BT has reported a 42% fall in first-quarter profits due to a settlement with Deutsche Telekom and Orange over an Italian accounting scandal.
The German and French groups sold their joint venture EE to BT for £12.5bn last year, with both buying into BT.
But revelations of a “complex fraud” in Italy triggered a collapse of BT’s share price in January and a fall in its value.
Orange sold some of its stake at a loss and Deutsche Telekom took a big hit on the value of its 12% stake.
In its financial results on Friday, BT said: “We have reached settlements with Deutsche Telekom and Orange in respect of any warranty claims under the 2015 EE acquisition agreement, arising from the issues previously announced regarding our operations in Italy.
“This represents a full and final settlement in respect of these issues and results in a specific item charge of £225m.”
In January, the company had issued a profit warning due to the Italian problem, sending its market value plunging by more than £7bn, with shares down by 21% in one day.
BT first revealed details of accounting errors in its Italian business in October 2016 but an independent review in January found improper accounting practices as well as a “complex set” of improper transactions relating to sales, purchasing, leasing and factoring – the practice of selling invoices to a third party to collect.
These had resulted in “the overstatement of earnings on our Italian business over a number of years”, BT said at the time, warning that the scandal would cost it £530m.
And in March this year, the telecoms regulator imposed a record £42m fine on BT for “serious failings” at its Openreach division, leaving the telecoms firm also facing a £300m compensation bill.
Ofcom said Openreach, which is responsible for the UK’s broadband network, breached its rules by failing to pay other telecoms firms proper compensation over delays in installing high-speed ethernet lines.BT’s first-quarter results showed that its pre-tax profit fell to £418m, which was down just 1% on an adjusted basis but was well below the consensus of £751m.
However, the company said there had been solid demand for EE, with 210,000 net contract subscriber additions, along with 170,000 net fibre additions in its broadband sector.
Revenue was up by 1% from the same period last year to £5.84bn.
Chief executive Gavin Patterson said the first quarter performance was “encouraging”.
He added: “Our businesses are leaders in their core segments and as we drive the business forward, I am confident in the outlook”.
BT shares were down 3.7% in early morning trading.