To describe the past week as a nightmare for BT Group (LSE: BT-A) would be a colossal understatement.
News of a massive accounting scandal at its BT Italia division has grabbed the headlines, the news shaving 8bn off the telecoms giants share price and sending the stock to its cheapest since the summer of 2013. But this isnt the only problem on BTs plate.
However, lets start by discussing the troubles at the companys continental division, especially as speculation mounts that BT may not have a clue concerning the full scale of the accounting scandal.
The business first flagged up the problem back in October when it warned an initial investigation into inappropriate management behaviour revealed a 145m black hole on the balance sheet. Three months later and this figure has morphed into a quite-staggering 530m.
The fault is anticipated to smack adjusted revenues and EBITDA by 200m and 175m respectively in both fiscal 2017 and 2018, while net cash is predicted to take a 500m hit this year alone.
And this may not be the end of the story as BT now embarks on a group-wide assessment of its financial processes, systems and controls. This is a move that could reveal even moreproblems.
The sizeable whack for BTs balance sheet is an added issueas the business deals with its gargantuan pension liabilities.
Industry experts have valued BTs pension deficit at between 9bn and 10bn, although an accurate picture of the shortfall will become clearer when the business conducts a formal review in June. Investors need to be on guard as rising retirement-related costs could have a crushing effect on BTs ability to keep dividends growing year after year.
BTs precarious financial health is also a problem as the business draws swords with Sky, with both companies locked in an expensive arms race to furnish their television platforms with the cream of the sporting world.
For the time being these measures are helping revenues at BTs Consumer division to keep marching higher. But BT still faces top line turmoil elsewhere, the company announcing this month that it faces a more challenging outlook in the UK public sector and international corporate markets.
Meanwhile, BTs fight with Ofcom over the future of Openreach adds another layer of uncertainty to the firms long-term profits outlook.
The company tried to curry favour with the regulator this week by announcing that Sir Brendan Barber and Edward Astle would be appointed to the board of its infrastructure arm.
But Ofcom has poured cold water on the news, and advised that these changes fall short of our requirements for a legally separate Openreach that delivers for all of its customers. The body added that we intend to take our plans to the European Commission this year.
These pressures are likely to cause BT to keep raising the amount it invests in the UK communications network. Having said that, any measures the firm takes to placate the regulator are unlikely to silence calls by the companys rivals for Openreach to be fully hived off completely.
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