BT lost almost a fifth of its market value today after an Italian accounting scandal compounded a slowdown in its UK government business to force the firm to cut revenue, earnings and cash flow forecasts for the next two years.
Shares in the 171-year-old British firm were on track for their worst ever one day fall.
This comes after BT said it would now not be able to grow revenues for the next two years, bringing an abrupt end to years of painful and steady recovery following the 2008 economic downturn.
The telecoms company, which had revealed an initial investigation into historical accounting practices in Italy in October, said a review had found a complex set of improper sales, purchase and leasing transactions.
A writedown to the business of £145m, announced in October, has been increased by more than three times to around £530m.
According to a person familiar with the situation, staff had colluded with suppliers to inflate their accounts over a number of years, before a whistleblower contacted senior executives at BT headquarters last summer to make them aware of the practices.
Although the update on the Italian business grabbed the headlines, the division only contributed around 1% of the group's core earnings for the year to the end of last March.
More serious for the long term was the comment in the unscheduled statement that BT had also seen a deterioration in its core corporate and public sector businesses.
BT shares lost more than a fifth of their value last year, and its shares traded 17.5% lower at 315.8 pence today.
The company is facing challenges on a number of fronts - a regulatory battle over its core network, a growing pensions deficit and the cost of expanding its TV business.
BT said group revenue will now not grow for the next two years while the guidance for core earnings, or earnings before interest, tax, depreciation and amortisation, has been cut to £7.6 billion from a previous guidance of £7.9 billion.
The company said its normalised free cash flow for 2016/17 is expected to come in at £2.5 billion, compared with a previous forecast of between £3.1-3.2 billion.
And free cash flow is also forecast to be lower than the guidance given for 2017/18.
However, it said it expected to increase its dividend per share by at least 10% in both 2016/17 and 2017/18.
The group said it had taken immediate steps to strengthen its processes and controls in Italy.
It suspended a number of BT Italy's senior management team, who have now left the business, and appointed a new BT Italy CEO who will take charge on February 1.
"Further, we are conducting a broader review of financial processes, systems and controls across the group," it said.
"The BT Group Remuneration Committee will consider the wider implications of the BT Italy investigation," the company added.
