BT Continental European chief to resign over Italian scandal

The boss of BT's Continental European operation is to resign after the firm was forced to write down the value of its Italian unit by £530m after years of "inappropriate behaviour".

 BBC business editor Simon Jack said Corrado Sciolla was expected to resign this afternoon.

BT's shares plunged 18% after revealing the Italian scandal would cost far more than the £145m initially anticipated.

It also warned it would affect its results for the next two years.

BT began investigating its Italian unit's accounting practices in October. It emerged that the problems were "far greater than previously identified" and occurred over "a number of years".

The investigation, which included an independent review by accountancy firm KPMG, found improper accounting practices and "a complex set of improper sales, purchase, factoring and leasing transactions".

It said: "These activities have resulted in the overstatement of earnings in our Italian business over a number of years."

From 2006, Mr Corrado was chief executive of BT Italy before his remit expanded in 2011 to include France.

In January 2013, he was appointed as president of BT's Continental Europe operation, where he reported to Luiz Alvarez, the chief executive of the company's global services business.

Market 'fear'

In addition, BT provided an update on its outlook and said that there had been a deterioration in both the public sector and international corporate market.

Along with the Italian scandal, BT now expects operating profit for the current financial year to be £7.6bn, compared to previously guidance of £7.9bn and revenue to be flat. It also forecasts that both sales and profit will be flat for the year ending March 2018.

The market valuation of BT tanked by £5.5bn in a matter of minutes in Tuesday trading and its shares continued to fall, down 18% at 313.55p.

Neil Wilson, market analyst at ETX Capital, said: "The problem is that investors will fear that this is not the end - what else will be uncovered? The costs could yet rise and that fear is driving the selling this morning."

George Salmon, equity analyst at Hargreaves Lansdown, said: "With the group's net debts pushing £9.6bn following the acquisition of EE, and a review of the how to fund the £9.5bn pension deficit coming up in June, there were already a few jitters around the stock, so this was the last thing the group needed."

Allegations of "inappropriate behaviour" at BT's Italian operation first emerged last summer before the company began conducting an investigation in October.

BT group chief executive Gavin Patterson 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 for the benefit of our customers, shareholders, employees and all other stakeholders."

Bosses suspended

BT said it had suspended a number of BT Italy's senior management team who have now left the business. These include former chief executive Gianluca Cimini and chief operating officer Stefania Truzzoli.

The BBC has learned that the company will examine whether to claw back any bonuses paid over the two-to-three-year period in which major accounting irregularities have been detected.

It has appointed a new chief executive of BT Italy who will take charge on 1 February.

The company said that the new chief executive would review the local management team and "will work with BT Group ethics and compliance to improve the governance, compliance and financial safeguards in our Italian business".

BT's management may also lose out financially following Tuesday's shock announcement. It said: "The BT Group remuneration committee will consider the wider implications of the BT Italy investigation."

It added: "We are conducting a broader review of financial processes, systems and controls across the group."

The steep fall in BT's share price will hit smaller investors. It has an estimated one million small shareholders after becoming the first state-owned business to be privatised under Margaret Thatcher's government in 1984.

At the time, some two million members of the public bought shares priced at 130p.