BT Helping Italian Prosecutors With Criminal Inquiry Into Accounting Practices

Simon Zekaria and Manuela Mesco

LONDON--BT Group PLC on Friday said it was assisting Italian prosecutors who opened a criminal investigation into the British telecommunications group's Italian business, which was rocked by a deeper-than-expected accounting scandal.

Fabio De Pasquale, a prosecutor in Milan working on the case, said the probe, which is general at this stage and isn't yet implicating individuals, centers on allegations of false accounting and embezzlement.

A spokesman for BT said the operator was providing "whatever assistance" it could to Italian authorities.

The spokesman also said BT's head of continental Europe, Corrado Sciolla, was leaving the company in the wake of the scandal, details of which sent the stock reeling earlier this week.

BT lost a fifth of its value Tuesday after saying it had underestimated the severity of yearslong "improper" accounting practices and transactions in Italy, where it serves business customers and has no consumer-focused brand.

Following an investigation into the unit, which included an independent review by auditing firm KPMG LLP, BT took a write-down of £530 million pounds ($665 million). This was more than three times its previous estimate, which followed an internal inquiry.

Several executives in Italy have left the business, BT said, and the company has also appointed a new chief executive in Italy, to take charge Feb. 1.

The write-down hit BT's earnings. On Friday, it reported that its net profit in the third fiscal quarter to Dec. 31 slumped 51% year-over-year to £374 million.

Chief Executive Gavin Patterson said that coordinated, "sophisticated manipulation of the profitability of the business" by a "handful" of individuals besmirched the company's reputation and overshadowed its financial performance but that "90% of the business is doing very well."

BT said earnings before interest, taxes, depreciation and amortization, or Ebitda, on an adjusted basis--a key measure--rose 18% to £1.87 billion, in line with company forecasts and powered by its consumer business.

On Tuesday, BT lowered its forecasts for revenue, earnings, and cash flow over the next two years, citing the problems in Italy. BT also gave a downbeat outlook for trading in the U.K. public sector and in international corporate markets.

In early deals Friday, BT shares slipped near 1%.

Write to Simon Zekaria at [e-mail] and Manuela Mesco at [e-mail]

(END) Dow Jones Newswires

January 27, 2017 07:15 ET (12:15 GMT)

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