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Virgin Blue Holdings Limited Interim Results for the 12 months ended 31 March 2005

18/05/2005

$138.1 million Net Profit After Tax

Virgin Blue Holdings Limited today announced a 12.9% decrease in net profit after tax to $138.1 million for the 12 months ended 31 March 2005, in line with profit guidance previously given by the Company.


The summary financial results for the year are as follows:

 

12 months to 31 March 05

12 months to 31 March 04

 
Revenues$1,669 million$1,362 million+22.5%
EBITDAR$417 million$409 million+2.0%
EBITDAR margin25.0%30.1%-5.1pts
EBIT$197 million$218 million-9.6%
EBIT margin11.8%16.0%-4.2pts
Profit before Tax (PBT)$194 million$226 million-14.1%
PBT margin11.6%16.6%-5.0pts
Net Profit after Tax$138 million$159 million-13.2%
Basic earnings per share13.4 cents17.3 cents-22.5%
Cost per Available Seat Kilometre7.49 cents8.16 cents-8.2%

   
OPERATING PERFORMANCE


Virgin Blue’s EBITDAR (earnings before interest, tax, depreciation, and amortisation and aircraft rentals) and profit before tax margins were 25.0% and 11.6% respectively. Despite an increase in fuel costs of 60% and airport charges of almost 40%, Cost per Available Seat Kilometre (ASK) for the 12 months to 31 March 2005 reduced to 7.49 cents (down from 8.16 cents for year to 31 March 2004), with a cost per ASK for the 6 months to March 2005 of 7.71 cents.


Capacity (as measured by ASKs) increased by 40% during the 12 months, as Virgin Blue increased its average aircraft for the 12 months by 36% (from 34.9 to 47.5 aircraft). Passenger numbers increased to 12.8 million, up 27% on the prior period. Frequencies were increased on existing domestic routes and 7 new routes were added building Virgin Blue’s national network to 300 flights daily to 23 Australian destinations.


In the highly competitive domestic environment, Virgin Blue has maintained its 2004 position, controlling one third of the market, whilst Qantas has reduced it’s market share to just over 50%, having passed some12% of it’s share to Jetstar during the last 12 months.


Virgin Blue’s international subsidiary Pacific Blue, which only commenced flying in January, 2004 operated profitably in its first 12 months and by 31 March, 2005 had expanded trans-Tasman flying operations to, Vanuatu, Fiji and the Cook Islands.


FINANCIAL RESULTS HIGHLIGHTS


Revenue


Total revenue increased by 22% to $1.67 billion, with scheduled revenue up 21%, as passengers carried increased 27% to 12.8million and yield fell 5.6%.


Revenue Passenger Kilometres (RPKs) were 15.0 billion and ASKs were 19.6 billion, up 30% and 40% respectively from the prior year. Load factor declined to 77.7%, down 4.9 points from 2004.


Expenditure


The financial performance of the Company for the 12 months was significantly impacted by two main factors - record increases in the cost of jet fuel, and the continuing escalation of airport charges. Total operating costs were $1.47 billion, up 28.6% ahead of the previous year


Jet fuel prices increased in the last quarter to a record high of US$70 per barrel, an increase of approximately US$25 per barrel above the average price Virgin Blue paid for fuel during the year. In total, fuel costs increased by 60% compared to the prior period, against a 40% increase in production (ASK’s).


Changes in charging regimes and deregulated pricing have seen airport charges to airlines increase dramatically. Airport fees now account for 15% of Virgin Blue’s operating cost base and remain a serious concern for both the company and the aviation industry.


Against the challenge of a 28.6% increase in it’s operating costs, economies of scale, currency benefits, and cost and productivity initiatives implemented by management during the 12 months has resulted in an 8.2% drop in CASK from 8.16 cents to 7.49 cents for the full 12 months.


Balance sheet and cash flow


Cash balances increased from $469 million to $662 million during the year, giving Virgin Blue 164 days operating cash reserves as at 31 March 2005, up 14 days over 2004.


Capital expenditure during the 12 month period was $426 million. This included eight new aircraft, aircraft related expenditure and terminal infrastructure.


The company’s net debt to net debt plus equity ratio was 61% down from 66% as at 31 March 2005.


OUTLOOK


The challenges of 2004/5 will be carried forward into 2005/6, with the dual threats of record fuel prices and continuing yield pressure foremost. Guidance given by management earlier this year has changed little, and the uncertainty of unchecked airport pricing only adds to these concerns.


The next 12 months will be a period of consolidation for the Company, with more moderate levels of capacity growth planned, down from the exceptional growth of 50% experienced in 2003/4 and 40% in 2004/5. This will allow the airline to focus on product and service development, and on improving the quality of its revenue streams.


“Having secured over 30 percent of the Australian domestic market, we are now focused on strengthening our network, developing our product for the business market and steadily building our presence as the low fare value based carrier in our region.


We now have the size, scale and frequency to truly address the needs of Australia’s business travelers, and we are determined to bring even greater value to business travel, just as we brought lower airfares permanently to the leisure market,” said Brett Godfrey, Chief Executive Officer.


The airline will introduce further innovative initiatives this year that will help drive higher yielding business whilst keeping its cost base competitive and ensuring it does not lose touch with the price sensitive leisure segment.