Cable & Wireless hit by UK Budget fall-out

Shares in Cable & Wireless Worldwide tumbled today after the telecoms group warned British government spending cuts would hurt full-year earnings growth.

The group said non-contracted public sector spending had “slowed significantly” since the emergency Budget last month and would hit trading as a result.

It is ramping up cost-cutting plans to help mitigate the impact, but cautioned that earnings growth would be impacted and forecast overall underlying earnings at the lower end of market expectations.

Shares dropped 13% on the news.

C&W Worldwide will delay recruitment and cut the number of non-payroll staff to save cash.

Costs are also expected to be lower due to a reduction in the amount of money spent on bidding for public sector work, while staff bonus payouts will be reduced if performance is impacted.

C&W Worldwide, which was spun off from the wider international business in March, has a heavy focus on the UK public sector – a division accounting for around 13% of group-wide annual revenues.

Its public sector arm offers telecoms services to central and local government organisations, such as the UK's Ministry of Justice, the NHS and the police service.

The group said today the Government’s austerity measures would “adversely impact trading” this financial year.

“Nevertheless, we are supportive of the overall approach being adopted by Government and believe that our unique product set provides us with significant opportunity in this area over the medium term,” added C&W.

C&W Worldwide recently reported a 32% rise in underlying earnings for the year to March 31 on revenues of £2.3 billion.

Its UK public sector division saw a 6% lift in full-year revenues to £285m (€334m) and 12% increase in profit margin, despite what it said were “challenges” to spending.

But the group also has a significant private sector offering, handling telecoms for major clients such as Tesco and National Grid.

C&W Worldwide employs around 6,500 people.