BT’s European chief, Corrado Sciolla, is expected to resign today after the company announced “accounting errors” of £530 million on its Italian business.
The company first disclosed an internal investigation in October 2016, but then said it expected writedowns to reach £145 million. But the company announced this morning that an independent review by KPMG estimated the damage to be more than three times the initial figure.
“These investigations have revealed that 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,” said BT.
“These activities have resulted in the overstatement of earnings in our Italian business over a number of years.” BT’s shares fell 18% on the news, wiping £7 billion off the value of the company.
BT said: “The improper behaviour in our Italian business is an extremely serious matter, and we have taken immediate steps to strengthen the financial processes and controls in that business.”
Without naming anyone, the company added: “We suspended a number of BT Italy’s senior management team who have now left the business. We have also appointed a new chief executive of BT Italy who will take charge on 1 February 2017. He will review the Italian management team and will work with BT group ethics and compliance to improve the governance, compliance and financial safeguards in our Italian business.”
BT Italia CEO Gianluca Cimini and COO Stefania Truzzoli were both suspended while the investigation was carried out, but BT has not disclosed whether they remain with the company.
News then emerged about Sciolla, who was came into the group when he was CEO of Albacom. BT had owned 26% since 1995 and bought the remaining 74% in late 2004 for €116 million from Eni, Banca Nazionale del Lavorno and Mediaset. Before joining Albacom he was COO of Italian mobile operator Wind.
Sciolla became BT’s country manager for Italy and has at different times been CEO of BT Italy and president of BT France for BT Global Services, and the group’s president of southern Europe and Latin America. In March 2014 he became president for Europe in BT Global Services, and president of its global telecom markets division.
It’s not the first time financial scandals have hit BT Global Services. In October 2008 CEO François Barrault left the division after it was revealed that it was running up significant losses. Barrault was replaced by Hanif Lalani, who left in January 2010 after BT reported “poor cost controls” that led to a writedown of £340 million. At that time it reported losses of £2.1 billion for BT Global Services on sales of £8.8 billion.
Later, according to the French market regulator, the Autorité des Marchés Financiers (AMF), Lalani was fined €1.5 million and five others were fined a total of €4.7 million after an investigation into insider dealing over BT’s takeover of French consulting company Net2S in 2007. An AMF judge said that Lalani had supplied information about BT’s planned takeover of Net2S to family members.