BT profits plummet 42% after one-off £225m payment to Deutsche Telekom and Orange

By:
James Pearce
Published on:

BT decided to settle warranty payment with other operators it owed due to accounting scandal at its Italian division

BT has been hit by plummeting profits after being forced to pay Orange and Deutsche Telekom a one-off fee of £225 million because of an accounting scandal at its Italian operation.

The UK operator announced its financial results for Q1, in which it saw profits (before tax) fall 42% to £418 million, even though revenue grew slightly by 1% to £5.8 billion.

Both Orange and DT became shareholders in BT as part of its £12.5 billion acquisition of EE, completed last year, and received a warranty as protection against a slump in BT’s shares. BT stock plunged by almost £8 billion in January following the scandal, with prices remaining 20% below those of last year.

BT is facing more grief, however, as CEO Patterson revealed there are still a “small number” of legal suits relating to the scandal, but refused to comment further.

On the Deutsche Telekom and Orange payouts, Patterson said: “Whilst this is clearly disappointing. it is the best possible outcome for all shareholders as it avoids a potential protracted legal process.” It is also reportedly looking at its own legal action in Italy, although Patterson would not comment further on the scandal.

Despite the tough results at a group level, BT did see some strong results in certain segments. Its decision to acquire EE may have ultimately led to this one off payment, but the mobile operator posted a strong quarter.

EE’s Q1 revenue grew by 4% to £1.3 billion, its third consecutive quarter of growth, while EBITDA was up 19%. Overall, BT’s mobile base, which includes its own BT Mobile MVNO, is now 29.8 million.

Openreach achieved 437,000 fibre broadband net connections and service providers other than BT accounted for 60% of these. This brings the number of homes and businesses connected to around 8.1m, with more than 100,000 using “ultra-fast services”.

BT also announced a number of organisational changes which it claims will help simplify its operating model whilst also accelerating transformation.

The UK operator will merge its consumer divisions – BT, EE and Plusnet – into one consumer unit, to be led by EE CEO Marc Allera. The unit will maintain three distinct brands, but will span fixed and mobile, consumer products and services, and content.

The move sees current CEO of BT John Petter leave the business after 13 years at BT. Petter has held numerous role at the organisation since joining from Telewest in 2004, including chief operating officer, MD of consumer, and CEO of consumer, a role he has held since 2013.

BT said Petter will step down to pursue roles outside of the group, with CEO Patterson thanked him for his time with the company.

Marc Allera 160x186
Allera: new role
On Allera’s appointment, he said: ““This appointment reflects the growing scale and ambition of BT. Marc has led the successful integration and delivered the improved customer experience and strong financial performance of EE. He will lead our continued integration and convergence in consumer telecommunications.”

“Together, our senior management team will ensure that BT realises its full potential: connecting customers in the UK and beyond to next-generation digital communications services, content and networks.”

BT has also named Cathryn Ross as its new director of regulatory affairs, following the decision of Sean Williams, currently group chief strategy officer, to leave the company.

Ross will join BT in January from water regulator Ofwat where she is currently chief executive. Patterson said: ““We are delighted Cathryn has agreed to join BT. She will bring huge experience relevant to our business, and will work closely with me on developing our regulatory strategy and overseeing our relationship with Ofcom.

“Sean has made a major contribution to BT’s continued strategic effectiveness in recent years, ensuring we secured regulatory approval for both the EE acquisition and the settlement with Ofcom over the future of Openreach,” he added. “I would like to thank him for his hard work.”