Boris Johnson’s qualified approval of Huawei’s 5G kit was “an important clarification”, said BT, putting a positive gloss on a decision it says will cost it £500m over five years. But there was no clarity for BT shareholders worried about the dividend. The Huawei whack is another reason to think it’s for the chop.
A key detail in the government’s 5G policy was missed in the political noise: the 35% market share cap on Huawei equipment will apply from January 2023, sooner than expected. A five-year deadline would have been far more comfortable for BT. The company is now obliged to accelerate a “rip and replace” job on its EE network, which is currently heavy with Huawei 4G boxes that could also have been used in 5G roll-out.
Half a billion quid over half a decade may not sound much in the context of a group making annual top-line earnings of £8bn-ish, but it doesn’t take much to upset BT’s delicate cash flow projections. The roll-out of 5G and fast fibre will require capital expenditure to be super-charged, and the cash demands of the vast pension fund never go away. A shareholder dividend costing £1.5bn a year looks an unaffordable luxury.
A cut won’t happen this year because BT has already rashly pledged to hold; we’re talking thereafter. The uncertainty is one reason why the shares, down 7% on Thursday, continue to fade. They’re now down two-thirds from their 2016 peak.
“We’re now entering a critical year for both BT and the country,” said its chief executive, Philip Jansen, making the traditional pitch that the company’s interests and the nation’s are aligned. Up to a point, he’s right: the UK needs BT to step up the pace on fast fibre.
What he also means, though, is that BT would like to be thrown more carrots. So: clarity from regulator Ofcom on the allowed rate of return on new fibre investment; an exception from business rates on new fibre, which would save BT £1bn over 20 years; and the ability to sign fibre supply contracts longer than five years with the likes of Sky and TalkTalk.
Some of those requests will be granted, one suspects. But pleas of poverty always sound less convincing when they’re made by a company that still manages to find big money to pump into Uefa football rights.
Never mind the Huawei pain, which could have been worse. And never mind the lowly share price. A dividend cut looks a necessary sacrifice if BT wants more regulatory and political favours.
Unilever’s untimely tea break
Tate Britain, controversially, wants to hire a head of coffee on a salary of nearly £40,000. It is not, however, looking for a head of tea.
Modern beverage bias helps to explain why Unilever wants out of tea, wholly or in part. Its marketing folk have tried to work some coffee-style “premiumisation” magic on tea but a 100-pack of Lipton Yellow Label still costs 3p a bag at Tesco. Unilever would prefer to devote more capital to flogging fancy shampoos to aspirational consumers in Asia.
One can see the thinking, of course. Unilever’s global tea business makes almost €3bn (£2.5bn) in revenues annually but growth is almost non-existent at a moment when growth is a worry for the chief executive, Alan Jope. He has just narrowly missed his target of improving group-wide revenues by 3-5% a year.
Yet it is hard to escape the feeling that Unilever is losing something valuable as it ditches historical parts of its business. The margarine and spreads business went for €6.8bn in 2017 to the private equity crew at KKR, and the tea operation may fetch a similarly nice price.
But Unilever’s efforts to promote “sustainable living” always seemed to be perfectly embodied by its fair-trading efforts on tea estates in Tanzania and Kenya. Selling every business that doesn’t grow, but still makes good returns, feels a little short-termist – and very un-Unilever.
The shock of the non-bid in 2017 from Kraft Heinz is still reverberating around Unilever’s boardroom, one assumes. The tune has been all about dealmaking, cost-cutting and share buybacks ever since. The action is furious, but is it progress?
The Church of England pensions board is pushing £600m into a new climate-compliant index fund, where the surprising inclusion is Shell. The oil giant makes the grade according to carbon assessments made by the Transition Pathway Initiative.
If members of the clergy are sceptical, they can make inquiries to the chair of the church’s pensions board. He is Clive Mather, who is perfectly placed to explain because he spent 38 years working for Shell.