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BT Group Shares Suffer Dramatic Fall After “improper” Italian Accounting

Tuesday, January 24th, 2017 (9:20 am) - Score 1,247
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Billions of pounds have been wiped off BT Group’s share price this morning (currently trading at 310p, down by nearly 19% from 382p yesterday) after the operator’s business in Italy was hit by an “improper accounting practices” fiasco (i.e. they’ve overstated their earnings by £530m).

The operator has been busy examining the historical accounting practices of its Italian business for awhile and in October 2016 they uncovered a number of issues with improper sales, purchase and leasing transactions. At the time the size of their overstated earnings had been pegged at £145m, but since then BT and KPMG have conducted a full review and today the scale of “inappropriate behaviour” has finally become clear.

The realisation that the accounting scandal is much worse than first thought and that their financial results have been overstated for several years has given the city somewhat of a shock. On top of that BT Group’s CEO, Gavin Patterson, has added fuel to the fire by warning that the “outlook for UK public sector and international corporate markets have deteriorated“.

Gavin Patterson, BT Group CEO, 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.”

As a result of all this BT Group is predicting no revenue growth for the next couple of years, with profits set to take a noticeable hit. Apparently several executives at BT Italy have already been suspended and the operator has appointed a new boss for the business (taking office from 1st February 2017).

The manipulations were said to be very complex and “specific” to BT’s Italian business. Patterson doesn’t believe that the same problem exists in the UK or at any of their other divisions around the world, although they are conducting checks to make sure. Going forward BT will also be examining why it took them so long to spot the problem and similarly why their auditors failed to spot it.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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15 Responses
  1. Steve Jones

    I sincerely hope if there is deliberate fraud involved then those responsible will be prosecuted. It’s simply unacceptable if executives are massaging figures to their own advantage.

    • AndyH

      Something of this size is almost certainly going to involve deliberate fraud. It will raise wider questions about how the board and auditors at group level missed it.

    • Steve Jones

      I’d agree. Senior executives can’t absolve themselves of responsibilities and just blame auditors. Failures of corporate governance ought not to go unpunished. I wonder if there will be retrospective reclaims of bonuses from those responsible.

      Of course, Global Services has always been somewhat of a different sort of outfit to the domestic bit of BT (which is relatively mundane) and will have invited a lot of the more “ambitious” types, but this is not the first time that GS has been found wanting with regards to the accuracy of its returns.

      As usual, the average shareholder is a bit of a hostage to fortune on this sort of stuff, as those who had shares in the banks, Tesco, BP and (very recently) Rolls Royce have found out when things went wrong. Also, it’s about time the SFO looked more deeply into executive action where appropriate (although, if this is Italian execs, heaven knows how that would work with regard to any criminal responsibilities).

  2. Rog

    and rising the prices x times a year

  3. GNewton

    “BT CEO: Accounting scandal is restricted to Italy (we think)” according to Reuters.

    Is this just the tip of an iceberg? Time to drain the swamp?

    Certainly many UK customers deserve better telecom and broadband services then they have at the moment.

  4. Kits

    BT should have focused on getting it right here in the UK not spreading about so thin all over. As a share holder I think the auditors need to be changed as the present auditors get back every year and obviously not capable of dealing with complex records. Disappointed to see this but it also shows you cannot trust the EU partners. Every EU partner needs to have strict audit rules and regular checks even the EU cannot get the boioks signed of by auditors due to their inability to balance books. Hope these are sued for this and have all pay stopped and no golden handshakes for failure. I have lost on my shares the drop is large and not happy that BT fail the UK market with the copper yet allow EU countries to rip us off.

    • AndyH

      Seems like you’ve been taken in by another one of the Leave campaign’s lies – the EU accounts have been singed off by the auditors every year since 2007.

    • Bob2002

      Changing auditors may not make much difference – auditors do not perform audits looking for fraud/manipulation(although it is possible they might stumble across some), it would be quite possible for a company to pass a properly carried out audit – while fraud was taking place.

  5. DTMark

    “BT Group’s CEO, Gavin Patterson, has added fuel to the fire by warning that the “outlook for *UK public sector* and international corporate markets have deteriorated“.”

    There doesn’t seem to be a month that goes by without announcements from alt-nets that they’re servicing businesses and local authorities (there’s an article just down from this one).

    This might suggest that it’s true that local authorities are indeed moving to the alt-nets and ditching their hugely expensive BT contracts in the process.

    Losing just a small number of those would have a much greater impact on the bottom line than, say, Virgin Media overbuilding VDSL in a village or town.

    Losing solid business to a competitor who, in some cases, is building from scratch and yet is able to provide a better and/or cheaper service has to be inexcusable from a shareholder’s perspective given that BT already has “kit in the ground”.

    Is this what this statement is related to?

    • I believe BT Group is referencing a lot more than the connectivity side with that sentence.

    • Steve Jones

      Indeed there will be. There are all sorts of other IT and business communications services. The outlook might affect a lot of companies offering services to local authorities as they are under enormous cost pressure squeezed on one side by rising costs in care services and reduced central government funds.

  6. Fastman

    they will be swaeating their network assets and generally not procuring in that market segment

  7. alan

    This is a real shame and not a laughing matter…. I mean that as sincerely as their accounts 😀

  8. Shirley

    Surprised to see this on ispreview – the most obsequious outlet for BT news.

    But not much choice maybe. The accounting scam was even on ITV Evening News. Hard to sweep such a huge story under the carpet. Though ispreview continues to do just that with the £14bn BT Pension Fund Scandal!

    BT Group shares down 19%. Whew! Nice earner though for those in the know. Exploiting foreknowledge of the scandal that was about to blow. Pre-positioning themselves in the market. Ready to gain from the dramatic collapse in share price once the news officially broke.

    These stock market games are all about insider dealing. The Board itself may well have been in on it. Cashing in on the imminent share price collapse through deals pre-arranged at arm’s length. Market exposure discreetly arranged through friends of friends. No qualms about profiting from shitting on their own doorstep. After all, this is BT Group. Perhaps the dirtiest of any telco. Always has been. A rogue outfit from the very first days of privatisation.

    Wouldn’t surprise if the whole scandal wasn’t cooked up by the City and the BT board. As a profit-making psyop. One designed to slam the share price. To profit-take through Short-Selling and through the Put trade.

    A £0.5bn overstating of earnings in the minor BT Italy market is trivial. Minutiae for a corporate giant with £18bn overall group revenues. In context, the 19% collapse in share price is ridiculous. But perfect cover for stockmarket profit-takers.

    Just another City scam arranged around BT Group.

    • I’d like to think that we’re a bit “obsequious” about pretty much the whole broadband and telecoms industry as that’s kind of our job and the level of focus required to serve our readers.

      The thing with BT is that they churn out a lot of updates and have a huge influence over the market at infrastructure level, so you kind of can’t avoid them cropping up all over the place. By comparison other operators’ tend to keep their cards closer to their chests / are more private in their arrangements.

      Lest we forget the masses of other articles on here that have been written about areas where BT or Openreach has cocked up :). Long-time readers know that we put quite a bit of effort into trying to give a balanced opinion, rather than swing towards the more extreme and less constructive “BT is always evil” or “BT is always awesome” sides.

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