BT shares plunge as cost of Italy accounting scandal hits £530m

BT's market value has plunged by more than £7bn after it issued a profit warning while revising up the impact of an accounting scandal in its Italian business from £145m to £530m.

Shares (Berlin: DI6.BE - news) ended the day almost 21% lower. It represented the steepest one-day decline in the company's stock.

The telecoms giant also said in its surprise update to the market that the outlook for its UK public sector and international corporate markets had deteriorated and it issued revised guidance for full-year earnings.

BT had first revealed details of accounting errors in its Italian business last October but an independent review has now found that "inappropriate behaviour" was "far greater than previously identified".

The review had found improper accounting practices as well as a "complex set" of improper transactions relating to sales, purchasing, leasing and factoring - the practice of selling invoices to a third party to collect.

These had resulted in "the overstatement of earnings on our Italian business over a number of years", BT said.

It described what had happened as an "extremely serious matter".

Gavin Patterson, BT'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."

:: BT warning calls City confidence into question

BT said the scandal would lower expected underlying earnings for the full financial year by £175m.

The group said it had suspended a number of members of its senior management team in Italy, who had now left the business, and that a new boss would take over operations in the country on 1 February.

BT is also reviewing financial processes and controls across the business.

It added that the group's remuneration committee - which sets pay and bonuses for Mr Patterson and other top management - would "consider the wider implications of the BT Italy investigation".

Meanwhile the wider warning on business conditions would mean a double-digit percentage decline in earnings for the final quarter of the financial year.

Underlying earnings for the year to end of March are now expected to come in at £7.6bn, down from previous guidance of £7.9bn.

BT has separately been under pressure over its UK telecoms network, Openreach.

Regulator Ofcom in November ordered a legal separation of Openreach from the wider group but stopped short of demanding a full break-up.

BT is due to issue a third quarter trading update on Friday.

The group's Italian business accounts for 1% of its total earnings.