For personal use only

Transcription

1 Virgin Australia Holdings Limited Appendix 4D and Interim Financial Report For the half-year ended 31 December 2014 VIRGIN AUSTRALIA HOLDINGS LIMITED ACN: ASX CODE: VAH

2 Contents ASX Appendix 4D 3 Interim Financial Report Corporate directory 6 Directors report 7 Lead auditor s independence declaration 9 Consolidated statement of profit or loss 10 Consolidated statement of profit or loss and other comprehensive income 11 Consolidated statement of financial position 12 Consolidated statement of changes in equity 13 Consolidated statement of cash flows 15 Condensed notes to the consolidated interim financial statements 1. Reporting entity Basis of preparation Significant accounting policies Seasonality Financial risk management Operating segments Acquisition of subsidiary Non-controlling interests Property, plant and equipment Intangible assets Dividends paid Interest-bearing liabilities Share capital Capital commitments Financial instruments Share-based payments Contingent liabilities and contingent assets Related parties Subsequent events 30 Directors declaration 31 Independent auditor s review report 32 Virgin Australia Holdings Limited Interim Financial Report 2

3 ASX Appendix 4D 1. Details of the reporting period and prior corresponding period Reporting period 1 July 2014 to 31 December 2014 Prior corresponding period 1 July 2013 to 31 December Results for announcement to the market % Revenue from ordinary activities Increased 6.0 to 2,377.5 Loss from ordinary activities after income tax attributable to members Decreased 28.5 to (53.1) Net loss for the period attributable to members Decreased 28.5 to (53.1) 3. Dividends 31 December 2014 Amount per security Franked amount per security Final dividend Nil Nil Interim dividend Nil Nil 4. Explanation of results A commentary on the results for the half-year ended 31 December 2014 is contained in the attached Australian Stock Exchange (ASX) release. 5. Net tangible assets 31 December 2014 $ 30 June 2014 $ Net tangible assets per ordinary share (1) (1) Derived by dividing the net assets attributable to equity holders less intangible assets, calculated on total issued shares of 3,517.7 million (30 June 2014: 3,503.3 million). 6. Details of associates and joint venture entities Entity Percentage of ownership interest held 31 December 2014 % 31 December 2013 % Contribution to net loss 31 December December 2013 Virgin Samoa Limited (0.9) Tiger Airways Australia Pty Limited (1) - 60 (15.8) (18.4) (1) On 16 October 2014 the Group acquired the remaining 40% of Tiger Airways Australia Pty Limited. Refer to note 7 to the condensed notes to the consolidated interim financial statements. The contribution to net loss is the equity accounted result from 1 July 2014 to 16 October Virgin Australia Holdings Limited Appendix 4D 3

4 ASX Appendix 4D (continued) 7. Control gained or lost over entities during the period, and those having material effect (a) Name of entities where control was gained in the period (i) The following entities were incorporated during the period: Entity Place of incorporation Date of incorporation Velocity Frequent Flyer 1 Pty Ltd Australia 15 August 2014 Velocity Frequent Flyer 2 Pty Ltd Australia 15 August 2014 Velocity Frequent Flyer Pty Ltd Australia 22 August 2014 A commentary on the above entities is included in note 8 to the condensed notes to the consolidated interim financial statements. (ii) Control was gained by way of acquisition during the period: Entity Place of incorporation Date of control being acquired Tiger Airways Australia Pty Limited Australia 16 October 2014 A commentary on the above entity is included in note 7 to the condensed notes to the consolidated interim financial statements. Virgin Australia Holdings Limited Appendix 4D 4

5 Virgin Australia Holdings Limited Interim Financial Report For the half-year ended 31 December 2014

6 Corporate directory Company secretary Mr Adam Thatcher Principal administrative and registered office Virgin Australia Holdings Limited 56 Edmondstone Road Bowen Hills QLD 4006 Australia Telephone: (07) (within Australia) or (outside Australia) Share registry Computershare Investor Services Pty Limited 117 Victoria Street West End QLD 4101 Australia Telephone: (within Australia) or (outside Australia) Securities exchange The Company is listed on the Australian Securities Exchange. The Home Exchange is Brisbane. Other information Virgin Australia Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Virgin Australia Holdings Limited Interim Financial Report 6

