TUI Travel said yesterday its finance chief will go and restated 2009 accounts after stumbling across 117 million pounds owed by customers that will now have to be written off.
Shares in Europe's largest travel company fell as much as 10.2 percent after it said that having plugged a 29 million pound hole in August, an audit had uncovered a further 88 million pounds of irrecoverable balances.
As a result, TUI Travel now believes it is appropriate to restate its results for the year ended 30 September 2009, TUI Travel, controlled by Germany's TUI AG, said in a statement yesterday.
The company said it had been integrating IT systems and uncovered weaknesses that meant outstanding balances were not being reconciled properly.
Chief Financial Officer Paul Botwell has resigned over the incident and will leave at the end of 2010 after more than three years on the TUI Travel board.
He had previously worked at companies such as First Choice Holidays, Centrica's British Gas and retailer WH Smith.
Paul is behaving honourably and I am disappointed that he will be leaving the group. He is one of the most capable chief financial officers I know, Chief Executive Peter Long said in a statement.
I have specifically asked Paul to remain with the business to see through the full year audit.
Analysts at Shore Capital said they expected TUI Travel shares to fall as a result of Botwell's departure but that they still viewed the company positively.
We retain a buy' stance noting the continued robust winter trading and the potential for further margin improvements and industry consolidation, they wrote in a note to clients.
The impact on TUI Travel's 2009 results will be to shave 2.8 pence off earnings per share, cutting them to 21 pence from the 23.8 pence previously reported.
The damage this year will be no worse than the 5 million pounds already flagged in August.
For the 2010 business year just ended, TUI said the changes would not hurt its cash or net debt position and that it was confident results would be in line with previous guidance and that net debt would be lower than previously indicated.
The company can confirm that the stronger recent trading trends in its last trading update have continued, it said.
Analysts at Panmure Gordon noted, however, that the rate of booking growth appeared to have slowed across Europe.
In the UK, for example, the company said the rate of increase slowed from 7 percent as of Sept. 26 to a rate of 3 percent in the following few weeks, taking the cumulative rate by Oct. 17 down to 6 percent.
Given the recent strong share price performance we downgrade our recommendation from hold' to sell' on valuation grounds and repeat our 190 pence price target, Panmure Gordon wrote in a research note.
TUI Travel's German parent also moved to calm concerns over the impact on its hefty net debt position.
The write-offs to be effected for TUI Travel Plc will not have a negative impact on the TUI Group's cash position and hence net debt, TUI AG said in a statement.
The German group last reported net debt of 2.9 billion euros at the end of June - more than its 2.25 billion market value - although a spokesman said this will be less in the final quarter to end-September due to seasonal effects.
TUI AG added it was not changing forecasts for the tourism segment for the 2009/10 financial year and that it still expected a positive group result for the year.
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