BBC reports that BT Europe chief will resign today, over ‘extremely serious’ improper behaviour at its Italian arm
BT Europe chief expected to quit
DETAILS: BT Italian accounting scandal much worse than thought.
Bad news for BT shareholders
£7bn wiped off BT’s value... Instant reaction
Executives suspended over “improper accounting practices”
UK public finances released
5.39pm GMT
It’s been a day to forget for BT, its executives and of course its army of small shareholders. Around 700,000 people own less than 1,600 shares, a legacy of the telecoms group’s privatisation in 1984.
And they as much as anyone will be shocked by the 20% plunge in the company’s shares after it revealed a worse than expected hit to its figures from an accounting scandal in Italy, not to mention a warning of a slowdown in business elsewhere.
BT’s 20% drop today fairly rattled the City. It was one of the biggest ever single-day falls for a company of this sort. Blue chips like BT just don’t make those kinds of losses on one announcement about a part of the business that accounts for just 1% of earnings.
So is this a golden buying opportunity for investors, or does BT merit a fundamental recalibration of its stock price based on the news?
The downside, however, looks ominous. The Italian fiasco will gobble up a whopping £500m in free cash in 2016/2017 and a further £500m in 2017/18. Although BT has largely completed its investigation, there is a risk that this could blow up further and it’s wise to be cautious. The Financial Reporting Council could take this further.
Operating costs seem to be rising, as are debts. Acquisition of EE, while a strategic long-term play, has meant net debts have risen to nearly £10bn. That is also the figure for BT’s pension black hole, which it has to review this year.
5.10pm GMT
There is a degree of caution around the markets, as investors await more decisions from US president Donald Trump after his protectionist rhetoric so far. And with the US reporting season underway, they are also looking to see whether companies can justify their hefty valuations with their results.
Overall, with Wall Street higher by the time Europe closed - with the Dow Jones Industrial Average up 61 points or 0.3% - continental markets ended the day higher.
The [UK supreme] court ruling sent the British pound lower, though it finished well off its lows. There was an element of ‘buy the rumour, sell the fact’ in currency markets to the well-telegraphed decision. In all likelihood Article 50 will still be triggered in March irrespective of the supreme court. In many ways this is just one less roadblock out of the way before the UK leaves the EU. If anything, the net effect leans towards a harder Brexit in that Scotland and the devolved assemblies, which mostly voted to Remain in the EU, will have less say.
4.16pm GMT
Back with BT, and Reuters is reporting that Italian prosecutors are opening their own investigation into alleged false accounting and embezzlement at BT Italia.
Meanwhile a number of US law firms which specialise in shareholder class action cases say they are looking at whether BT violated federal securities laws.
3.13pm GMT
But existing home sales in the US fell by more than expected in December, as the supply of houses on the market dropped to levels not seen since 1999.
The National Association of Realtors said existing home sales fell 2.8% to a seasonally adjusted annual rate of 5.49m units, compared to forecasts of a 1.1% decline to 5.52m. But overall sales for 2016 rose to 5.45m, the highest since 2006, from 5.25m the previous year. Lawrence Yun, the association’s chief economist, said the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note:
Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market. However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.
While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.
3.04pm GMT
US manufacturing has got off to a good start in 2017, with overall conditions improving at the quickest pace for two years.
The initial Markit manufacturing purchasing managers index for January came in at 55.1, compared to expectations of a figure of 54.5 and a rise from December’s final figure of 54.3. Chris Williamson, Chief Business Economist at IHS Markit said:
US manufacturers are seeing a bumper start to 2017, with production surging higher in January on the back of rising inflows of new orders.
New work is growing at the fastest rate for over two years, thanks mainly to rising demand from customers in the home market. Export growth remains subdued, stymied by the strong dollar.
2.53pm GMT
With US investors awaiting more details of President Donald Trump’s tax and spending plans, the main impetus for the market has been his protectionist stance on trade, including pulling out of the Trans-Pacific Partnership.
