Shares of the UK's largest telecoms provider, BT, slid 20 percent after it reported a larger-than-expected Italian accounting scandal. A sudden slowdown in British government work added to the gloom.
Prosecutors in Milan have opened a criminal investigation into BT's Italian unit over alleged false accounting and embezzlement, according to media reports on Tuesday evening. The company declined to comment.
The UK's largest provider of communications services saw the value of its shares slide 20 percent before close of London trade in the biggest fall in the stock since 2008.
Indications of trouble at the BT Italian unit had been signaled last summer, but at 145 million pounds ($181 million/169 million euros) they were a gross underestimate to the 530-million-pound hole in the accounts announced on Tuesday.
The company said an independent review had found that "inappropriate behavior" was "far greater than previously identified."
Together with improper accounting practices, a "complex set" of improper transactions had been revealed, relating to sales, purchasing, leasing and factoring - the practice of selling invoices to a third party to collect, BT reported.
These had resulted in "the overstatement of earnings on our Italian business over a number of years," BT said.
"We are deeply disappointed with the improper practices which we have found in our Italian business," said BT's chief executive Gavin Patterson.
The group's Italian business accounts for 1 percent of its total earnings.
Public sector contracts missing
Patterson also declared a gloomy outlook for BT's work for the British government. "The public sector in the UK is also particularly challenging," he said, adding that "big contracts are completing and we're not seeing them being replaced at this stage."
A sharp slowdown in demand had also been seen among international corporations since the Brexit vote last June to leave the European Union, the company announced.
BT said it would be unable to grow revenues for the next two years, as it cut the forecast for 2016/17 core earnings to 7.6 billion pounds from 7.9 billion pounds.
The company may come under pressure when it comes to keeping hold of its rights to broadcast the UEFA Champions League for which it currently pays 299 million pounds a year. The contract renewal comes up in March by way of an auction among competitors, expected to include Sky plc. This could threaten BT's strategy of using premium sports content to attract customers to its broadband services.
BT has an estimated 1 million small shareholders. It was one of the first state-owned businesses to be privatized under Margaret Thatcher's government in 1982.
jm/cmk (Reuters, AP)