Annual Review 2002
Summary reports
Full report and accounts
This summary financial statement is a summary of the information contained in the full Centrica report and accounts. It does not contain sufficient information to allow as full an understanding of the results and state of affairs of the group and of its policies and arrangements concerning the directors’ remuneration as would be provided by the full report and accounts. If you would like a copy of the Centrica report and accounts for 2002 and/or future years, free of charge, please contact the Centrica shareholder helpline.Corporate governance
The group is committed to high standards of corporate governance. Following the recommendations in the reports on the Role and Effectiveness of Non-Executive Directors (the Higgs Report) and Audit Committees (the Smith Report), the board is reviewing its governance arrangements and will consider making changes as necessary and appropriate. Throughout the year, the company fully complied with the provisions of the Combined Code on Corporate Governance (the Code).
Details of how the company applies the principles of the Code are set out in the report on corporate governance in the full report and accounts for the year ended 31 December 2002.
The board has delegated authority to a number of committees to deal with specific aspects of the management and control of the group, namely the audit, remuneration, nominations, executive and customer service committees. Directors’ membership of these committees is shown here.
Summary directors’ report
The annual review and summary financial statement is a summary of the information contained in the annual report and accounts for the year ended 31 December 2002.Directors
The biographical details of the directors appear here. On 19 February 2003 Paul Walsh agreed to become a non-executive director of the company with effect from 1 March 2003.Principal activities
The principal activities during 2002 were:- the provision of gas, electricity and energy related products and services in Great Britain, North America and Europe;
- the operation of gas fields in Great Britain and North America and power stations in Great Britain;
- energy trading in the UK, North American and European markets;
- roadside assistance and other motoring services in the UK and Europe;
- the provision of financial services in the UK; and
- the provision of telecommunications services in the UK.
Post balance sheet events
- January 2003 – issue of senior notes in connection with funding for the Consumers’ Waterheater Income Fund
- February 2003 – electricity purchase contracts with British Energy plc
- February 2003 – acquisition of legal title to King’s Lynn power station.
Dividends
An interim dividend of 1.4 pence per ordinary share was paid on 27 November 2002. The directors recommend that, subject to approval at the annual general meeting (AGM) on 12 May 2003, a final dividend of 2.6 pence per ordinary share be paid on 18 June 2003 to those shareholders registered on 2 May 2003. This makes a total dividend for the year of 4.0 pence per share (2001: 3.1 pence per share).Political and charitable donations
An outline of the group’s involvement in the community appears here. Charitable donations in the UK during the year amounted to £4.7 million (2001: £4.0 million). In line with group policy, no donations were made for political purposes.Summary remuneration report
This is a summary of the full remuneration report, which is contained in the 2002 annual report, copies of which are available from the Centrica website at www.centrica.com or the Centrica shareholder helpline.Composition and role of the remuneration committee
The board has established a remuneration committee, which is chaired by Patricia Mann. The other members of the committee in 2002 were Roger Carr, Sir Sydney Lipworth (until his retirement on 13 May 2002), Sir Michael Perry and Sir Brian Shaw. Helen Alexander and Robert Tobin became members of the committee when they joined the board on 1 January 2003. All of the members of the committee are independent non-executive directors.
The committee makes recommendations to the board, within formal terms of reference, on the policy and framework of executive remuneration and its cost to the company. The committee is also responsible for the implementation of remuneration policy and determining specific remuneration packages for each of the executive directors. The committee has access to advice provided by the group head of reward (Mike New), the group human resources director (Anne Minto), the company secretary (Grant Dawson), the chief executive (Sir Roy Gardner) and external consultants (Towers Perrin).
Framework and policy on executive directors’ remuneration
The group’s remuneration policy is designed to provide competitive rewards for its executive directors and other senior executives, taking into account the company’s performance, the markets in which the group operates, and pay and conditions elsewhere in the group. In constructing the remuneration packages, the committee aims to achieve a balance between fixed and variable compensation for each director. Accordingly, a significant proportion of the remuneration package depends on the attainment of demanding performance objectives, both short and long term. In agreeing the level of base salaries and the annual performance bonus scheme, the committee takes into consideration the total remuneration that executives could receive. The committee reviews the packages and varies individual elements when appropriate from year to year. It is intended that the current remuneration policy, which has previously been approved by shareholders, will continue for 2003 and succeeding years.
