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BT shares plunge 19% as Italian accounting scandal deepens – business live BT shares plunge 19% as Italian accounting scandal deepens – business live
(35 minutes later)
9.48am GMT
09:48
BT’s shares are popular with small shareholders, some of whom will have held them since the company was privatised in 1984.
So today’s share plunge will have hit them in the pocket (although BT says it hopes to keep raising its dividend over the next couple of years)
The Share Centre, a retail stockbroker, have put their ‘buy’ recommendation on review.
Helal Miah, investment research analyst, says:
“On top of BT’s big pension deficit and grumbles amongst rivals and users of its infrastructure network, today’s news has further dented investors’ confidence in the group.
We too, have become more cautious and have placed our current ‘buy’ recommendation under review. However, this may be an attractive idea for investors taking a contrarian position and, provided the group maintains its dividend, then it could become a good income option.”
9.33am GMT
09:33
Here’s Mike van Dulken of Accendo Markets on BT shock warning:
This morning sees BT Group (BT/A) shares -16% to trade levels last seen in mid-2013. Just as brokers and investors were prepping for FY results on Friday, the company delivers a profits warning linked to an existing accounting scandal at its Italian business. Continued investigation since October (internal + external) has shown the extent of impropriety (sales, purchase, leasing) and overstatement of profits to be far greater than initially thought. Management has been forced to more than triple its expected write-down to £530m and admit that FY revenues, profits and cash flow will be lower than consensus. Last October’s suggestion of a £145m charge didn’t cause too many ripples as regulatory issues and a rising pension deficit hogged the headlines. Today’s admission adds this to these nasty headwinds, especially as it could weigh on profits for the next two years.
Even management isn’t sure what the final figure will be. The group still expects 10% dividend increases for the next two years but is this enough to appease disgruntled shareholders who had already been wearing a 20% downtrend since early 2016. The increases may, however, attract newbies via a 4% yield. Assuming this can be honoured….
Updated
at 9.34am GMT
9.00am GMT9.00am GMT
09:0009:00
We’ll get more colour on BT’s business on Friday, when it publishes its third-quarter financial results.We’ll get more colour on BT’s business on Friday, when it publishes its third-quarter financial results.
Today’s announcement was rushed out once the company had calculated the full cost of its Italian accounting problems.Today’s announcement was rushed out once the company had calculated the full cost of its Italian accounting problems.
Under City rules, a company can’t keep a problem of this magnitude to itself.Under City rules, a company can’t keep a problem of this magnitude to itself.
UpdatedUpdated
at 9.10am GMTat 9.10am GMT
9.00am GMT9.00am GMT
09:0009:00
Q: Why were the accounting irregularities BT Italy not discovered a lot sooner?Q: Why were the accounting irregularities BT Italy not discovered a lot sooner?
BT says that it “needs to reflect” on why they were not spotted by BT Italy’s management, the wider Group, or by its auditors.BT says that it “needs to reflect” on why they were not spotted by BT Italy’s management, the wider Group, or by its auditors.
But it is “far too premature” to say anything about the auditors this morningBut it is “far too premature” to say anything about the auditors this morning
8.43am GMT8.43am GMT
08:4308:43
This is turning into a full-blow rout:This is turning into a full-blow rout:
Make that down 19% for BT shares and on track for the biggest fall ever after "improper" accounting practices at its Italian unit. pic.twitter.com/rCRw2J1F7sMake that down 19% for BT shares and on track for the biggest fall ever after "improper" accounting practices at its Italian unit. pic.twitter.com/rCRw2J1F7s
8.42am GMT8.42am GMT
08:4208:42
This is a “dark day” for BT, says city analyst Neil Wilson of ETX Capital.This is a “dark day” for BT, says city analyst Neil Wilson of ETX Capital.
He says investors are selling up, on fears that there are deeper problems at the telecoms firm.He says investors are selling up, on fears that there are deeper problems at the telecoms firm.
