On 27 October 2016, on its Earnings Call, Gavin Patterson, Chief Executive of BT Group plc, updated the market about BT Italia. Mr Patterson announced that following allegations of inappropriate behaviour within BT Italia, BT had conducted an initial internal investigation. As a result, BT made a £145 million write-down in its results for the second quarter. This was expressed to be non-cash and was treated as a specific item. Mr Patterson said “let me reassure you, we remain on track to deliver our full-year outlook”.
On 24 January 2017, Mr Patterson updated the market in relation to the investigation within BT Italia. Mr Patterson stated that the investigation revealed that the extent and complexity of inappropriate behaviour was far greater than previously identified and had found improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions. These activities led to an overstatement of earnings in BT’s Italian operations over several years and the adjustments previously identified had increased from £145 million to a total of around £530 million. Mr Patterson stated that BT would expect the outcome of the Italian investigation to reduce its Q3 adjusted revenue and EBITDA by around £120 million, and Q3 normalized free cash flow by around £100 million. For the year to March 2017 as a whole, relative to its prior outlook, BT now expected a decrease in adjusted revenue of around £200 million and then adjusted EBITDA of around £175 million. In relation to normalized free cash flow, BT expected a decrease of up to £500 million due to the EBITDA impact but also the one-off unwind of inappropriate working capital transactions.
Mr Patterson also announced that BT has suspended a number of the BT Italia senior management team who have now left the business. He stated that BT also appointed a new chief executive of BT Italia who will take charge at the beginning of next month. It has recently been reported that Corrado Sciolla. the President of Continental Europe for BT Global Services at BT, will resign.
The share price of BT closed on 23 January 2017 at 382.55p. The share price of BT closed on 24 January 2017 at 303.00p, a drop of over 20%.
Bentham Europe confirms that it is investigating the circumstances surrounding the disclosures of 27 October 2016 and 24 January 2017 so as to ascertain whether shareholders who have suffered losses may have a financial claim under section 90A of the Financial Services and Markets Act 2000. Bentham Europe confirms that it has already been approached by shareholders in connection with the conduct that has been disclosed recently.
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