So Wall Street is currently searching for direction, as the US reporting season gathers pace. The Dow Jones Industrial Average is up 13 points or 0.07% while the S&P 500 and Nasdaq Composite both opened marginally higher.
2.19pm GMT
Shares in broadcaster ITV have jumped by over 5% today, on speculation that a bid battle could be coming.
The rally sparked by the Evening Standard’s Jamie Nimmo, who reported that several US companies are interested....
Chatter in the Square Mile that Liberty Global could buy out ITV is nothing new, but rumour has it that the Virgin Media owner may face competition from some of the world’s largest companies.
The word on the street is that major shareholders of ITV have been sounded out by tech giants Apple, Amazon and Netflix about a possible takeover.
Market report: Buzz as US suitors rumoured to be eying ITV takeover https://t.co/GBz7on1UHM
2.05pm GMT
Software giant Microsoft has just released a statement, insisting that it remains committed to the UK following reports that Brexit might disrupt its operations.
The comments reported today by a Microsoft employee were not reflective of the company’s view. As we have said both before and after the EU referendum vote, Microsoft’s commitment to the UK is unchanged. In particular, those customers in our UK data centres should continue to rely on Microsoft’s significant investment plans there.
“If all of a sudden there are huge import [tariffs] on server racks from China or from eastern Europe, where a lot of them are actually assembled, that might change our investment decisions and perhaps we build out our datacenters across other European countries.”
1.41pm GMT
The pound is falling further as the UK government pushes on with its Brexit plans following today’s supreme court ruling.
Sterling is currently down 0.5% at $1.246. having hit $1.253 earlier in the day.
Related: Brexit: government will introduce article 50 bill 'within days' following supreme court ruling – live
Although today’s ruling has provided some clarity in the short term on the steps needed for Brexit to happen; the pending Brexit fuelled debates with the Parliament and potential complications could create a new layer of uncertainty consequently weakening the Pound.
12.25pm GMT
Breaking: UK bank HSBC has announced plans to shut 62 branches across the UK.
The move will cost 180 jobs, and is part of the bank’s cost-cutting programme.
Here's the list of the 62 new HSBC branch closures https://t.co/cnp2STK11v
11.56am GMT
Today’s tumble makes BT’s shares rather more attractive to investors on a price/earnings basis.
The company still expects to grow its dividend by 10% per share this financial year, and in 2017-18.
At ten times forward earnings, the shares are now the cheapest they have been since early 2013, but the fundamental case for investing, aside from the dividend, has still to be proved.
11.23am GMT
Here’s Nick Fletcher’s news story on BT’s Italian problems:
Related: BT loses £7bn in value as Italian accounting scandal deepens
11.15am GMT
The BBC’s Simon Jack is reporting that the head of BT’s Continental Europe division, Corrado Sciolla, will resign today.
Head of BT Europe, Corrado Sciolla will resign this pm over 530m accounting scandal at BT Italy. Serious internal & ext auditing errors
Corrado is responsible for making sure we grow quickly and profitably across Europe - where we serve big brands like Fiat, ENI, Syngenta and The European Parliament.
Corrado’s career started as a McKinsey consultant, then he had various directorships at Stream (an Italian pay-TV firm), Syntek Capital, and Wind Telecomunicazioni (Italy’s second-biggest fixed and mobile telecoms operator).
Exclusive. Head of BT Europe to go. Corrado Sciolla most senior head to roll over BT accounting scandal. full story https://t.co/8Ts9Ig84hh
10.55am GMT
There’s no respite for BT’s share price this morning; it’s still down almost 18% at 314p, which knocks over £6bn off its value.
The accounting scandal in Italy (details), and the news that BT’s UK business is slowing too, are alarming the City.
“The revelation that accounting deficiencies in Italy are worse than previously thought is a bitter, and needless to say unwelcome, pill to swallow for BT investors. With news that its Business and Public Sector division is coming under pressure too, worries about the group’s ability to fund its generous dividend policy will surely grow.
