Sinead Moore 24 Jan 2017 01:17pm

BT Italian accounting scandal worse than expected

BT’s shares plunged almost 19% on Tuesday morning after the company revealed the financial impact of an accounting scandal in its Italian business was nearly £400m higher than expected

An initial internal investigation in October last year estimated that historical accounting errors identified in BT’s Italian business would cost the business £145m.

However, this figure was revised up to £530m following an independent review by KPMG.

BT said the review revealed “the extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified and have revealed improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions”.

The telecommunications provider added that the activities have resulted in the overstatement of earnings in the Italian business “over a number of years”.

The company’s market value dropped almost 19% following the announcement.

Looking ahead, BT said the outlook for UK public sector and international corporate markets has deteriorated and warned that the results of the investigation would affect its results for the next two years.

BT expects operating profit for the current financial year to be £7.6bn, compared to previous estimates of £7.9bn and expects revenue to be broadly flat. It also forecasts that both sales and profit will be flat for the year ending March 2018.

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."

BT said it has suspended a number of BT Italy’s senior management team who have now left the business.

A new chief executive of BT Italy is due to take charge at the beginning of February.

The company said he will review the Italian management team and will work with BT group ethics and compliance to improve the governance, compliance and financial safeguards in the Italian business.

BT is also reviewing financial processes, systems and controls across the group.

It added that the group’s remuneration committee will consider the wider implications of the BT Italy investigation.

KPMG declined to comment on the review.