7 Directors report The directors present their report together with the consolidated interim financial statements of the Group comprising Virgin Australia Holdings Limited (VAH) (the Company) and its subsidiaries, and the Group s interests in associates and joint ventures, for the half-year ended 31 December 2014 and the auditor s review report thereon. 1. Directors The directors of the Company at any time during or since the end of the period are: Name Position Period of directorship Mr Neil Chatfield Independent Non-Executive Chairman Current, appointed as a Director 11 May 2006 Current, appointed as Chairman 14 June 2007 Ms Samantha Mostyn Independent Non-Executive Director Current, appointed 1 September 2010 Mr Robert Thomas Independent Non-Executive Director Current, appointed 8 September 2006 The Hon. Mark Vaile AO Independent Non-Executive Director Current, appointed 22 September 2008 Mr John Borghetti Managing Director and Chief Executive Officer Current, appointed 8 May 2010 Mr David Baxby Independent Non-Executive Director Current, appointed 30 September 2004 Mr Joshua Bayliss Non-Executive Director Current, appointed 6 April 2011 Mr Goh Choon Phong Non-Executive Director Current, appointed 4 July 2014 Mr Christopher Luxon Non-Executive Director Current, appointed 4 July 2014 Mr Bruno Matheu Non-Executive Director Current, appointed 18 February 2015 Mr James Hogan Non-Executive Director Ceased 18 February 2015 (appointed 4 July 2014) Mr Robert McDonald Alternate Director Current, appointed 1 September 2014 for Mr Christopher Luxon Mr John Patrick (JP) Moorhead Alternative Director Current, appointed 25 August 2014 for Mr Joshua Bayliss Mr Marvin Tan Alternative Director Current, appointed 4 July 2014 for Mr Goh Choon Phong Mr Ulf Huttmeyer Alternative Director Current, appointed 18 February 2015 for Mr Bruno Matheu Mr James Rigney Alternative Director Ceased 18 February 2015 for Mr James Hogan (appointed 4 July 2014) Mr Keith Roberts Alternate Director Ceased 25 August 2014 for Mr Joshua Bayliss (appointed 17 May 2012) 2. Review of operations Net loss after income tax attributable to the owners of $53.1 million for the half-year ended 31 December 2014 represents an improvement in results from a $74.3 million net loss after income tax attributable to owners in the prior corresponding half-year ended 31 December Revenue and income increased 6.0 per cent from $2,242.1 million in the prior corresponding half-year ended 31 December 2013 to $2,377.5 million for the half-year ended 31 December Net operating expenses increased 4.9 per cent from $2,267.2 million in the prior corresponding half-year ended 31 December 2013 to $2,379.1 million for the half-year ended 31 December Lead auditor s independence declaration under section 307C of the Corporations Act 2001 The lead auditor s independence declaration is set out on page 9, and forms part of the Directors report for the half-year ended 31 December Virgin Australia Holdings Limited Interim Financial Report 7

8 Directors report (continued) 4. Rounding off The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the condensed consolidated interim financial statements and Directors report have been rounded off to the nearest one hundred thousand dollars, unless otherwise stated. Signed in accordance with a resolution of the directors: Neil Chatfield Director Sydney 19 February 2015 John Borghetti Director Sydney 19 February 2015 Virgin Australia Holdings Limited Interim Financial Report 8

9 Lead Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 To: The directors of Virgin Australia Holdings Limited I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 31 December 2014 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and (ii) no contraventions of any applicable code of professional conduct in relation to the review. KPMG A W Young Partner Sydney 19 February 2015 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Virgin Australia Holdings Limited Interim Financial Report 9

10 Consolidated statement of profit or loss For the half-year ended 31 December 2014 Note Half-year to 31 December 2014 Restated (1) Half-year to 31 December 2013 Revenue and income Revenue 2, ,224.8 Other income Net foreign exchange gains , ,242.1 Operating expenditure Aircraft operating lease expenses (150.2) (119.8) Airport charges, navigation and station operations (441.1) (401.5) Contract and other maintenance expenses (84.8) (124.0) Commissions and other marketing and reservations expenses (148.0) (153.6) Fuel and oil (614.2) (608.0) Labour and staff related expenses (546.2) (517.0) Other expenses from ordinary activities (235.3) (227.9) Depreciation and amortisation (146.3) (133.9) Ineffective cash flow hedges and non-designated derivatives (losses)/gains (13.0) 18.5 Net operating expenses (2,379.1) (2,267.2) Share of net losses of equity accounted investees (15.8) (19.3) Loss before related income tax benefit and net finance costs (17.4) (44.4) Finance income Finance costs (58.6) (65.2) Net finance costs (44.1) (60.1) Loss before income tax benefit (61.5) (104.5) Income tax benefit Net loss for the period (47.8) (74.3) Attributable to: Owners of the company (53.1) (74.3) Non-controlling interests (47.8) (74.3) Earnings per share for loss attributable to the ordinary equity holders of the Company: Cents Cents Basic earnings per share Diluted earnings per share (1.5) (2.7) (1.5) (2.7) (1) Refer to notes 2(c) and 3(a)(i) The above consolidated statement of profit or loss is to be read in conjunction with the accompanying condensed notes to the consolidated interim financial statements. Virgin Australia Holdings Limited Interim Financial Report 10

11 Consolidated statement of profit or loss and other comprehensive income For the half-year ended 31 December 2014 Note Half-year to 31 December 2014 Restated (1) Half-year to 31 December 2013 Loss for the period (47.8) (74.3) Other comprehensive income Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations (119.6) (56.7) Effective portion of changes in fair value of cash flow hedges (134.4) 22.1 Net change in fair value of cash flow hedges transferred to profit or loss 16.7 (20.0) Income tax benefit/(expense) on other comprehensive income 35.3 (0.6) Other comprehensive loss for the period, net of income tax (202.0) (55.2) Total comprehensive loss (249.8) (129.5) Attributable to: Owners of the company (255.1) (129.5) Non-controlling interests (249.8) (129.5) (1) Refer to notes 2(c) and 3(a)(i) The above consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying condensed notes to the consolidated interim financial statements. Virgin Australia Holdings Limited Interim Financial Report 11