The group’s own investigation of accounting malpractice in its Italian business shows the situation is far worse than it first thought – the bill is now thought to be around £530m, well above the £145m initially forecast.The group’s own investigation of accounting malpractice in its Italian business shows the situation is far worse than it first thought – the bill is now thought to be around £530m, well above the £145m initially forecast.
According to BT, this will mean a reduction in Q3 adjusted revenue and adjusted EBITDA of around £120m. Free cash flow will be £100m worse off.According to BT, this will mean a reduction in Q3 adjusted revenue and adjusted EBITDA of around £120m. Free cash flow will be £100m worse off.
For 2016/17 as a whole the problems will have a negative revenue impact of around £200m, while denting normalised free cash flow by up to £500m. The impact on 2017/18 is expected to be just as bad and that is likely to have a material impact on its ability to return cash to shareholders, although BT says it still expects to grow dividend per share by 10% in each of those years. 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.”For 2016/17 as a whole the problems will have a negative revenue impact of around £200m, while denting normalised free cash flow by up to £500m. The impact on 2017/18 is expected to be just as bad and that is likely to have a material impact on its ability to return cash to shareholders, although BT says it still expects to grow dividend per share by 10% in each of those years. 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.”
8.40am GMT8.40am GMT
08:4008:40
BT’s shares are now down 19%, which wipes £6bn off its market capitalisation.BT’s shares are now down 19%, which wipes £6bn off its market capitalisation.
8.40am GMT8.40am GMT
08:4008:40
The Italian business will need a lot of work before it can be a growth business, Patterson says, predicting that it has probably been unprofitable for a number of years.The Italian business will need a lot of work before it can be a growth business, Patterson says, predicting that it has probably been unprofitable for a number of years.
8.32am GMT8.32am GMT
08:3208:32
BT CEO: Accounting scandal is restricted to Italy (we think)BT CEO: Accounting scandal is restricted to Italy (we think)
CEO Gavin Patterson also warns that BT is feeling the impact of higher inflation, so 2017 will be a lot tougherCEO Gavin Patterson also warns that BT is feeling the impact of higher inflation, so 2017 will be a lot tougher
Q: Is BT now inspecting its other overseas businesses for signs of accounting problems?Q: Is BT now inspecting its other overseas businesses for signs of accounting problems?
Yes, Patterson replies, and BT doesn’t believe an issue like this exists elsewhere in its business.Yes, Patterson replies, and BT doesn’t believe an issue like this exists elsewhere in its business.
This accounting scandal appears to be “specific” to the Italian business, he continues. It’s a very complex set of manipulations, involving a lot of people over many years.This accounting scandal appears to be “specific” to the Italian business, he continues. It’s a very complex set of manipulations, involving a lot of people over many years.
BT Group shares down 15% as it cuts its revenue & earnings forecast for the next 2 yrs after accounting issues in its Italian business.$BT pic.twitter.com/8NwoHeCFThBT Group shares down 15% as it cuts its revenue & earnings forecast for the next 2 yrs after accounting issues in its Italian business.$BT pic.twitter.com/8NwoHeCFTh
UpdatedUpdated
at 8.32am GMTat 8.32am GMT
8.25am GMT8.25am GMT
08:2508:25
BT also sees UK market slowingBT also sees UK market slowing
As if BT didn’t have enough problems right now, it is also warning that the UK market is slowing.As if BT didn’t have enough problems right now, it is also warning that the UK market is slowing.
The outlook for UK public sector and international corporate markets has deteriorated, says CEO Gavin Patterson. That is potentially down to the wider economy, and potentially down to the Brexit vote.The outlook for UK public sector and international corporate markets has deteriorated, says CEO Gavin Patterson. That is potentially down to the wider economy, and potentially down to the Brexit vote.
8.23am GMT8.23am GMT
08:2308:23
BT CEO Gavin Patterson is briefing City analysts on a conference call now. I’ve dialled in.BT CEO Gavin Patterson is briefing City analysts on a conference call now. I’ve dialled in.
Patterson says he is “deeply disappointed” by the inappropriate behaviour uncovered at BT Italy, and confirms that several executives have left the company after being suspended.Patterson says he is “deeply disappointed” by the inappropriate behaviour uncovered at BT Italy, and confirms that several executives have left the company after being suspended.
