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 of course.

Mike van Dulken, Head of Research, 24 Jan 2017