The FSA found that MyTravel breached the Listing Rules by failing to update the market following a change in its own expectation as to its performance for the financial year ended 30 September 2002. In July 2002, MyTravel UK (a division of MyTravel) identified balance sheet exposures of £24.3 million which had been unaccounted for in the previous year's published accounts. MyTravel decided that no announcement needed to be made to the market, in the expectation that these exposures would be off-set by certain non-recurring gains to be made in financial year 2002 (FY02).
Hector Sants, FSA Managing Director for Wholesale Business, said:
"The failure by MyTravel to update the market promptly about the exposures it had discovered was a breach of the Listing Rules.
"MyTravel's discovery of the exposures led to a change in its expectation as to its performance. The failure to announce this change denied the market the opportunity to assess the likely impact of these exposures on MyTravel's share price. The FSA regards the disclosure obligations as a fundamental protection for shareholders and vital to the smooth operation of efficient, orderly and competitive markets.
"The need to inform the market was especially relevant in MyTravel's case where the prevailing business environment was challenging and any announcement in relation to accounting issues would have come as an unwelcome surprise to investors."
MyTravel's Breach
In November 2001 MyTravel announced record operating profits for the year ended 30 September 2001 (FY01) of £147.4 million and indicated that it expected profits for FY02 to be broadly similar.
In late 2001 and early 2002 MyTravel faced challenging business conditions in common with the rest of the travel industry following 11 September 2001. On 7 February 2002 MyTravel reported a poor first quarter and announced that losses for the first half of FY02 would be significant. This was confirmed when first half losses of £122.3 million for the six months ended 30 March 2002 were reported by MyTravel on 22 May 2002. The company indicated at this stage that it was uncertain if business would recover sufficiently to meet the forecast profit for the financial year. On 23 July 2002 MyTravel had announced that trading across all divisions was in line with the previously announced expectations.
During the early part of FY02 MyTravel UK carried out a review of its accounting records which identified unaccounted for exposures totalling £24.3 million. MyTravel's then Group Finance Director and Chief Executive Officer became aware of the exposures at the end of July 2002.
Although the exposures were unknown to the market, the view was taken on or about 31 July 2002 by the Chief Executive Officer and Group Finance Director, that the exposures would be off-set by certain non-recurring gains to be made in the remainder of FY02 and therefore no announcement needed to be made to the market. No professional advice on the matter was sought from the firm's external advisers. In the event, on 28 November 2002, MyTravel announced a loss in FY02 of £72.8 million.
The FSA has not taken any action against any of the individual directors. The FSA accepted that the Group Finance Director, Chief Executive Officer and the other directors of MyTravel were not knowingly concerned in the contraventions.
