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More turmoil at TUI Travel

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10th Jan 2011
Editor at large AccountingWEB
Columnist
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TUI Travel’s regulatory announcements have taken more plot twists in recent weeks than Eastenders and the Archers put together.

Last week, two audit committee members followed KPMG out the door in what The Guardian suggested was a sign of their discontent with the auditor’s resignation. Non-executive director Jeremy Hinks was chairman of the audit committee and his departure was announced along with that of fellow committee member Giles Thorley on Thursday 6 January. Both had been non-executive directors with First Choice Holidays and had decided not to seek re-election at the group’s AGM on 3 February after three years on the group’s board after it had merged with German company Tui’s subsidiary Thomson.

With questions still hanging over the travel group’s internal controls and corporate governance, TUI said that it had begun the process of identifying potential new non-executive directors.

As previously reported, several TUI Travel executive directors had recently received £3.2m worth of shares that had vested under the company’s performance-related bonus schemes for 2009, the year in which TUI was forced to restate some £117m of irretrievable balances that had arisen from its inability to reconcile discounted holiday packages within its legacy accounting systems.

A note in the company’s annual report revealed, however, that the executives would not get bonuses for 2010: “Notwithstanding the fact that the underlying [earnings] and cash-flow measures were met in full, the remuneration committee decided that, in the context of an appropriate claw-back of prior year bonus due to the profit restatement and substantial one-off costs during the year, a cash bonus would not be payable.”

Extracts from the company’s annual report highlight some of the main risks that the travel group is facing, including:

  • Sustained failure in systems causing operational disruption and weaknesses or inefficiencies in IT and financial control processes that may have “significant” impacts on operations and revenue, increased costs and unforeseen losses.
  • Failure of acquisitions to deliver expectations… and possible difficulty in integrating operations and systems.

Along with the impact the economic downturn is having on holiday bookings and exchange rate fluctuations, the report also noted that “consumers are increasingly turning online to research and book holidays”. Holiday makers are using social media and price comparisons to plan their holidays and are opting more for component-based packages rather than traditional integrated tour packages.
 

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