Financial results have been overstated for several years, Patterson says, so BT is now working out the full impact on the overall Group’s results.Financial results have been overstated for several years, Patterson says, so BT is now working out the full impact on the overall Group’s results.
We take the situation at our Italian business extremely seriously, and are taking efforts to strengthen its procedures, Patterson continues.We take the situation at our Italian business extremely seriously, and are taking efforts to strengthen its procedures, Patterson continues.
8.17am GMT8.17am GMT
08:1708:17
BT shares have hit their lowest level in two and a half years, and are on track for their worst day since the financial crisis of 2008.BT shares have hit their lowest level in two and a half years, and are on track for their worst day since the financial crisis of 2008.
The City really isn’t impressed by these serious accounting mistakes at the company’s Italian arm.The City really isn’t impressed by these serious accounting mistakes at the company’s Italian arm.
8.11am GMT8.11am GMT
08:1108:11
£5.5bn wiped off BT's value as shares plunge£5.5bn wiped off BT's value as shares plunge
Boom! BT shares have plunged by 15% at the start of trading.Boom! BT shares have plunged by 15% at the start of trading.
That wipes more than £5.5bn off the company’s value, and sends it sprawling to the bottom of the FTSE 100.That wipes more than £5.5bn off the company’s value, and sends it sprawling to the bottom of the FTSE 100.
8.05am GMT8.05am GMT
08:0508:05
BT profits warning: instant reactionBT profits warning: instant reaction
City analyst Louise Cooper says this scandal does not reflect well on the City:City analyst Louise Cooper says this scandal does not reflect well on the City:
BT admits to "inappropriate behaviour" in its Italian business "improper accounting practices""Overstatement of earnings"By £530mn!!!!BT admits to "inappropriate behaviour" in its Italian business "improper accounting practices""Overstatement of earnings"By £530mn!!!!
BT has overstated Italian earnings by half a billion poundsSays a lot about corporate cultureAnd it's not goodBT has overstated Italian earnings by half a billion poundsSays a lot about corporate cultureAnd it's not good
And this is from Reuters’ Amanda Cooper:And this is from Reuters’ Amanda Cooper:
"Inappropriate accounting behaviour" gets MY vote for Euphemism of 2017 - BT cuts outlook on Italy accounting errors https://t.co/QzTbasVG6A pic.twitter.com/2bknwnzGBm"Inappropriate accounting behaviour" gets MY vote for Euphemism of 2017 - BT cuts outlook on Italy accounting errors https://t.co/QzTbasVG6A pic.twitter.com/2bknwnzGBm
7.52am GMT7.52am GMT
07:5207:52
BT shares could tumble by 8% in early trading, warns City veteran David Buik.BT shares could tumble by 8% in early trading, warns City veteran David Buik.
BT - BIG write-down in Italy - shares may be down 8%!!!BT - BIG write-down in Italy - shares may be down 8%!!!
7.51am GMT7.51am GMT
07:5107:51
BT admits true scale of Italian accounting scandalBT admits true scale of Italian accounting scandal
Telecoms group BT has just shocked the City by announcing that the accounting scandal at its Italian division is much worse than previously thought.Telecoms group BT has just shocked the City by announcing that the accounting scandal at its Italian division is much worse than previously thought.
The FTSE-listed company is slashing its revenue, earnings and free cash flow forecasts for this year, and next year. It has also suspended several senior executives from BT Italy who have already left the company.The FTSE-listed company is slashing its revenue, earnings and free cash flow forecasts for this year, and next year. It has also suspended several senior executives from BT Italy who have already left the company.
An investigation by KPMG has uncovered that “the extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified.”An investigation by KPMG has uncovered that “the extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified.”
KPMG found that the division used “improper accounting practices” and a complex set of improper sales, purchase, factoring and leasing transactions.KPMG found that the division used “improper accounting practices” and a complex set of improper sales, purchase, factoring and leasing transactions.
