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| BT profits dive by 40% after £225m payout over Italian scandal | BT profits dive by 40% after £225m payout over Italian scandal |
| (about 2 hours later) | |
| BT’s profits slumped more than 40% in the first quarter of its new financial year after it was forced to pay out £225m to two shareholders following the accounting scandal at its Italian operation. | BT’s profits slumped more than 40% in the first quarter of its new financial year after it was forced to pay out £225m to two shareholders following the accounting scandal at its Italian operation. |
| Deutsche Telekom and Orange became shareholders in BT after the company struck a £12.5bn cash and shares deal to buy mobile company EE in 2015. | Deutsche Telekom and Orange became shareholders in BT after the company struck a £12.5bn cash and shares deal to buy mobile company EE in 2015. |
| As part of that deal the two companies were issued a warranty as a protection against a slump in BT’s performance. | As part of that deal the two companies were issued a warranty as a protection against a slump in BT’s performance. |
| BT’s stock market value plunged by almost £8bn in January after the company revealed the full extent of a £530m accounting scandal at its Italian operation. BT’s share price remains more than 20% lower that it was a year ago. | |
| BT said the £225m payout represents a “full and final settlement in respect of these issues”. | BT said the £225m payout represents a “full and final settlement in respect of these issues”. |
| The company’s share price slumped by more than 4% in early trading on Friday as investors digested the latest bad news to hit the company. | |
| Gavin Patterson, the BT chief executive, said DT and Orange “only very recently” raised the issue of a payment ahead of a deadline to make a claim at the end of the day on Friday. | |
| He said the settlement was better than facing a longer legal process that would have been triggered if an official claim was lodged. | |
| “Whilst this is clearly disappointing. it is the best possible outcome for all shareholders as it avoids a potential protracted legal process,” said Patterson. | |
| He added that there were still a “small number” of class action suits related to the accounting scandal lodged by investors in the US. | |
| “We think we have a strong case to defend but I can’t comment on those,” he said. | |
| The ongoing fall out of the Italian accounting scandal has resulted in Patterson’s pay for last year being slashed by £4m, and prompted a restructure with 4,000 jobs being axed, about half in the UK. | |
| The charge hurt BT’s financial performance badly, with pre-tax profits slumping 42% from £717m to £418m in the three months to the end of June. | The charge hurt BT’s financial performance badly, with pre-tax profits slumping 42% from £717m to £418m in the three months to the end of June. |
| Stripping out the impact of the one-off £225m payment, BT’s adjusted profits still fell by 2% to £1.78bn in its first quarter. | |
| The company attributed this to increased pension costs, programme rights and investing in bringing all of its call centre operations back to the UK. | |
| In March, BT paid £1.18bn for Champions Legue football rights, 32% more than the previous deal, to fend off Sky. The spiralling cost of sports rights has also affected Sky, which on Thursday said that a one-off £629m step-up in Premier League rights costs drove a 14% fall in profits at its UK and Ireland operation. | |
| “The days of rampant [rights cost] inflation I think are behind us,” said Patterson. “I think we are getting to a point where rights fees will increasingly be challenged in terms of inflation. We are prepared to walk away if the price is too high.” | |
| Upcoming sports rights auctions include the Football League, which is expected to be a high stakes bidding war with Sky, and ATP World Tour Tennis. | |
| BT added just 8,000 new TV customers , following an equally anaemic 11,000 in the first quarter of the year – close to record low. | |
| Patterson said that overall BT delivered an “encouraging performance” in its first quarter, with total revenues up 1% to £5.8bn. BT pointed to a healthy 9% increase in broadband and TV revenue, fuelled by price rises, and a 4% rise at EE to £1.3bn. | |
| The company also announced a further restructure that will see its BT Consumer division, home to its TV service and broadband operation, merged with mobile business EE. | |
| As a result BT Consumer chief John Petter, a 13-year BT veteran, is to leave the company. Marc Allera, the chief executive of EE, will take over control of the enlarged division. | |
| Patterson indicated that the merger was likely to lead to job cuts beyond what the company announced in May. |