Components of remuneration
The components of remuneration for each executive director include a base salary and an annual performance bonus. In addition, an annual grant of options is made under the executive share option scheme (ESOS) and an allocation of shares is made under the long term incentive scheme (LTIS), both of which are subject to performance conditions. The performance conditions for LTIS awards are based on the company’s total shareholder return (TSR) relative to the returns of FTSE 100 companies over the performance period. The performance conditions for the ESOS are based on the extent to which growth in the company’s earnings per share exceeds growth in the Retail Price Index.
The following table shows graphs of the company’s TSR performance against that of the FTSE 100 index.
| TSR indices – Centrica and FTSE 100: 1997-2002 |
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Executive directors are entitled to a range of other employment benefits, including contributory, final salary pension and company car. They are also eligible on the same basis as other employees to participate in the company’s all-employee share schemes.
| Directors’ emoluments, pension benefits and interests in shares |
||||||||
|---|---|---|---|---|---|---|---|---|
| As at 31 December 2002 | Total emoluments excluding pension 2002 £000(i) |
Total emoluments excluding pension 2001 £000(i) |
Accrued annual pension 2002 £pa(ii) |
Beneficial interests in ordinary shares 2002 |
Total options under the RESOS 2002(iii) |
Sharesave options 2002 |
Total options under the ESOS 2002(iv) |
Total allocations under the LTIS 2002(v) |
| Executive directors | ||||||||
| Mike Alexander | 617 | 506 | 176,700 | 328,194 | – | 16,830 | 659,692 | 773,614 |
| Phillip Bentley(vi) | 647 | 536 | 19,600 | 80,095 | – | 5,071 | 673,037 | 453,857 |
| Mark Clare | 626 | 553 | 74,300 | 354,625 | 177,645 | 9,318 | 707,211 | 840,895 |
| Sir Roy Gardner | 1,098 | 847 | 183,400 | 771,661 | 1,336,446 | 9,318 | 1,131,002 | 1,382,870 |
| Roger Wood | 608 | 559 | 89,300 | 366,011 | – | 9,318 | 659,692 | 800,876 |
| 3,596 | 3,001 | |||||||
| Non-executive directors | ||||||||
| Roger Carr | 34 | 30 | – | 4,700 | – | – | – | – |
| Sir Sydney Lipworth(vii) | 22 | 45 | – | – | – | – | – | – |
| Patricia Mann | 34 | 30 | – | 2,142 | – | – | – | – |
| Sir Michael Perry | 195 | 180 | – | 15,900 | – | – | – | – |
| Sir Brian Shaw(viii) | 54 | 50 | – | 1,000 | – | – | – | – |
| 339 | 335 | |||||||
| Total emoluments(ix) | 3,935 | 3,336 | ||||||
(i) Benefits 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 65, based on eligible service to 31 December 2002. (iii) Options granted to company employees under the British Gas plc executive share option scheme prior to February 1997 were cancelled and replaced at demerger by non-Inland Revenue-approved options to acquire Centrica shares under the Restructured Share Option Scheme (RESOS). The replacement options were granted on the same terms as British Gas executive share options, with the same exercise date and aggregate exercise price per share, and the number of shares placed under option was adjusted to take account of the demerger. No further options have been or will be granted under this scheme. (iv) Options were granted under the ESOS on 31 May 2001 and 2 April 2002. (v) 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. (vi) In addition to the emoluments shown above, Phillip Bentley received a payment of £200,000 (2001: £250,000) as the second and final tranche of compensation for loss of entitlement under his previous employer’s performance bonus and share option schemes. (vii) The figure for Sir Sydney Lipworth for 2002 includes fees of £8,333 in respect of services as a non-executive director of Goldfish Bank Limited. (viii) The figures above for Sir Brian Shaw include fees of £20,000 per annum in respect of consultancy services to the AA Motoring Policy Unit. (ix) The total emoluments figure for 2001 excludes £30,000 paid to Francis Mackay for his services during that year. (x) The aggregate of the amount of gains made by executive directors on the exercise of share options was £305,950; and the aggregate value of shares vested to executive directors under the LTIS was £4,630,479. |
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As at 17 February 2003, the beneficial shareholding of the directors increased over that which was held at year-end by the following number of shares: Mike Alexander 93; Phillip Bentley 20,093; Mark Clare 10,093; Sir Roy Gardner 30,093; Roger Wood 20,000; and Sir Michael Perry 10,000.
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