Shares in BT fell nearly 20% on Tuesday after the company revealed the cost of mismanagement at its Italian division.
BT announced in October 2016 that it had discovered “inappropriate behaviour” at the Italian business. At the time, the telecoms group estimated the financial impact to be £145m.
However, an independent investigation by KPMG has revealed the full scale of “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 the Italian business over a number of years, BT said.
As a result, the estimated cost has almost quadrupled to £530m.
BT said that the improper behaviour in its Italian business “is an extremely serious matter, and we have taken immediate steps to strengthen the financial processes and controls in that business”. The company is also conducting a broader review of financial processes, systems and controls across the group.
Corrado Sciolla, the president of BT’s Continental European operation, is expected to resign over the scandal, BBC News reported.
BT’s announcement comes just days before the release of its third-quarter results on Friday.
Updating its outlook, the company warned of reduced spending in the UK public sector and a slowdown in international corporate markets after the Brexit vote.
As a result, BT now expects expects operating profit for the current financial year to be around £7.6bn, compared to previous guidance of £7.9bn, and revenue to be flat. Both sales and profit are forecast to be flat for the year to March 2018.