12 Consolidated statement of financial position As at 31 December 2014 Note As at 31 December 2014 Restated (1) As at 30 June 2014 Current assets Cash and cash equivalents 1, Trade and other receivables Inventories Derivative financial instruments Other financial assets Other current assets Assets classified as held for sale Total current assets 1, ,234.9 Non-current assets Trade and other receivables Derivative financial instruments Other financial assets Investments accounted for using the equity method Deferred tax assets Property, plant and equipment 9 2, ,702.4 Intangible assets Other non-current assets Total non-current assets 3, ,444.4 Total assets 5, ,679.3 Current liabilities Trade and other payables Interest-bearing liabilities Derivative financial instruments Provisions Unearned revenue Other current liabilities Current tax liabilities Total current liabilities 2, ,920.6 Non-current liabilities Trade and other payables Interest-bearing liabilities 12 2, ,590.5 Derivative financial instruments Provisions Other non-current liabilities Total non-current liabilities 2, ,710.6 Total liabilities 4, ,631.2 Net assets 1, ,048.1 Equity Share capital 13 1, ,147.3 Reserves Retained losses (195.9) (142.8) Equity attributable to the owners of the Company 1, ,048.1 Non-controlling interests Total equity 1, ,048.1 (1) Refer to note 3(a)(i) The above consolidated statement of financial position is to be read in conjunction with the accompanying condensed notes to the consolidated interim financial statements. Virgin Australia Holdings Limited Interim Financial Report 12

13 Consolidated statement of changes in equity For the half-year ended 31 December 2014 Attributable to owners of the Company Share capital Foreign currency translation reserve Hedging reserve Option time value reserve Share-based payments reserve Noncontrolling interests contribution reserve (3) Retained (losses)/ profits Total Noncontrolling interests Total equity Balance at 1 July , (11.8) (143.5) 1, ,048.1 Impact of early adopted accounting policy (1) (0.7) Restated balance at 1 July , (11.8) (0.7) (142.8) 1, ,048.1 (Loss)/profit for the period (53.1) (53.1) 5.3 (47.8) Other comprehensive income (2) - Foreign currency translation differences - (119.6) (119.6) - (119.6) Effective portion of changes in fair value of cash flow hedges - - (76.2) (17.9) (94.1) - (94.1) Net change in fair value of cash flow hedges transferred to profit or loss Total other comprehensive loss - (119.6) (66.6) (15.8) (202.0) - (202.0) Total comprehensive (loss)/income for the period - (119.6) (66.6) (15.8) - - (53.1) (255.1) 5.3 (249.8) Transactions with owners, recorded directly in equity (2) Sale of interest in Velocity Group Dividends paid (11.8) (11.8) Share-based payment transactions (3.3) Total transactions with owners (3.3) Balance at 31 December ,152.8 (83.0) (78.4) (16.5) (195.9) 1, ,119.1 (1) Refer to notes 2(c) and 3(a)(i) (2) Amounts recognised are disclosed net of income tax (where applicable) (3) The non-controlling interests contribution reserve represents the excess of consideration received over and above the carrying value of net assets attributable to equity instruments when acquired by non-controlling interests The above consolidated statement of changes in equity is to be read in conjunction with the accompanying condensed notes to the consolidated interim financial statements. Virgin Australia Holdings Limited Interim Financial Report 13 For personal use only

14 Consolidated statement of changes in equity (continued) For the half-year ended 31 December 2014 Attributable to owners of the Company Share capital Foreign currency translation reserve Hedging reserve Option time value reserve Share-based payments reserve Noncontrolling interests contribution reserve (3) Retained (losses)/ profits Total Noncontrolling interests Total equity Balance at 1 July , ,040.1 Impact of revision to Skywest fair values - (6.0) (6.0) - (6.0) Impact of changes in accounting policy (1) Impact of early adopted accounting policy (1) (1.1) Restated balance at 1 July , ,101.3 (Loss)/profit for the period (restated) (74.3) (74.3) - (74.3) Other comprehensive income (2) - Foreign currency translation differences - (56.7) (56.7) - (56.7) Effective portion of changes in fair value of cash flow hedges (0.3) Net change in fair value of cash flow hedges transferred to profit or loss - - (14.0) (14.0) - (14.0) Total other comprehensive loss (restated) - (56.7) 1.8 (0.3) (55.2) - (55.2) Total comprehensive (loss)/income for the year (restated) - (56.7) 1.8 (0.3) - - (74.3) (129.5) - (129.5) Transactions with owners, recorded directly in equity (2) - Issue of ordinary shares for cash Share-based payment transactions (0.6) Total transactions with owners (0.6) Restated balance at 31 December ,147.4 (20.0) , ,323.9 (1) Refer to notes 2(c) and 3(a)(i) (2) Amounts recognised are disclosed net of income tax (where applicable). (3) The non-controlling interests contribution reserve represents the excess of consideration received over and above the carrying value of net assets attributable to equity instruments when acquired by non-controlling interests The above consolidated statement of changes in equity is to be read in conjunction with the accompanying condensed notes to the consolidated interim financial statements. Virgin Australia Holdings Limited Interim Financial Report 14 For personal use only

