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MPs urge Thomas Cook chiefs to repay bonuses over company's collapse - business live | MPs urge Thomas Cook chiefs to repay bonuses over company's collapse - business live |
(32 minutes later) | |
Frank Field MP, Chair of the Work and Pensions Committee, has urged Thomas Cook’s former top brass to do the right thing, and hand their bonuses to the firm’s pension fund. | |
Field says: | |
“Thomas Cook workers now face a long wait to find out exactly how much they’ve lost from their life savings, and while their former bosses might argue that this isn’t another BHS, Carillion or British Steel, they will have a hard time justifying the millions they pocketed, one eye on the door, while the company collapsed around them. | |
“If they’ve had a chance to check how their own pensions are affected, perhaps the high-paid executives responsible would like to bolster the retirement of some of the workers they left behind, and give some of it back?” | |
Former chairman Frank Meysman blames the UK government’s lack of support for driving Thomas Cook to the wall three weeks ago. | |
He claims that all the parties were still committed to the £900m rescue deal at 4pm on “that famous, tragic Sunday” [the day before the company failed]. | |
But only if the government would step in with a backstop to underwrite the rescue plan on the table. | |
The representatives of the banks and Fosun (the Chinese investors) told us that “we are still supporting this deal, providing the government has a role to play in the project”, Meysman insists. | |
Thomas Cook chair Frank Meysman gets to the point he's been skirting around. He says the company had the £200m in place, or promised, to secure remaining £900m rescue deal at 4pm. Says government lack of support killed the deal. | |
Rachel Reeves (an opposition Labour MP) isn’t impressed by this argument -- the government didn’t build up Thomas Cook’s debt pile! | |
Q: What did Fosun and the banks want the government to do? | |
Meysman says Thomas Cook had three requests: | |
Either £150m-£250m, | |
or exert power to bring the parties together, | |
or allow it to use the current infrastructure to bring holidaymakers back, if the company collapsed | |
Reeves says the demand for a backstop shows that Fosun and the banks didn’t believe in the rescue plan at all. Why wouldn’t they provide this extra £200m of support? | |
Meysman says he doesn’t know, expect that the banks and Fosun believed they were already making an appropriate contribution to the plan. | |
[Explainer: Under this plan, Fosun was paying £450m for a majority stake in Thomas Cook’s tour-operating business and a stake in its airline. Banks and bondholders provided the other £450m, taking the remaining stake in the tour operator and a 75% stake in the airline. The banks had also agreed to write off more than £1.7bn of debt in return for a stake in the business.] | |
The committee are now asking about Thomas Cook’s last few weeks, when it became clear it needed more money. | |
Q: When did you learn that the banks required £200m of extra funding? Which date in August? | |
Fankhauser agrees to report back which date he was told about a “downcase scenario” which would require extra funding of £150m-£200m. | |
He says he knew that this scenario existed on 28 August when Thomas Cook announced it had agreed a £900m rescue deal that will give the Chinese conglomerate Fosun. | |
But, he says it wasn’t a formal request from the banks at that stage. | |
This is a crucial issue -- this extra funding demand cause the collapse of the Fosun deal. | |
Q: But why didn’t the lenders provide the extra funding? | |
Fankhauser says he doesn’t know. | |
My colleague Rob Davies is tweeting the key points from the hearing: | |
Thomas Cook boss Peter Fankhauser concedes he was paid an "enormous amount". Says the company was making right steps to cut debt when it was hit by European heatwave. Admits they were "not fast enough" in mending the problems. | |
Thomas Cook CEO Peter Fankhauser being asked at select committee how much of his bonuses can be clawed back. It's about £558k. See our story this morning."No more than £1m will be recouped from Thomas Cook chiefs."https://t.co/AoouR6MDUu | |
BEIS committee chair launches a broadside at Thomas Cook chair after he lists successes. "You chaired a business that has gone under because of the decisions made collectively by your management team." Asks for "a bit more humility". | |
Thomas Cook pay committee chief Warren Tucker says pay linked to underlying earnings (which ignore massive one-off negatives) to avoid providing a disincentive to invest. Pretty extraordinary idea that execs need an incentive to do what's required to save a company. | |
Thomas Cook boss Peter Fankhauser admits that selling the airline when it had the chance "might have been a solution". | |
Q: Why didn’t Thomas Cook’s management realise that its rescue plan was going wrong? | |
Peter Fankhauser insists he believed the plan would work - the company tested “every day at four o’clock” that the deal could work. | |
Q: So every day at four o’clock you were wrong? | |
With hindsight you can say that, Fankhauser replies. | |
Q: Why did Thomas Cook underestimate the amount of money it needed to save it? | |
Fankhauser says the company tried to sell its airline, to generate cash to help tide it through this winter, along with fresh bank financing. | |
