Friday 07 August 2015 by Alen Golubovic Company updates

Virgin FY15 result – solid improvement in credit performance despite headline loss

Virgin’s FY15 result reflects a strong turnaround in its domestic business, offset by weakness in its international division. Key credit metrics have improved strongly on the prior year

However the overall group’s underlying loss before tax of $49m also reflected a weaker performance in the international business. With material improvements in financial leverage (20% reduction) and operating cashflow (up $225.8m), we believe the result is positive from a credit perspective. The share price is only slightly down (1%) following the results announcement.

Key highlights from the FY15 results:

  • Revenue of $4.75bn is up 10.5% on FY15 and ahead of consensus analyst expectations of $4.6bn
  • Underlying loss before tax of $49.0m reflects an improvement of $162.7m on FY14
  • The domestic business reported underlying earnings before interest and tax (EBIT) of $111.1m for FY15, an improvement of $$210.1m on FY14. However, the international business struggled in FY15, with an EBIT loss of $69m (23m weaker than FY14)
  • Virgin expects to return to profitability in FY16 through continued cost reductions and additional benefits from lower fuel prices

Despite the headline loss and the weak performance from the international business, there are a number of key positives from a credit perspective:

  • The airline’s financial leverage ratio (measured as the ratio of net debt to EBITDAR*) materially improved from 7.5x in FY14 to 5.9x in FY15, despite the weaker Australian dollar. The airline estimates further improvements in financial leverage to 4.0x – 4.5x by FY17
  • Positive operating cash flows of $218.1m represents a material $225.8m improvement on the prior year
  • The airline’s total and unrestricted cash balances of $1,028.5m and $718.9m are up $244.7m and $177.9m respectively
  • The strong performance of the domestic business and the outlook for profitability in FY16

*EBITDAR stands for earnings before interest, tax, depreciation, amortisation and aircraft rentals 

Please contact your FIIG representative if you are interested in investing in the Virgin bond.

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