BT shares were down 4.5 per cent this morning after the telecom unveiled a 42 per cent drop in profits during the first half of 2017.
Pre-tax profit fell from £717m to £418m year-on-year, after a £530m accounting overstatement was revealed in the firm's Italian operation earlier this year. BT's boss Gavin Patterson gave up his bonus due to the scandal.
This is how the City has reacted to the results:
A mixed bag
UBS analysts said the modest expectation beat for the first quarter was encouraging but noted "the shares have rallied into these numbers". Separately, they said, uncertainties remain over medium-term equity free cash flow with lack of visibility on both pension costs and capex.
Not entirely gloomy
George Salmon, equity analyst at Hargreaves Lansdown, said: "The accounting scandal in Italy has led to another £225m of nasties turning up in first quarter numbers, to add to the £530m the group originally set aside back in January. In addition to this, misdemeanours at Openreach mean a total of £340m is to be paid in fines and compensation, and another £300m is needed to cover the cost of restructuring a number of divisions, including global services. All the while the £16bn pension and debt pile looms over the group.
"However, it’s probably unfair to paint an entirely gloomy picture. BT has shaken off demands to fully separate the higher-margin Openreach division, and assuming there aren’t any more skeletons in the closet, the cash flows from EE and the growing consumer division are potentially attractive. Nonetheless, with BT fighting battles on several fronts, one could be forgiven for waiting for the dust to settle."
Pensions black hole
Neil Wilson at ETX Capital also said the pension "black hole" is probably more of a worry than the Italian issues.
"A c£14bn deficit in its c£50bn fund is a gaping wound on its balance sheet," he added. "It’s all adding up and investors responded with a three per cent selloff in early trading today."
However, he added: "Despite today’s knock to the share price investors have been warming to BT again following the gigantic selloff in January, which wiped a fifth off its market cap."