But it then realised that this plan wouldn’t work, because the company wasn’t generating enough cash. | |
Q: But wasn’t this just a fantasy sale, it would never have worked? | |
Fankhauser denies it, he says Thomas Cook devised a complicated refinancing plan. | |
But then the company came under pressure this summer from suppliers, and from credit card merchants. Plus, the refinancing costs were putting pressure on cashflow, Fankhauser says. | |
He then explains how Thomas Cook’s financial needs spiralled: | |
On 12 July, we said we needed £750m in recapitalisation. Then on 12 August we saw that would not work, so we needed another £150m to £900m. Then we were stuck. | |
Q: Can’t you see that this looks like a company out of control, and downplaying the difficulties you faced to your investors, and your staff? | |
It could look that way, Fankhauser agrees, but he insists that’s not what happened. | |
Rachel Reeves MP turns to the sale of Thomas Cook’s shops to Hays Travel, a family owned firm (excellently profiled here). | Rachel Reeves MP turns to the sale of Thomas Cook’s shops to Hays Travel, a family owned firm (excellently profiled here). |
Q: Can they make a success of it? | Q: Can they make a success of it? |
“I wish they can. I honestly do,” Peter Frankhauser replies. | “I wish they can. I honestly do,” Peter Frankhauser replies. |
The former Thomas Cook CEO says that “one of the brighter days in recent weeks” was when he learned that Hays would take on the stores and save around 2,000 jobs. | The former Thomas Cook CEO says that “one of the brighter days in recent weeks” was when he learned that Hays would take on the stores and save around 2,000 jobs. |
The retail business runs on commissions - he explains, so if Hays can renegotiate leases, create a much leaner debt structure, then “for sure” it can be successful. | The retail business runs on commissions - he explains, so if Hays can renegotiate leases, create a much leaner debt structure, then “for sure” it can be successful. |
I wish them all the luck, he adds. | I wish them all the luck, he adds. |
Reeves homes in on the debt issue. Surely Hays, which doesn’t have a large debt pile, is doing things right - and Thomas Cook did it wrong. | Reeves homes in on the debt issue. Surely Hays, which doesn’t have a large debt pile, is doing things right - and Thomas Cook did it wrong. |
Fankfauser says Thomas Cook already had a big debt pile when he arrived in 2014 -- but he wasn’t fast enough in reducing it. | Fankfauser says Thomas Cook already had a big debt pile when he arrived in 2014 -- but he wasn’t fast enough in reducing it. |
But he insists that Thomas Cook, with its large operations including an airline, is much more complicated than a simple travel agent. | But he insists that Thomas Cook, with its large operations including an airline, is much more complicated than a simple travel agent. |
But the insolvency service has taken decisive steps in three weeks, Reeves replies scathingly. You had five years! | But the insolvency service has taken decisive steps in three weeks, Reeves replies scathingly. You had five years! |
Fankhauser says he was trying to save the whole business, rather than simply selling assets off in bits. | Fankhauser says he was trying to save the whole business, rather than simply selling assets off in bits. |
But look what happened in the end, Reeves hits back. The whole company collapsed, stranding 150,000 people. | But look what happened in the end, Reeves hits back. The whole company collapsed, stranding 150,000 people. |
Back to the bonuses, and Warren Tucker (former remuneration committee chair) confirms that underlying profitability was used to set bonuses. | Back to the bonuses, and Warren Tucker (former remuneration committee chair) confirms that underlying profitability was used to set bonuses. |
Why?! | Why?! |
Tucker claims they didn’t want to “disincentivise” executives from taking necessary investment decisions which would hit earnings. | Tucker claims they didn’t want to “disincentivise” executives from taking necessary investment decisions which would hit earnings. |
Stephen Kerr MP says this smells very fishy -- wouldn’t it be great if everyone could just ignore irritating costs they’d rather ignore? | Stephen Kerr MP says this smells very fishy -- wouldn’t it be great if everyone could just ignore irritating costs they’d rather ignore? |
This board was rewarded for failure, Kerr insists. | This board was rewarded for failure, Kerr insists. |
The former Thomas Cook executives are claiming that their business was complicated, needed turning around, so it was right to class some losses as ‘one-off’ items on its balance sheet. | The former Thomas Cook executives are claiming that their business was complicated, needed turning around, so it was right to class some losses as ‘one-off’ items on its balance sheet. |
Chair Rachel Reeves dispute the argument -- she argues that Thomas Cook used exceptional items to burnish its balance sheet, and give a rosier picture. | Chair Rachel Reeves dispute the argument -- she argues that Thomas Cook used exceptional items to burnish its balance sheet, and give a rosier picture. |
Q: In the end, this focus on underlying profits caught up with you, didn’t it? | Q: In the end, this focus on underlying profits caught up with you, didn’t it? |
