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Diageo ‘not immune to change’; BT hit by Huawei

Diageo CEO Ivan Menezes

Ivan Menezes: ongoing uncertainty (pic: Terry Murden)

Ivan Menezes, chief executive of drinks group Diageo, said continuing uncertainty in global trade meant the company “would not be immune from further policy changes”.

He said annual sales growth will be at the low end of its guidance as the Johnnie Walker distiller reported a 2% increase in first-half underlying operating profit.

Operating profit before exceptional items for the six months to the end of December rose to £2.5bn from £2.45bn. Net sales rose 4% to £7.2bn.

Organic net sales, one of its key performance measures, rose 4%. The group, which also produces Guinness and Smirnoff vodka..

Mr Menezes said: “These results reflect the changes we are making in the business to drive shifts in our culture. They are in line with our current mid-term guidance and have been delivered in the face of increased levels of volatility in India, Latin America and Caribbean and Travel Retail.

“For the full year, we therefore expect organic net sales growth to be towards the lower end of our 4 to 6% mid-term guidance range. We continue to expect organic operating profit to grow roughly one percentage point ahead of organic net sales.

“There is ongoing uncertainty in the global trade environment and we would not be immune from further policy changes. We remain focused on building the long-term health of our brands, supported by data led insights and a culture of everyday efficiency.

“With the consumer at the heart of the business and with greater agility and discipline in the execution of our strategy, we are growing Diageo in a consistent, sustainable way.”

BT facing £500m Huawei hit

BT Group said the government’s decision to use Huawei to build the UK’s 5G network will cost the business an estimated £500m over the next 5 years.

The government said Huawei’s equipment will only be allowed to account for 35% of kit used in the non-core part of the UK network. This means that telecoms groups may have to swap equipment such as radio masts in order to meet the cap.

BT Group chief executive Philip Jansen said: “We are in the process of reviewing the guidance in detail to determine the full impact on our plans and at this time estimate an impact of around £500 million over the next 5 years.”

His comments came as BT announced sales and profits lower in third quarter figures.

Revenue for the three months to 31 December dropped by 3% to £5.7bn while adjusted earnings before interest, tax, depreciation and amortisation declined by 4% to £1.9bn.

Mr Jansen, said: “BT delivered results slightly below our expectations for the third quarter of the year, but we remain on track to meet our outlook for the full year.”

Arlene Ewing, investment manager at Brewin Dolphin, said: “It’s another mixed bag from BT, with a performance at the lower end of expectations – the significant drop in free cash flow is a particular concern.

“The business has made significant investments in recent years, leading to higher capital expenditure and increased debt – the hope remains that this will lead to better times ahead with BT reaping the benefits of its outlay over the longer term.

“Much will rely on the successful execution of the management team’s plans; but, if they are successful, it could lead to an interesting medium-term recovery story for investors.”

Russ Mould, investment director at AJ Bell, said: “BT’s third quarter results won’t do much to win over the market which has been sceptical on the company for a long time due to struggles with earnings growth, a large pension deficit and the need for hefty infrastructure investment.

“Not only are the results below expectations, but it now anticipates a £500 million hit from the Government’s cap on how much Huawei equipment can be used in the UK telecoms network.

“From 2023, the Chinese company can only have a maximum 35% market share of the UK network – that’s a problem for BT which has historically relied heavily on Huawei kit.

“Investors have been attracted to BT in the past for its generous dividends. These payouts have increasingly been questioned by the market which is worried about the company’s hefty investment plans and how that will gobble up its cash flow. 

“Analysts aren’t forecasting any sales or pre-tax profit growth for at least the next three years and the consensus estimate is for the dividend to be cut by about 20% in the financial year ending March 2021.

“So for now this looks like a company stuck in the mud. It has bold ambitions and knows what it wants to look like in the future. It just needs to get on with the job and reposition the company for the 21st century. Until that journey is well on its way to completion, BT is likely to be treated with apathy.”

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