Telecoms giant BT Group PLC (LON:BT.A) has cut its forecasts for this year and next after finding that “inappropriate” accounting behaviour in its Italian business was far greater than previously thought.
The FTSE 100-listed firm, which announced an initial investigation into historical accounting practices in Italy in October, said a broader independent review carried out by KPMG had found “a complex set of improper sales, purchase and leasing transactions”.
As a result, BT said, the size of the write-down on the Italian business has increased to around £530mln, up from its £145mln initial estimate.
The group said, as a consequence, it expects a decrease in its adjusted revenue for the current year to around £200mln, a fall in adjusted core earnings of around £175mln, and a cut of up to £500mln to normalised free cash flow.
For next year, BT expects a similar annual impact to its adjusted revenue and earnings.
BT shares plunged 16% in opening deals, down 60.8p to 321.75p, slumping to their lowest in more than three years.
Neil Wilson, senior market analyst at ETX Capital, said: “A dark day for BT shares, which are on the slide this morning as the company has admitted the cost of dodgy accounting in Italy is far greater than first thought.”
He added: “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.”
Disappointment …
Gavin Patterson, BT’s chief executive, 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."
The group said it has appointed a new chief executive of BT Italy, who will take charge on February 1, and who will review the Italian management team.
BT added that it will also be conducting “a broader review of financial processes, systems and controls across the Group.”
Looking ahead, the firm added: “For Q3, with the exception of the financial impact of the BT Italy investigation, we expect to report results broadly in line with market expectations.”
BT also spooked investors with a cautious trading update in today’s announcement, saying “the outlook for UK public sector and international corporate markets has deteriorated.”
The group added: “For Business and Public Sector, this means we now expect a double-digit year on year percentage decline in Q4 underlying EBITDA adjusted for the acquisition of (mobile phones provider) EE.”
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