Public-sector cuts will not hurt us too much says BT

TELECOMS major BT does not expect to be overly damaged by looming public-sector spending cuts and yesterday repeated its full-year guidance.

The group said UK government contracts made up about 10 per cent of total revenues but added it was confident it could work to find savings.

Its comments came a week after rival Cable & Wireless Worldwide warned it had already been hit by a slowdown in the sector.

Ian Livingston, BT's chief executive, highlighted the "robustness and diversity" of the business and said the group was already in talks with the UK government over spending plans.

He added: "We were surprised about Cable & Wireless' comments so early. I don't know if they have other factors and bigger factors."

His comments helped to boost sentiment towards the firm, as it continues with its recovery following two major profit warnings due to problems at its key global services division, which provides IT services to multinational companies.

Morgan Stanley analyst Nick Delfas welcomed the remarks on the UK government spending and applauded the "excellent cash management".

He added: "Although BT is not changing guidance at this stage, we would expect some consensus free cash flow upgrades of around 5 per cent."

BT posted a 17 per cent rise in first-quarter profits to 446 million.

Retail profits dipped 1 per cent to 331m due to the ongoing reduction in calls revenues, offsetting 96,000 broadband additions as the group continues its roll out of optical fibres to homes.

The former telecoms monopoly also revealed strong cash generation after taking almost 300m of operating costs out of the business.

Those savings mean BT is already ahead with its plan to cut 900m in the year. Its total staff costs were down 8 per cent.