BT to review overseas operations in wake of Italian scandal
BT is considering the future of its overseas operations in the wake of a £530m accounting black hole in its Italian arm that wiped billions off the value of the telecoms company.
Chief executive Gavin Patterson told City A.M. that as a result of the scandal, he would be reviewing Global Services, the international arm that includes the troubled Italian division. He said:
We are going to use this moment to take stock on Global Services. And look at its strategy going forwards.
Last Tuesday, the telecoms giant shocked investors with a double whammy of bad news. Alongside the problems in Italy, BT announced profits would be £300m worse than expected. Shares dived over 20 per cent with around £8bn wiped off the firm’s market capitalisation in one day.
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Confident
Patterson added he was confident the problems in Italy, which have to Milan prosecutors opening a criminal investigation, have not spread elsewhere.
“We’ve got rid of management and put new management in,” Patterson added, referencing the departure of Corrado Sciolla. Meanwhile, Luis Alvarez, the head of Global Services has been drafted in to take direct responsibility of European operations.
“Many of shareholders are unhappy, colleagues across the business are unhappy and they have every right to be, and frankly I’m very angry.
“The integrity of BT has been undermined by the wrongdoings a few individuals in our Italian business. It is completely unacceptable, it has no place in BT at all,” Patterson said.
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Pension deficit
Before Tuesday’s news, BT was already facing a number of challenges in 2017 one of which is negotiations with trustees over its mammoth £9.5bn pension deficit.
In the view of the trustees, BT’s ability to make good the deficit in the years to come could be hampered if its cash-generative subsidiary Openreach is spun-off as planned, causing profits to be ring-fenced.
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But Patterson quelled concerns, confident trustees were already on board. He said:
Unfettered access to cashflow provides a very strong covenant. And that’s one of the reasons why, I wouldn’t say they’ve relaxed, but they’ve accepted the company doesn’t need to completely close the deficit.