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BT profits plunge after Italian accounting scandal

BT’s pre-tax profit drops 37% as the telecoms giant comes to terms with the extent of massive corruption at its Italian business

The revelation of improper accounting practices, sales, purchase, factoring and leasing transactions at BT’s Italian business has seen the telecoms and services giant’s pre-tax profit for the third quarter to 31 December plummet by 37% year-on-year to £526m.

News of the scale of the scandal – which has been under investigation by forensic auditors at KPMG since the summer of 2016 – broke on 24 January 2017, when BT revealed it was trebling an existing write-down on the Italian unit to £530m.

BT’s shares lost more than 20% of their value as a result of the news, which has also cost Corrado Sciolla, the head of its European operations, his job.

“The good progress we’re making across most of the business has unfortunately been overshadowed by the results of our investigation into our Italian operations and our outlook,” said BT chief executive Gavin Patterson.

“We’ve undertaken extensive investigations into our Italian business and I am deeply disappointed with the unacceptable practices by some that we’ve found. This has no place at BT, and it undermines the good work we’re doing elsewhere in the group,” he said.

Among some of the bright spots overshadowed by the scandal were a 32% bump in group-wide revenue to £6.13bn, record growth at EE, and the highest ever fibre-based broadband net connections in Openreach, at close to half a million.

However, BT said it still faced significant headwinds in its public sector and international corporate businesses.  As a result of these pressures, it expects underlying revenue and earnings (excluding EE) to be roughly flat for the upcoming 2017-18 financial year.

BT also noted the impact of the UK’s Brexit vote, which has caused volatility on revenue and cost thanks to the weakening of sterling, alongside uncertainty around the nature of the UK’s future trading relationships with the European Union (EU).

Kester Mann, senior analyst – operators at CCS Insight, said it was inevitable that BT’s results would be overshadowed by the Italian job and the public sector slowdown, but added there was much to be encouraged by, such as the strong results from EE and Openreach.

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“Nevertheless, sentiment from the results is likely to be downbeat with the Italian fiasco adding to a growing list of challenges,” said Mann.

“These include a huge pension deficit, the ongoing battle with Ofcom over the future structure of Openreach, escalating costs to win lucrative TV sports rights and increasing competition in the UK multiplay market,” he said.

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