BT shares tumbled 19 percent on Tuesday morning, after the telecoms giant warned investors that write down costs associated with an accounting scandal at the Italian wing of its business had ballooned to £530 million from £145 million in late October.
The “historical accounting errors” that were spotted by BT last year, following an internal probe of the business, were then investigated independently by KPMG—which uncovered “the extent and complexity of inappropriate behaviour in the Italian business,” BT said. It found that the “improper” accounting blunders “were far greater than previously identified.”
The City was told that the probe had also “revealed improper accounting practices and a complex set of improper sales, purchase, factoring, and leasing transactions. These activities have resulted in the overstatement of earnings in our Italian business over a number of years.”
Write down costs have spiralled now that BT’s investigation into its Italian business is said to be largely complete.
The scandal will hit BT’s bottom line, with its full year adjusted revenue expected to fall by £200 million, and adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) predicted to tumble by around £175 million. BT warned that it would be affected by the financial fallout for two years, with a “similar annual impact” forecast to hit sales and EBITDA during its 2017/18 fiscal year.
BT said that it has taken “immediate steps” to address the “improper behaviour” at its Italian business. A number of senior execs at the company have now moved on, it said. A new chief has been hired, who—from February 1—will be tasked with eyeballing the Italian management team and working with BT’s ethics and compliance wing to try to knock the business into shape.
“We are deeply disappointed with the improper practices which we have found in our Italian business,” said BT boss Gavin Patterson. “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 added that it was reviewing its financial processes, systems, and controls in light of the Italian accounting probe.
In an update to the City, BT said that the Italian scandal—coupled with the deterioration of the UK public sector and international corporate markets—means that the former state monopoly expects to report a “double-digit year on year percentage decline in Q4.”
Shares in BT are currently trading down 19 percent on the London Stock Exchange at 310.9 pence: investors are clearly spooked.
Listing image by Wikipedia