15 Consolidated statement of cash flows For the half-year ended 31 December 2014 Half-year to 31 December 2014 Restated (1) Half-year to 31 December 2013 Cash flows from operating activities Cash receipts from customers 2, ,405.7 Cash paid to suppliers and employees (2,434.0) (2,281.0) Cash generated from operating activities Cash paid for business transformation expenses (35.2) (36.4) Finance costs paid (46.1) (29.0) Finance income received Net cash from operating activities Cash flows from investing activities Acquisition of property, plant and equipment (267.5) (311.7) Proceeds on disposal of property, plant and equipment Acquisition of intangible assets (34.5) (32.5) Acquisition of subsidiary, net of cash acquired Acquisitions of interest in joint venture - (35.0) Advances of loans to joint venture (23.8) (55.8) Proceeds from loans to joint venture Payments for other deposits (25.5) (14.5) Net proceeds from non-controlling interests Proceeds for other deposits Net cash used in investing activities (11.9) (281.8) Cash flows from financing activities Proceeds from borrowings Repayment of borrowings (326.3) (726.6) Payments of transaction costs related to borrowings (16.9) (25.3) Net proceeds from share issue Dividends paid to non-controlling interests (11.8) - Advances of loans from associate Repayments of loans from associate (4.2) (5.0) Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 31 December 1, (1) Refer to notes 2(c) and 3(a)(i) The above consolidated statement of cash flows is to be read in conjunction with the accompanying condensed notes to the consolidated interim financial statements. Virgin Australia Holdings Limited Interim Financial Report 15

16 Condensed notes to the consolidated interim financial statements 1. Reporting entity Virgin Australia Holdings Limited (VAH) (the Company) is a company domiciled in Australia. The address of the Company s registered office and principal place of business is 56 Edmondstone Road, Bowen Hills, Queensland. The condensed consolidated interim financial statements of the Company as at and for the half-year ended 31 December 2014 comprises the Company and its subsidiaries (together referred to as the Group, and individually as Group entities), and the Group s interests in associates and joint ventures. The Group is a for-profit entity and is primarily involved in the airline industry, both domestic and international. The consolidated annual financial statements of the Group as at and for the year ended 30 June 2014 are available upon request from the Company s registered office, or at 2. Basis of preparation (a) Statement of compliance The condensed consolidated interim financial statements are general purpose financial statements which have been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated annual financial statements of the Group as at and for the year ended 30 June The condensed consolidated interim financial statements were approved by the Board of Directors on 19 February The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with the Class Order, amounts in the condensed consolidated interim financial statements have been rounded off to the nearest one hundred thousand dollars, unless otherwise stated. The Group s current liabilities exceed its current assets for the half-year ended 31 December The condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the return to profitable trading and continuing positive cash flows from operations. There has been an increase in cash and cash equivalents primarily due to debt funding raised during the half-year and the sale of a non-controlling interest in the Velocity Frequent Flyer Group to Affinity Equity Partners. The Group has a cash and cash equivalents balance at 31 December 2014 of $1,099.7 million (30 June 2014: $783.8 million) and has an unrestricted cash balance at 31 December 2014 of $838.8 million (30 June 2014: $541.0 million). The condensed consolidated interim financial statements has been prepared on the basis of historical costs, except where assets and liabilities are stated at fair value in accordance with relevant accounting policies. (b) Use of estimates and judgements The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty are the same as those applied to the annual consolidated financial statements as at and for the year ended 30 June Changes to and new significant judgements and changes in estimates recognised in the half-year ended 31 December 2014 and the comparative half-year ended 31 December 2013 are detailed as follows: (i) Estimated useful lives of intangible assets There were no changes in estimates relating to useful lives of intangible assets during the half-year ended 31 December During the comparative half-year ended 31 December 2013 the useful lives of certain software assets changed based on the intended use of these items resulting in a $2.8 million decrease to depreciation expense for the half-year ended 31 December Virgin Australia Holdings Limited Interim Financial Report 16