Chairman Frank Meysman denies it -- saying there was “a lot of effort” underway to reduce debts, offer exciting new holidays. | Chairman Frank Meysman denies it -- saying there was “a lot of effort” underway to reduce debts, offer exciting new holidays. |
He tries to paint a picture of success....saying the firm had 20 million happy customers, exciting new routes, a joint venture in China was looking good. There was a lot of restructuring underway, he insists.... | He tries to paint a picture of success....saying the firm had 20 million happy customers, exciting new routes, a joint venture in China was looking good. There was a lot of restructuring underway, he insists.... |
Reeves has heard enough! | Reeves has heard enough! |
She reminds Meysman that he has been summoned to the committee because 9,000 people have lost their jobs, and 150,000 holidaymakers had to be brought home at a cost to the taxpayer. | She reminds Meysman that he has been summoned to the committee because 9,000 people have lost their jobs, and 150,000 holidaymakers had to be brought home at a cost to the taxpayer. |
With all respect, Mr Meysman, you can point to as many successes as you like, but you have brought down a 178 year old business with huge repercussions for customers, staff, and taxpayers. | With all respect, Mr Meysman, you can point to as many successes as you like, but you have brought down a 178 year old business with huge repercussions for customers, staff, and taxpayers. |
So you can point to the successes, but I’ll point to the failures and they hugely outweigh the successes. | So you can point to the successes, but I’ll point to the failures and they hugely outweigh the successes. |
Reeves points out that Meysman and his former colleagues began the session by apologising, but was that contrition genuine?.... | Reeves points out that Meysman and his former colleagues began the session by apologising, but was that contrition genuine?.... |
I think you’re deluded about the business you ran. | I think you’re deluded about the business you ran. |
You chaired a business that has gone under because of the decisions made collectively by your management team. When you point to your successes, maybe show a little more humility. | You chaired a business that has gone under because of the decisions made collectively by your management team. When you point to your successes, maybe show a little more humility. |
Ouch! | Ouch! |
Stephen Kerr MP takes issue with the claim that Thomas Cook was trading well. You only made a profit in 2015, he insists -- every other year recently was a loss. | Stephen Kerr MP takes issue with the claim that Thomas Cook was trading well. You only made a profit in 2015, he insists -- every other year recently was a loss. |
Q: So how can you justify bonuses? | Q: So how can you justify bonuses? |
Fankhauser says that some bonus payments came from a “long-term incentive plan”, to reward turning the UK business around. | Fankhauser says that some bonus payments came from a “long-term incentive plan”, to reward turning the UK business around. |
Kerr points out that Thomas Cook regularly classed losses as “exceptional items”, allowing it to report an underlying loss. | Kerr points out that Thomas Cook regularly classed losses as “exceptional items”, allowing it to report an underlying loss. |
Q: You did this for eight years -- and eventually your auditors raised concerns, so how can they be valid? | Q: You did this for eight years -- and eventually your auditors raised concerns, so how can they be valid? |
Former chair Frank Meysman agrees that this is a “high value”, but insist they were valid. | Former chair Frank Meysman agrees that this is a “high value”, but insist they were valid. |
Q: Buy you needed to use underlying profitability to give confidence to your banks and investors... | Q: Buy you needed to use underlying profitability to give confidence to your banks and investors... |
Meysman insists that there was no deceit, everyone knew the situation. | Meysman insists that there was no deceit, everyone knew the situation. |
Former chairman Frank Meysman is now challenged -- why did Thomas Cook not write down its goodwill earlier? | Former chairman Frank Meysman is now challenged -- why did Thomas Cook not write down its goodwill earlier? |
Meysman argues that trading looked strong, so there was no need to. | Meysman argues that trading looked strong, so there was no need to. |
But wasn’t it a serious mistake to wait until May 2019 to booking a £1.1bn goodwill impairment relating to the merger with MyTravel, a decade ago? | But wasn’t it a serious mistake to wait until May 2019 to booking a £1.1bn goodwill impairment relating to the merger with MyTravel, a decade ago? |
Meysman denies it -- he claims that it wasn’t clear in 2018 that Thomas Cook couldn’t hit the growth targets it aimed for. | Meysman denies it -- he claims that it wasn’t clear in 2018 that Thomas Cook couldn’t hit the growth targets it aimed for. |
He insists that Thomas Cook’s £1.2bn debt pile was the ultimate cause of its demise. | He insists that Thomas Cook’s £1.2bn debt pile was the ultimate cause of its demise. |
Once “the heatwave” in 2018 came, and “the anxiety of Brexit”, the company realised it needed a new business plan, Meysman adds. That led to the profit warning in November 2018. | Once “the heatwave” in 2018 came, and “the anxiety of Brexit”, the company realised it needed a new business plan, Meysman adds. That led to the profit warning in November 2018. |