BT says overstatement of earnings in its Italian business over several years will cost the group £530m

 
Caitlin Morrison
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BT has made accounting errors at its Italian business (Source: Getty)

BT revealed this morning that the financial impact of problems in its Italian business has inflated to £530m, from initial estimates of £145m.

Shares in the group plunged 16 per cent at the open as the company said third quarter revenue would be reduced by £120m as a result, and a £100m decline in free cash flow. For 2016/17 as a whole, revenue will now be around £200m less than previously expected. The stock was down 19 per cent at pixel time.

Read more: Analysts react to BT's Italy issues

The group announced write downs of £145m in October last year after an internal investigation of accounting practices in its Italian business had "identified certain historical accounting errors and areas of management judgement requiring reassessment".

However, after an independent review of the business by KPMG, the telecoms firm said: "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.

"These activities have resulted in the overstatement of earnings in our Italian business over a number of years."

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, which recently scrapped its free football coverage, said it is still working out which proportion of the £530m loss will be treated as prior year errors, and how much of it will be treated as the reassessment in the current year of management estimates.

Work is also ongoing to establish how these adjustments should be reflected in BT Group's financial statements for the current and previous periods, the firm said.

"The improper behaviour in our Italian business is an extremely serious matter, and we have taken immediate steps to strengthen the financial processes and controls in that business," BT said.

"We suspended a number of BT Italy's senior management team who have now left the business."

A new chief executive for BT Italy has also been appointed.

BT is also fighting fires on the home front, as the regulator Ofcom continues to apply pressure over plans to split off the company's broadband network division Openreach.

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