If the complications surrounding development and the Openreach network weren’t enough to have the company shaking in their boots lately, BT could be facing yet another threat to its reputation in the coming months. The leader of the Continental European operation, Corrado Sciolla, has indicated that he may resign after the company was forced to reduce the value of its Italian unit by around £530m after what appears to be years of “inappropriate behaviour.”
According to BBC business editor, Simon Jack, the resignation is already underway, marking yet another black spot on BT’s growing list of professional concerns. Both the chief operating officer and the chief executive were suspended immediately after accounting irregularities were pinpointed – adding up to around £530m in missing accounts. BT’s shares plunged by 21% after the scandal, and experts warned that results for the company would probably continue to be affected for the next two years.
The Italian Investigation
The investigation into the Italian branch of BT included an independent review by the accountancy firm “KPMG”. A thorough evaluation found that improper accounting practices and many improper purchases, sales, factoring, and leasing transactions had all contributed to a substantial hole in the business accounts. Those activities eventually lead to the overstatement of various earnings within the Italian business for several years – accumulating huge losses for the company.
Mr. Corrado has been acting as chief executive for BT Italy since 2006, before his remit expanded in 2011, making him the chief in France too. By 2013, Corrado had been appointment the president of BT’s continental European operation, where he worked under Luiz Alvarez – the chief executive for the global business.
At this point, BT has been left to appoint a new chief executive of BT Italy, taking charge on the first of February, and this new executive will review the local management team while working with BT ethics and compliance departments to improve the financial safeguards in place within the Italian business. The financial reporting council “FRC”, otherwise known as the watchdog for UK accountancy have also noted that they may examine the matter themselves.
Problems Just Keep Getting Worse for BT
The problems in Italy are by no means the first stumbling block that BT have encountered in recent months. The company have also announced that the outlook for the public sector in the UK and international corporate markets has also been gradually dissolving. As a result of the numerous issues in play, BT have changed their predictions for operating profits from an original guidance of £7.9 billion, to £7.6 billion. This means that share prices are dropping rapidly.
Forecasts also suggest that both profits and sales will be completely flat for the company for the year up to March 2018, while they simply attempt to get back on their feet. At present, BT has an estimated one million small shareholders, and it was one of the first state-owned businesses to earn privatisation under the government of Margaret Thatcher.
According to George Salmon – the equity analyst at Hargreaves Lansdown, as the debts for BT continued to push £9.6bn after the acquisition of EE, and a review of how to fund a £9.5bn pension deficit in June, the jitters surrounding stock have been rising. Unfortunately, this scandal was “the last thing the group needed.”
Deeply Disappointed
In an interview regarding the scandal, the BT group chief executive Gavin Patterson announced that they were deeply disappointed with the inappropriate practices that had been taking place in their Italian business. According to Patterson, BT have already begun to undertake comprehensive investigations into how the business was run, and are now committed to making sure that high standards are maintained across BT on a global scale, for the “benefit of our customers, shareholders, employees, and all other stakeholders.”
