Results round-up

British Gas owner Centrica reported a 15% drop in pre-tax profit for 2015 as revenue declined, but earnings were still ahead of expectations.

For the year ended 31 December, adjusted pre-tax profit fell to £1.13bn from £1.33bn in 2014, as revenue slipped 5% to £28bn.

Earnings per share of 17.2p were down 4% from the previous year, but ahead of analysts’ expectations.

Adjusted earnings, meanwhile, fell to £863m from £903m the year before, surpassing expectations of around £850m.

Profit at British Gas, the company’s household gas and electricity unit, rose 31% to £574m as consumption returned to more normal levels following a mild 2014.

The energy company declared a final dividend of 8.43p, in line with the previous year and expectations, and taking the full year dividend to 12p compared with 13.5p in 2014.

Chief executive Iain Conn said: “Centrica has delivered a resilient financial performance, with solid 2015 adjusted earnings despite the challenge of falling wholesale oil and gas prices. Operating cash flow has been strong, and with capital discipline this has allowed the group to reduce net debt. In 2016 we expect operating cash flow also to be over £2bn.

“We have a clear strategy for delivering growth and returns built around the customer and I am encouraged by the progress we have made. We remain confident that our plans and underlying performance momentum will allow us to more than balance cash flows and deliver at least 3-5% per annum underlying operating cash flow growth to 2020, even in the current environment, so underpinning a progressive dividend policy.”

Centrica said the steep falls in wholesale commodity prices will continue to have a material impact on the operating cash flows from its E&P and central power generation businesses in 2016 and beyond, if current levels persist.

However, on a cheerier note, it said the customer-facing businesses are delivering resilient cash flows, and the group’s cost efficiency programme is starting to bear fruit.

The company said that should current low wholesale prices continue beyond this year, it has the flexibility to reduce its E&P capital expenditure further to the bottom end of its £400-£600m range.

“Centrica’s full year results are resilient in the context of a very challenging environment, which is reassuring in the circumstances,” said Steve Clayton, head of equity research at Hargreaves Lansdown.

“Cost and efficiency savings are progressing well and capital expenditure (capex) is being reduced. This is helping to support cash flows, dividends and net debt reduction. Centrica has stated that even if current commodity prices persist it should still be able to grow its operating cash flows, while capex in the upstream business can be reduced further if necessary. This should help underpin confidence in the dividend.”

BAE Systems has posted full year results that are in line with City expectations and issued guidance that underlying earnings per share will rise between 5-10% in 2016 as it enters what it says is an improved business environment.

For 2015, the defence and aerospace group saw underlying earnings before interest, tax, depreciation and amortisation decline 1% to £1.68bn due to previously reported slow sales of its Eurofighter Typhoon fighter jets, though overall group sales were lifted almost 8% to £17.9bn, helped by a stronger dollar.

Earnings were also hit by an impairment charges taken on its Australian shipyards, though gained £15m from exchange rate translation. Net debts rose by £390m to £1.4bn.

Operating profits rose more than 15% to £1.5bn, with underlying earnings per share up 6% to 40.2p, ahead of guidance for 38p issued in November, and a final dividend of 12.5p per share means the total of 20.9p per share for the year is an increase of 2% over 2014.

Having navigated through a period where defence budgets have been constrained by wider economic pressures, the overall business environment is now improving.

"We have delivered another year of solid performance," said chief executive Ian King, about whose departure there remains plenty of speculation.

He pointed to a large order backlog of £36.8bn at the year end, though it was down from £40.5bn a year before, and said BAE was "well placed to continue to generate attractive returns for shareholders as defence budgets recover and our commercial adjacencies of cyber and commercial electronics continue to grow."

Management acknowledge that the longer-term outlook "retains some uncertainty", but was confident the Electronic Systems division was in prime position to benefit from changing US Department of Defense priorities.

In the UK, after November's Strategic Defence and Security Review included commitments to the Royal Navy's submarine fleet and other naval requirements, as well as for investment in a future unmanned aircraft.

On Typhoon, although it admitted there was no certainty as to the timing of orders, the company said discussions with current and prospective customers "continue to support our expectations for additional Typhoon contract awards".

Analyst Steve Clayton at Hargreaves Lansdown griped that “earnings forecasts keep drifting lower" and expressed concern about the pension fund's ability to distract focus and drain cash.

He also speculated that the changing nature of modern warfare "might have leapfrogged modern weaponry" but that while national and commercial cyber security were areas BAE is keen to grow, "it is not yet big enough in the business to drive the overall group forward on its own".