BT Share News (BT.A)

(ShareCast News) - BT has cut its profit guidance for the next two years after an investigation into accounting blunders at the telecoms giant's Italian business forced it to more than triple its expected write-downs to £530m, while the UK business has also seen a deterioration in its outlook.An investigation alongside accountants from KPMG, which was first announced in October, has now discovered earnings in the country found to have been overstated for several years.BT said "the extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified and have revealed improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions".The FTSE 100 telecoms group said its original £145m write-down assessment announced in our half-year update in October had escalated to a total of around £530m.On top of that, for the 2016/17 financial year as a whole, it had cut its outlook for adjusted revenue by around £200m, in adjusted EBITDA by around £175m, and by £500m for normalised free cash flow due to the EBITDA impact and the one-off unwind of the effects of inappropriate working capital transactions.For 2017/18, it expects a similar annual £200m impact to adjusted revenue and adjusted EBITDA, though the impact should flow through to normalised free cash flow."We are deeply disappointed with the improper practices which we have found in our Italian business," said group chief executive Gavin Patterson."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."He said it was an extremely serious matter and immediate steps have been taken to strengthen the financial processes and controls in BT Italy, with a number of senior management cleared out and a new chief executive starting on 1 February who will work with BT Group ethics and compliance to improve governance, compliance and financial safeguards.Furthermore, the company's UK business endured a tough end to the year and revenues for the 2016/17 and 2017/18 financial years are now both expected to be flat.BT said it expects a double-digit decline in underlying earnings from its business and public sector arm in the fourth-quarter as the outlook for UK public sector and international corporate markets has deteriorated.Combined with the results of the BT Italy investigation, underlying revenue excluding transit adjusted for the acquisition of EE is now guided to be "broadly flat" in 2016/17 with adjusted EBITDA of around £7.6bn, with little change in both metrics in 2017/18.Normalised free cash flow is now predicted to be around £2.5bn this year and in a range of £3.0-3.2bn in 2017/18.BT continues to expect to grow the dividend per share by at least 10% in both 2016/17 and 2017/18 and pointed out that it had completed the £206m buy back of shares last year to help counteract the dilutive effect of all-employee share option plans maturing in the year.It was a dark day for BT shares, which slid 18% to below 313p, levels last seen in mid-2013."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," said analyst Neil Wilson at ETX Capital.Michael van Dulken at Accendo Markets noted that last October's suggestion of a £145m charge did not send out too many ripples as regulatory issues and a rising pension deficit hogged the headlines at the time."Today's admission adds this to these nasty headwinds, especially as it could weigh on profits for the next two years. Even management isn't sure what the final figure will be. The group still expects 10% dividend increases for the next two years but is this enough to appease disgruntled shareholders who had already been wearing a 20% downtrend since early 2016," he said.