Bosses at travel giant TUI are likely wishing for a vacation after they were forced to write off 120 million euros of income to offset years of cancellations and rebates ignored by accountants at its British subsidiary.
TUI chairman Michael Frenzel has little to smile about
The British subsidiary of German travel and tourism company TUI announced today that a long-running accounting error has cost the company 120 million euros, causing both companies' share prices to plunge.
Due to errors made by London-based TUI Travel PLC, the accounts receivable of individual travel offices were not correctly adjusted to match central figures, leading to a scenario in which cancellations and rebates were not accounted for.
The errors compounded for years without anyone noticing. TUI Travel's chief financial officer, Paul Bowtell, agreed to resign over the error and will leave the company at the end of the year.
TUI still expects a profitable year, though its stock prices dropped
The shortcomings of TUI Travel will negatively affect the bottom line of its Hanover-based parent company. TUI will have to shave 45 million euros from its 2009 abbreviated fiscal year earnings before interest, tax and amortization (EBITA), along with 75 million euros from fiscal years before January 1, 2009.
Tip of the iceberg?
However, TUI contends the balance corrections won't harm its cash position or net debt. It also says its prognosis for the 2009/2010 fiscal year is now correct, and that it expects to remain profitable.
A person familiar with the situation told Deutsche Welle that additional losses could still arise, should TUI Travel discover further accounting errors. A complete audit of the subsidiary's accounts is underway.
After the news this morning TUI shares fell about 4 percent on the Frankfurt stock exchange while TUI Travel dropped about 11 percent in London.
Author: Gerhard Schneibel (Reuters, dpa)
Editor: Sam Edmonds