t service, nor for transferring in in a different dividend payment date divisible by 10, a cheque was or out at any time. Centrica shareholder attached to the new certificate, format, such helpline representing the entitlement to ShareGift as large print, Lloyds TSB Registrars a fraction of one share left over ShareGift, the share donation maintain the shareholder register from the calculation. Centrica charity, is a free service for Braille or audio, on our behalf. If you have a gave shareholders the shareholders wishing to give please call us on question about your opportunity to send back these shares to charitable causes. 0870 600 3985. shareholding in Centrica, small cheques for donation to Further information can be including details of changes of charity. In the past year, a obtained from the Centrica Alternatively, if address and purchases or sales combination of these cheques shareholder helpline or at you have a text of Centrica shares, dividend and donations through our www.sharegift.org. payment enquiries, etc., share dealing programmes have phone, please you should contact: raised over £1 million for charity www.centrica.com make your Centrica shareholder through ShareGift – thank you! The Centrica website provides The special dividend was news and details of the helpline 0870 600 3985 request on paid on 17 November 2004 company’s activities, plus links 0870 600 3950. Overseas +44 121 415 7061 together with the interim to our business sites. The Text phone 0870 600 3950 shareholder section contains up-to-date information including Write to Your share donations the company’s latest results Lloyds TSB Registrars, The Causeway, Worthing, have raised and dividend payment details. West Sussex BN99 6DA It holds historical and current share price information. You Email centrica@lloydstsb- £1 million can also find out more about registrars.co.uk for charity through the special dividend and share consolidation. Centrica plc Centrica programmes Company registered in England and Wales no. 3033654 Registered office: Millstream Maidenhead Road Disclaimers Windsor This review does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Centrica shares. Berkshire SL4 5GD This review contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Centrica plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on Tel 01753 494000 circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to Fax 01753 494001 differ materially from those expressed or implied by these forward looking statements and forecasts. www.centrica.com Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.