17 Condensed notes to the consolidated interim financial statements (continued) 2. Basis of preparation (continued) (c) Restatement of comparative financial information During the year ended 30 June 2014, the Group has re-assessed its accounting for major maintenance of operating leased engines, airframes, landing gear, auxiliary power units and end of lease obligations to return the aircraft in the condition specified by the lessor, as disclosed in the annual consolidated financial statements as at and for the year ended 30 June The accounting policy change has been retrospectively applied to the comparative half-year ended 31 December The adjustments made to reflect the implementation of the change in accounting policy are as follows: Consolidated statement of profit or loss and other comprehensive income Half-year to 31 December 2013 Decrease in contract and other maintenance expenses (21.4) Increase in depreciation and amortisation 5.6 Increase in finance costs 2.8 Decrease in income tax benefit 3.9 Increase/(decrease) in net loss for the year attributable to the owners of Virgin Australia Holdings Limited (9.1) Increase/(decrease) in total comprehensive loss attributable to the owners of Virgin Australia Holdings Limited (9.1) The impact of the change in accounting policy on retained (losses)/profits at 1 July 2013 was an increase in retained profits of $67.2 million. 3. Significant accounting policies Except as described below, the accounting policies applied by the Group in the consolidated interim financial statements are the same as those applied by the Group in its annual consolidated financial statements as at and for the year ended 30 June The following changes in accounting policies are also expected to be reflected in the Group s annual consolidated financial statements as at and for the year ended 30 June (a) Impacts of new accounting standards and interpretations adopted from 1 July 2014 (i) Financial instruments From 1 July 2014 the Group early adopted AASB 9 Financial Instruments (2013, 2010 and 2009) (AASB 9). AASB 9 introduces a new hedge accounting model to simplify hedge accounting requirements. AASB 9 introduces more principle-based requirements allowing more risk management activities to qualify for hedge accounting and therefore match the timing of the profit or loss on the hedge instruments with the profit or loss on the underlying exposures. The Group has achieved this through component hedges (jet fuel component) and deferral of time value on option-based contracts to the reserve relating to time value of options until maturity of the contract. Component hedges and option-based contracts are both commonly used in managing fuel price risk across the aviation industry. AASB 9 also improves and simplifies the approach for the classification and measurement of financial assets and liabilities. The impact of early adopting AASB 9 had no material impact on classification and measurement. The early adoption of AASB 9 has been applied retrospectively as permitted by the transitional provisions of AASB 9. Comparative amounts disclosed for the 2014 financial year and half-year ended 31 December 2013 have been restated where appropriate. The table below summarises the adjustments made to reflect the early adoption of this accounting standard. Option time value reserve Retained (losses)/profits Reported (1) Adjustment Restated Reported (1) Adjustment Restated Opening 1 July (1.1) Movement in period - (0.3) (0.3) (74.6) 0.3 (74.3) Closing 31 December (0.8) Opening 1 January (0.8) Movement in period - (1.5) (1.5) (281.0) 1.5 (279.5) Closing 30 June 2014 / Opening 1 July (0.7) (0.7) (143.5) 0.7 (142.8) (1) Reported numbers are restated for the re-assessment of accounting for major maintenance of operating leased engines, airframes, landing gear, auxiliary power units and end of lease obligations to return the aircraft in the condition specified by the lessor, as reported in the annual consolidated financial statements as at and for the year ended 30 June Refer note 2(c). Virgin Australia Holdings Limited Interim Financial Report 17

18 Condensed notes to the consolidated interim financial statements (continued) 3. Significant accounting policies (continued) (b) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree s identifiable net assets at the acquisition date. Changes in the Group s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. 4. Seasonality As is normal in the airline industry, performance and capacity are seasonal throughout a 12 month period. Therefore, the first half-year period may not be representative of the second half-year period of any given year. 5. Financial risk management The Group s financial risk management objectives and policies are consistent with that disclosed in the annual consolidated financial statements as at and for the year ended 30 June Operating segments The following summary describes the operations in each of the Group s reportable segments: Domestic operations: Operations using the fleet of Boeing B737 aircraft, Airbus A320 and A330 aircraft, ATR aircraft, Embraer E170 and E190 aircraft, and Fokker F50 and F100 aircraft. This comprises Australian domestic flying, including regional network operations. The Group s Velocity Frequent Flyer program is also reported within domestic operations. International operations: Operations using a mix of Boeing B777 aircraft and Boeing B737 aircraft. This comprises Trans-Pacific, Abu Dhabi, Trans-Tasman, Pacific Island and South East Asia flying. Information regarding the results of each operating segment is detailed in the table which follows. Performance is measured based on EBIT (earnings before accelerated depreciation due to changes in useful life of assets; net gain/(loss) on disposal of assets; business and capital restructure and transaction costs; share of net (losses)/profits of equity accounted investees; unrealised ineffectiveness on cash flow hedges and non-designated derivatives; time value movement on cash flow hedges; net finance costs and income tax benefit/(expense)) as included in the internal management reports that are reviewed by the chief operating decision maker. EBIT, as defined by the Group, is used to measure performance, as management believes such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within the airline industry. During the period ended 31 December 2014, changed management practices brought about by the early adoption of AASB 9 Financial Instruments (2013, 2010 and 2009) have resulted in time value movement on cash flow hedges and unrealised ineffectiveness on cash flow hedges and non-designated derivatives being excluded from segment EBIT. Inter-segment pricing is determined on an arms-length basis or a cost plus margin basis, depending on the nature of the revenue or expense and the financial impact on the segment of recognising the revenue or expense. Virgin Australia Holdings Limited Interim Financial Report 18

