Please note that Virgin reports quarterly, so the market was already aware of Virgin’s underlying 1H15 earnings from the quarterly release.
Key Points
- Consolidated EBITDA of $200.6m is up 57% on the 1H14 result of $127.8m, with the majority of this EBITDA ($190.2m) generated from the domestic business
- Segment based performance shows that the performance of the domestic business has improved significantly, with EBIT up 300% to $103.8m versus 1H14. However, the EBIT loss on the international business increased from $31.9m to $49.5m. This is a similar story to Qantas, where the strong performance for the domestic business offsets the weak performance of the international arm
- While Virgin’s cash balance has increased from the 30 June 2014 position of $783.8m to $1,099.7m, net debt for the 6 months to 31 December 2014 is up overall from $1.169m to $1,422.7m. This is a result of the bond issuance and the currency impact on Virgin’s USD debt. Most of Virgin’s secured aircraft loans and its bond are both in US dollars, and so the principal outstanding expressed in AUD increases when the AUD depreciates against the USD
- Current Bloomberg consensus guidance is for FY15 EBITDA of $326m, which would give Virgin a net debt / EBITDA ratio of 4.4x based on current net debt levels. If Virgin were to achieve this EBITDA result it would mean a significant improvement from the 8.3x leverage position at FY14
Virgin’s improved performance reflects the turnaround in the Australian domestic aviation sector which has more than offset the continued weak performance of the international business.
With a significant improvement in the company’s performance over 1H15 which is expected to continue into 2H15, particularly with the rolling over of its fuel hedges, it is likely that the rating agencies will change Virgin’s rating outlook from stable to positive at some stage this year.