Full year profits are now expected to be around £300m lower than had been hoped, with around £500m of 2016/17 free cash flow disappearing. Just about the only guidance that was left unchanged is the dividend, where the group is still targeting at least 10% increases this year and next.
10.23am GMT
On the surface, the latest figures on the UK’s public finances were worse than expected, with a marginally bigger deficit than predicted in December. But the release should still provide some cheer to chancellor Philip Hammond with revisions to November’s figures meaning he now looks more likely to hit his borrowing target for the full year.
Public sector net borrowing decreased by £0.4bn to £6.9bn in December 2016, compared with December 2015, the Office for National Statistics said. The consensus forecast was for a bigger drop to 6.7bn in a Reuters poll of economists.
Public sector net borrowing (excl public sector banks) decreased by £0.4 bn to £6.9 bn Dec 16, compared with Dec 15 https://t.co/X7MMWsdcgw
UK public sector #borrowing £63.8bn for financial year-to-date; £10.6bn down on last year; lowest y-t-d since 2007/8 https://t.co/NhzTvzUhKj pic.twitter.com/h5jbPhKaQX
The improvement was mainly driven by a 5.6% annual rise in central government receipts, while spending actually fell slightly on a year earlier. And looking through some of the monthly volatility, receipts growth has been on a slight upward trend since May – adding to the evidence that the economy has held up well following the vote to leave the EU... We think borrowing should come in slightly below the OBR’s current £68bn forecast for the 2016/17 fiscal year.”
The UK’s fiscal position, which was weakened significantly by the financial crisis, is likely to come under increasing pressure in the near-term if UK economic growth weakens as expected. A slowing economy would further restrict the UK’s capacity to collect enough tax revenue to consistently achieve deficit reduction in the coming years.
More needs to be done to boost business confidence, to help firms to deliver the sort of growth, investment and job creation needed to achieve a sustainable strengthening of the UK’s tax base.”
10.15am GMT
As predicted in our agenda, the pound has flailed around as Britain’s top judges delivered their verdict on Britain’s exit from the EU.
The supreme court ruled by 8 votes to 3 that the government cannot trigger Article 50 without parliamentary approval. That sent the pound up to $1.2535, suggesting traders reckon this could slow the Brexit process.
Related: Brexit: supreme court rules government cannot trigger article 50 without act of parliament - live updates
10.00am GMT
In other news, Europe’s factories and service sector firms have made a solid start to 2017.
Data firm Markit’s monthly eurozone PMI has come in at 54.3, down slightly from 54.4. Any reading over 50 shows growth.
Manufacturers in the eurozone have reported their best month since 2011 https://t.co/88VBa4QsOM pic.twitter.com/SNZU6cVLSq
9.48am GMT
BT’s shares are popular with small shareholders, some of whom will have held them since the company was privatised in 1984.
So today’s share plunge will have hit them in the pocket (although BT says it hopes to keep raising its dividend over the next couple of years)
“On top of BT’s big pension deficit and grumbles amongst rivals and users of its infrastructure network, today’s news has further dented investors’ confidence in the group.
We too, have become more cautious and have placed our current ‘buy’ recommendation under review. However, this may be an attractive idea for investors taking a contrarian position and, provided the group maintains its dividend, then it could become a good income option.”
9.33am GMT
Here’s Mike van Dulken of Accendo Markets on BT shock warning:
This morning sees BT Group (BT/A) shares -16% to trade levels last seen in mid-2013. Just as brokers and investors were prepping for FY results on Friday, the company delivers a profits warning linked to an existing accounting scandal at its Italian business. Continued investigation since October (internal + external) has shown the extent of impropriety (sales, purchase, leasing) and overstatement of profits to be far greater than initially thought. Management has been forced to more than triple its expected write-down to £530m and admit that FY revenues, profits and cash flow will be lower than consensus. Last October’s suggestion of a £145m charge didn’t cause too many ripples as regulatory issues and a rising pension deficit hogged the headlines. 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. The increases may, however, attract newbies via a 4% yield. Assuming this can be honoured….
9.00am GMT
We’ll get more colour on BT’s business on Friday, when it publishes its third-quarter financial results.