19 Condensed notes to the consolidated interim financial statements (continued) 6. Operating segments (continued) 2014 Domestic International Eliminations Consolidated Revenue and income External revenue and other income 1, ,377.5 Inter-segment revenues (51.1) - Segment revenue and income 1, (51.1) 2,377.5 Segment EBITDAR Aircraft rentals (127.1) (16.8) - (143.9) Segment EBITDA Depreciation and amortisation (86.4) (59.9) - (146.3) Segment EBIT (49.5) Net loss on disposal of assets (7.3) Business and capital restructure and transaction costs (35.6) Share of net losses of equity accounted investees: Tiger (15.8) Virgin Samoa - Time value movement on cash flow hedges (1)(2) (3.2) Unrealised ineffectiveness on cash flow hedges and non-designated derivatives (1) (9.8) (17.4) Net finance costs: Net finance costs excluding capital restructure costs (44.1) Loss before related income tax benefit (61.5) Income tax benefit 13.7 Loss for the period (47.8) (1) The addition of these two items reconcile to total ineffective cash flow hedges and non-designated derivatives gains/(losses) included within operating expenditure as disclosed in the consolidated statement of profit or loss. (2) Time value represents the risk premium payable on a purchased option over and above its current exercise value (intrinsic value) based on the probability it will increase in value before expiry. Virgin Australia Holdings Limited Interim Financial Report 19

20 Condensed notes to the consolidated interim financial statements (continued) 6. Operating segments (continued) 2013 (restated) Domestic International Eliminations Consolidated Revenue and income External revenue and other income 1, ,242.1 Inter-segment revenues (41.7) - Segment revenue and income 1, (41.7) 2,242.1 Segment EBITDAR Aircraft rentals (121.8) (16.2) - (138.0) Segment EBITDA Depreciation and amortisation (1) (63.1) (70.7) - (133.8) Segment EBIT 25.9 (31.9) - (6.0) Accelerated depreciation due to changes in useful life of assets (1) and net loss on disposal of assets (0.9) Business and capital restructure and transaction costs (36.7) Share of net losses of equity accounted investees: Tiger (18.4) Virgin Samoa (0.9) Time value movement on cash flow hedges (2)(3) (15.3) Unrealised ineffectiveness on cash flow hedges and non-designated derivatives (2) 33.8 (44.4) Net finance costs: Net finance costs excluding capital restructure costs (39.4) Interest rate swap terminations associated with capital restructure (8.4) Accelerated amortisation resulting from capital restructure (12.3) Loss before related income tax benefit (104.5) Income tax benefit 30.2 Loss for the period (74.3) (1) Accelerated depreciation due to the changes in useful lives of assets for the half-year ended 31 December 2013 was $0.1 million. The addition of accelerated depreciation and depreciation and amortisation above reconciles to total depreciation and amortisation expense included within operating expenditure as disclosed in the consolidated statement of profit or loss. (2) The addition of these two items reconcile to total ineffective cash flow hedges and non-designated derivatives gains/(losses) included within operating expenditure as disclosed in the consolidated statement of profit or loss. (3) Time value represents the risk premium payable on a purchased option over and above its current exercise value (intrinsic value) based on the probability it will increase in value before expiry. Virgin Australia Holdings Limited Interim Financial Report 20

21 Condensed notes to the consolidated interim financial statements (continued) 7. Acquisition of subsidiary On 16 October 2014, the Group entered into a Share Purchase Agreement (SPA) to acquire the remaining 40% of Tiger Airways Australia Pty Limited (Tiger), from Tiger Airways Holdings Limited (TAHL). The Group had acquired an initial 60% shareholding in Tiger on 8 July The provisions of the Shareholder Agreement (SA) between the parties indicated the Group had joint control of Tiger from 8 July 2013, and had equity accounted Tiger s results since that date, recognising 60% of Tiger s losses in the Group s consolidated statement of profit or loss. From 17 October 2014, the Group has consolidated 100% of Tiger as a subsidiary, as it gained control on this date in accordance with AASB 10 Consolidated Financial Statements. The acquisition will enable the Group to become an effective and sustainable competitor in Australia s budget travel market. (a) Consideration Cash Fair value of 60% previous equity accounted holding in Tiger - Total consideration - Settlement of pre-existing relationships 14.3 Total consideration and settlement of pre existing relationships 14.3 (i) Cash transferred Under the terms of the SPA, the Group transferred $1 to TAHL to acquire the remaining 40% interest. (ii) Fair value of 60% previous equity accounted holding in Tiger As at the acquisition date of 16 October 2014, the previously held equity interest was fair valued and formed part of the consideration transferred. The carrying value of the previously held equity interest was nil. The fair value has also been provisionally estimated as nil. (iii) Settlement of pre-existing relationships Under the terms of the SPA, the Tiger shareholder loans with the Group and TAHL were forgiven. The Group is required to fair value any pre-existing relationships that are settled as part of the business combination. The Group has provisionally assessed the fair value of the shareholder loan to be $14.3 million compared to a carrying value of $11.0 million. A gain of $3.3 million has been recognised in other expenses from ordinary activities in the Group s consolidated statement of profit or loss. - Virgin Australia Holdings Limited Interim Financial Report 21

