BT upbeat on government spending cuts, holds view

Pedestrians walk past telephone boxes in central London October 31, 2008.

LONDON (Reuters) - Telecoms provider BT (BT.L) said it did not expect to be overly damaged by looming British spending cuts and repeated its full-year outlook, shrugging off recent downbeat remarks from a rival.

BT said government contracts made up around 10 percent of group revenues but said they were confident they could work to find savings, after Cable & Wireless Worldwide (CWP.L) said last week it had already been hit by a slowdown in the sector.

"The overall robustness and diversity of the BT business means we're not talking about (a C&W Worldwide-type profit warning)," Chief Executive Ian Livingston told reporters after the company reported higher first-quarter earnings on Thursday.

The new Conservative-Liberal coalition government is cutting spending by 6 billion pounds in a bid to bring down the country's record budget deficit. Livingston said BT was in talks with the government over spending plans.

"We were surprised about Cable & Wireless' comments so early. I don't know if they have other factors and bigger factors. We're comfortable with our numbers and that's why we reiterated them today," Livingston added.

The 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.

Shares in the group were 3.2 percent higher at 144 pence by 11:35 a.m., outperforming a 0.7 percent rise on Britain's benchmark FTSE 100 index.

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

"Although BT is not changing guidance at this stage, we would expect some consensus free cash flow upgrades of around 5 percent," he said in a note.

BT posted a 6 percent rise in adjusted core earnings, slightly better than expected, and revealed strong cash generation after taking almost 300 million pounds of operating costs out of the business.

The savings mean BT is already ahead with its plan to cut 900 million pounds in the year. Its total labour costs were down 8 percent.

"We have made an acceptable start to the year, delivering improved financial results while investing in the future of the business," Livingston said, referring to BT's roll-out of fibre services to 1.5 million homes.

Adjusted core earnings at Global Services more than doubled on the previous year as it signed a total order intake of 1.6 billion pounds, also ahead of the previous year.

The group also posted a strong performance in providing broadband, with 96,000 net additions in the quarter for its retail division.

Britain's biggest fixed-line telecoms provider said revenues were down 4 percent to 5 billion pounds, in line with forecasts, as the company continued its turnaround following the problems at Global Services.

(Editing by Jon Loades-Carter)