Today’s announcement was rushed out once the company had calculated the full cost of its Italian accounting problems.
9.00am GMT
Q: Why were the accounting irregularities BT Italy not discovered a lot sooner?
BT says that it “needs to reflect” on why they were not spotted by BT Italy’s management, the wider Group, or by its auditors.
8.43am GMT
This is turning into a full-blow rout:
Make that down 19% for BT shares and on track for the biggest fall ever after "improper" accounting practices at its Italian unit. pic.twitter.com/rCRw2J1F7s
8.42am GMT
This is a “dark day” for BT, says city analyst Neil Wilson of ETX Capital.
He says investors are selling up, on fears that there are deeper problems at the telecoms firm.
The group’s own investigation of accounting malpractice in its Italian business shows the situation is far worse than it first thought – the bill is now thought to be around £530m, well above the £145m initially forecast.
According to BT, this will mean a reduction in Q3 adjusted revenue and adjusted EBITDA of around £120m. Free cash flow will be £100m worse off.
8.40am GMT
BT’s shares are now down 19%, which wipes £6bn off its market capitalisation.
8.40am GMT
The Italian business will need a lot of work before it can be a growth business, Patterson says, predicting that it has probably been unprofitable for a number of years.
8.32am GMT
CEO Gavin Patterson also warns that BT is feeling the impact of higher inflation, so 2017 will be a lot tougher
Q: Is BT now inspecting its other overseas businesses for signs of accounting problems?
BT Group shares down 15% as it cuts its revenue & earnings forecast for the next 2 yrs after accounting issues in its Italian business.$BT pic.twitter.com/8NwoHeCFTh
8.25am GMT
As if BT didn’t have enough problems right now, it is also warning that the UK market is slowing.
The outlook for UK public sector and international corporate markets has deteriorated, says CEO Gavin Patterson. That is potentially down to the wider economy, and potentially down to the Brexit vote.
8.23am GMT
BT CEO Gavin Patterson is briefing City analysts on a conference call now. I’ve dialled in.
Patterson says he is “deeply disappointed” by the inappropriate behaviour uncovered at BT Italy, and confirms that several executives have left the company after being suspended.
8.17am GMT
BT shares have hit their lowest level in two and a half years, and are on track for their worst day since the financial crisis of 2008.
The City really isn’t impressed by these serious accounting mistakes at the company’s Italian arm.
8.11am GMT
Boom! BT shares have plunged by 15% at the start of trading.
That wipes more than £5.5bn off the company’s value, and sends it sprawling to the bottom of the FTSE 100.
8.05am GMT
City analyst Louise Cooper says this scandal does not reflect well on the City:
BT admits to "inappropriate behaviour" in its Italian business "improper accounting practices"
"Overstatement of earnings"
By £530mn!!!!
BT has overstated Italian earnings by half a billion pounds
Says a lot about corporate culture
And it's not good
"Inappropriate accounting behaviour" gets MY vote for Euphemism of 2017 - BT cuts outlook on Italy accounting errors https://t.co/QzTbasVG6A pic.twitter.com/2bknwnzGBm
7.52am GMT
BT shares could tumble by 8% in early trading, warns City veteran David Buik.
BT - BIG write-down in Italy - shares may be down 8%!!!
7.51am GMT
Telecoms group BT has just shocked the City by announcing that the accounting scandal at its Italian division is much worse than previously thought.
“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.”
7.31am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Investors in City have plenty to think about today. At 9.30am, the UK supreme court will rule on whether parliament must give its approval before Britain can begin its departure from the European Union.
The ruling by the 11 justices will resolve whether the government, through its inherited use of royal prerogative powers, can formally initiate article 50 of the treaty on European Union (TEU) without the explicit approval of MPs and peers.
Article 50 begins the process of the UK’s withdrawal from the EU. If a majority of justices decide, as is widely expected, that parliamentary support is required, then the judgment could specify that legislation is needed.
Related: Supreme court poised to deliver article 50 judgment
Continue reading...