22 Condensed notes to the consolidated interim financial statements (continued) 7. Acquisition of subsidiary (continued) (b) Identifiable assets acquired and liabilities assumed The following table summarises the assets acquired and liabilities assumed at the acquisition date. These amounts are based on a provisional assessment of their fair value while the Group completes valuations. If new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date identifies adjustments to these amounts then the acquisition accounting will be revised. Current assets Cash and cash equivalents 3.1 Trade and other receivables 8.0 Inventories 0.6 Total current assets 11.7 Non-current assets Trade and other receivables 15.1 Property, plant and equipment 58.8 Intangible assets 0.1 Total non-current assets 74.0 Total assets 85.7 Current liabilities Trade and other payables (69.0) Unearned revenue (44.6) Derivative financial instruments (6.4) Total current liabilities (120.0) Non-current liabilities Interest-bearing liabilities (57.5) Provisions (5.8) Total non-current liabilities (63.3) Total liabilities (183.3) Net liabilities (97.6) Virgin Australia Holdings Limited Interim Financial Report 22

23 Condensed notes to the consolidated interim financial statements (continued) 7. Acquisition of subsidiary (continued) (c) Goodwill Goodwill arising from the acquisition has been recognised as follows: Total consideration Settlement of pre-existing relationships 14.3 Fair value of identifiable net liabilities assumed 97.6 Goodwill Goodwill arose in the acquisition of Tiger as the cost of the combination included a control premium. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth and the assembled workforce of Tiger. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. The goodwill arising on this acquisition is not expected to be deductible for tax purposes. (d) Net cash inflow on acquisition Consideration paid in cash - Cash and cash equivalent balances acquired with the subsidiary (e) Impact on the financial results of the Group Included in the Group s pre-tax loss for the half-year ended 31 December 2014 is $1.5 million profit generated by Tiger after control was obtained. Revenue for the half-year ended 31 December 2014 includes $75.5 million in respect of Tiger. Had this business combination been effected at 1 July 2014, the revenue of the Group from continuing operations would have been $130.0 million higher and the consolidated pre-tax loss for the half-year ended 31 December 2014 from continuing operations would have been $10.5 million higher. The directors of the Company consider these pro-forma numbers to represent an approximate measure of the performance of the combined group on a half-year basis and to provide a reference point for comparison in future periods. In determining the pro-forma revenue and loss of the Group had Tiger been acquired at the beginning of the current half-year period, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July Virgin Australia Holdings Limited Interim Financial Report 23

24 Condensed notes to the consolidated interim financial statements (continued) 8. Non-controlling interests On 22 October 2014, the Group announced the execution of documents for the sale of a 35% minority interest in the Velocity Frequent Flyer Group (VFF Group) to Affinity Equity Partners (Affinity) for total consideration of $336 million, by way of VFF Group issuing convertible notes to Affinity. The VFF Group consists of the following entities, all with a principal place of business of Australia. The proportion of voting rights held by non-controlling interests is 35%: - Velocity Frequent Flyer Holdco Pty Ltd - Velocity Frequent Flyer 1 Pty Ltd - Velocity Frequent Flyer 2 Pty Ltd - Velocity Frequent Flyer Pty Ltd - Velocity Rewards Pty Ltd (as Trustee for the Loyalty Trust) For the half-year ended 31 December 2014 the profit after tax and total comprehensive income allocated to non-controlling interests was $5.3 million. The non-controlling interest s share of revenue was $16 million before intercompany eliminations. The accumulated noncontrolling interest s share of equity at 31 December 2014 is $6.8 million. A dividend of $11.8 million was paid to non-controlling interests on 23 December There is no comparative information for 30 June 2014, and 31 December 2013 as the VFF Group was incorporated during the half-year ended 31 December 2014 and a 35% interest was sold to Affinity. 9. Property, plant and equipment During the half-year ended 31 December 2014, the Group acquired assets with a cost of $243.4 million (12 months to 30 June 2014: $367.4 million) primarily comprising aircraft and aeronautic related assets. Assets with a carrying amount of $7.5 million were disposed of during the half-year ended 31 December 2014 (12 months to 30 June 2014: $365.6 million). Depreciation for the half-year ended 31 December 2014 was $130.9 million (6 months to 31 December 2013: $120.7 million). The impact of foreign exchange revaluations on the Group s property, plant and equipment for the half-year ended 31 December 2014 was an increase of $90.6 million (12 months to 30 June 2014: a decrease of $8.6 million). Transfers into property, plant and equipment for the half-year ended 31 December 2014 were $4.8 million (12 months to 30 June 2014: transfers out of $66.8 million). The $61.1 million of assets held for sale as at 31 December 2014 (30 June 2014: $61.1 million) is comprised of the same aircraft that were held for sale as at 30 June Property plant and equipment of $58.8 million was acquired through the consolidation of Tiger during the period. Refer to note 7. Virgin Australia Holdings Limited Interim Financial Report 24

