BT (LON:BT.A) shares plunged nearly 20 percent at market open, after the company admitted an accounting scandal at its Italian business was almost four times worse than previously thought.
The shock profit warning was issued after BT revealed the impact of the problems would total around £530 million, instead of the £145 million given originally. In a statement released on Tuesday, the company warned that adjusted EBITDA could take a £175 million hit for the full year 2016/17, alongside a £500 million decrease in cash flow.
In a statement the company said it had taken action against the Italian arm, calling it an “extremely serious matter”.
“We have taken immediate steps to strengthen the financial processes and controls in that business. We suspended a number of BT Italy’s senior management team who have now left the business. We have also appointed a new Chief Executive of BT Italy who will take charge on 1 February 2017”, BT added.
BT said that whilst the company continues to show growth, there had been a deterioration in both the public sector and international corporate market and it now expects profits to come in below expectations. BT now expects operating profit for the current financial year to be £7.6 billion, compared to previously guidance of £7.9 billion and revenue to be flat. It also forecasts that both sales and profit will be flat for the year ending March 2018.
Gavin Patterson, the group’s chief executive, 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 shares are currently trading down 18.94 percent at 310.00 (0912GMT).