This has driven the cost of the scandal up to £530m, sharply higher than the £145m which BT announced in October.This has driven the cost of the scandal up to £530m, sharply higher than the £145m which BT announced in October.
This is going to have a serious impact on BT’s business. It is now predicting no revenue growth over the next two years, and cutting its guidance for EBITDA profits from £7.9bn to £7.6bn.This is going to have a serious impact on BT’s business. It is now predicting no revenue growth over the next two years, and cutting its guidance for EBITDA profits from £7.9bn to £7.6bn.
Gavin Patterson, chief executive of BT Group, says:Gavin Patterson, chief executive of BT Group, says:
“We are deeply disappointed with the improper practices which we have found in our Italian business.“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.”
BT has appointed a new boss of BT Italy. He takes charge on 1 February, and will work on improving the “governance, compliance and financial safeguards in our Italian business”.BT has appointed a new boss of BT Italy. He takes charge on 1 February, and will work on improving the “governance, compliance and financial safeguards in our Italian business”.
In short, this is pretty serious. I’ll pull together some reaction now.In short, this is pretty serious. I’ll pull together some reaction now.
UpdatedUpdated
at 8.03am GMTat 8.03am GMT
7.31am GMT7.31am GMT
07:3107:31
The agenda: A big day for sterling?The agenda: A big day for sterling?
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Investors in City have plenty to think about today. At 9.30am, the UK supreme court will rule on whether parliament must give its approval before Britain can begin its departure from the European Union.Investors in City have plenty to think about today. At 9.30am, the UK supreme court will rule on whether parliament must give its approval before Britain can begin its departure from the European Union.
That news will be liveblogged in another place, but we’ll be watching too as the decision will move the markets.That news will be liveblogged in another place, but we’ll be watching too as the decision will move the markets.
Owen Bowcott, our legal affairs correspondent, explains how the ruling will affect the Brexit timetable:Owen Bowcott, our legal affairs correspondent, explains how the ruling will affect the Brexit timetable:
The ruling by the 11 justices will resolve whether the government, through its inherited use of royal prerogative powers, can formally initiate article 50 of the treaty on European Union (TEU) without the explicit approval of MPs and peers.The ruling by the 11 justices will resolve whether the government, through its inherited use of royal prerogative powers, can formally initiate article 50 of the treaty on European Union (TEU) without the explicit approval of MPs and peers.
Article 50 begins the process of the UK’s withdrawal from the EU. If a majority of justices decide, as is widely expected, that parliamentary support is required, then the judgment could specify that legislation is needed.Article 50 begins the process of the UK’s withdrawal from the EU. If a majority of justices decide, as is widely expected, that parliamentary support is required, then the judgment could specify that legislation is needed.
We also get the latest UK public finance figures at 9.30am, covering December.We also get the latest UK public finance figures at 9.30am, covering December.
Economists predict that Britain borrowed around £6.5bn to balance the books last month.Economists predict that Britain borrowed around £6.5bn to balance the books last month.
Data firm Markit is reporting its latest PMI surveys for the eurozone this morning, showing how manufacturing and service companies are faring this month.Data firm Markit is reporting its latest PMI surveys for the eurozone this morning, showing how manufacturing and service companies are faring this month.
Over in parliament, the Business, Innovations and Skills committee is holding a hearing into executive pay and boardroom diversity, also starting at 9.30am.Over in parliament, the Business, Innovations and Skills committee is holding a hearing into executive pay and boardroom diversity, also starting at 9.30am.
They’ll hear from Sir Philip Hampton who chaired a review into how to get more women into City boards, along with Baroness Sarah Hogg, Tom Gosling of PWC, Simon Fraser of Investor Forum, Ken Olisa of the Institute of Directors, and Andrew Ninian of Investment Association.They’ll hear from Sir Philip Hampton who chaired a review into how to get more women into City boards, along with Baroness Sarah Hogg, Tom Gosling of PWC, Simon Fraser of Investor Forum, Ken Olisa of the Institute of Directors, and Andrew Ninian of Investment Association.
UpdatedUpdated
at 9.01am GMTat 9.01am GMT