2nd UPDATE: TUI Travel CFO Quits After Accounting Error
21 Oktober 2010 - 11:20AM
Dow Jones News
Europe's largest travel operator TUI Travel PLC (TT.LN) Thursday
said Chief Financial Officer Paul Bowtell had resigned after an
accounting error forced the company to write off another GBP88
million in "irrecoverable balances" and restate its earnings for
fiscal 2009.
In an embarrassing admission, the company said an ongoing audit
for the fiscal year ended September 2010 had highlighted the
accounting error in the integration of IT systems in its U.K.
mainstream business that had accrued over a period of four to five
years and which increased its total write-off for 2009 from GBP29
million to GBP117 million.
As a consequence, the company restated operating profit for the
fiscal 2009 down to GBP401 million from GBP443 million. Earnings
per share were lowered to 21 pence from 23.8 pence. It also reduced
opening reserves at Oct.1, 2008, to GBP2.21 billion from GBP2.29
billion previously reported.
A spokeswoman said the issues were identified at TUI U.K. and
stemmed from a discrepancy between two IT systems, one for retail
and another for tour operators. The retail system documents prices
at which holidays are sold and includes discounts and any free
items that agents may offer, while the tour-operator system doesn't
take discounts into account.
The discrepancy wasn't significant in previous years but became
"more obvious" and was spotted during the economic downturn when
more concessions were offered to help boost demand, the spokeswoman
said.
The two systems were inherited through the merger in 2007 of
First Choice Holidays PLC of the U.K. with the tourism operations
of Germany's TUI AG (TUI1.XE) that created TUI Travel, but
responsibility still lies with its TUI U.K., which made the choice
to continue using them.
TUI Travel said it is satisfied that weaknesses in the system
had been rectified, but investors were rattled by the disclosure.
At 0818 GMT, TUI Travel's shares traded down 16 pence, or 6.9%, to
215 pence, making it the biggest loser in the benchmark FTSE 100
index, which traded up 0.6%. The stock has shed 11% in value since
the start of 2010 amid concerns about cash-strapped consumers
reigning in spending.
"It is now clear that at the time of merger there were
weaknesses in the legacy systems we chose to use in the TUI U.K.
business," Chief Executive Peter Long said. "Despite the fact that
this situation had built up over a number of years, Paul is
behaving honorably and I am disappointed that he will be leaving
the group."
Bowtell, 42 years old, joined the board of TUI Travel in June
2007. He was previously finance director at First Choice. Before
that, his finance career included a period as finance director at
British Gas, a unit of Centrica PLC (CNA.LN).
Long said he had asked Bowtell to remain with the company to see
through the full-year audit and production of the company's
preliminary results. "I will miss working with him and wish him
every success for the future," he added.
Broker Numis Securities said Bowtell has done the "honorable
thing" by resigning but said, "This is disappointing news and will
do little to dispel the feeling that the tour operators are
low-quality businesses."
On Oct. 5 TUI Travel said it will incur additional charges for
the 12 months to Sept. 30 relating to restructuring costs for
Corsair and its U.K. operations.
"High levels of 'exceptional' costs have been a recurrent
feature for the tour operators, resulting in a questionable quality
of earnings and contributing, in our view, to the apparent low
rating," Numis said.
TUI Travel said it remained confident that results for fiscal
2010 would be in line with previous guidance and that net debt will
be lower than previous guidance.
The company said adjustments had been limited to a GBP5 million
impact.
It added the stronger recent trading trends flagged Oct. 5 had
continued.
-By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299;
kaveri.niththyananthan@dowjones.com
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