25 Condensed notes to the consolidated interim financial statements (continued) 10. Intangible assets During the half-year ended 31 December 2014, the Group acquired assets with a cost of $34.9 million (12 months to 30 June 2014: $73.7 million) consisting predominantly of capitalised software of $23.0 million (12 months to 30 June 2014: $54.0 million), and capitalised contract intangibles relating to airport development project costs from which the Group will obtain future benefits of $11.9 million (12 months to 30 June 2014: $19.7 million). Amortisation for the half-year ended 31 December 2014 was $15.4 million (6 months to 31 December 2013: $13.2 million). Transfers out of intangible assets for the half-year ended 31 December 2014 were $4.8 million (12 months to 30 June 2014: no transfers). Goodwill of $111.9 million was recognised through the consolidation of Tiger during the period. Refer to note Dividends paid No dividends were declared and paid by the Company to ordinary equity holders during the half-year ended 31 December 2014 (31 December 2013: nil). No dividends have been declared by the Company subsequent to 31 December Refer to note 8 for detail on dividends paid to non-controlling interests. 12. Interest-bearing liabilities As at 31 December 2014 As at 30 June 2014 Current Loans (aeronautic finance facilities) secured (1) Loans (bank) secured (1) Loans (bank) unsecured (1) Loan from related party unsecured Loan from associate unsecured Finance lease liabilities Non-current Loans (aeronautic finance facilities) secured (1) 1, ,562.5 Loans unsecured (1) Finance lease liabilities , ,590.5 (1) These amounts are net of deferred borrowing costs in line with the Group s accounting policy. The nature of interest-bearing liabilities are consistent with those disclosed at 30 June 2014 apart from the changes outlined below: (a) Loans unsecured During the half-year ended 31 December 2014 the Group issued USD 300 million of bonds to investors in the US Bond market. The bonds have a five year term, maturing on 15 November The interest rate is 8.5% per annum with interest payments due semi-annually. The bond issue has provided the Group with additional US dollar liquidity coverage and has diversified the Group s funding mix and ultimately reduced liquidity risk. (b) Loans (aeronautic finance facilities) - secured During the half-year ended 31 December 2014, the Group financed the purchase of aeronautical assets. The facilities are secured over assets purchased. (c) Loan from associate - unsecured Refer to note 18(b). Virgin Australia Holdings Limited Interim Financial Report 25

26 Condensed notes to the consolidated interim financial statements (continued) 12. Interest-bearing liabilities (continued) (d) Loan from related party - unsecured A related party liability owing to Tiger Airways Holdings Limited was assumed as part of the acquisition and subsequent consolidation of Tiger. (e) Total external borrowings Proceeds from external borrowings for the half-year ended 31 December 2014 totalled $593.2 million (12 months to 30 June 2014: $1,041.4 million), with repayment of borrowings totalling $326.3 million (12 months to 30 June 2014: $975.8 million). (f) Terms and debt repayment schedule Nominal interest rate Face value Carrying amount Currency Year of maturity (1) 31 December June December June December June 2014 Secured loans Aircraft AUD % % 3.21% Aircraft USD % % 2.41% % 1, , , ,515.5 Other AUD % 4.49% Unsecured loans Bond issue USD % Other bank loans AUD % 4.99% Unsecured related party loan AUD % Loan from associate NZD % Finance leases AUD % % 8.51% % , , , ,950.7 (1) Based on the calendar year. 13. Share capital The number of ordinary shares issued at 31 December 2014 was 3,517.7 million (30 June 2014: 3,503.3 million). The increase in share capital during the period relates to the issue of shares under various option plans. Refer to note Capital commitments Commitments payable for the acquisition of property, plant and equipment, including aircraft and aeronautic related assets, contracted for at the reporting date but not recognised as liabilities, total $3,819.5 million as at 31 December 2014 (30 June 2014: $3,383.7 million). 15. Financial instruments The fair value of financial assets and liabilities is included at the amount which the Group would expect to receive upon selling an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of cash and cash equivalents, trade and other receivables, other financial assets, trade and other payables and other financial liabilities approximate their carrying amounts largely due to the short term nature of these instruments. The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments. Virgin Australia Holdings Limited Interim Financial Report 26

27 Condensed notes to the consolidated interim financial statements (continued) 15. Financial instruments (continued) Forward currency and over-the-counter fuel derivatives The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. These are measured at the market value of instruments with similar terms and conditions at the reporting date (Level 2) using forward pricing models. Changes in counterparty and own credit risk are deemed to be insignificant. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques, such as estimated discounted cash flows. The fair value of forward exchange contracts and fuel contracts is determined using forward exchange market rates and fuel prices at the reporting date. Loans and finance leases The fair value of the Group s interest-bearing borrowings and loans, including leases, are determined by discounting the remaining contractual cash flows at the relevant credit adjusted market interest rates as at 31 December Net fair value The fair values of financial assets and liabilities, including their levels in the fair value hierarchy and the carrying amounts shown in the consolidated statement of financial position, are as follows: 31-Dec-14 Carrying amount Fair value Quoted market price (Level 1) Observable inputs (Level 2) Financial assets carried at fair value Fuel hedging contracts cash flow hedges Forward foreign exchange contracts - cash flow hedges Financial assets carried at amortised cost Cash and cash equivalents 1, , Trade and other receivables Other financial assets , , Financial liabilities carried at fair value Fuel hedging contracts cash flow hedges Forward exchange contracts cash flow hedges Financial liabilities carried at amortised cost Trade and other payables Loans (aeronautic finance facilities) 2, , ,268.5 Unsecured bonds Finance lease liabilities Other interest-bearing liabilities , , ,668.0 Virgin Australia Holdings Limited Interim Financial Report 27