British Telecom (LSE: BT.A) this week announced that it will now have a two-year period of results which will be affected by the accounting scandal in its Italian unit.
An independent review by KPMG found that:
These actions have resulted in the overstatement of earnings in our Italian business over a number of years
This has resulted in a £530 million write down of the value of the Italian unit.
BT stated that revenue for the current financial year will be flat, operating profit will deteriorate and forecasts for sales and profit up to 2018 will also be flat.
BT’s pension deficit happens to be £9.6 billion.
I wager that this is not very good at all when you consider it’s own expectations for operating profit for the current financial year to be £7.6 billion.
the outlook for UK public sector and international corporate markets has deteriorated. For Business and Public Sector, this means we now expect a double-digit year on year percentage decline in Q4 underlying EBITDA adjusted for the acquisition of EE.
Indeed quarterly profits dived 37% and reported earnings per share dived 59% to the three months ended 31 December as announced on Friday this week.
Net cash inflows and free cash flow also took a nosedive for the the quarter.
The good progress we’re making across most of the business has unfortunately been overshadowed by the results of our investigation into our Italian operations and our outlook. We’ve undertaken extensive investigations into our Italian business, including an independent review by KPMG, and I am deeply disappointed with the unacceptable practices by some that we’ve found. This has no place at BT, and it undermines the good work we’re doing elsewhere in the Group. We are committed to ensuring the highest standards across the whole of BT.
Gavin Patterson, Chief Executive
Similarly The Pearson Group’s (LSE: PSON) management team reminds me of a defending rugby team stuck in their own 22 who are desperately scrambling back in defence after the attacking team has chipped the ball over and behind them.
For more on the rules of the most wonderful game ever invented click here.
We expect to deliver operating profit in line with guidance for 2016, despite a further unprecedented decline in Q4 2016 in our North American higher education courseware business. Our 2016 restructuring program has been delivered in full and the financial benefits are a little higher than planned
Further talk of rebasing the dividend from 2017 onwards adds to the general feeling of decline in this FTSE 100 stock.
In short order here are the ‘general nasties’:
- Net revenues down 18% for the full year
- Inventory mismanagement
- Lower course enrolments
- Less demand in North America in the higher education market
Pearson have announced another series of measures that include investment in their technology platform, slashing ebook rental prices by 50%, selling their 47% stake in Penguin Random House to strengthen the balance sheet.
Forward guidance on adjusted earning per share is 48.5p – 55.5P.
All I’m doing at this stage is placing them on a watch list to ensure I get notified of any news/announcements to keep abreast of their fortunes and what their boards are actually doing to fix these issues.
The waiting game commences.