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BT takes £530m charge over 'improper practices' in Italy BT shares plunge 15% on Italian scandal
(35 minutes later)
BT Group has been forced to write down the value of its Italian business by £530m following "inappropriate behaviour" over a number of years. Shares in BT have plunged 15% after it was forced to write down the value of its Italian business by £530m because of years of "inappropriate behaviour".
The sum is far higher than the £145m BT initially anticipated and will affect its results for the next two years. The sum is far higher than the £145m initially anticipated and BT warned it would affect its results for the next two years.
BT began investigating accounting practices in Italy last October. BT began investigating Italy's accounting practices last October.
It since emerged that the problems were "far greater than previously identified" and went back over "a number of years". It emerged that the problems were "far greater than previously identified" and occurred over "a number of years".
The charge will affect BT's results both for this year and next. The investigation, which included an independent review by accountancy firm KPMG, found improper accounting practices and "a complex set of improper sales, purchase, factoring and leasing transactions".
For the 2016-17 financial year, revenue will fall £200m and underlying earnings will be £175m lower. It expects to take a similar hit on group sales and earnings for the following financial year. It said: "These activities have resulted in the overstatement of earnings in our Italian business over a number of years."
BT said it has suspended a number of BT Italy's senior management team who have now left the business. It has appointed a new chief executive of BT Italy who will take charge on 1 February. Market 'fear'
In addition, BT provided an update on its outlook and said that there had been a deterioration in both the public sector and international corporate market.
Along with the Italian scandal, BT now expects operating profit for the current financial year to be £7.6bn, compared to previously guidance of £7.9bn and revenue to be flat. It also forecasts that both sales and profit will be flat for the year ending March 2018.
The market valuation of BT tanked by £5.5bn in a matter of minutes in Tuesday trading as its shares fell by fell by more than 15% to 326.8p.
Neil Wilson, market analyst at ETX Capital, said: "The problem is that investors will fear that this is not the end - what else will be uncovered? The costs could yet rise and that fear is driving the selling this morning."
Allegations of "inappropriate behaviour" at BT's Italian operation first emerged last summer before the company began conducting an investigation in October.
BT group chief executive Gavin Patterson said: "We are deeply disappointed with the improper practices which we have found in our Italian business.BT group chief executive Gavin Patterson said: "We are deeply disappointed with the improper practices which we have found in our Italian business.
"We have undertaken extensive investigations into that business and are committed to ensuring the highest standards across the whole of BT for the benefit of our customers, shareholders, employees and all other stakeholders.""We have undertaken extensive investigations into that business and are committed to ensuring the highest standards across the whole of BT for the benefit of our customers, shareholders, employees and all other stakeholders."
The investigation, which included an independent review by accountancy firm KPMG, found improper accounting practices and "a complex set of improper sales, purchase, factoring and leasing transactions. BT said it had suspended a number of BT Italy's senior management team who have now left the business. These include former chief executive Gianluca Cimini and chief operating officer Stefania Truzzoli.
It said: "These activities have resulted in the overstatement of earnings in our Italian business over a number of years." It has appointed a new chief executive of BT Italy who will take charge on 1 February. The company said that the new chief executive would review the local management team and "will work with BT Group ethics and compliance to improve the governance, compliance and financial safeguards in our Italian business".
The company said that the new chief executive of the Italian business will review the local management team and "will work with BT Group ethics and compliance to improve the governance, compliance and financial safeguards in our Italian business". BT's management may also lose out financially following Tuesday shock announcement. It said: "The BT Group remuneration committee will consider the wider implications of the BT Italy investigation."
It added: "We are conducting a broader review of financial processes, systems and controls across the group."